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One of the funny things about running a web company in the healthcare space is that there’s a lot of interest from the venture capital community.   And about once a month, someone from a VC firm will call me up, ask me a few questions about the space, and conclude that yes, we don’t need their money.  (Admittedly, I start the conversations with, “I’m happy to talk to you, but we’re not looking for your money…” so this idea has been well-planted in their minds.)

Yesterday it was Michael Segal, from Bessemer Venture Partners, whose name I mention as I promised him I would: he subscribes to a Google Alert for such name dropping events such as these.  Bessemer is a fine fund — one of two family-run VC firms that I know of which has thrived — Venrock, from the Rockefeller family ventures, being the other. 

I always enjoy these conversations since they follow a predictable pattern: the caller has attended Harvard, is learning about the healthcare space, inquires about competitors, asks about our products, asks about the market, concludes with a vague interest and I suggest if they ever have questions about the space, they should feel free to call.  

I never hear from them again.

I’m not knocking VCs — in fact, someday I think it’d be fun to join the ranks – but their job is increasingly hard given the stock market, decreasing talent who can run large companies, and a shrinking need for their services.   Thanks to web technology becoming less expensive every day, the need for $10m or $20m has been cut to a few hundred grand.   That’s actually tough for VC firms since they want to put the most amount of money in the most likely winners and focus their portfolio on what they need to manage.  If you had a choice between putting $10m to work in one company or $1m in 10 companies, which would you pick?

I’d go for the latter, but that’s my outlook as a passive investor.  When you’re managing a $350m fund, you pick the former, believe it or not.

So why the ramblings about VCs other than to tweak my new acquaintance?  Nearly every HIT vendor needs to take outside capital to get a company going because of the sales cycle in healthcare.   If one were to custom build an application for a specific hospital and then try and roll it out globally, you will fail. 

The sales/marketing cycle for healthcare is easily 18 months, often much, much longer.   HIT companies need to capitalize accordingly.  In other words, hosptials are loathe to make decisions quickly and that drives up their costs, which requires outside capital to fund the sales cycle, and that drives up the costs.   And when the companies are big enough and need to pay back the VCs?  They go public… which drives up the costs.  So anytime you see large amounts of outside funding flowing into a healthcare company, especially when they are profitable, you can be sure prices will rise within 18 to 24 months.

All that said, I don’t see any other way for HIT vendors to get into the business except if you’re lucky or very, very good coming out of the gate.

In the (admittedly small) market that we are in, MedTouch is known for delivering results at a considerably higher quality and at a very fair price, still less than what others charge.  I think that’s such a competitive advantage, I’m not sure we’d trade that for a few million in funding we wouldn’t need anyway.  Maybe someday, we’ll have the Starbucks-sized idea, but for now, we’re content to get smarter with each new client – and boy, do we have some exciting announcements coming out regarding new clients — as the industry moves away from e-health and towards Health 2.0

More about that change, later this week…

UPDATE: A had some complaints from VCs about a comparison I made to the banking industry, which I thought was a fair critique given it wasn’t the point of this article.  Hence, rescinded. 

Remember when Cerner dissed Google Health?  This news came out today in the Globe about Google Health and BCBS of Mass:

Come this fall, members of Blue Cross and Blue Shield of Massachusetts will be able to go online to look up their healthcare claims and some medical records, which the insurer says will help patients manage their medical care and have more productive discussions with doctors.

The feature is being offered through Google Health, the new healthcare Web portal recently opened by the Internet search giant based in Mountain View, Calif. Blue Cross-Blue Shield said it is the first health insurer to sign on to the service.

Since Cerner sells its goods to hospitals and hospitals are reimbursed by health plans and those health plans are demanding more up-to-date, quality information on patient outcomes…  Hmmm.  Seems like those patients are going to want to use their Google Health accounts — backed by their health plans — when they show up for a doctor’s visit.

And kudos again to the great state of Massachusetts, the right in the center of healthcare innovation.  (Did we mention we had an office here?)

An article in the Boston Globe today discusses technology headed for the dustbin. I was surprised to see what fond memories I had of these objects. I’m sentimental about floppy diskettes, having spent hours as a kid installing various applications, games, and operating systems (DOS 6 was a dozen 1.44 disks, remember?). I remember the particular whir of the drive, how it sounded like a make-shift paper broom, quickly sweeping the floor. And whenever one spun for long enough, there came the faintest scent of warm, ionized plastic, as if your computer could double as an easy-bake oven.

It’s truly sentimental, I know, but increasingly people have feelings about their technology and companies are attempting to make the technology experience more tactile than cerebral.

The mainframe is long-dead; so too is the XT I built by hand its younger sister, the AT 286, and the super-fast 386 and the unbelievable 486 and so on. I think one wrinkle to Moore’s Law is that while computing speed doubles every 12-18 months, our ability to integrate it into our lives does not. The iPod has been around for nearly 10 years and finally tipped what, 3 years ago?

And that’s just consumer, personal technology. As a hospital CIO friend said, the healthcare industry is at the technology level manufacturing was in the 70’s.

In other words, floppy.