Hospitals: Risky Business Or Safe Investment Strategy?

Investing in hospitals is a risky business. While it's encouraging to see entrepreneurs dedicating themselves to the health sector, venture investing is inherently risky. Hospitals are not go-go investors on the hunt for high-risk, high-return opportunities; their risk profile is drastically different from that of aggressive investors willing to take big gambles. Cash is precious for hospitals, especially in an age of declining insurance reimbursements, deep uncertainty about public health care policy, and a changing payment structure that will require hospitals to assume financial risk for patient care.

Hospitals are not go-go investors, they are conservative with their investments

Venture investing is inherently risky business. According to a Harvard Business School analysis, about three of every four venture-funded start-ups fail to return their investors’ capital. There’s no reason to believe the failure rate is lower in health care than any other industry. Accenture studied nearly 900 digital health start-ups and found just over half were “zombie start-ups, at risk to die”.

Hospitals and health care systems are ploughing money and resources into health care start-ups, particularly companies focused on health tech. More than $6 billion was committed during the first half of 2017, according to Startup Health Insights. Large hospitals, including those that are publicly traded, now routinely have venture funds that are investing millions upon millions in early-stage technology, fuelling fledgling businesses they hope will advance care and also turn a nice profit.

Hospital venture funds can significantly lower standalone financial risk and boost their chances of success by investing strategic capital in the form of experience, know-how, data and intellectual property, all of which can play a more meaningful role than venture capital alone in improving our health care system.

Venture investing is inherently risky

Hospitals are not go-go investors on the hunt for high-risk, high-return opportunities. Their risk profile is drastically different from that of aggressive investors willing to take big gambles. Cash is precious for hospitals, especially in an age of declining insurance reimbursements, deep uncertainty about public healthcare policy, and a changing payment structure that will require hospitals to assume financial risk for patient care.

However, hospital venture funds can significantly lower standalone financial risk and boost their chances of success by investing strategic capital in the form of experience, know-how, data and intellectual property. This can play a more meaningful role than venture capital alone in improving the healthcare system.

Investing in stocks of hospitals can be a good idea, but it comes with its own risks. With increasing healthcare costs, it is important to be cautious and consider the potential impact on investment returns.

Cash is precious for hospitals

Venture investing is inherently risky business. About three of every four venture-funded start-ups fail to return their investors' capital, according to a Harvard Business School analysis. There is no reason to believe the failure rate is lower in health care than in any other industry. Accenture studied nearly 900 digital health start-ups and found just over half were "zombie start-ups, at risk to die".

A new venture capital gold rush is on, one that brings opportunity but also risk to the nation's hospitals. Recognising the need to make health care more accessible, efficient and affordable, venture capitalists, along with hospitals and health care systems, are ploughing money and resources into health care start-ups, particularly companies focused on health tech.

Hospitals can significantly lower standalone financial risk and boost their chances of success by investing strategic capital in the form of experience, know-how, data and intellectual property, all of which can play a more meaningful role than venture capital alone in improving our health care system.

Venture funds can lower standalone financial risk

Investing in hospitals is a risky business. Cash is precious for hospitals, especially in an age of declining insurance reimbursements, deep uncertainty about public health care policy, and a changing payment structure that will require hospitals to assume financial risk for patient care.

Venture funds can also lower financial risk by spreading investments across a portfolio of companies, rather than investing all funds in one company. This diversification reduces the impact of any one company failing. Venture funds can also provide support and guidance to the companies they invest in, helping them to succeed and thus reducing the risk of failure.

Venture funds can also lower financial risk by investing in more established companies, rather than early-stage start-ups. While these companies may offer lower returns, they are also less likely to fail. Venture funds can also provide hospitals with access to a network of industry experts and advisors, who can help to guide investment decisions and reduce risk.

Finally, venture funds can lower financial risk by investing in companies with a strong track record of success. While these companies may be harder to get access to, and may require a larger initial investment, they are also less likely to fail and thus represent a lower-risk investment.

Venture capital can improve healthcare

However, hospital venture funds can significantly lower standalone financial risk and boost their chances of success by investing strategic capital in the form of experience, know-how, data and intellectual property. This can play a more meaningful role than venture capital alone in improving the healthcare system.

Venture capitalists, along with hospitals and health care systems, are ploughing money and resources into health care start-ups, particularly companies focused on health tech. More than $6 billion was committed during the first half of 2017, according to Startup Health Insights, a pace that will easily set a new annual record. Large hospitals, including those that are publicly traded, now routinely have venture funds that are investing millions in early-stage technology, fuelling fledgling businesses they hope will advance care and also turn a nice profit.

But it is important to remember that venture investing is inherently risky business. About three of every four venture-funded start-ups fail to return their investors’ capital, according to a Harvard Business School analysis, and there’s no reason to believe the failure rate is lower in health care than any other industry.

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