INSUBCONTINENT EXCLUSIVE:
Justin Barad, MD is the co-founder and CEO of Osso VR, a clinically validated and award-winning surgical training platform
Barad is also an orthopaedic surgeon with a bioengineering degree from UC Berkeley, and an MD from UCLA
Digital health startups seem to be struggling to the point of failure
The model might work in the general technology startup space, but it rarely goes well in the complex world of healthcare
Paul Yock, a cardiologist and founder of the Byers Center for Biodesign at Stanford University, built his brainchild program on one
philosophy to help healthcare startups: need-based innovation.Need-based innovation is a process in which problems are identified and sorted
based on impact and opportunity
Once the top problem has been selected, solutions and commercialization are approached.While I completely agree with need-based innovation,
We also must tackle changing the ecosystem that healthcare startups need to navigate
As a physician-innovator, I have experienced how institutional policies, hierarchical and administrator-driven systems and pilot program
dynamics are creating a stunted ecosystem that is not reaching its full potential.When approaching any stakeholder a health startup usually
The entrepreneur is faced with a time-consuming and costly disadvantage that frequently forces them to enter deals that hurt them
The deals also counter-intuitively hurt the stakeholder that they are bringing on board because the technologies and companies on which they
are counting are set up to fail
startups can deliver.Challenge 1: Institutional policies and hierarchical systems stunt innovationMany healthcare startups are born during a
The institution promises to foster the innovation and make the nuances of the legal landscape easier
However, institutional innovation policies are not optimized to foster innovation, but rather to maximize ownership and financial returns
valuable and relevant than they once were
If any IP is filed, the institution will claim ownership and will consider licensing it to the inventor for a royalty agreement
Sometimes, if the institution does not believe in the ability of the inventor to carry the IP forward to commercialization, they will even
cut them out entirely from the agreement.An additional approach that is becoming more common within innovation policies is an equity stake
in any companies started by an institutional employee, regardless of the existence of IP or whether the institution was interested in it
All of the above scenarios obviously take more from the healthcare startup than they give before an innovator even has time to
stems from stakeholders confusing medical technology with biotechnology (aka pharma)
The innovation pathway within biotech is very well-defined, with established business models, established precedent and understandable risk
It is quite common for drug discovery to start in the academic setting
Investors, boards and executive teams are accustomed to this model and can plan accordingly
Licensing patents and collecting a royalty on biotech sales is a market norm.When it comes to early-stage technology companies, their
challenges and early development are drastically different
The two critical resources an early-stage company has are cash and time
The goal is to unlock additional capital with product-market fit, and these companies need maximum flexibility to be able to move quickly to
Unfortunately, investors see the healthcare space as complex and high risk, which is true
So these startups face fundraising challenges for the space they are in, as well as unnecessary additional hurdles from the home
institutions, increasing the likelihood of scaring away already skittish investors.Challenge 3: Pilots are set up to hurt more than
helpStartups are often completely dependent on partnerships or deals with larger healthcare organizations in order to grow and survive
These deals often start with a pilot
Unfortunately, the dynamic between giant healthcare institutions and tiny idealistic startups for pilots is not actually set up to be
mutually beneficial.In this scenario, healthcare systems have nothing to lose, orders of magnitude more resources and seemingly infinite
This leads to a spiral of events that frequently ends in sending startups into a trajectory toward failure (aka death by pilots).
We need
innovators and administrators to come together and agree on common standards and rules to make the process more efficient, fair and
effective. Due to the lack of urgency and the intense bureaucracy, the sales cycle is long, sometimes one to two years, often lasting
longer than startups have cash left to burn
Second, as mentioned, the pilot is frequently unpaid, or I have seen situations where an institution will even charge a startup for a pilot,
leading to less cash and equity, which is already in short supply
Finally, onerous terms are often instituted, in which companies agree to unnecessary exclusivity or impossible goals
result is that healthcare institutions that want to add value to their system by improving outcomes and decreasing costs will often doom the
very technologies they believe are worthwhile
This dynamic is so well-established that many investors, even those well-versed in healthcare, will refuse to invest in
institutional-oriented technology companies
they want StartX to participate
Unsurprisingly, almost all companies take advantage of the investment offer
These incentives help companies succeed and allow StartX to share in that success.We need innovators and administrators to come together and
agree on common standards and rules to make the process more efficient, fair and effective
One example we might follow is from Y Combinator
Raising money used to be expensive due to the amount of confusing legal documents required and corresponding legal fees
The time and expense could sometimes cause a deal to fall through, or a company would run out of money.Its SAFE note investment document
solves accounting difficulties and challenges around early-stage investment
This document has been validated by founders and investors, allowing entrepreneurs to raise money with little to no legal fees and a
turnaround time of a day or two
Organizations like the American Medical Association, AdvaMed and the Consumer Technology Association have the buy-in, validation and
potential to start tackling these processes
Standards could be set for protected innovation time, structured innovation positions and fellowships for organizational employees, and deal
templates and best practices to shorten sales cycles and avoid onerous terms.These problems are large, endemic and complex, but I am
optimistic we can begin to work together to solve them to maximize our common interest: increasing the value of global healthcare.
