Guest Commentary: Fred Wilson’s comments about Seattle being a “third-tier” startup city stirred up much debate. As the CEO of Seattle-based health games startup Litesprite, I view this topic from a healthcare point of view. This region has great potential to be a digital health leader. But I agree with Fred Wilson’s assessment that Seattle is a place where entrepreneurs “can access the talent and capital they need to be successful….but it is a bit harder to do both.”
This is a nuanced and complex topic, so let me start by sharing some broad themes. My takeaway from the debate and from my own startup experience is that a region must have a complete ecosystem to have a robust startup environment. This includes: talent that is interested and actively solving problems in a particular sector; private investors willing to support early-stage companies; government support; involvement of larger institutions; and institutional investors who can help companies scale when they are ready. The broader tech industry in Seattle has those pieces in place.
However, in Seattle, the digital health/health IT sector is a different story, one that is still being written, and it illustrates how regions become focal points within industries. Washington has traditionally had a strong presence in medical devices and biotech. In the newer area of digital health and health IT, the ecosystem is less evolved than I see in other parts of the country — we are nascent and still fragmented.
So let’s do a breakdown of each of the key components for digital health and health IT.
Access to Talent. Life Science Washington reports that in 2016 there are 126 digital health/health IT companies based in the state. Since forming in May 2013, the Seattle Health Innovators has grown to a 1265 member organization. 326 people attended the 4 events I organized for Seattle Startup Week’s inaugural Healthcare track. What I’ve anecdotally seen is peoples’ interests are mainly in the digital health/health IT space. This interest is coming from people who are new to the industry and they are actively trying to ramp-up their knowledge by attending the regular events sponsored by Life Science Washington, Cambia Grove, or Seattle Health Innovators.
Private Investors. While my fellow entrepreneurs and I, including those with digital health startups in Silicon Valley, have received investment from local angels, we have received warmer reception in “tier two” and other regions that wouldn’t merit a ranking from Fred Wilson. In Seattle, the lack of investors’ knowledge in the digital health space is a significant hurdle to overcome. Oddly enough, we find many Seattle investors intimidated at the complexities of healthcare. Many investors, including people who run key accelerators, make it clear they will not invest in healthcare. And when there is cursory interest, we don’t see active efforts from investors to educate themselves on the current issues and emerging business models.
What I have seen in some cases is inappropriate pattern-matching and applications of metrics without thoughtful consideration or critical thinking about the implications of the numbers. For example, if a behavioral health app is delivering treatment, is it a good or bad thing if a consumer is using it five times each day? Within that context, should they be seen by a clinician? What would be an appropriate usage pattern? We also see an indiscriminate desire for large numbers of users. Large numbers may certainly help, but health IT start-ups have also driven adoption with providers or employers with a smaller, targeted and vetted user base. When investors see a startup with traction that defies their assumptions and expectations, the responses often turn into, “I don’t know this space.”
Lastly, even private investors who are knowledgeable in digital health have indicated they will no longer invest in Seattle healthcare companies because they are not seeing the acceleration and results that they see in other regions. Prior to opting out, some of these investors even attempted to create a workshop for Seattle investors on healthcare business models, and found too little interest from leading angel groups.
Government support. In healthcare this is critical. At the state level, health startups are struggling to get support from the Governor’s office. Even though we had a warm introduction directly from the Governor’s office, my own startup received a hostile response from state-affiliated organizations whose responsibility includes health innovations. Cambia Grove hosted an event with Gov. Inslee last year to discuss this very issue and many startups discussed the sad reality of having to leave the region due to lack of government financial support filling gaps left by private investors. In contrast, New York state launched NYDHA, a health accelerator, four years ago to spur health innovation. It provided seed funding of $250K, and anchor partners included large health systems within the state. One of the accelerator’s two exits was Avado, a Seattle-based company.
Federally, the regulatory environment is also significantly different than traditional medical device or biotech, and guidance is still being developed. Consequently, there is confusion even among experienced professionals who have worked or invested in the industry. For example, while visiting Washington DC last week, I met with FDA regulators and was very surprised to learn that our solution would probably not require FDA regulations (Note: this is not an official ruling but preliminary guidance) even though we are developing predictive models that would be used by clinicians.
Large Institutions. Seattle health organizations that are anchor points don’t actively engage with start-ups. They are still trying to understand and develop an engagement model. In the tech sector this BigCo-startup connection is already well-developed. Companies like Amazon and Microsoft provide support to help early-stage companies launch and use their technologies to solve industry problems. This mindset does not exist in healthcare. The large provider systems and payers in the region keep most startups at arm’s length. This is problematic because only when you can have a meaningful dialogue to understand health problems can startups begin to build the very solutions these organizations are asking for. Cambia Health Solutions’ Cambia Grove is attempting to make that culture shift and change the ecosystem with their organization, for example by sponsoring events such as the Reverse Pitch. Local startups, including mine, have engaged with Providence’s venture arm, and those conversations indicate they are interested in later-stage firms.
Institutional Investors. From my vantage point, it seems as though Seattle VC firms are still trying to come to grips with the new digital health/health IT sector. Partners in one well-known VC have split opinions between making investments in digital health, and they regularly decline opportunities to make such investments when they arise. I see other firms that assign individuals, good people, whose backgrounds are not only incongruent to addressing healthcare, they are inactive in the healthcare conversation locally and nationally. Cascadia Capital is one of the few investment firms that has a subject matter expert, Dave Chase, at the partner level.
If fragmentation and insularity continue within the different players who are necessary for a robust ecosystem, Seattle will become a footnote in this now not-so-new frontier.
Swatee Surve is Founder & CEO of Litesprite, a leader who has developed and launched disruptive technology-based healthcare businesses for Microsoft, Nike, T-Mobile, Premera Blue Cross and Eastman Kodak. Swatee has an MBA from the University of Chicago, an MSME and Biomechanics from Pennsylvania State, and a BS in Bioengineering from the University of Illinois at Chicago.