The world of pilots is changing, according to a panel of health tech investors speaking at the Venture+ Forum at HIMSS16 in Las Vegas moderated by Norwest Ventures General Partner Casper de Clercq. De Clercq moderated a panel of investors that included Lynne Chou O’Keefe, a partner at KPCB, Dr. Lucian Iancovici, senior investment manager at Qualcomm Ventures, and Dave Schulte, managing director at McKesson Ventures.

“We went through a period where pilots were du jour and anybody could get a pilot in a health system and, while they’re not all on the same timeline, there is this sense that we’re moving into the next phase,” Schulte said. “Pilots won’t be as easy to get, but they will be more meaningful and more valuable. That’s my hope anyway, we’re probably heading into a phase where pilots have defined commitment and a step that comes after that, instead of what a lot of people refer to as pilot purgatory.”

Several of the panelists talked about the fact that pilots, in and of themselves, aren’t that impressive to investors anymore. O’Keefe said Kleiner Perkins doesn’t even like to use the word “pilot” with their companies — they prefer the term “phase one implementation”.

“I think companies have to get pilots,” Schulte said. “You need real world exposure to patients and you need to prove you can integrate into payers or providers. But I think the common mistake is to conflate 30 pilots with actual commercial progress. Pilots are a natural first step, but they’re a very early milestone and there’s diminishing returns to each successive pilot.”

Health tech investing has lower returns than other kinds of investing, de Clercq said. But the same forces behind that disparity also make healthcare a safer investment in frothy times.

“I think healthcare is more insulated [than other fields]. People always need healthcare,” he said. “Healthcare IT is a little further out toward IT, but we don’t typically see 50 times our money. It’s really hard to make more than ten times your money in healthcare. So we are picking very carefully, we tend to be more conservative and value-based as opposed to aspirational investors, I would say.”

Iancovici agreed that healthcare investors are a more down-to-earth group.

“You have to be a fundamental investor if you want to have good returns and I think that’s happening,” he said. “We’re going from ‘growth at all costs’ to ‘how are you profitable?’ in most of our companies.”

The difference between long-term serious investors in healthcare and new entrants from the tech world is the extent to which investors recognize that B2B2C is overwhelmingly the business model in healthcare, O’Keefe said. That requires carefully choosing companies that are adept at both selling to businesses and engaging with patients.

“You can think of these business models as a two-step process,” she said. “B2B first and in a lot of ways those are really hunting licenses to go after consumers. Then you have to flip to a B2C model. But then as we know, some of the models are now going toward engagement not just per member per month so you get into a B2C model where you have to look at customer acquisition … and some of these more traditional B2C metrics.”

Finally, the investors cautioned startups against pitching an idea they’d heard a lot of times before. In particular, Schulte and de Clercq felt that population health and patient engagement were very full spaces, which companies shouldn’t try to tackle unless they’re really confident they have a new and effective idea.

“If you’re in a space with lots of companies, the response from your investor is going to be ‘I want to see more. I want more data, more results, I want proof that you’re actually different from the others.’” said Schulte. “If you are in a space where you are one of one, investors are much more likely to take a risk on that entrepreneur, that business idea.”