When will we see more billion-dollar health tech companies?

Investors may be funneling millions of dollars into digital health but they’re not as optimistic as entrepreneurs in thinking that billion-dollar valuations are on the horizon for the current crop of health tech startups.

A recent survey from InterWest Partners compared the perspectives of health tech entrepreneurs and investors on areas of opportunities and challenges in health care information technology.  When asked “which companies are most likely to be worth over $1 billion within the next five years?” both groups ranked Practice Fusion, Castlight Health and ZocDoc in the top three (although investors put more weight behind Castlight and entrepreneurs gave more votes to Practice Fusion). But what was most interesting is that, while just five percent of entrepreneurs said that none of the companies would hit a $1 billion valuation, nearly one-quarter of investors indicated the same thing.

Writing about the results, InterWest’s executive-in-residence Michelle Snyder (who created the survey), explored a few possible reasons behind the split. She wrote:

It could be that those well-versed in the realities of healthcare IT investing realize how difficult it is to scale quickly, gain dominance and/or navigate the regulatory and reimbursement environment. It might be the realization that most good companies get acquired before they get the chance to reach $1 billion (Humedica being the most recent example). Or it could just be that some of them were shareholders in many of the high-profile, healthcare technology companies of the bubble 1.1 era who promised IPO filings but ended up with Chapter 11 filings.

Investor caution in health tech could also be connected to more general concerns that the venture capital market is shifting (or broken, as some say) and that too much money flooding to startups at early stages could leave tons of startups in the deadpool.

InterWest’s survey, which included 140 entrepreneurs and 50 investors, showed that the two groups are divided on other topics as well.  Both groups agreed that big data/analytics will be a hot area for investment (more than 50 percent of investors and entrepreneurs indicated this). But investors said they plan to put more money behind insurance exchange/benefit selection, care coordination and clinical-decision (as Snyder notes, these are areas that will see growing markets thanks to the Affordable Care and HITECH Acts), while entrepreneurs expected to see more investment in telehealth and mobile diagnostics.

Also, while both groups said that engineers are the hardest candidates to recruit, about 30 percent of investors and just over ten percent of entrepreneurs said that CEOs are difficult to find.