AI is radically transforming the U.S. healthcare industry. Data interoperability, generative approaches to pharma drug discovery, and the healthcare labor shortage each unlock enormous opportunities for startups to improve human well-being while making the industry more efficient. After all, in 2023, U.S. healthcare expenditures reached an all-time high of $4.7 trillion, or roughly $13,500 per person, accounting for nearly 18% of our GDP.
SignalFire is excited to partner with visionary founders who are reimagining how we develop, deliver, and pay for healthcare. Here is an overview of our perspective on the biggest trends and investment opportunities in Health and PharmaTech, our current portfolio, and our differentiated approach to sourcing and supporting companies in this sector.
Trends and opportunities
The explosion of healthcare data creates both opportunities and risks in the GPT-4 era
Healthcare data accounts for one-third of the world’s data, driven by the widespread adoption of EMR systems, the popularity among consumers of health-focused wearables, and regulatory tailwinds like TEFCA, the Hospital Price Transparency Act, and Health Plan Price Transparency.
Target investment area
- Companies that ingest this massive data set and generate insights using AI and analytics for a wide range of applications: These include hospital operations, supply chain insights, clinical decision support, population health management, and payment integrity. (For more use cases, see SignalFire’s post, How AI and analytics could solve healthcare’s big data problems.)
Increased data security and data privacy concerns lead our team to ask: how can owners of these powerful, but sensitive, regulated data assets safely participate in the AI revolution?
Target investment areas
- Healthcare data security: Healthcare organizations face unique cybersecurity challenges (more dated on-premise infrastructure, complex PHI, and limited defensive resources). Vertical-specific solutions in data security are necessary for incumbents (providers, payors, pharma companies) to avoid data exfiltration by attackers and protect against the FTC’s health breach fines. (See our post about why we invested in Freshpaint.)
- Patient or synthetic data collaboration platforms that protect privacy: Incumbents need to be able to share data in a way that both ensures patient anonymity and allows for data-driven innovation to flourish, leveraging privacy-enhancing technologies (PETs). (For further reading, see the last section of SignalFire’s post, Healthcare is flatlining, but GPT-4 could revive it.)
PharmaTech is accelerating R&D, manufacturing, and distribution to tackle inefficiencies in the biopharma industry
Biopharma companies now spend $247 billion per year on clinical R&D, plus $30 billion on marketing drugs to patients and physicians.
Given the Inflation Reduction Act of 2022, there has been increased pressure for biopharma companies to drive efficiencies through AI and digital innovation efforts, but biopharma companies today spend a staggering $2.6B for each drug brought to market, with 10,000 times more data per experiment compared to a decade ago.
Target investment areas
- Cloud data infrastructure enabling AI-driven workflows: We especially want to see those that digitize and aggregate various sources of data from lab instruments, clinical trials, EMRs, remote patient monitoring devices to accelerate R&D, and the entire drug development process.
- Pharma manufacturing, supply chain, and logistics solutions: We expect these to help predict demand, track inventory, drive real-time transparency in the drug supply chain, and enable efficient manufacturing and distribution of drugs.
- End-to-end clinical trial solutions: These should integrate patient recruitment, enrollment, engagement, and retention workflows with unique RWE or synthetic patient data sources.
For more PharmaTech trends, check out The pharma fast lane: How software will speed up drug development.
The labor shortage crisis and the need for AI to improve productivity
COVID has exacerbated the burnout in the healthcare workforce: a study in 2023 shows that two-thirds of healthcare workers reported modest to severe burnout. In 2022, the registered nurse turnover rate worsened across the year to 27.1%, up from 18.7% in 2020. Nurses report spending more than half of their day on noncare administrivia—documentation, searching for equipment, and medical administration, among other things.
Healthcare labor costs have risen rapidly in recent years as health systems have been forced to fill vacancies with newer, inexperienced per diem staff (staffed on a day-by-day basis) and travel nurses (staffed for several months), which can cost three times more than a full-time employee.
Target investment areas
- Administrative and clinical workflow automation platforms: These platforms will alleviate provider administrative burden in areas such as coding (see our post about why we invested in CodaMetrix), supply chain, and operating room utilization, while improving clinical outcomes.
- End-to-end workforce optimization platforms: We want to see those that identify and recruit healthcare talent, support credentialing and training, optimize scheduling, and have various embedded AI tools to automate manual tasks. (For a detailed market map and thesis, see SignalFire’s post, The healthcare labor shortage market map.)
Aging population and the shift to hybrid, value-based care models in patients’ homes
There are 60M seniors in the U.S. today, and that number is expected to double in the next two to three decades. The cost to care for seniors increases exponentially as they age (see chart below) and Medicare/Social Security funds are expected to run out by 2034 at the current pace of spending.
$265B of healthcare spending is expected to shift to home-based hybrid care models. Hybrid care trends are being driven by recent telemedicine adoption, new remote patient monitoring billing codes, and technology advancements. Payors are focused on keeping patients out of expensive hospital treatments and hence pushing for “hospital at home” and “aging in place” models, given early proof points such as the 38% cost reduction demonstrated by Brigham and Women’s home hospital pilot study.
One million caregivers are needed by 2030 to meet elderly care demand, but pay is low and turnover is high.
