Accelerators have been nurturing young companies since startups became as hip as garage bands. (This was 2005ish… about the same time I was in my garage tuning my guitar.) Founders consume the wisdom of elders in a sleepless boot camp designed to spin up incredible value quickly. For the startup, the ticket to ride is somewhere around 6 percent of their seedling company in exchange for $20K and the opportunity to immerse themselves in the three-month program, usually concluding with a rockstar-like demo day event.
In healthcare alone, we have nearly 90 programs that are beginning to evolve into unique shapes and sizes. In the last year, my company has completed two accelerators and will pitch in our third on Thursday. Most companies don’t do multiple accelerators. That doesn’t work in the traditional YC/TechStars model. It’s just too much equity and repetition for a startup to bear. However, in healthcare, the evolving accelerator model better accommodates the unique landscape we must start our companies in. This has made it advantageous for startups to tour Americas greatest programs.
Why the models are changing.
Healthcare is plagued with a wicked combination: endless opportunities to improve efficiency and seemingly endless sales cycles. It’s easy to identify problems worth solving and even the technology to solve it. It’s not easy to get that new tech into the hands of the people who need it. This is a recipe for fragmented and repetitive entrepreneurial efforts as getting to scale is more than a three-month spring board—enterprise sales cycles are 12-18 months.
We need more time.
We’re seeing health tech accelerators shift to accommodate the sluggish path to market. Many are moving to much longer programs. DreamIt Health moved to four months, Rock Health dropped the end date all together, and new entrant Texas Medical Center Accelerator (TMC|X) brought its inaugural class through a six-month Tex-Mex fiesta.
Serve the other sides of the market.
Models are shifting from equity to innovation. That is, the old accelerator model focused on serving the startup and therefore earned equity in that company. New models are shifting to serve the health systems seeking innovative solutions to their problems, almost like an outsourced innovation group. Some are limping into this model like Rock Health, DreamIt Health, each taking investment from Kaiser Permanente and Johns Hopkins respectively. Other programs have shifted entirely and no longer require equity from the startup. (TMC|X and Healthbox’s new studio model, for example.) Then there are groups like AVIA that find startup solutions for their member health systems.
Nurture deal flow, not the portfolio.
From the accelerator’s point of view, a lot of companies look really good during the interview process: hot team, big problem, great tech, heck maybe even a pilot. But it’s hard to tell which venture will make it beyond this and cross the chasm to scalability. As programs shift away from up-front investment and equity, they begin to serve the purpose of an extended diligence process for their partner venture funds. The recently announced Cedars-Sinai and TechStars partner program likely fits the bill with their behind-the-scenes venture fund, Summation Health Ventures.
Our Experience in three programs.
In January, we moved to Baltimore to work with DreamIt Health. Our primary goal was to buddy up with their program partner, Johns Hopkins, over the four months we would be there. As you might expect, this was our first lesson in selling to health systems. Although ten months later we still haven’t closed a deal there, the programs conclusion brought us into one-on-one meetings with reputable healthcare VCs across the country. We eventually closed our series A with two of these introductions. (See DreamIt demo day pitch here.)
In March, we split our founders to simultaneously take part in TMC|X. Again, with the focus on growing relationships with the more than 27 partner health systems that program boasts. Their approach was wildly different in that they primarily organized opportunities for companies in the cohort to rub elbows with health system leadership. They’d throw events in their warehouse co-working space, have us pitch, and make intros. What more could we ask for? Over the six months we grew close to many of the health systems and have launched into the sales cycle gauntlet. We were given a fair chance to engage with the HUGE healthcare ecosystem in Houston. Most notably, we ended up partnering with Gauss Surgical, another startup in the program to help them integrate with (ironically) a health system in New Jersey. (See TMCx demo day pitch here.)
And just last month we started our journey with Healthbox’s Studio program in Salt Lake City. They partner with the regional powerhouse, Intermountain Healthcare, for the condensed program. Startups were to make four, two-day trips to SLC to participate in discussions and meet with their partners on the ground. Over the last three trips we’ve pitch to many stakeholders and have met one on one with many more. Thursday will mark the end of the program and we’ll leave with a deep orientation on how Intermountain works and the seeds of what could be a great relationship.
Can accelerators still add value to startups even as their incentives shift to serve health systems and venture funds? Yes, I believe they can. In healthcare, they sit in the middle of a three sided network: startups (supply), health systems (demand), and venture funds (capital). The accelerator is the lubrication between these groups and, luckily for us startups, have found ways to shift their business models to get paid by the latter parties with more stable footing. Of course this means that these accelerators no longer have a direct incentive in their graduate companies doing well. It’s on the VC’s and health systems to keep watch and determine if their accelerator investment is actually churning out products and services worth using.
Originally posted in MedCity News.