A R O C K R E P O R T B Y Digital Health consumer & enterprise i BUSINESS MODELS

Rock Health is a San Francisco-based digital health seed accelerator. We support the next generation of health entrepreneurs with grants, office space, operational support and mentorship. Rock Health partners include Aberdare Ventures, Accel Partners, California HealthCare Foundation, Fenwick & West, Harvard Medical School, Mayo Clinic, Microsoft, Mohr Davidow Ventures, NEA, Nike, P&G, Qualcomm, Quest Diagnostics, Silicon Valley Bank and UCSF. For more information, visit rockhealth.com About i REPORT Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nunc sed odio nulla. Aenean enim nunc, posuere quis semper nec, fringilla ut nisl. Suspendisse nec imperdiet mauris. Ut posuere, massa vitae dignissim vehicula, velit quam rhoncus arcu, vitae auctor elit sapien vel lorem. Nullam quis purus massa. Ut sit amet risus nisi. Nullam quis purus massa. Ut sit amet risus nisi. Nullam quis purus massa. Ut sit amet risus nisi. Nullam quis purus massa. Ut sit amet risus nisi. Produced b Christina Chang M. Jackson Wilkinson Halle Tecco Leslie Ziegler @changcsc @lesliejz @whafro @halletecco

0% 5% 10% 15% 20% 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 20 PERCENT of the United States GDP healthcare spending will be b 2020:

0% 5% 10% 15% 20% 2000 2005 2010 2015 e HALF NON-VALUE ADDED of national health care spending is ( e i e cie c )

32% 15% 11% 11% 8% 8% have had to fill out the same forms or information multiple times. have had difficulty obtaining their own health information (such as labs or records). have had a test or procedure repeated due to inaccessible information during a visit. have registered for a program or purchased a product that did not meet their needs. have required medical treatment because they could not access preventative care. have received an incorrect prescription or one that reacted with a current medication. IT IMPACTS PATIENTS and it’s not just a money problem:

REIMBURSEMENT policies are shifting... from being based on VOLUME OUTCOMES because of all this inefficient spending,

Accessing info when needed Increasing face time with patients Increasing patient compliance Improving physician communication Communicating with patients more efficiently SPECIALISTS PRIMARY CARE doctors’ biggest obstacles HAVE TECHNOLOGY SOLUTIONS

Access electronic medical records Prescribe medication Monitor inpatients Initiate & track referrals Communicate with patients Monitor outpatients W I S H they could wirelessly: most doctors

88%of surveyed physicians would like patients to be able to track or monitor their health at home. no 65% 61% 57% 54% 36% 35% 28% 17% 16% 13% 12% Digestive health Acid reflux Bladder control Cardiac rhythm Sleep patterns Pain level Exercise & Activity Vital signs Weight Blood sugar

11% 18% 20% ONLY HALF of consumers say they would BUY mobile health tech ’ i e : monitor fitness & wellbeing allow a physician to remotely monitor a condition continue to monitor a previous condition

$14 billion dollars analysts say consumers are willing to spend on certain digital health technology products $4 Billion: health-related video games $700 Million: mobile health applications $8.9 Billion: resources rating MDs & hospitals 25% 50% Age 18 25 35 45 55 65 25% 50% Age 18 25 35 45 55 65 25% 50% Age 18 25 35 45 55 65 + + + Willingness by age group: S ...

5 tradeoffs (selling 9 businesses) (selling 9 consumers) B2B B2C Higher willingness to pay Greater lifetime value of customers Longer sales cycles Requires gatekeeper approval or systems integration Shorter sales cycle Quicker product iterations and user feedback Crowded landscape Lower willingness to pay

of 2011 digital health venture funding went to B2B models. $600M 77% $0 $300M $150M $450M average funding: Consumer: $9M Business: $11M

76% of Fortune 50 companies have gotten into healthcare. 24% have no health division. 24% are traditional health care companies. 22% are Retailers: using deep customer access to serve new health care markets. 14% are Connectors: using data to tighten the patient-doctor relationship. 14% 2% are Fixers: attacking dysfunctional parts of the system to reduce waste. are Implementers: working across traditional sectors to integrate healthcare.

