Venture funding and mHealth

Venture capital funding is alive and well in the digital health sector, according to the experts. But that doesn't mean every Tom, Dick and Harriet with a telehealth proposal is going to get it.

"It's all about fit and it's all about diligence," said Joe Peterson, MD, a veteran of four venture-funded mHealth businesses and CEO of Specialists on Call, one of the largest providers of telemedicine specialists in the country.

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Peterson was one of three members of a panel discussion at the American Telemedicine Association's first-ever Telemedicine Venture Fair, held Sunday at the Austin Convention Center as the ATA kicked off its 18^th Annual International Meeting & Trade Show. Aside from that panel discussion, the morning-long session featured presentations from eight up-and-coming telemedicine companies looking for that final boost to push them from a possibility to a sustainable company.

"We feel we are at the 'just add water' stage – that's why we are here," offered Merritt Widen, CEO of ForeFront TeleCare, who's seeking $6 million in funding to break into a potential $1.6 billion industry.

Added Alexis Gilroy, JD, a partner in Nelson Mullins Riley Scarborough, LLC, which co-sponsored the venture fair, the venture capital sector has been cautious to date, but with an estimated $900 million in venture capital funding growth this year, "I think we're there. There is traction. There is excitement."

And while the presentations were high on potential, the panel – Peterson; Jack J. Young, director of Qualcomm Ventures' Qualcomm Life Fund; and Bryan Bushick, MD, managing director of the Ansley Capital Group – was quick to point out that these businesses-to-be won't simply be showered with money just because the telemedicine and mHealth industry is poised to explode.

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There is still a risk in investing in the telemedicine/mHealth space, warned Bushick, whose firm – known as a boutique investment bank – advocates for the entrepreneurs in meeting with VC firms. He said the industry is still at that point where the technology is outpacing the viable business models.

His advice? Consider "both the springs and the strings," the benefits of partnering with a VC firm and getting an extra infusion of cash and the conditions that such a partnership may impose on the business as it looks to grow. And "to validate is better than to elucidate" – in other words, proving that one business projection will succeed, rather than offering over-optimistic timelines and profit margins that won't come to fruition.

This is particularly true in a VC market, the panelists said, that is attracting new and different investors, some of whom are looking to get into the industry at an earlier point and are looking for different ways to participate.

"They need to know who you are, but you also need to know why they are," cautioned Peterson. "It's a sale in two directions."

Peterson told the entrepreneurs to make sure the investing firm understands the business and "shares a common view of what the evolutionary part of your business is going to be."

Young pointed out that VC funding in telemedicine isn't as lucrative as in other areas, as the time it takes to prove sustainability is longer and the value just isn't there in the companies. But venture funding is on the rise, he said, with app developers starting to reach scale and digital health firms looking at that $100 million revenue plateau. It may not be long, he added, before a company takes a serious look at an IPO.

That may be beyond the horizon for the firms presenting at Sunday's venture fair, but each executive came before the conference room of some 100 to 200 attendees with a plan in hand and numbers to prove its value.

"We think we've got a two-year development lead on any of our young competitors," offeredd John Grispon, COO of Respondesign, which is marketing a Microsoft Kinect-based interactive physical therapy platform to clinics and home-based care agencies.

Added David Nixon, CEO of InformedDNA, which is marketing an online and phone-based platform of genetics expertise to community-based patients and providers, "What you're looking at is the right company with the right team."