Tobin Arthur • April 4, 2019

Throughout history, gatekeepers have erected barriers to keep people from having direct access to markets. Real estate buyers and sellers needed an agent. Travel agents had access to better deals. Brokerage houses maintained critical data for investing. Heck, even the church conducted mass in Latin so that you had to rely on a priest to tell you what was going on. (Perhaps that’s blasphemous to say during Lent, but I digress…)

The Internet has enabled massive, rapid disruption of the gatekeepers. Consumers now have more direct participation than ever before, and the gatekeepers are floundering.

This disruption is not slowing. We will continue to see major impact where it has already began, and we can expect to see untouched markets become targeted. Healthcare is no exception to this rule. The consumerization of healthcare has a host of implications, and doors are opening to a wealth of opportunity for entrepreneurs. (To be fair, self-diagnosing that red spot on your arm via WebMD and Google is not an especially byproduct of this democratization.)

As an investor, you’re aware of the importance of trends. This democratization of information and markets needs to be part of your calculus. It will create headwinds for traditional players such as brokerage houses and payers, while enabling new blood to thrive. The middle man is gasping for breath as more efficient mechanisms of connecting consumers with providers take hold. Technology-enabled connectors and consumers are going to come out as the winners.

But there is a catch. Disruption of inefficient markets doesn’t happen overnight, and it’s not cheap. It takes pools of capital to gain critical mass, and it takes time to move beyond the early adopter. Amazon is a shining example of these facts. While it’s now obvious how much impact the company has had on traditional players, 1998 told a much different story. Then it was novel, but Barnes & Noble, Borders, and others didn’t take the threat seriously. Even if they had, it’s unlikely that these stalwarts could have evolved fast enough to save themselves.

As you are evaluating startup investments, it’s important to look beyond the potential for disruption. Examine the time horizon that is required to gain market penetration, and the amount of capital needed to get there. The company should have research and thoughts on these topics, so the onus does not rest on you alone. If the numbers or the logic don’t add up, then it may be too early to invest. But, if the management seems to have ideas that are well-thought, and contingencies in place for when things go wrong, it may warrant further consideration.


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