The next big thing in the New York healthcare market won’t be nanomedicine, bionic implants or robotic prosthetics but a software platform delivered via the next big app.

Innovation is less likely to come from a hi-tech lab or hospital facility than from a team of computer programmers with data and a dream. For those entrepreneurs with high hopes but few dollars, digital health accelerators are providing the space, guidance and cash to succeed in a New York City market ready for take off.

“Accelerators are really serving as a launching pad,” said Jonathan Bowles, Executive Director of the Center for an Urban Future. “They create this nurturing period that can help emerging start-ups weather the storm and get the right advice and investment early on to put them on the path to extraordinary growth.”

The rise of digital health accelerators and the infusion of venture capital has helped extend the scope of opportunities in the healthcare market to sectors beyond biotech and medical research, opening doors that have long been difficult to open for New York start-ups. Unlike biotech companies with demands for lab and manufacturing space and multi-year waits before revenue rolls in, digital health companies provided modest funding and the right connections can launch overnight with little more than a laptop and a seat at a table.

“If you’re building a software based company, the places you can do that are vast, including Starbucks” said Maria Gotsch, co-founder of the New York Digital Health Accelerator, a public-private partnership between the Partnership Fund for New York City and the state-funded New York eHealth collaborative. “If you’re creating a biomedical device or drug, you cannot bring your rats to Starbucks.”

In addition to the squeeze for affordable space, the biotech industry has also suffered from lackluster funding. Private investment has left the city wanting: In the first half of 2016, venture capital spending in the metro area totaled $205 million, more than a billion dollars less than the money invested in New England and Silicon Valley.

But companies considering the digital health market will see sunnier skies ahead. During a projected $6.1 billion year, a record in digital health funding nationwide, the New York metro area received investments of $868 million as of Q3, according to data collected by StartUp Health. New York’s total is second to only the $1.2 billion raised in the San Francisco bay.

“The digital health space in New York feels like the early days of the web back in the nineties,” said Jean-Luc Neptune, co-founder of Blueprint Health, an accelerator that has fostered the growth of 77 companies, 60 of which are still in operation. “There are a lot of big things still to come out of New York.”

Blueprint Health—which in exchange for a 6% share provides fledgling start-ups $20,000, office space and a twelve-week mentor program that provides business consultation, fundraising assistance and access to its investor networks—is dedicated to startups in the digital health sector, but it is one of many companies looking to invest in bootstrapped businesses.

The number of incubators and accelerators in New York State—similar business models distinguished by the duration of their work with and the size of their investment in start-up companies—has ballooned to 282 businesses, a 40% increase over the last three years, according to the National Business Incubation Association.

Accelerators and investors are increasingly turning their focus to the digitization of healthcare, a burgeoning sector that, according to Bowles, is outdated and ripe for disruption.

“The health industry has been slower to get disrupted because the leaders in the field were big players and it wasn’t an open industry,” he said. “It also took some time to figure out the ways to monetize consumer health applications.”

Innovation in the healthcare industry requires the involvement of fresh, entrepreneurial faces, said Gotsch.

“The focus of scientists, researchers and doctors is related to medical care,” she said. “The production of new medical devices, new diagnostic tools or new ideas for care delivery require a different skill set.”

Participants in the New York Digital Health Accelerator, selected by the leadership of 17 New York hospitals, receive $100,000 and the mentorship of senior hospital executives. Since it was founded in 2012, the accelerator has worked with 21 companies that have raised $230 million upon completion of the five-month program.

The healthcare market is brimming with unexplored opportunities, according to Gotsch.

“Everyone is looking for solutions to see how social and behavioral services can deliver care to patients and help keep someone healthy beyond strict medical care,” said Gotsch.

Blueprint startups like RubiconMD, which provides an online platform to connect doctors in remote areas with other specialists; AdhereTech, a manufacturer of a smart pill bottle that monitors and helps to maintain a patient’s adherence to medication; and DocDelta, a healthcare recruitment and staffing company that uses big data to predict employee and employer behavior are just a few examples of the thousands of new applications companies can use to improve healthcare.

Investors may favor digital health companies unburdened by the long delays biotech companies face before producing a viable product and generating revenue. A $20,000 or small six-figure investment cannot sustain the technical demands, years of development and clinical trials required before a medical device or new drug can reach customers.

But digital health startups are not immune to difficulties in securing early stage funding.

“A lot of the sales partnerships are contingent on hospitals and other organizations that move at such a glacial pace that they can be a death sentence for the business,” said Aaron Winfield, the CEO of Psocratic, a software platform that manages employee stress and improves productivity. “Tech cannot rely alone on the long sales and partnership cycles of hospitals or healthcare communities.”

Slightly over half of all digital health startups fail in their first two years, according to a 2015 Accenture study. Gotsch predicts there will soon be a shakeout among companies that have secured series A funding and those unable to get by.

“Some companies have pilots but are not converting as rapidly to paying customers,” she said. “It’s hard to raise money. Investors want to see customer traction before series A.”

Fortunately, accelerators can provide startups strapped for cash and often in negotiations with large healthcare institutions with connections to deep-pocketed investors to sustain their early development.

“Accelerators are nurturing new companies that need to develop their business model and test things out,” Bowles said. “Sometimes the companies won’t succeed but these accelerators are giving them the space to fly.”



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