"Healthcare IT" is a hot segment of the early stage investment market, both for entrepreneurial companies operating in this space and for private equity, venture capital and angel investors seeking to fund these types of companies. Issues confronted by healthcare IT companies searching for capital, as well as their potential investors, extend beyond the "usual" evaluation of strengths, weaknesses, competition, scalability, etc., and include a specific focus on IT platform security and privacy safeguards. Consequently, while all of the more typical due diligence questions are being asked by the investor and its legal counsel, target companies and their potential investors should also be focused on questions such as the following:
- What is the existing state of the regulatory environment governing healthcare IT companies and does the target company exhibit a thorough understanding of this environment?
- Are "best practices" privacy and security protocols being used by the target company?
- Are ownership rights in the underlying data used by the target company properly addressed and adequately documented?
- What is the target company's level of exposure to claims from customer, supplier and/or subcontractor claims?
A healthcare IT company should be aware of the issues raised in these questions as early as possible in its life cycle, and should, at a minimum, address them as a centerpiece of its product development process. From the investor's perspective, devoting adequate time and resources to these issues during the due diligence process will allow it to properly identify potential risks prior to making its investment. These concerted efforts will help both sides ensure the greatest possibility of a mutually advantageous investment transaction.
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