[August 13, 2015]

Half of Digital Health Start-ups will Fail within Two Years of Launch, Accenture Finds

Even as funding for digital health start-ups is accelerating, a new report from Accenture (NYSE:ACN) forecasts that one out of every two of these new companies is likely to fail within two years of launch - but that larger companies could mine these "zombie" start-ups for talent or innovative technologies.

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"Rather than discard the investment that has been made in getting sputtering start-ups off the ground, it often makes sense for healthcare stakeholders to acquire them, salvage their best people and technologies and awaken them from a zombie-like existence," said Kaveh Safavi, managing director for Accenture's (News - Alert) global healthcare business. "Many digital start-ups that are dying or in danger of failur have developed solutions that can help traditional and non-traditional healthcare companies achieve their goals."

The report, based on an analysis of 900 healthcare IT start-ups, found that 51 percent were in danger of failing within 20 months of their launch. These "zombie" start-ups - those that are dying but have innovative technology or talent that could benefit a prospective corporate buyer -received nearly $4 billion in start-up funding between 2008 and 2013. Accenture estimates $2.5 billion will be invested in health technology start-ups in the next two years across four key segments: engagement (25 percent), treatment (25 percent), diagnosis (21 percent) and infrastructure (29 percent).

Accenture's research focused on companies with solutions across social, mobile, analytics, cloud and sensors (SMACS), technologies, which improve clinical and administrative functions and support the development and marketing of diverse and innovative offerings, from wearables/nearables and telehealth to remote monitoring and on-demand services.

The Accenture research shows that acquiring failing start-ups enables healthcare players to reap three major benefits:

• An infusion of top talent. As the healthcare industry evolves, there is a diminishing pool of qualified technical talent with capabilities in emerging areas, and so-called "acqui-hiring" from start-ups can help companies build a bench of top talent quickly - a practice prevalent among many technology companies, such as Apple, Google, Twitter (News - Alert) and Yahoo.
• Greater innovation. There were 1,700 patents between the 900 start-ups that Accenture analyzed, so buying zombie start-ups can initiate and accelerate R&D efforts by capturing intellectual property and patents.
• Bolstering existing solutions. Acquiring digital health start-ups enables healthcare companies to add new products and services that enhance their own solutions.

"In a period of disruption, leading organizations understand that they cannot keep doing the same things and expect to succeed," Safavi said. "They must become disruptors instead of being disrupted. Acquiring a failing health IT start-up with excellent people and promising intellectual capital could be just the prescription for achieving that goal."

About Accenture

Accenture is a global management consulting, technology services and outsourcing company, with more than 336,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world's most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$30.0 billion for the fiscal year ended Aug. 31, 2014. Its home page is www.accenture.com.

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