VCs keep finger on the pulse of healthcare tech

The Internet of Things is an elusive term defining a network of interconnected devices. The premise can't have escaped the everyday reader, as technology columnists sweat the never-ending implications of Google Glass or the battle between Apple and Samsung's offering to the Smartwatch world. Though more strictly defined as wearable technology, these gadgets belong to the wider world of the Internet of Things, with all its connected devices.

Of course, venture players have not been immune to the sector's charms. In June this year, French consumer electronics company Netatmo raised €4.5m from Iris Capital and state-backed VC fund FSN PME. The company has developed a personal weather station with air quality sensors, which allows users to track an indoor or outdoor environment. They are also able to wirelessly transmit the data to the Netatmo app.

"The aim of Netatmo is to build a portfolio of connected devices," explains Guillaume Meule, partner at Iris Capital. "The first is a weather station. But there is a very important R&D theme, working on new devices essentially based around the home. The home, Meule suggests, is a particularly suitable environment for connected devices thanks to wifi and Bluetooth.

For some the pull lies outside the home. "We see the Internet of Things as important on a number of different levels," says Alex van Someren, managing partner of early stage investment at Amadeus Capital Partners. "First of all, there's the opportunity to invest in businesses developing the technology that enables the instrumentation of the machine world. Then there is the data side. One of the important aspects of the Internet of Things is that it yields very large amounts of data - the so-called ‘big data' model where one looks for trends and analyses what might be deviating from the norm. Software and big data analytics - that's also a big investment area," he adds.

In 2010 Amadeus backed Italian telematics firm Octo Telematics. The Rome-based company makes black boxes to provide insurers with feedback on how, when and how much a driver uses the car. Launched in 2002, the firm is rumoured to be gearing up for a sale. With private equity giants such as Apax, Carlyle and TPG reported to be circling the asset, it is fast becoming a poster child of the Internet of Things.

Monitor me
The frontier between healthcare and connected devices appears to be getting investors' pulses racing. "From a clinical perspective, there has been a lot of promise in wearable devices for a long time," says Andrew Elder, partner at Albion Ventures. "The thing that's always been missing is there hasn't been a customer or enough thought put in to work out exactly what is being offered and to whom. What has changed now is that the technology is completely pervasive; Smartphones and tablets are everywhere."

The noise surrounding self-monitoring fitness devices like the FitBit or Jawbone's Up wristbands has been deafening. Like a luxury version of a pedometer, these devices track physical activity, sleep patterns and link to online accounts where users can input their calorie intake. But how enduring is the appeal of fitness tracking bands? "What isn't clear is what value is going to be added long-term," says Elder. "I think there's a danger of a consumer bubble. There's a lot of noise in just collecting the data, but people need to focus on where you can link that data to a really good application that changes behaviour. That behavioural change is what's really important."

Over in the US, VCs are convinced of the merits of self-monitoring. US-based Jawbone is understood to have raised $200m in venture funding. According to Fortune, the company more recently raised $93m in debt financing from Silver Lake, Fortress Investment Group, JP Morgan and Wells Fargo.

All in good time
"Consumers will do more measuring of things for themselves and I think eventually it will start to overflow into mainstream medicine. But there are lots of hurdles in the way before that. The standard way doctors practise just doesn't include patients giving them extra data to feed in."

With regulatory requirements surrounding patient privacy and non-negotiable demand for accurate and high-quality data, it seems there may be a long wait before the medical world welcomes connected devices. Says Elder: "There's a lot of excitement, people saying this is radically going to change the way we do medicine because of funding pressure, demographics and the need to deliver better results with less money. The question is whether and when the hype becomes reality."

While investment in the connected devices for the medical world seems far off, Albion recently dipped a toe in the water with a £2m investment in MyMeds&Me - a patient engagement platform for pharmaceutical companies. "The consumer-oriented digital health sector is really interesting, but the companies we are looking to invest in need to have to have a customer today," says Elder. "And that often means they're pharma-facing."

Sugar-coated
For healthcare investors interested in the Internet of Things, glucose monitoring is the Holy Grail. "Where wearables really get interesting is helping people who have a genuine medical condition," says van Someren. "We're really excited about continuous glucose monitoring for diabetics. The challenge here is to develop sensor technologies that don't require a needle in the arm. The idea is that these sensors enable an early indication that you might be turning hyperglycemic or need more sugar. And the wearable device would alert you to that. The ultimate goal is a closed loop, where you have an artificial pancreas and an insulin pump that's controlled by your Smartphone."

Fortunately, a lot of research and development is already underway in these companies. One VC suggests there are around 400 companies looking into non-invasive glucose monitoring. The challenge for early-stage investors will be not committing capital too early. But for those that back the right players, the opportunities will be huge. "I read last week that American spending in healthcare has reached 17% of the nation's entire GDP," says van Someren. "They're burning their way through incredible amounts of the wealth they create just to spend it on end-of-life treatment. And if you can detect, diagnose and prevent things much earlier, then that's the only real chance of keeping these things under control."

Wearable technology creates opportunities for VCs in the healthcare space

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• Topics
• Venture
• Healthcare
• Amadeus Capital
• Albion Ventures
• Iris Capital (Part’Com)
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