Buyers for Startups in Broken Markets
Who is buying what you're selling?
In 2015, Bill Gurley gave a talk called "Running Down a Dream." In it, he argued that the best founders don't just build products. They build companies around how value actually moves through their market. He was talking about marketplaces. But the principle is universal. Pink Floyd asked: "Did they get you to trade your heroes for ghosts?"
That's the question beneath every broken-market startup that raises a Series A round, celebrating a channel win it doesn't yet understand. The hero is the mission. The ghost is the company you become when the route you chose reshapes you in its image, and you didn't see it happening.
When building a startup that has a big, lofty mission, how often do we delude ourselves as builders, investors, or worker-bees that what we're doing day to day, the tactical way we go to market, the way we deliver value, the bugs we bash in the product, is aligning with that mission?
How many startups say they exist to make the world a better place, to make "x" more equitable, to deliver value to end users? And in truth, for how many is it true that their actual reason for being is to ensure they deliver shareholder value?
One common example of loosely used jargon is the notion that 'we're making healthcare affordable'. That sounds great. Healthcare is expensive. For everyone. Which immediately begs the question: who are they making healthcare affordable for?
Is it for the provider? So they can grow their margin between costs incurred for care and what they receive from the patient or the insurance carrier?
Or is it for insurers? Certainly, they'd like to reduce their capitation rate per patient, and if you're developing a product that helps them show their shareholders a potential for greater profits thats great for business.
Or is it for the Government? Are you doing something that will ensure that massive social programs like Medicaid, Medicare, Veterans Affairs can maximize the care they can deliver because the cost of delivering that care is now cheaper?
Oh, and yes, there's the consumer. The patient. Are you trying to make it more affordable for that person so that their insurance will cover it? So that their insurance will charge them less? So that their cash pay price is within reason?
The road to hell is paved with good intentions. And those intentions become nightmares when the recipient of those intentions didn't know they were for them at all. When exploring broken markets, the very markets that make up the pillars of the Anxiety of the Felt Floor, housing, education, dependent care, and healthcare, the first question any would-be founder must answer is whose problem are they solving? Who are they spending this time and capital to impact? But the truth is that 'who' is a bit misleading. The answer isn't a persona or an end user; it's actually a route. And each route creates a totally different company.
In B2B SaaS, we talk about buying committees: the group of stakeholders within a company who decide whether to buy your product. Billions of marketing dollars are spent to target each of those people: the Champion, the Decision-Maker, the Influencers, the Users, and the Blockers. In SaaS, you close one deal. In broken markets, you may be selling four different value propositions to four different entities who may actively want different things. Your end user, your payer, your regulator, and the intermediary standing between all three. They don't agree. They aren't trying to agree. And each route you choose determines which of them owns you.
The Routes
For any Founder currently building, you must ask yourself: which route do I plan to take to go-to-market? Is my team and business model equipped for what lies ahead?
Route 1: Consumer. Cash pay - when Mark Cuban says you're paying cost + 3% for any generic medication its directly geared towards a customer. This is what is charged to your credit card, and in return, you get the medication you expect. Simple. Direct. Minimal government interference as the pathway for approval is coded in law.
Route 2: Company P&L. Direct sale to a company that determines whether to purchase your product because it lowers their costs or increases their revenue. There likely is a buying committee; it could be B2B2C if you're providing an employee benefit. There may be nuances, such as a tax credit the company can claim if it purchases your product. Or there may be a grant they can apply for by purchasing your service. In either case, your product could survive if the grant or tax credit didn't exist - but they certainly make your path to go to market much easier.
Route 3: Government. Direct sale to a government entity. All have strict procurement rules, and all require a formal selling process. But who is involved and which entity vary dramatically. First, you have to determine at which level of government you will be entering: International, Federal, State, or Local? And if you're going local, are you talking about County or City?
