Why investors want healthcare entrepreneurs to develop their business model and economics skills

It’s not enough for a healthcare startup to just have cool technology. To get buy-in from investors, entrepreneurs have to showcase some healthcare economics chops, as well as a solid business model and reimbursement plan.

When you’re an entrepreneur, bringing your startup’s cool new technology to the table is a challenging task in and of itself. But only having that piece down pat isn’t enough anymore. Investors want to see more.

Bruce Quinn, principal at Bruce Quinn Associates LLC and a strategic advisor with Faegre Baker Daniels, said this perspective isn’t new.

“I would say the cool tech was never enough,” he said in a phone interview. Quinn will be speaking at the upcoming MedCity INVEST conference in Chicago.

Everett Crosland, Pear Therapeutics’ head of market access and reimbursement, and Anne Sissel, vice president of Baxter Ventures, weighed in on why VCs need more from startups. They are also panelists at the INVEST conference in May.

“I believe that the function of healthcare is incumbent upon manufacturers and other players in the healthcare space to ensure what we’re bringing to patients is validated,” Crosland said in a phone interview.

Sissel noted that innovation has to produce value not only for patients, but also for payers and providers.

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Rather than a sole focus on technology, investors are increasingly expecting entrepreneurs to have a business model, reimbursement plan and some general healthcare economics chops.

Why is that?

Via email, Sissel said healthcare economics models are a means by which to “measure that value” that innovative ideas bring.

It could also be a product of investors realizing the intricacy of the healthcare space. “Being able to operate … in that increasing complexity requires a business plan that reflects … the ability to succeed in that environment,” Crosland said.

Quinn pointed out that healthcare startups should understand two types of economics. One is the economics of how a technology or new idea impacts a disease. The other is the economics “based on how things fit into a healthcare system,” such as how physicians are paid, he said. “You have to be able to think about both of them.”

The experts shared a bit of advice on what entrepreneurs should keep in mind as they develop and pitch their ideas.

Crosland noted that startups should completely understand how their innovation fits into the current healthcare environment.

Sissel had a few thoughts. “First, keep your story simple and focus on your unique competitive advantages,” she said. “Second, clearly articulate your differentiation and why you will be lead[ing] an important market. And always support your business model with quantified and defendable market data.”

Photo: Natalie Mis, Getty Images