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Mon 4 May 2015 09:13 AM

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Building a case for healthcare tech start-ups

Tamara Pupic explores how entrepreneurs and start-up investors are making waves in the healthcare technology industry

Building a case for healthcare tech start-ups

In his recent column for Arabian Business, Bill Gates praised the Middle East’s role in improving the health of populations.

In particular he mentioned the United Arab Emirates’ 2012 pledge of $33 million to Gavi, the Vaccine Alliance, for vaccinations in Afghanistan and Pakistan.

Gates, as he writes, is willing to bet on the fact that the region will keep pace with him in his quest to bring major breakthroughs to the world in certain crucial areas, one of which is health.

But turning the spotlight from the government to the private sector poses a question – is the regional healthcare industry neck and neck with its international counterparts, as the regional governments are with their global peers?

Statistics would suggest so, showing an increased focus on the regional healthcare industry with the GCC’s healthcare expenditure increasing by 7.9 percent year-on-year over the past 10 years.

In that time the MENA region has become one of the most lucrative markets for healthcare technology providers.

Kuwait Financial Centre Markaz’s recent research further suggests that the region’s total healthcare expenditure is expected to rise to $79.2 billion in 2015. The high demand for integrating advanced technology into healthcare systems is obviously there, but who will capture it?

Although the healthcare industry has traditionally been sceptical about the potential of technology developed by start-ups, the start-up driven digital health movement has recently been spreading around the world.

Not only is the healthcare industry worldwide undergoing a technology transformation but the venture funding for start-ups that focus on the intersection of healthcare and technology hit a record $4.1 billion in 2014.

According to Rock Health, a San Francisco-based seed fund for start-ups focused on the health space, that was a 125 percent year-on-year jump. And it’s just the latest figure along the line – in 2013, venture funding of digital health companies exceeded $1.9 billion, which again was a 39 percent jump from 2012.

“The healthcare industry traditionally hasn’t been at the forefront of disruptive innovation and it was focused much more on being a fast follower or being good at adapting,” says healthcare and tech entrepreneur and investor, Dr Bern Shen.

“But, I think that institutions and some other joint ventures, private-public partnerships, and similar, are creating more infrastructure [for that] in the UAE.

“And my impression is that they [the government] understand that if they don’t emphasise these kinds of things, they will fall further behind because there’s not just the US or Europe, but increasingly China, India, and other countries, where there might be less regulation, which will move more quickly.”

Dr Shen wears many hats – he is chief medical officer of HealthCrowd, a mobile health start-up; a member of the Band of Angels, the Silicon Valley’s oldest seed funding organisation; and an adjunct faculty member of The University of California San Francisco’s (UCSF) School of Pharmacy and the University of Iowa’s Schools of Medicine and Business.

Having moved to Abu Dhabi a year ago, he hasn’t slowed down a bit when it comes to helping start-ups at the intersection of health, technology and business.

In addition to becoming a board member of TechWadi, a non-profit organisation founded in 2008 to build bridges between Silicon Valley and the Arab world, he is also a start-up mentor at AstroLabs and the organiser of Abu Dhabi start-up, SME and entrepreneur meet-ups.

While the technology drives healthcare innovation around the world from electronic health records to health monitoring tools on smartphones, he adds that it has just started in the UAE. “I think that one of the pain points is that the UAE is still early in the stage of trying to standardise healthcare software,” he says.

“In the US, for example, there’s a very strong government push to try to get hospitals and clinics to use electronic health records. In the UAE, it is still starting and there still isn’t a critical mass of healthcare software [users] that we are used to.

“When that occurs, when you get that critical mass, it all of a sudden enables all kinds of new business opportunities.”

A number of young, educated and reform-minded Arabs haven’t been willing to wait for that moment to happen, considering that putting the power back into the hands of patients is more important.

Aschkan Abdul-Malek, who holds a bachelor degree in business economics and accounting from the University of California and a juris doctor degree in transactional law and MBA in finance from Vanderbilt University, is also a proof that the healthcare industry has attracted top-tier talent from other industries to tackle some of its most critical problems.

Following his career in investment banking in the US, Abdul-Malek spent the last five years managing projects in Iraq and Afghanistan where he witnessed many lower-to-middle income patients not receiving proper medical care due to the countries’ lack of medical specialists or proper technology.

Teaming up with Sajjad Kamal, a tech entrepreneur with a bachelor degree in mathematics from the University of Waterloo, Canada, in 2014, Abdul-Malek used entrepreneurship as a method of solving these problems.

Their Dubai-based start-up AlemHealth is an online platform that connects hospitals in developing countries to a global network of medical professionals and services.

When asked why he had chosen Dubai as their base, Abdul-Malek says: “The logistics in Dubai are second to none, and if you want to be serving this region, you need to have a presence here.

“Also, the lack of taxes allows us to compete for talent at a more attractive price point.”

Their commitment to the region has also been a crucial factor when choosing to apply for StartUp Health, a New York City-based digital health start-up incubator, about which he explains: “Startup Health differs from typical incubators in that they don’t require you to co-locate.

“It’s a great structure for start-ups that need to remain here, in the GCC, and focus on their business, but need access to a network of peers and mentors that can help them build a great company.”

In February 2015, StartUp Health announced that AlemHealth was among six new companies to join its global portfolio consisting of 200 entrepreneurs who founded 90 companies in more than 45 cities and eight countries.

Furthermore, AlemHealth is the only UAE-based company which has become part of this prestigious start-up incubator, which was founded by health tech entrepreneurs, Steven Krein and Unity Stoakes, and is chaired by former Time Warner Chairman and CEO, Jerry Levin.

According to their latest data released in January 2015, StartUp Health has managed to raise $190 million for its incubated start-ups.

