People who live in India, or those who have visited the country, recognize the enormous potential of the healthcare market here. This potential is evident in the July 2010 CII-Deloitte healthcare report, which offered several mind-boggling statistics – there are eight hospital beds and six doctors for every 10,000 people; 80 percent of doctors and 60 percent of hospitals are in urban areas, even though 70 percent of the population lives in rural areas; despite having the highest number of infectious diseases, such as malaria and tuberculosis, India’s healthcare spending represents less than 4 percent of GDP.

Where some may see these numbers as evidence of the dismal state of Indian healthcare, we see immense opportunity. Technopak estimates that healthcare is a US$51 billion market in India today, and predicts the market will grow at a 15 percent CAGR for the next 10 years.

With so much potential, where exactly are the investment opportunities? For PE firms, investing in the healthcare space is the equivalent of being a kid in a candy store. At the recent VCCircle Summit on Healthcare Investments in India, one message came through loud and clear – much of the action is in building hospital capacity, whether that means refurbishing existing hospitals, creating chains of hospitals, or using other innovative business models, such as franchising.

As demand far outstrips supply in Tier 1 as well as Tier 5 towns, most of the hospital formats such as general, super-specialty, multi-specialty hospitals are growing rapidly. My sense is that investors are looking at hospitals almost as a real-estate play. However, there are plenty of challenges in the hospital management space, including getting the doctor/owner to either step up to a management role or move to a different role, and managing the operations professionally.

In spite of these challenges, these types of investments are less risky due to the growing demand, and they offer the potential to earn a high return over a relatively short period of time.

If you are a technology-oriented VC, like me, the healthcare space is the equivalent of a kid standing outside the candy store and looking in – salivating at the prospect, but not yet able to enjoy the candy. Investment opportunities abound in the healthcare technology space, but most involve early-stage companies with a long gestation cycle and challenging business models.

For example, electronic medical records (EMR) is a space that is going to grow and will potentially be huge. But when I walk out of one of the top hospitals in Mumbai with a sheaf of papers and x-ray images in hand, I wonder how long it will take to adjust the hospital’s workflow, change the mentality of the hospital’s staff, and deploy the technology needed to benefit from EMR.

The first step requires the deployment of hospital information systems (HIS), but that implies a certain level of investment in hardware and software that traditional hospitals are just now starting to make. Add to this the fact that healthcare is a highly fragmented industry, which means investment decisions must also address questions of scale and how they can be used to differentiate a hospital from the competition, and the challenges become more complex.

An area that I am excited about, but haven’t yet seen many deals, is medical devices. I believe India desperately needs innovation in this space. No, I don’t mean yet another glucose monitoring device, but devices that address the most pressing healthcare needs on a mass scale and at the right price points.

For example, point of care – or point of primary health care – devices that address detection and management of infectious diseases, such as malaria and tuberculosis, will not only help save lives but also ease the burden on the healthcare infrastructure if diseases can be detected and treated early. While there are certainly huge challenges for a young company to setup distribution networks and overcome the perception that hardware products made in India don’t meet quality standards, the availability of government funding in this space can definitely help address scalability issues.

There are some very interesting companies in this space – including PerfInt and Bigtec, among others – and I wish them the very best. I hope that they are highly successful and have a significant impact on the healthcare system by enabling faster, better and cheaper medical technologies.

Healthcare technology in India is a growing and dynamic market. While most of the products in use today are imported, we are starting to see some signs of the formation of a locally-developed healthcare technology industry in India. Most of these companies are in the early stages of their lifecycle and face tremendous challenges, but the potential rewards seem to be lucrative, not only financially but also socially. This is an area of investment where only a few investors are ready to venture at this point in time, but the sector could grow quickly to attract a wider investor base. Stay tuned.

(Views, observations and comments expressed by the author in this article are completely his own personal views and do not represent the views of the company in any circumstances.)

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