Target investment areas
- Software to improve home health agencies by increasing efficacy and efficiency
- Companies that train and enable net new supply of caregivers to enter and stay in the home care industry
- Infrastructure that enables hybrid care delivery models across specialties through integrated ordering, logistics, payments, and data interoperability solutions
Scaling access to lifesaving therapeutic breakthroughs: GLP-1s and CGTs
By 2035, 51% of the global population (4 billion people) is projected to be overweight or obese, with a potential $4.3 trillion economic impact. Originally developed for type 2 diabetes, GLP-1s (e.g., Eli Lilly’s Mounjaro, Novo Nordisk’s Wegovy and Ozempic) have emerged as a powerful treatment to help address obesity on a broad scale given the potential for weight loss of up to 15–25%.
Cell and gene therapies (CGTs) are poised to transform how we treat and cure diseases as one of the fastest-growing therapeutic areas (it’s projected to grow from $7B in 2021 to $58B in 2026 at 52% CAGR). Cell therapy is the third largest segment across all modalities, with a 35% CAGR in sales, and the number of early-stage CGT assets have grown by more than 50% since 2020. AI can accelerate R&D for gene therapies, and there’s increasing demand for this work, but CGTs still face meaningful barriers to approval, manufacturing, and distribution.
Providers, payors, and pharma companies are not fully ready to rapidly scale GLP-1 and CGT access yet, given the high costs and the lack of readiness to manage operational complexity driven by CGTs.
Target investment area:
- Holistic GLP-1 solutions: These should empower providers to personalize when and how to start or end GLP-1 treatments alongside nutrition, exercise, and other complementary alternatives for sustainable patient outcomes at the lowest cost.
- Payor and PBM infrastructure: We want to see those that enable equitable access while enabling efficient and innovative financing solutions to manage the burden of such high-cost drugs.
- AI in the CGT value chain: We want to see solutions that reduce barriers to CGT access by increasing the speed of R&D, mitigating clinical risks, reducing costs, improving provider training, and streamlining manufacturing and clinical operations to administer CGTs.
SignalFire’s Health and PharmaTech Portfolio
Health and life sciences technology has been at the core of SignalFire’s portfolio for years: we’ve invested more than $400 million across nearly 30 companies to date. Some of our portfolio includes:
What we’re looking for
Health and PharmaTech requires a special team—one that’s experienced in navigating the nuances of these regulated industries and selling to key players in the space. Here are some of the traits we’re seeking:
Pre-seed and Seed
- Founders with deep domain expertise, authentic motivation, and a unique perspective on the pain point they’re solving for customers and a differentiated approach to solve it
- Exceptional speed of learning and execution
- Visionary leadership with the ability to attract talent, customers, and investors
- Self-awareness of strengths and weaknesses; coachable and humble, demonstrating a willingness to complement weaknesses with world-class expertise
- Creative business models that accelerate GTM with an (ideally) multipronged value prop across provider, payor, pharma
- MVP product that is 10x better than traditional alternatives
Series A–C
- Companies that demonstrate clear signs of product-market fit
- Founding teams who have GTM expertise specifically in healthcare
- For software companies, clear ROI for customers
- For care delivery companies, best-in-class patient outcomes and strong unit economics
SignalFire’s Health and PharmaTech team
- YY, aka Yuanling Yuan: Chess master turned investor focused on post-product market fit Series A–C health and pharma tech
- Sooah Cho: Former HealthTech product builder (CVS and Devoted Health), policy nerd, GTM strategist focused on B2B tech and AI for providers, payors, pharma from seed to scaling
- Tony Pezzullo: Multidisciplinary investor focused on both healthtech and cybersecurity
- Sahir Raoof: Former operator at Flatiron Health and Iterative Health, focused on seed and early-stage health and pharma tech
- Adele English: Multidisciplinary investor focused on post-product market fit Series A–C health and pharma tech and enterprise SaaS
- Eric Larsen (Advisor*): President Emeritus of Advisory Board Company, President of Towerbrook Advisors and former Executive Vice president of market strategy, United Health Group
SignalFire’s unique value adds
At SignalFire, we like to say, “think of us as an extension of your team that scales with you.” Beyond our in-house Beacon AI for help with recruiting, we built our full-time Portfolio Success team with world-class operators across a variety of functions, including the former chief people officer at Netflix for developing a team hiring strategy, the chief marketing officer at Stripe to optimize your go-to-market, and the former editor-at-large at TechCrunch to help you convert the value you deliver into a persuasive story. Our XIR program, meanwhile, pairs top industry leaders with high-potential companies as they scale.
We love helping healthcare companies increase their scale and impact so they can heal the world. Our approach of providing value far beyond our capital is why we have a net promoter score of 85+ among founders, with 85% saying we are the most valuable investor on their cap table.
If you’re working on a company in the Health and PharmaTech space, come talk with us. We’ll share our full research and connections, and hope to earn the chance to hear about your next fundraise. By unlocking the secrets trapped within our medical data, we can build a healthier future for everyone. We can’t wait to see what you’re building.
* SignalFire may engage Affiliate Advisors, Retained Advisors, and other consultants as listed above to provide their expertise on a formal or ad hoc basis. They are not employed by SignalFire and do not provide investment advisory services to clients on behalf of SignalFire. For more information on their specific roles, please contact us. Certain portfolio company founders listed on our website have not received any compensation for this feedback and did not invest in a SignalFire fund.
*Portfolio company founders listed above have not received any compensation for this feedback and did not invest in a SignalFire fund. Please refer to our disclosures page for additional disclosures.
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