This article original appeared in MedCity News by Stephanie Baum on November 11, 2016.
If you were to ask a healthcare investor what their investment strategy is, it is likely the product of some brilliant foresight, a little luck, and some lessons learned from bad experiences or near misses.
In a series of phone and email interviews, we picked the brains of health IT investors at four firms. We asked them what they learned from early investments and how those lessons and insights informed their strategy going forward. One theme that threads its way through the investment narrative of these companies is that technology is all well and good, but you need a service to support it as well.
Cotiviti (originally iHealth) and athenahealth were two of the firm’s first investments made in the space, Lamont said in an email.
“They were very much about fixing broken processes through software, services, and data. That’s been our approach – addressing a broken system and improving it through the powerful combination of software, data, and services. That’s particularly the case when behavior change is an important part of what needs to happen to improve healthcare and materially bend the cost/quality curve. Appropriately, Aspire Health, Quartet Health, VillageMD and Axial Healthcare all have service as a component.”
Were there any subsectors of health tech that you have invested in that you would not do again? Why?
The provider world. Consider two perspectives: It’s difficult to sell into providers, and it’s also hard to be a provider in an environment where reimbursements are going to come under pressure. Other than inpatient psych, which has massive scarcity and unending demand, we worry about reimbursement pressure in the near future.
In a value-based reimbursement environment, we think very differently about primary care physicians. Two decades ago there was a rush to build physician practice management (PPMs) roll ups. Mostly they were specialty plays, and the idea was leverage, but also IT and infrastructure enabled you to run businesses more efficiently and profitably. The reality was, we didn’t have the systems to manage them so the model broke down.
Fast-forward 20 years and, while IT systems are still imperfect, it makes tremendous sense to aggregate primary care physicians, empower them with information and systems, and support and leverage that all to improve quality and reduce downstream costs. Older PPM models focused on leveraging up pricing power. Now, primary care is about reducing overall cost. Two very different times, places and opportunities.
Kurtzman said the firm’s early experiences reinforced the importance of a strong management team, which goes for all industries.
“A great product with a weak management team nearly always fails, while a great management team with an average product can become a huge success.”
Looking back on your health IT investments, were there any that prompted you to rethink or tweak your investment strategy?
Safeguard’s capital deployment strategy has always been focused on growing markets and exciting products. While these remain important factors, several companies have shown how critical it is for an IT product to fit into a user’s workflow and for the product to connect seamlessly to existing systems. Both of these elements, particularly workflow, now play central roles in the way healthcare technology teams assess potential opportunities.
Were there any subsectors of health tech that you have invested in that you would not do again? Why?
In recent years, Safeguard has distanced itself from revenue models dependent on advertising dollars from pharmaceutical brands, because brand advertising can be fickle, leaving an uncertain financial forecast.
“Health Dialog was my most important investment and it dates back to 1999. We were doing population health before it became sexy,” Donohue said in a phone interview.
Health Dialog based its approach on research from Dartmouth, Donohue said. Based on geography, the company could predict the likelihood that patients would have a specific procedure.
For example, populations in Santa Barbara with a herniated disc would have surgery more frequently than a similar group of patients in New York. The company combined population health and data analytics with a healthcare engagement and literacy component. Their technology-enabled services helped identify people in the population making major medical decisions, helped them make more informed decisions, (which often led to less invasive procedures), reduced costs significantly and produced better outcomes.
British private insurer BUPA, an early investor in the business acquired Health Dialog in 2007 for $775 million and then Rite Aid acquired Health Dialog two years ago.
A positive lesson Donohue said he learned is the need to not lose focus on the patient.
“Most companies focus on the arms race between payers and providers but the patient is a powerful source and engaging them in healthcare is a critical lesson. Generally speaking, companies with a genuine mission and culture of supporting the patient end up creating better results…financial and clinical.”
The same focus on patients — in fact, the needs of specific patient populations — becomes paramount for companies engaged in remotely monitoring them through technology.
“It’s shocking to me how many deals that get funded with technology or services that are not likely to capture the sick, chronically ill, noncompliant patient population, but resonate more with the world of quantified self. When it comes to remote monitoring, technology needs to be passive to best capture the most costly patient population.”
Accolade was an early healthcare investment for Comcast, which the firm made in 2010. The move was a turning point because Accolade focused on employer wellness, an area that had not previously been of interest to the firm, Yang said.
“It was my first or second investment,” he recalled in a phone interview. “It was groundbreaking, novel and risky. We did it for a couple of different reasons and it has informed our strategy.”
First, Comcast was in the process of becoming a customer as it had embarked on a pilot with Accolade. Yang said early pilot data affirmed this model of employee engagement could work in affecting healthcare utilization and Comcast employees loved it. Second, investing in Accolade offered him a different perspective than other investors in health tech.
“A self-funded employer is an interesting channel with which to deploy innovative health tech and health services. Everyone in the health tech and digital health space was focused on direct to consumer or selling into insurers or providers. Very few entrepreneurs were thinking about employers as a channel back in 2009-2010 in start-up land. Accolade was positioned to be the general contractor of healthcare programs for employee populations and I was going to be exposed to a whole host of downstream products and services as deal flow.”