Next, it's a matter of which entity within each level - if you're thinking international, the rules of engagement vary wildly country by country, and hiring specialized talent, particularly if you're coming from outside the country, is a requirement.
If you're thinking Federal, are you talking about serving Congress? In that case, you would go to an elected official, in addition to the operational organization managing the service within Congress, which owns its own RFP process dictated by Federal law. But if you're thinking about an agency, you will need to determine which agency and which team within the agency - for example, Medicaid, within CMS, has over 100 different programs you may be trying to sell to. Each has different rules, requirements, and team members you must interface with. Additionally, if you find there are entrenched incumbents, you may be waging a procurement lobbying battle, which will require you to lobby elected officials to help you get a fair shot at the procurement contract. And there may be additional adjacent agencies that may need to weigh in as well. Procurement is typically handled by a specialized consultant, and Procurement lobbyists are distinct from other lobbying methods. If you plan to sell to the State, you have another set of agencies with different rules from the Federal agencies and a different set of relationships required to put your hat in the ring. And City and County agencies as well. Furthermore, these public sales processes often take months to years to vet a contract and a vendor, and to offer a public opinion process. You may be looking at a legislature or city council vote in some cases, which could also require lobbying resources. Selling to the government as a startup is not advisable - and if you are planning to go this route as a beachhead, be prepared for this to be the only channel you're focused on for potentially years. Plan fundraising accordingly.
Note: I am not a procurement expert. The people who are gold, and they are paid as such. If you're going on Route 3, budget for them before you budget for your product.
Route 4: Government-Funded Company P&L. This is where it gets dangerous, because this is where most healthcare startups actually live and don't know it. You're not selling to the government. You're selling to a company. But that company's P&L is shaped, constrained, and in some cases dictated by government rules. Which means you think you're in Route 2, but you're actually in something else entirely.
Let's start with healthcare because it's the clearest example. Say you're selling to a Medicare Advantage plan. You need to understand that the plan operates under a medical loss ratio: a government-mandated split between what can be spent on care delivery and what can be spent on administration. If your product is an administrative efficiency tool, you're competing for space in the smaller slice of the pie, and your buyer is making a pure cost calculation. If your product is on the care delivery side, you're in the larger allocation, but you're now subject to clinical requirements, outcomes reporting, and a different set of stakeholders evaluating your product. Same health plan. Same building. Two completely different companies you could be selling to. And that's just Medicare Advantage.
Within Medicaid alone, there are over 100 different programs. In Route 3, you may be selling to those programs - but here in Route 4, you’re being governed by them. Each has different rules about what qualifies, what gets reimbursed, and who has the authority to buy. You don't get to say "we sell to Medicaid." You have to say which program, which state's implementation of that program, and where your product lands on their P&L.
Get this wrong, and you will build a product for a budget line that doesn't exist in the program you're actually selling to.
Now extend this beyond healthcare. If you're in housing, is the developer's P&L shaped by federal tax credits such as the Low-Income Housing Tax Credit (LIHTC)? Is the vendor you’re working with - the architect, the contractor, the developer - certified by the Government program that requires you to choose from their pre-approved vendors?
In childcare, is the provider operating on a subsidy that dictates what they can charge and, therefore, what they can spend?
In workforce training, is the program funded by a WIOA grant with its own reporting requirements and eligible expenses?
In every case, the company is your buyer, but the government is the architect of what they can buy, how much they can spend, and what hoops your product needs to jump through to qualify. If you do not jump through those hoops and ensure that the company you seek to buy your services from doesn’t have to monitor your product as well, you are in danger of losing the contract and incurring reputational harm for yourself and the company that purchases your product.
The final question, and the one that separates companies that survive from companies that die: how durable is the government mechanism underneath your buyer's P&L? Is it statute, which takes an act of Congress to change? Is it rulemaking, which a new administration can rewrite? Or is it an emergency declaration that has an expiration date? Your entire business model is sitting on top of that answer, whether you've asked the question or not.
