Challenges for Healthcare Startups

Astarte Medical: A $14 Million HealthTech Closure

In December 2023, after seven years of operation, Astarte Medical, an innovative startup in the health tech space, closed its doors. Despite a strong start, raising $14 million in total funding, the company ultimately encountered challenges it needed help to overcome.

Astarte Medical was founded in 2016. It aimed to revolutionize care for premature infants. The company has developed cutting-edge software solutions, such as its flagship product, NICUtrition, to monitor and optimize feeding and nutrition for babies in neonatal intensive care units (NICUs).

Key Milestones:

• 2019: Astarte secured $5 million in Series A funding.

• 2020: The company signed its first hospital contract.

• 2021: They raised an additional $7.6 million in investment.

Why they failed:

• Lack of Product-Market Fit (PMF): Astarte Medical secured contracts with only four hospitals during its existence—far fewer than anticipated. Warren mentioned that hospitals were reluctant to invest in digital solutions, lacking strong incentives to innovate. Initially, the team attributed this reluctance to the COVID-19 pandemic or broader market downturns, but they eventually concluded there was simply no product-market fit for their offerings.

• Impact of the Pandemic: While the pandemic initially spurred increased investment in health tech startups, it also strained hospital budgets. Hospitals prioritized surviving the crisis with lower margins over adopting new software solutions.

• Operational Hurdles: Astarte faced several operational challenges, particularly in integrating their software with Electronic Medical Records (EMRs) and navigating the complexities of healthcare data systems, which hindered their ability to scale effectively.

Why the healthcare industry is tough for startups:

• Limited Incentives for Innovation: Healthcare institutions need more motivation to embrace new technologies. Unless pushed by external pressures, such as the pandemic, hospitals are content with sticking to familiar processes. Since there are no significant penalties for not innovating, many healthcare providers avoid adopting new solutions, preferring stability over change.

• Easier to Sell Devices than Software: Hospitals regularly purchase medical devices but are far more hesitant about software. This reluctance made it particularly challenging for Astarte to sell its digital solution to hospitals.

• Unseasoned HealthTech Investors: Warren observed that many investors jumped into the healthtech space during the pandemic without a deep understanding of its market dynamics. This led to a rush of capital being injected prematurely into companies.

Project Ronin

Project Ronin, a startup focused on developing cancer-related software and co-founded by Oracle's founder Larry Ellison, shut down. This development sheds light on the challenges within the Health Tech industry and illustrates startups' significant obstacles in this complex field.

The Product

Founded in 2018, Project Ronin aimed to create software designed to assist oncologists in quickly accessing crucial patient data. The same year, they raised $10 million in a single funding round. The company developed an app tailored for cancer patients, featuring custom surveys that gave doctors more detailed information on patient symptoms. Additionally, they introduced the Longitudinal Timeline, a dashboard offering a comprehensive and easy-to-understand overview of patient data. Their white paper claimed that this dashboard reduced the time required for doctors to gather patient data from various sources from 45 minutes to just five. They said approximately 90% of patients and doctors were satisfied with Project Ronin's software. Given these promising outcomes, why did they shut down?

Reasons Behind the Shutdown

Project Ronin struggled to secure paying customers and needed more financial resources to keep operating. This scenario mirrors the situation faced by Astarte Medical.

Both companies developed products that provided tangible benefits to hospitals and patients but faced significant challenges in convincing hospitals to adopt and pay for their solutions. Even when a product can improve operations or reduce costs, that doesn't guarantee a smooth sales cycle in industries like HealthTech. Validating an idea and confirming a market demand is critical to a product's success.

Assessing Market Viability

Project Ronin and Astarte identified key issues in the healthcare space and built solutions to address these problems. They thoroughly tested and measured the impact of their solutions to ensure they would reduce hospital costs while improving patient outcomes.

But does this mean they fully validated their ideas? The short explanation is this: it doesn't matter how effectively your product solves a problem if your customers aren't willing to pay for it. Without a paying market, you lack PMF.