“software-first approach” towards human biology, medical research and patient care

SV Angel, one of the Valley’s best-known early-stage firms, says it’s starting to look heavily at health startups that take a “software-first approach” towards human biology, medical research and patient care.

The firm has always had a list of six to eight “megatrends” that it invests prolifically in. Right now, those are big data, social commerce, online-to-offline commerce, education tech, the sharing economy and the “Internet of things.” Now they’re adding “health informatics” to that list.

By that, SV Angel is looking for startups that “use software, IT and data science to help diagnose, treat, reduce and cure disease – at the physical, mental and emotional levels.” It’s a broader definition than just bioinformatics, because it encompasses medical records and other types of patient data.

Managing director David Lee, who is a cancer survivor, said that the firm finally feels comfortable with the idea that software is about to eat healthcare.

“I’m not a biologist. I don’t invest in biotech companies. We’re software investors first and foremost,” he said. “But the more I learned about bioinformatics and health records, the more I felt that the timing was ripe.”

A couple things are feeding into this. For one, the costs of genome sequencing are falling dramatically. The cost of sequencing a full human genome has gone from $100 million in 2001 to $8,000 today — even faster than Moore’s Law. Secondly, there are meaningful governmental and financial incentives to move toward electronic medical records. (It’s also just common sense to move away from paper records.)

He pointed to investments in companies like Counsyl (which I profiled earlier this week), Benchling and medical records startups like Elation EMR and Practice Fusion. There are also younger startups like Medisas, which is building software to help with patient hand-offs and transfers.

A few other firms like Founders Fund, Khosla Ventures and Felicis Ventures have carved out reputations over the past few years for aggressively investing in health tech. Note that no one here is backing companies that require an expensive, 10-year drug testing cycle overseen by the FDA. All of these firms tend to look for companies that have less regulatory risk, like in the medical devices space or with diagnostics and bioinformatics (although Founders Fund has done a few deals in FDA-regulated therapeutic biotechnology if they felt comfortable with the team and opportunity).

SV Angel has been one of the most prolific backers of social networking, real-time, mobile (and yes, even SoLoMo) startups over the past few years. So are they eating their words?

“People might say that consumer’s not hot again, but we’re still going to invest in consumer startups,” Lee said. “We don’t try to time the market.”

Lee explained the firm’s thinking behind its new focus in a blog post today:

We at SV Angel invest in “megatrends.” We pick 4-6 investment themes and invest heavily in each one. Some of these trends include: real-time data, online-to-offline consumption, social commerce, collaborative consumption, education and the internet of things.

We believe that there is a massive opportunity in the intersection of software and biology, which we broadly define as “Health Informatics.” This term has a formal definition but we tweaked it to make our own. It is a software-first approach to solving problems in human biology, medical research and ultimately, patient care. We think the timing is right for software developers to make an impact in these areas. The ultimate goal is to use software, IT and data science to help diagnose, treat, reduce and cure disease – at the physical, mental and emotional levels. If we see a bright founder working in this area, the opportunity will move to the “top of the pile” as if it’s in one of our other preferred trends.

The catalyst of this trend is the cheap, abundant data of two types – medical and molecular data. Cheap, abundant data combined with new ways of measurement and analysis leads to technological breakthroughs. There will be a flood of medical data driven by electronic medical records and the like. For example, the recentAffordable Care Act (i.e., “Obamacare”) basically pays doctors for complying with a federal mandate to move from paper to software-based solutions. By 2024 or so, every hospital will move to electronic records. Right now, it’s estimated that only 2% of hospitals comply with this law. Thus in ten years, the amount of data will increase 50X.

On the molecular front, the costs of sequencing technology is falling almost 5x faster than Moore’s Law. (The interpretation and analysis of the data lags this trend but is improving as well.) President Obama also recently announced a major national initiative to map the human brain in the same way that human genome was mapped back in the early 1990′s. This is just another example of “offline” or analog data being digitized and accessible to coders.

Google motivated a generation of bright computer scientists to learn the ins-and-outs of the advertising industry and turn it into a software problem. The original PayPal founding team went through the schlep work of learning the norms, regulations and other vagaries of the payment industry in the early 2000′s. And they used software to help re-invent it. And most recently, Palantir went through the hard, unsexy work of understanding the intelligence and defense industries and used software to attack hard, important problems. We want to back founders who want to do the same when it comes to health informatics.

We are already working with and investors in founders and companies in this area. Those include Counsyl, Benchling, Practice Fusion, ElationEMR, DNA Nexus, Medisas and Flatiron. Counsyl in particular is a flagship company. They were featured yesterday inTechCrunch. The founding team has a traditional computer science background. In fact, they even started the company thinking they were going to be a pure software shop. Ultimately, they built a lab using cheap, commodotized hardware – a trend that wasn’t in vogue then but is now. Ramji Srinivasan, the CEO of Counsyl, is the archetype of what we will look for. He will be an advisor to us on this effort.

Another advisor is Professor Atul Butte, a Stanford University School of Medicine professor, researcher and entrepreneur in medical bionformatics. He has been a thought leader and pioneer in the area of applying computer and data science to biomedical research. He is a sounding board and inspiration for us to pursue this trend and we’re thrilled to have him with us as we learn more about this fascinating area.

But perhaps the most critical advisors to us will be Jeremy Richman and Jennifer Hensel. They are scientists and lost their only child, Avielle, in the Newtown shooting. They courageously set up the [Avielle Foundation}(http://aviellefoundation.org/) to use science and technology to help understand why these tragedies happen. They encouraged us to think more holistically about how to reduce gun violence and how to use technology to identify and treat the root causes of these tragedies. Biomedical research, bioinformatics and brain health are all areas that need further investigation to understand the “why” as well as the “how.” Great software companies and entrepreneurs can play a fundamental role here.

On a personal front, I am a cancer survivor so I have a selfish reason to accelerate this vision. Scientists are more confident than ever that genetic mutations play a huge role in why cancer happens. I believe that great software companies in the mold of Google, PayPal and Palantir will help make cancer a chronic condition and quite possibly, cured.

To be clear, while this megatrend has philanthropic and personal benefits, this is not a philanthropic or personal venture. We believe this is a massive market opportunity for young hackers and founders. And we want to be crystal clear that this effort is consistent with our historical focus – great founders using software to address new and large markets.