Let's see how this routing played out in two different examples. One in dependent care and one in healthcare.
Case Studies
Papa started on Route 1: direct-to-consumer. "Grandkids on demand." Non-medical companionship for seniors. Consumer-paid, gig-style labor, clear demand. The product worked.
But Route 1 wasn't big enough. Limited by seniors' and their loved ones' ability and willingness to pay for their services, Papa sought a new revenue stream. And by golly, by the time of their 2018 seed round, they had found one! Papa was already pitching Medicare Advantage, pilots. By Series A, Humana and Aetna were announced as partners. They raised like DoorDash: Y Combinator, SoftBank Vision Fund, angels from gig-economy exits. $240M total, $1.4B valuation.
They thought they were expanding into a bigger market. That they had unlocked a new channel. That their 10x growth was intact and tracking. But really, they were actually switching routes - from the customer who pays in Route 1 to the government-dictated P&L spend of Route 4. And as you can imagine, Route 4 has completely different physics.
To satisfy Medicare Advantage payers, Papa had to exert tight control over its workers: mandatory training, compliance protocols, background checks, and incident response. That's what healthcare-adjacent channels on government-funded P&Ls require. To satisfy their gig-economy investors, they had to maintain contractor classification and marketplace margins. That's what their capital expected.
You can't have both. When you're serving vulnerable populations with regulated dollars, the gap between "gig platform" and "healthcare-grade oversight" isn't a spectrum. It's a cliff.
Over 1,000 complaints. Allegations of harassment and assault. A Senate inquiry. CMS scrutiny. 36 payers declined to renew. A misclassification lawsuit arguing that the very control Papa needed to satisfy Route 4 buyers made their workers employees, not contractors.
Papa didn't fail because they pivoted. They failed because they saw Medicare Advantage as a new pot of money rather than their inadvertent decision to become a new company. The danger isn't the desperate pivot. It's the confident expansion. Same product, same team, same capital, different route. The route had different physics. The physics won. Same Pal. Same house. Same grandmother. Completely different boss. The grandmother still thinks someone is coming to keep her company. The company's actual job is now retaining Medicare Advantage contracts. You may still be operating. But you're no longer the company you set out to build.
Carbon Health
Carbon Health didn't switch routes. They were always in or near Route 4 - government-funded P&L. Hybrid primary and urgent care, clinics plus virtual, a real product that worked. Founded in 2015, growing steadily. A legitimate company.
Then COVID-gold struck. Emergency use authorizations. Expanded telehealth waivers. Government-funded testing mandates. Suddenly, the ground underneath Carbon's Route 4 P&L wasn't just favorable. It was extraordinary. Demand exploded. They raised $128M in 2020. Then $350M in 2021 at a $3.3B valuation. They set a target of 1,500 clinics by 2025. They went on an acquisition spree: acquiring a diabetes management startup and a remote patient monitoring company. They partnered with CVS, which put in another $100M in 2023.
All of that growth was built on emergency declarations. Temporary government mechanisms with expiration dates. Not statute. Not even rulemaking. Remember the question at the end of Route 4 about the durability of the government action upon which your company sits? Is the ground underneath you statute, rulemaking, or an emergency declaration? Well, Carbon built a 1,500-clinic growth plan on the third one.
When the emergency declarations ended, the demand shifted. The expanded reimbursements contracted. The cost structure built for 1,500 clinics was now running 93. Over $614M raised. Over $100M in debt. On February 2, 2026, Carbon Health filed for Chapter 11 bankruptcy.
Carbon didn't make Papa's mistake. They didn't accidentally switch routes. They knew where they were. What they got wrong was the ground they were standing on. They scaled as if pandemic-era government mechanisms were permanent infrastructure. They treated an emergency declaration like it was a statute. Carbon rode a wave of explosive growth fueled by emergency-declaration funds. In healthcare terms, that's an infusion, not a lifestyle change. Infusions end. The cost structure they built necessitated that the IV drip be permanent.
