Drivers of competition among healthcare services

To be attractive to a venture capital investor, a healthcare service company should fulfil a compelling need with a novel service model (i.e. meeting an existing market need in a new way). It needs to have convincing strategies for customer adoption and sustainable business models that offer significant value to physicians, hospitals, patients, suppliers, or payers.

We have been seeing quite a lot of healthcare services in the last months, and after long discussions with all entrepreneurs, it came to my mind that the three issues that usually draw all the attention are demand, operative margin and the capital intensiveness of the investment at hand.

The more “proved” demand is, the better. Some healthcare services are willing to bring a new service to the marketplace, and sometimes demand is highly controversial, particularly in Europe, where citizens are used to have healthcare for free (obviously, this is not true, we don’t have our healthcare for free, we pay taxes for it, but somewhat we give a large amount of our money each year to those who manage our healthcare, to governments, to insurance companies, hospitals, etc. without holding them accountable for efficiency or quality). Any pilot test to prove demand right is highly appreciated by investors.

Operating margin is a very important issue as well. It is important to see if the business model wants to make a lot of money from a few users, or a few money from a lot of users. As demand is uncertain, a high operating margin model is usually pursued.

Finally, the capital intensiveness of the project is critical, especially if the money needs to be allocated to marketing or brand generation. In case of failure, this "marketing" money has no salvage value, it cannot be recovered easily (it is not invested in something tangible, that could be sold by “pieces”) so it usually scares investors away.