Why we started Healthy Ventures

May 19, 2015
Why digital health now

The digital health market is projected to be $233 billion by 2020, up from $60 billion today.[*] It is one of the fastest growing segments of our economy. As investors, my partner and I were eager to get exposure to this segment. As consumers, we were impatient to see baseline technologies found everywhere else to be applied to healthcare. As entrepreneurs, we saw that the convergence of consumerism, changing care delivery models, and digitization were creating the environment for health-technology to boom.

We looked for how we could invest in the sector. Last summer, when we couldn’t find a pure-play investment vehicle, we decided to start Healthy Ventures. To be clear, great firms are investing in digital health today, but it is a small part of what they do. Typically they’re either technology-focused or life-science-focused firms, where digital-health is a small part of the total portfolio. Because digital health is so new and behaves both like healthcare and technology, we believe singular focus, an active approach to investments, and our close ties to industry incumbents – companies, providers, hospitals, payers, funders, and talent – are essential.

Why seed stage

Looking at the digital health ecosystem, it’s clear there is a gap at the seed stage. Many new companies go through an accelerator. We have several world-class accelerators in the Bay Area and over 87 in the United States.[†] For digital health companies, the average time between accelerator/seed and Series A is 18-24 months and $3-5 million. Even in this era of mega-seed rounds, companies typically need additional financing prior to raising their Series A.

Our model is to invest in the seed round and then participate in the Series A. We help the entrepreneurs achieve product-market fit, get early customers, progress the business model, and put together their Series A pitch. We believe early-stage investing is the right approach now because the sector is emerging, business models are evolving, and companies can fail fast and hit key inflection points early. We look for digital health entrepreneurs attacking large markets with a defined pain point and an early product. Companies should be able to secure key valuation inflection points economically, allowing them to raise additional capital in order to scale, not to prove the business model.

Where within digital health

Digital health is a diverse sector. While we expect to invest some of our fund opportunistically, we currently are focused on three key areas:

  1. Infrastructure
  2. Ad-tech meets healthcare
  3. Genomic services

Each of these areas represent foundational opportunities that have the greatest market readiness today combined with an addressable market that can support billion dollar companies. Furthermore, our past functional roles and industry contacts power our ‘edge’ in identifying, assessing, and operationalizing opportunities in these three areas.

1. Infrastructure

While the future of healthcare is technology-enabled, the infrastructure required – the “pipes” – are not in place yet. Today, companies cannot create a software application, like a population health solution, and seamlessly plug into hospital systems. Instead, this requires separate, often expensive integrations at each provider, an enormous barrier to scalability. Similarly, insurance eligibility, payment, and billing require separate integrations with multiple systems. We saw this in the successful build out and exit of internet companies: infrastructural B2B companies that enabled their counterpart point-solution companies to execute better are handsomely rewarded. 'Picks and shovels' will manifest as benefits eligibility and transparency, payments, and data provisioning products.

2. Ad-tech meets healthcare

Players in healthcare aren’t equipped to interact with patients who behave like consumers because they haven’t had to, until now. Amidst the dramatic redesign of the consumer demand curve, we’re looking for solutions that apply the best practices borne out of ad tech and consumer marketing over the past two decades. Along many vectors, these companies will arm doctors, hospitals, and payers with the know-how to engage with the newly empowered consumer patients to yield far better end-user experiences, cost efficiencies, and clinical outcomes.

This may be enabling payers and providers to ‘talk to’ patients like people so they actually respond. Or it may be enabling those shopping for health insurance to have visually appealing, specifically customized, and functionally optimized U/I’s consistent with what they use to make purchase decisions throughout the rest of the web.

3. Genomic services

The promise of genomics is to revolutionize treatment of disease; to personalize therapy. We are at the beginning of the genomics revolution. If the price and performance of sequencing continues on its current trajectory, in a decade sequence data will effectively be free. When that happens, an ecosystem will evolve to turn that data into insights, into treatments, into value. Genomic information is a true network effect market and when the fly-wheel gets going, it will be a force in healthcare.

We look forward to working with incredible entrepreneurs to solve real problems. Now is the time to leverage the power of technology to reimagine healthcare.

[*] Statistica, “Value of Global Digital Health Market By Segment,” 2013.

[†] Suennen, Lisa “Survival of the Fittest: Healthcare Accelerators Evolve Toward Specialization.” California Healthcare Foundation, 2014.

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