News

Reassessing Our Priors

Over the last 5 years the UK digital health ecosystem has seen over £7bn invested across 1k deals. As an industry, we’ve funded market maps full of software point solutions and digital health “infrastructure” (1,2,3,4,5,6,7). Don’t get me wrong, SaaS has been an epic business model, but in deeply service based industries like healthcare, did it really change much? When looking at soaring waiting lists, falling life expectancy and terrible clinician retention the devils advocate might suggest healthcare entrepreneurs have been more interested in solving for 80% gross margins & recurring revenue than the actual problems western healthcare systems and their patients face.

UK Digital Health investment over the last 5 years. Source: Galen Growth

While a reductionist “technology will fix NHS productivity” is a compelling narrative for a VC, it’s clear the issue is more nuanced; a slicker UI on your EHR won’t stop an underpaid junior doctor moving to Australia. However, it’s certainly part of the solution, e.g. more than a third of the average clinician’s working hours, and 25% more time than in 2015, is spent on documentation, a task perfectly suited to the capabilities of language models. The trouble here for the NHS and other providers, who suffer from tight margins and must optimise for short-term incentives, is a lack of ability to invest in such technology to realise long-term efficiencies. A huge number of useful software solutions exist to augment the way healthcare is delivered, but for myriad reasons they failed to get sufficient adoption to deliver productivity improvements.

If you follow the incentives, I’m not sure entrepreneurs can really be blamed. Large VC funds have become quasi media orgs setting the narrative for start-ups and prospective entrepreneurs around their own heuristics. Over the last 15 years that dogma has been SaaS = good.

But is now the time to reassess our priors? If software generation is on a cost curve to zero and we’re entering a world of abundant intelligence, then where does value accrue? Asked another way, what factors will decrease the marginal returns to abundant intelligence? Where are the bottlenecks?

Good luck navigating these as a SaaS

We believe across industries it will be the underlying service providers or asset owners that will be best positioned to navigate these constraints. Such strategic control enables you to mandate use of new technology and own the upside, while avoiding navigating increasingly competitive B2B sales cycles to convince customers — who don’t know their Apache Iceberg from their Iceberg Lettuce — the value of your technology. In a world where the NHS is still using fax, there is real alpha in being able to own the operational upside of innovations like digital scribes, telehealth and decision support within your service.

OK Jamie, great VC intellectual posturing, but good luck seeding a new healthcare provider in the UK. Sigh. At least I thought …

We’re very excited to be partnering with Mark, Darshak and the entire Paloma Health team by leading their £2m inception round, alongside our friends at Heal Capital.

Paloma Health is building a new tech-enabled provider of community specialty care, starting with Children’s Autism Diagnosis & ADHD Diagnosis and Treatment. Paloma’s core clinical operating system is built agnostic to specialty or geography. By owning the end-to-end service, Paloma Health has the autonomy to restructure clinical pathways, infusing technology where appropriate and making use of alternative staff types to deliver care more efficiently for patients. Paloma is oriented around its aim to improve people’s quality of life and advance medical knowledge.

If this sounds hard & complicated, you’d be correct. This isn’t building software widgets to launch on Product Hunt, Paloma Health is delivering care to real patients. Fortunately, in Mark & Darshak we have the perfect team. Both repeat healthcare entrepreneurs, having respectively co-founded Oviva, a digital therapeutic for weight management that’s scaled across Germany, Switzerland & the UK and Newmedica, one of the UKs leading providers of Ophthalmology services, which was wholly acquired by Specsavers in 2021.

Speed.

Independent Investigation of the National Health Service in England

As we can see in the graph above, the waiting list situation in the UK is grim. But zooming in to the graph below, perhaps we have some small enclaves of hope. Why have specialities like Ophthalmology bucked the trend and actually improved their waiting list performance since Covid-19?

The Kings Fund

Well the answer may partially be in Darshak’s first entrepreneurial endeavour, NewMedica. It turns out the NHS and private sector working together to reduce waiting lists can be quite effective. So much so that in January 2024 the government strengthened Blair era Patient Choice accreditation pathways to more easily enable private providers like Paloma Health to provide services on behalf of the NHS.

And so far, it’s been all action. In less than 6 months Mark & Darshak have taken Paloma Health from concept to gaining provider accreditation, recruiting a clinical team, building a new care pathway, tech stack and most importantly delivering their service to the first patients. 6 months would be fast for any sector, but in healthcare its frankly unheard of!!

So as we rotate from software to tech-enabled services, perhaps entrepreneurs can reassess their priors. If software becomes commoditised then those that provide the service or own the underlying assets stand to gain. In Paloma Health’s case, the opportunity is in building a new tech-enabled healthcare provider.

Pretty exciting, no? If you rid yourself of your SaaS priors, can you earn the right to disrupt an industry? When delivering an outcome/service you need to guarantee outcomes, which aligns the incentives of the provider with the customer’s goals. Conversations now shift from software features and functionality to business value and risk mitigation.