An Investor POV on Healthcare IT

feat. LightSpeed Ventures

Hey founders,

Welcome to another edition of My Unicorn Club - The Startup Newsletter - It’s a biweekly FREE newsletter written by those on this side of the table (VCs & Investors) for those on that side (Founders & Startup Enthusiasts).

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In today’s newsletter, we do a breakdown analysis of a recent Investor Report published by LightSpeed Ventures Partners.

For over 2 decades, LightSpeed has been an early believer in some of the most innovative companies in the world. They stand behind founders from Seed to Series F and beyond. Have an idea? Share it with Prateek (Investor @ LightSpeed) at prateek@lsip.com

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The Healthcare IT Gold Rush: $4.1 Trillion and Counting

The US healthcare market is massive:

• $4.1 trillion total healthcare spend in the US (~25% of GDP)

• $1 trillion spent on administrative functions alone

• $800 billion total spent on healthcare personnel

• $85 billion spent on Revenue Cycle Management (RCM) workflows

• $52 billion people spend on RCM (30% outsourced to service organizations)

What's most striking? This market has doubled in size over the last decade, creating an unprecedented opportunity for tech disruption.

Where Startups Can Strike Gold?

To understand where the opportunities lie, one should follow the money, specifically, the journey of a patient claim to identify gaps.

Here is the patient claim journey for you:

Front End (Pre-Treatment)

• Referral intake

• Patient onboarding

• Appointment scheduling

• Eligibility & benefits verification

• Prior authorization

Mid Cycle (Treatment to Claim Submission)

• Clinical documentation

• Medical coding

• Claims management

Back End (Post-Claim)

• Denials management

• Patient billing & reconciliation

• Patient follow-up

The Perfect Storm: Why Now Is The Time

Three critical factors make this the ideal moment for healthcare IT startups:

1. Severe Labor Shortage & Physician Burnout

• 60% of RCM roles were vacant in 2023

• 1 in 5 physicians are planning early retirement

• 1 in 2 physicians report burnout symptoms

• For every hour with patients, physicians spend 2 hours on documentation

2. Declining Provider Margins

• 2 in 5 hospitals had negative operating margins in 2023

• Labor costs are skyrocketing across the board

• Rising insurance costs are driving patients to seek treatment elsewhere

3. Technological Revolution

• LLMs and agent-based systems now deliver real ROI by fully replacing human effort

• Modern solutions sell end-to-end services, not just software

• Despite the trillion-dollar market, most healthcare processes remain dominated by faxes, landlines, and handwritten notes!

The India Advantage: Cross-Border Opportunities

For my Indian founder readers, there's a unique cross-border opportunity:

• $2-3 billion of healthcare BPO work already outsourced to India

• Major players include Omega Healthcare ($1B+ revenue), IKS ($300M+), and GeBBS ($250M+)

• Three key advantages:

  1. Deep understanding of US buyers from existing outsourcing relationships

  2. Opportunity to build large-scale proprietary datasets in emerging markets

  3. Access to high-quality technical and English-speaking talent

Winning Strategies identified by Investors

Product & Tech

• Admin workflows are low-hanging fruit: Front and mid-office automation showing widespread adoption

• Voice AI's moment has arrived: Infrastructure quality has reached a tipping point

• Pick your lane: Successful companies focus on specific workflows within specific therapeutic areas

Go-To-Market

• Remote selling doesn't work: Founders must relocate to the US earlier than expected

• Early investment in demand gen pays off: Hiring experienced AEs from the beginning

• Advisors open doors: Especially critical for founders not native to healthcare

  When you buy me a coffee, it's more than money to me; it's a validation of my work and motivates me to bring more value to the community and pay forward

Success Stories From The Field

Case Study: Innovaccer's Journey to $ 200 M+ ARR

Innovaccer provides an instructive roadmap for founders:

1. Started horizontal (2015): Generic data analytics for research institutions

2. Focused on healthcare (2017): Made the hard decision to "fire" non-healthcare customers

3. Found precise insertion point (2018): Built population health management platform for MercyOne

4. Founder-led scaling (2020): Reached $ 50 M+ ARR through hands-on founder selling

5. Expanded product suite (2021): Launched Health Cloud with CRM, marketing, and AI applications

6. Reached centaur status (2023): $200M+ ARR with 18+ products serving major health systems

Their key insight: "Premature diversification is one of the big reasons why companies stall. We expanded beyond population health only after hitting notable scale."

My 2 Cents on the topic

After mentoring dozens of healthcare startups and speaking with investors across the sector, I'm convinced we're at an inflection point comparable to the cloud revolution of the 2010s.

What makes this moment unique is the perfect alignment of:

1. Extreme market pain (labor shortages, margin pressure)

2. Technological readiness (AI systems that truly replace human labor)

3. Buyer receptivity (healthcare providers actively seeking AI solutions)

I'm particularly bullish on voice-first AI applications that eliminate administrative burden. The most successful founders I'm working with are focusing on narrow, well-defined workflows where they can deliver 10x improvements in efficiency while significantly reducing costs.

For founders exploring this space, my advice is threefold:

• Live with your customers: Success requires deep operational understanding

• Solve complete workflows: Don't just improve processes, eliminate them

• Price for outcomes: Charge based on value delivered, not seats or licenses

Healthcare IT used to be a graveyard for startups due to long sales cycles and implementation nightmares. Today, it's becoming a land of opportunity for those who can deliver concrete ROI by replacing human labor with intelligent automation.

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Until next time, signing off
Sayanee Bhowmik

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