Cheap Thoughts

Investment is the healthcare space has been a hotly debated topic for some time now.  Most people agree that the opportunities are huge, but many VCs and CEO's disagree on the prospects of success.  The regulatory environment in healthcare is so convoluted it has scared more than a few investors away.  Even Google co-founder, Sergey Brin, has said that it is such a difficult space to work in he would prefer to spend him time and money elsewhere.  

What my experience at Employee Navigator is teaching me is that healthcare is undoubtedly one of the most difficult industries to innovate in (financial services would be up there too) but there are huge gains to be made by companies who are willing to put in the time necessary to have a real impact.  In our experience that literally means dragging every insurance carrier we speak with until they understand what we're doing.  We're going to keep explaining to them why we're right until they agree with us.  

The opportunities to make a quick buck in healthcare are few and far between, my hope is that the slow moving environment does not scare away outside capital.  

Protecting the consumer is quickly becoming one of the most frustrating statements I hear on a regular basis.  Uttered by various  regulatory bodies in response to new and innovative companies, it is a popular way for them to portray new companies like Airbnb, Uber or Zenefits and Tesla (as they relate to car dealers) as a threat to the general public as opposed to a threat to their way of life.  It is usually follow by something like, "We welcome innovation but only if it occurs within the existing legal framework everyone else operates within."  These bodies need to understand that that is not how innovation occurs and that if they truly cared about the consumer they would work with new players to help their industries progress and evolve.  To be against this type of innovation is actually to work against the consumer and their interest, because the technology would not exist if it was not being used/bought by people who previously had access to nothing of the sort.

President Obama came out yesterday and voiced his strong support for net neutrality.  I will be the first to admit that I do not agree with a lot of his policies, however I don't think it's possible to overstate the importance of net neutrality if America want's to remain the most innovative country on earth.  Net neutrality has been on of the fundamental building blocks that has enabled American entrepreneur's to build innovative companies at an astonishing rate, improving the lives of billions of people around the world..

Everybody deserves to be treated the same, which is the way the internet has always operated, net neutrality is just embracing the way it has always been.  To give the large telecoms the ability to prioritize or degrade certain internet services would threaten the internet as we know it.  At the end of the day let's focus on protecting consumers, not corporations.

America ranks 26th in download speeds globally, roughly 1/3 as fast as Hong Kong.  The telcos continue to argue that they cannot afford to invest in their networks and yet Verizon and AT&T have over $20bn in net after tax income cash and Comcast is somewhere in the neighborhood of $7bn.  Maybe if they were investing in their networks so we can have the 100Mbps that people in Hong Kong get, I’d be a little more sympathetic to their argument (Thanks, Fred Wilson).

If you're ever wondered how regulation affects innovation just look at the industries that have been the slowest to see any truly disruptive technologies take hold.  Healthcare and financial services stand out to me as two of the slowest moving industries in the US, and it is no surprise that they are also the most highly regulated (and two of the most important).  Progress is slow, changes are incremental, and its my hope that all of this will not dissuade entrepreneurs from attempting to change things.

In a recent interview Google co-founder Sergey Brin was quoted saying that healthcare is so heavily regulated it is not a place where he wants to spend his time.  How bad does it have to be when one of the smartest most innovative thinkers of our lifetime decides its not worth his time?  My firsthand experience dealing with insurance carriers further adds to just how slow and backwards the industry is.  They generally lack any cohesive technology strategy and still rely on processes and legacy systems that are decades old.  There is one insurance carrier who's primary backend technology system is referred to as "the 72," which references the year the system were put in place (yes that is 1972).  Larry Page was also quoted in the same interview as Brin saying, "Imagine you had the ability to search people's medical records in the U.S.. Any medical researcher can do it. Maybe they have the names removed. Maybe when the medical researcher searches your data, you get to see which researcher searched it and why. I imagine that would save 10,000 lives in the first year. Just that. That's almost impossible to do because of HIPPA. I do worry that we regulate ourselves out of some really great possibilities that are certainly on the data-mining end." 

Financial services is not much better, and the financial crisis of 2008 didn't make things any easier.  Regulations like Dodd Frank, Sarbanes–Oxley and the myriad of other  other laws passed over the years have made finance very unattractive for many entrepreneurs.  Not just because entry into these markets is costly and complex but because these regulations end up being used by incumbents as defensive tactics to maintain the status quo.  We are seeing progress though.  Crowdfunding and the recently passed JOBS Act (that allows private companies to start using public markets in their fundraising efforts) are showing a ton of potential.  Additionally, services like Wealthfront and Betterment are targeting another mainstay, financial advisors and their high management fees. Perhaps most encouragingly is Bitcoin, which has the potential to sidestep most of the existing roadblocks in a variety of capacities (which I won't get into here).     

It's my hope that the next generation of policymakers and bureaucrats will see how regulation has brought these and other industries to a relative standstill and will work to create policies that encourage innovation, not hinder it.  It is exactly because these two industries in particular are so important that we should be inviting innovation and experimentation.  The consequences of inaction is greater than the consequences of action!