The lessons from these two case studies differ: Papa's mission was to address senior loneliness. After the route switch, their primary mission became retaining Medicare Advantage contracts. You may still be operating. But you're no longer the company you set out to build. Whereas Carbon tells you that even the right route with the right signals will kill you if you build your forecast on temporary ground. Both are Route 4 casualties. One fell victim to a route selection problem. The other is a regulatory tiering problem.
Different mistakes. Same physics.
The Diagnostic Test
If you’re reading this as you’re furiously pulling together your board deck or your fundraising presentation, it is my sincere hope that you already knew what route you were on, but this post gave you a name for that feeling you had. In which case, best of luck on your next step in your journey!
But for others, I feel it is necessary to issue a ‘drift warning’: if you're already telling yourself you're Route 1 while your board deck points at Route 3, or you’re telling yourself this framework doesn’t work - I’m on multiple routes, then I would use the term from TLC’s famous song, “No Scrubs” in that “oh yes son, I am talking to you.”
Each route demands a different version of you; it's not a simple messaging fix or adjustment to your value proposition. This is not a polyamorous relationship. Saying "we sell to consumers and have a government branch" is the luxury of a growth-stage company with many product lines and many thousands of people. If you're reading this, you probably have neither. 1 can become 2. 2 can become 1. You are moving between private market buyers, making decisions with their own money. That is a pivot. Moving to 3 or 4 is not a pivot. It is a founding decision. And if you didn't make it at founding, here is why you likely can't make it now.
One more thing about these routes. They are all slow, heavy, and capped. None of them produces the 10x-in-10-years returns that your Series A investor's fund model requires. That's not a flaw in the route. That's a feature of the market. The mismatch between what your capital expects and what the route can deliver is the single most predictable cause of mission drift. If you haven't had that conversation with your investors, have it before your next board meeting.
Timing.
Your 10-year fund clock doesn’t have enough runway left for you to learn government procurement, build compliance infrastructure, and earn trust with buyers who have seen a dozen startups flame out before you.
Infrastructure.
Route 3 and 4 companies are not Route 1 companies with a regulatory wrapper. Palantir embedded engineers inside government agencies for years before selling a single license. Valon had to become a licensed mortgage servicer before a single bank would look at their software. You can’t bolt this on in year 4 when your Series B deck needs a new growth story.
Mission.
This is the one nobody talks about. The moment you enter a government-funded channel, you optimize for their metrics. Medicare Advantage doesn’t care about senior loneliness. It cares about cost reduction per member. The product that serves that buyer isn’t the product you started with. Your mission doesn’t survive the transition. And you won’t notice, because the revenue feels like validation.
The Diagnostic:
By now, you’ve already determined what route you think you’re on, what some of the challenges may be, and this diagnostic will enable you to check your own assumptions.
Each question below serves as a gate. You don’t get to ask the next one until you have answered the current one.
Question 1: Where are you going?
Where does your growth model actually point? Not your launch channel. Not the market you tell your team about. The one in your Series B model. If the answer you give your team and the answer on your pro forma are different, you are already drifting.
Question 2: Have you built for where you are going?
Have you built for that channel's optimization function? Not adjacent to it. Not "we can adapt." Built for it. What does your payer optimize for, and is that compatible with what your end user needs? If the answer is no, you are operating two different companies, and you may not know it yet. If your growth model points at Route 1 (consumer) or 2 (P&L), have you built for that buyer's decision calculus? Does your buyer actually have the budget authority and willingness to pay what you need to charge?
If it points at Route 3 (government) or 4 (government-funded P&L), have you built for the optimization function you're inheriting? Do you understand what your buyer actually optimizes for, and have you built a company that serves that optimization function?
Question 3: How solid is the floor that you’ve built upon?