“Get in the public eye as often as possible, even if you have to pay your own way. You never know who will be in attendance.”

This is Abdul-Malek’s first piece of advice for other entrepreneurs when explaining how they successfully completed a highly competitive process of applying and being selected by a US-based start-up incubator.

He adds: “We had applied to the Startup Health programme using their typical online application process.

“However, in the interim, we presented in a start-up pitch competition at the largest mobile health conference in Washington DC. The Startup Health team was in attendance, saw our pitch, and that helped convince them that we would be a great fit for their programme.”

Facilitating an easier exposure of the most promising technology start-ups from the MENA region to the Silicon Valley experience and know-how is exactly at heart of TechWadi’s mission.

From its beginnings as the community of top Arab American technology professionals in Silicon Valley, TechWadi has evolved into a powerful platform for collaboration, whose members insist on asking the regional tech entrepreneurs the following question: “How can we as the connected Silicon Valley diaspora help you?”

When asked why an experience within a US-based entrepreneurial ecosystem is so important for regional start-ups, Dr. Shen shares his insights: “I think one is being more comfortable with failing, and failing quickly.

“In many parts of the world, and the UAE included, people are still reluctant to admit that something failed. While in Silicon Valley and in some other hubs in the US, people realise that embracing failure as long as you can learn from that failure, is really important.

“The second factor is the culture of abundance. My sense here is that people are still a little bit in the culture of scarcity, thinking: ‘I have a good idea, but I’m a little reluctant to share my idea with you because I’m afraid you might run away with it and do it yourself.’

“In Silicon Valley, people are very often like: ’I’m confident that even if you hear my idea, I can run faster than you.’ It becomes a virtuous cycle of sharing where everybody moves more quickly.

“It’s a little bit less guarded, but its result creates acceleration and progress.”

Continuing with his insights, Dr Shen talks about the UAE’s investment community:  “I would say that the attitude towards risk and the types of preferred investments is slightly different here.

“My sense is that here angel investing, for example, is still not fully established. There are a lot wealthy people here, but they tend to involve in more revenue-generating investments such as hotels, shopping malls and real estate where you can see return right away.

“Plus, I’ve been told that, understandably, they like to point to their friends saying: ’There’s my hotel, mall.’ Whereas a high-tech start-up is a little bit more intangible, and maybe the revenues are a little bit further down the road. So, I think there’s some more education required.”

Abdul-Malek agrees that entrepreneurship and start-up investments in Dubai manifest more in the real estate, F&B and consumer sectors than in technology.

He explains: “The mentality of founding a venture-backed business versus a cash flow business isn’t a question of risk aversion, it’s different in kind, and requires a different approach.

“It’s about foregoing near term profitability for exponential growth, and long term equity value.

“Until entrepreneurs and investors here see those risks paying off, they’ll stick to what they know works.”

When comparing the two ecosystems he has been working in, Abdul-Malek adds: “The start-up ecosystems in the US and Dubai could not be more different. As a start-up in the GCC you succeed despite the ecosystem, not due to it.

“The legal and regulatory structure is costly, time consuming, and ill-suited for start-ups.

“Whether it is bankruptcy law, the ease of transfer of equity, or myriad other issues, the legal framework makes it very difficult, which is why so many start-ups here are registered in the British Virgin Islands or the Caymans as well.”

In addition to country-specific challenges faced by any entrepreneur, starting a business in the healthcare sector is often an uncharted territory due to the industry’s extensive regulation, traditional tolerance for inefficiencies, and preference for status quo by a few well-established market players.

On the other hand, with the population rapidly growing and living longer, the increased VC funding for health tech start-ups around the world proves that more and more investors recognise it as a safe, recession-proof industry in which they can make profit while lowering costs and improving health and care.

And it is at this intersection of the not-yet-disrupted industry and the growing opportunities that a savvy entrepreneur and a long-term thinking investor can meet.

Abdul-Malek is a good example of a regional entrepreneur who is capable of fulfilling the need for integrating advanced technology into healthcare systems widely supported by investors worldwide.

Going back to the initial question, we ask him whether the regional investors are willing to follow suit.

“The issue with healthcare investment in the region is that it, historically, has come in one of two flavours - as a real estate project and/or by bringing big healthcare names to the region,” he says.

“Both are very conservative approaches.

“To do anything more innovative takes a strong investment team with healthcare experience, and you see that structure in the US with large healthcare-only funds.

“Unfortunately, there hasn’t been the deal flow to justify more healthcare VCs in the region, with a few notable exceptions like TVM [TVM Capital Healthcare].

“The long development, licensing, and sales cycles required for health tech services are enough to scare away investors that don’t know what to expect.

“So, you end up with a Catch-22 of sorts. The region needs a few big success stories to get more investors interested and comfortable in the health tech space, but without the initial investments, it’s hard to have those innovations happen here in the first place.”

Muwaffaq Huniti 4 years ago

Well, it is a challenge! and only those who persevere & who have insight & local healthcare industry knowledge will get there.

I agree all the ingredients for a telemedicine start up are there, it just needs THE CHEF who has the recipe of what to be cooked and how to mix it all together to serve what delights the patiently waiting customer sitting at the table hoping to get what's on the menu.

Time, not money, is what to invest. The chef should spend time on the ground in flesh and blood talking to all customers types, and I mean the chef himself, not the restaurant marketing team, not the waitress, not the accountant, not the delivery person. The chef or head chef in a fine restaurant, or head cook in a fast food outlet.

I was in Los Angeles 4 weeks ago attending the ATA 2015 and I have been approached by vendors to distribute their products in the middle east! the meeting was great, you don't just sell telemedicine products without identifying the problem you're trying to solve