Con­fi­dence in ‘se­lect­ing the win­ners’

Modern Healthcare - - Q & A -

Catholic-spon­sored As­cen­sion was among the first health sys­tems to set up a ven­ture cap­i­tal arm to in­vest in health tech­nol­ogy com­pa­nies. Since 2001, As­cen­sion Ven­tures has raised $800 mil­lion with hospi­tal part­ners to nur­ture startup com­pa­nies. To­day, more than 60 health sys­tems have their own ven­ture cap­i­tal units. Mod­ern Health­care South­ern Bureau Chief Dave Barkholz spoke with man­ag­ing direc­tor Matt

Her­mann about the prom­ise and pit­falls await­ing hospi­tal sys­tems just get­ting into the ven­ture cap­i­tal game. The fol­low­ing is an edited tran­script.

Mod­ern Health­care: Are these funds a wise use of hospi­tal cap­i­tal?

Matt Her­mann: Yes. But you’ve got to tie all your tactics to the strategies of the or­ga­ni­za­tion. We have 13 health sys­tems that are lim­ited part­ners in our funds. There’s a wide range of rea­sons as to why they part­ner with us. For some, they view us as an ex­ten­sion of their team and as their in­no­va­tion in­vest­ing arm. For some that have de­cided to do it them­selves, they view us as a com­ple­ment to their in­no­va­tion in­vest­ing arm.

MH: What should a hospi­tal sys­tem of $ 4 bil­lion to $ 5 bil­lion in an­nual rev­enue con­sider be­fore open­ing their own fund?

Her­mann: This busi­ness is get­ting more dif­fi­cult. We be­lieve there’s value in a col­lab­o­ra­tive model that in­cludes the best think­ing from many sys­tems. When there are more than 40 sys­tems al­ready do­ing it, you need to ask, “How is your ini­tia­tive go­ing to be unique?”

MH: With so many star­tups to choose from, are there go­ing to be losers whose tech­nol­ogy doesn’t pan out or scale up?

Her­mann: We have seen a bit of a gold rush men­tal­ity in health­care that’s been driven by ev­ery­one see­ing the op­por­tu­nity, ev­ery­body see­ing the de­mo­graph­ics, ev­ery­body think­ing that they’ll be able to dis­rupt health­care. We have con­fi­dence that we have a higher prob­a­bil­ity of se­lect­ing the win­ners, given the in­put from our 13 great health sys­tem part­ners.

MH: What’s a good re­turn on a health ven­ture cap­i­tal in­vest­ment?

Her­mann: It’s dif­fi­cult to pre­dict. Folks think that the re­turn thresh­olds need to be north of 10%. Some ear­lier-stage funds would tell you they’re tar­get­ing 30%.

MH: Aren’t you look­ing for a re­turn be­yond just fi­nan­cial?

Her­mann: Def­i­nitely. In some in­stances, there’s iden­ti­fy­ing a com­pany that ends up get­ting adopted and stan­dard­ized by one of our health sys­tem part­ners and alert­ing folks that this com­pany ex­ists and it can help solve this press­ing need.

Our team can­vasses the early-stage land­scape. We act as an ex­ten­sion of the in­no­va­tion or strat­egy groups (in­side health sys­tems). We get phone calls about com­pa­nies that our lim­ited part­ners have seen. They ask us, “What do we know about them? What about that prob­lem they’re try­ing to solve? Are there bet­ter com­pa­nies out there that they should talk to?”

MH: Are some hospi­tal sys­tems start­ing their own funds go­ing to be sorry they got into that game?

Her­mann: I don’t know. It gets back to the rea­son why they’re cre­at­ing the fund. In this busi­ness you can as­sess how you’re do­ing over a fiveto seven-year pe­riod. Af­ter that many years, folks will be able to do a look-back and see if they were able to de­liver on the value.

“We have seen a bit of a gold rush men­tal­ity in health­care that’s been driven by ev­ery­one see­ing the op­por­tu­nity, ev­ery­body see­ing the de­mo­graph­ics, ev­ery­body think­ing that they’ll be able to dis­rupt health­care.”

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