NEW COMPANIES are forming in digital health ADDRESS eCHALLENGES

B2B 5 problem: Rising healthcare costs and insurance premiums for employees and employers. 5 solution: An employee wellness program that combines the best of social media & online games. Employees use, employers pay.

Abhas Gupta Mohr Davidow Ventures – Associate investing in B2B companies: consumers’ willingness to pay: what matters: “Sales cycles are obviously a big concern. It could take eighteen to twenty-four months to convert a new customer, and that’s funding that isn’t generating value quickly. “Consumers are financially on the hook for healthcare costs more than in the past, so I imagine consumers will be willing to pay more going forward. “We don’t know if consumers or payers or anyone else will pay, but if we know that it’s engaging consumers, that’s what matters. “...to be able to reduce costs, get sustained engagement, and ideally to demonstrate improved outcomes. That’s the winning combination.

B2B 5 problem: Rising healthcare costs and insurance premiums for employees and employers. 5 solution: Personalized, unbiased views of healthcare price and quality. Employees use, employers pay.

Darren Hite Aberdare Ventures – Principal the team: the product: “I’d rather invest in a really good team with a mediocre idea than in a mediocre team with a really good idea. The good team will figure it out and change, but the mediocre team will have a harder time. “To get good customer acquisition and to scale and reach people more quickly with less money, the product has to be really good. “A lot of times you have a CIO who is buying technology and pushing it down, and that’s a headache. They don’t necessarily know what the doctor wants. This product-market fit that has been important in consumer businesses is starting to find its way into healthcare. They want to use stuff that is intuitive and works and makes them more efficient and transparent.

B2B 5 problem: Implementation of “meaningful use” of technology. 5 solution: The fastest-growing free electronic medical records community. Doctors use for free, business pay to advertise

Rebecca Lynn Morgenthaler Ventures – Partner B2B investing: B2C investing: investing in digital health: “Do you have a pilot? Is the pilot paid? What kinds of engagement are you getting? How many more pilots do you have set up? What’s in the pipeline? If you’ve been piloting for six months, can you show uptake, engagement, and early results? “It’s less about monetization early on and more about downloads, engagement, and retention... that’s what we’re really interested in as far as proving the utility of the product. “Sometimes it’s revenue and sometimes it’s usage, with the belief that revenue can come. Missy Krasner Morgenthaler Ventures – EIR

5 problem: Monitoring and prevention of chronic conditions 5 solution: Your real-time activity stats so you know how close you are to your goals. B2C Consumers purchase directly and use.

Patrick Chung NEA – Partner investing in B2C companies: “If you’re designing for a VP of Engagement at some insurance company, his or her needs will be very idiosyncratic and designed for corporate policy, not for the end user. If you get a better product that’s well-designed, you’ll get better health outcomes. Going direct to consumer is difficult too...but at least there isn’t this overlay of nonmarket complexity. “ “The benefits of being B2C are that you bypass this huge, antiquated, enterprise-like sales cycle... Why do that when you could actually just go to the market and get really fast data, tailor your product, and let the market speak? “There has never been an opportunity like now to sell healthcare services directly to consumers. [B2C companies] do have much faster iteration cycles, and I thinky ou get a better product at the end of the day.

5 problem: Remote monitoring and personal/family data tracking. 5 solution: The first WiFi body scale, blood pressure, and smart baby monitor connected to iOS devices. B2C Consumers purchase directly and use.

Jason Jacobs RunKeeper – CEO & Founder business models: fundraising: the future: “Monetization isn’t what’s most important to where we are today. We’re very focused on growth and engagement – growing our user base, our engagement levels, our menu of different applications. “It’s much harder to get massive scale than it is to figure out how to make money. We had to show traction and sell our vision and convince investors that we’re the team to do it. “We think there are interesting opportunities with brands, wellness platforms, insurance companies, doctors. Ultimately, these worlds are going to converge, but it will take a while, and right now we’re not concerned about the ‘how.’

Sources: • CapitalIQ • CrunchBase • Pricewaterhouse Coopers’ Health Research Institute. The new gold rush: Prospectors are hoping to mine opportunities from the health industry. (May 2011) • Pricewaterhouse Coopers’ Health Research Institute. Healthcare unwired: New business models delivering care anywhere. (September 2010) Presentation copyright © 2012 Rock Health GET IN TOUCH: Rock_Health research@rockhealth.org