How durable is the ground underneath you? If you're on Route 1 or 2, and your honest answer is 'none,' that's valid. It means your risk is market risk, not regulatory risk. Still substantial but a different approach.
Now, if you’re on route 3 or 4, is the government mechanism that shapes your buyer's P&L a statute, a regulation, or an emergency declaration? Carbon Health built a 1,500-clinic growth plan on the third one. Ask yourself which one yours is. Then ask what happens to your revenue model if it changes.
Question 4: Can your capital survive the wait?
Is your capital structure aligned with the timeline your route requires? Government procurement takes years. Regulatory licensing takes years. Building trust with buyers who have been burned by the last ten startups takes years. If your investors can’t wait that long, investor capture is already in the math, even if nobody in the room feels it yet.
**If you stalled at Question 1, Questions 2 through 4 are irrelevant. Fix the first one.
It CAN be Done
These aren't all healthcare companies. They're not all felt floor companies. And that's the point. The physics are the same whether you're selling medication, mortgage servicing, childcare, or intelligence software. The pattern holds across any market where the route you choose determines the company you must become.
The pattern is the same in every case. They picked a route. They built the company that the route required. They stayed the course.
Route 1:
Cost Plus Drugs started on Route 1. Patient capital. Cost plus 15% plus $3. Built for the consumer. Then expanded to Route 2, direct contracting with self-insured employers, cutting out the carrier entirely. Cuban moved from 1 to 2. Not from 1 to 4. Cost Plus didn't chase Medicare Advantage. They didn't pursue government reimbursement. They built a parallel payment system inside the employer-sponsored structure and routed around the carrier channel. That's a pivot between private market buyers. The physics didn't change. The mission didn't change. The product got a bigger audience.
Route 2:
Valon. Mortgage servicing. They didn't build software and try to sell it to banks. They became a licensed mortgage servicer first. Built the regulated operating company, proved they could survive the compliance architecture, and then sold the software to their own competitors. The banks bought because Valon had already done the thing the banks knew was hard.
Also, TOOTRIS. A company that connects employers with childcare providers. Employer pays, employee gets care, provider gets stable revenue. Route 2. What sweetens the deal is Section 45F, a federal tax credit that has existed for 25 years and has been used by almost nobody. Federal legislation, the One Big Beautiful Bill Act (OBBBA) tripled the rate to 40% and raised the cap to $500K, and for the first time, allowed employers to use third-party brokers like TOOTRIS rather than building their own facility. But the business works without the credit. Employers buy because childcare affects retention and recruiting. The credit makes the sale easier. It doesn't make the company.
Route 3:
Palantir. Peter Thiel bankrolled it personally. In-Q-Tel, the CIA's venture arm, was the first institutional investor. The CIA was their primary customer for years. Every VC on Sand Hill Road rejected them. They didn't pivot to enterprise to prove demand. They embedded engineers inside government agencies and co-built the tools. They stayed on Route 3 for over a decade before commercial revenue became meaningful. The government's credibility became the commercial sales pitch. They sold "government grade" to the enterprise because they had actually been government grade.
Route 4:
Iora by One Medical. Oak Street by CVS for $10.6 billion. CareBridge by Elevance for $2.7 billion. MDLIVE by Cigna. Signify by CVS for $8 billion. None of them drifted. All of them got eaten. Route 4 works. But the physics of that route mean your most likely success is acquisition by the payer, not independence from it. If you need to own the company long term, that's information. If you're building something valuable enough for the channel to absorb, Route 4 has a playbook: build for acquisition.
Five companies. Four routes. One pattern. They picked a route. They built the company that the route required. They stayed.
The founder who answered "who pays?" without understanding what the answer would cost them didn't trade their heroes for ghosts on purpose. Nobody does. The route made the trade for them, one board meeting at a time, one channel pivot at a time, one "we can adapt" at a time. Until the company in the mirror didn't match the company in the pitch deck. And by then, the physics had already won.