“What we learned from the wearables space was competition accelerates…and some of these markets are winner-take-all. That has helped inform our investment strategy.”
He added, “When you are making a bet into a hardware vertical, you better pick the right one. One tends to dominate the category and the spoils don’t go as much to the number three or number four player.”
Anil Aggarwal: We believed the payments industry desperately needed a platform like Money 20/20. From the beginning, our vision has been to go beyond typical payments events by redefining the industry dialogue and looking at the future, including emerging trends like connected consumers, omnichannel commerce and open platforms.
That might all sound familiar today, but it was groundbreaking and ambitious back in 2011. When we launched, discussions on FinTech and payments were still about incremental innovation—migrating specific paper-based payment systems to more efficient electronic ones. Mobile payments and digital wallets were still nascent.
So, our objective was to rethink the entirety of payments as a hardwired industry that would eventually be disrupted by digital transformations. We believed that digital would win in every possible way over the long-term. That original thesis continues to prove right and seems like a forgone conclusion today.
Jonathan Weiner: Money20/20 was also a risky proposition because there were a ton of existing payment events already well established and attended. When we began telling people about our idea, the initial reaction was, “Do we really need another payments event?” The space was crowded, but we still felt the market lacked a single, meaningful platform serving the entire payments ecosystem. That was where we saw our opportunity to address disruptions across the broader payments value chain.
Plus, we were already attending and exhibiting at other events but never felt they delivered a return on investment. We wanted to create a new platform for industry operators by industry operators. Somewhere we wanted to participate ourselves and could extract value; where important decision-makers across the payments value chain convened and felt they had to be; and where the industry would conduct business, announce new initiatives and debate important topics. That was our vision for Money20/20.
Why the focus on FinTech?
AA: By 2011, when we founded Money20/20, Jon and I had already spent more than a decade as payments and FinTech entrepreneurs.
Our first company, which we founded in 1999 during the dot com era, was called Clarity Payment Solutions (acquired by TSYS) and was among the first companies to utilize existing payment networks outside of their traditional use cases. We later launched TxVia, which Google acquired in 2012. Jon and I then headed up business development for Google Wallet. Several of our earlier initiatives also served the industry, including the Network Branded Prepaid Card Association (NBPCA), which we launched, as well as Prepaid Expo and Paybefore, both of which we created and later sold.
JW: That’s right—our backgrounds in FinTech and as payments entrepreneurs really enabled us to understand the industry landscape and then shape a dialogue and agenda around its evolution.
At what point did you realize Money20/20 was going to be a success?
AA: From the start, actually. As industry operators, we already recognized the value Money20/20 could bring to the entire ecosystem. However, we didn’t fully realize the extent of the role Money20/20 would play in shaping FinTech until we came out of the second event, in 2013, and were planning our third event, in 2014. That’s when the industry hit its tipping point.
First, financial institutions, both large and small, began to change in the post-financial crisis world. Next, you had the rise of bitcoin and blockchain as examples of entirely new payment systems emerging and achieving widespread consumer awareness. And last, you had the broadening of entrepreneurial interest in payments, as well as the payments investment thesis for the venture capital community. These factors and more like them enabled new entrants to disrupt decades, if not centuries, of established payments practices. The rapid proliferation of mobile devices played a critical role, too.
JW: From the beginning it was essential to focus our event on senior-level attendees from leading companies across the payments value chain. People felt they had to attend because all their peers were there; it was an opportunity for organizations and individuals to meet each other. That not only enabled networking to become a critically important aspect of the event, but also spurred business development initiatives and the announcement of several significant deals on-site. That all helped drive and sustain robust media interest and attendance.
What are some notable changes you’ve seen at Money20/20 over the last four years?
JW: The biggest changes to Money20/20 were over the first three years, when we were constantly adjusting the event to meet the needs of the industry. Remember, the industry was experiencing significant transformation during that period and we wanted Money20/20 to reflect those changes. For example, we introduced new topics into the agenda and also made it easier for startups to attend and exhibit. We introduced a hackathon event that is the world’s largest for FinTech and have since expanded into adjacent formats, like StartupPitch180 and Launchpad360.
Money20/20 will continue to evolve as the payments industry evolves, but I think we expect to remain a core part of the ecosystem regardless.
AA: For any business to be successful you have to focus on your customer and their experience. Throughout our careers as entrepreneurs, we always had a customer-centric approach and invested a great deal in creating a meaningful experience—with great speakers, attendees, food and exhibitors. The complete package is important and we’re always looking at ways to improve upon that so the experience is fresh, for returning attendees as well as for new attendees alike.
What led to the decision to launch a Europe edition of Money20/20?
AA: The same fundamental and structural shifts redefining payments in the U.S. are present in Europe. There are clearly many important differences, as well. Very different regulatory environments, for example. But just as Money20/20 was needed in the U.S. to help coalesce an otherwise fragmented dialogue and disparate ecosystem, the same was true for Europe.
So, we decided to launch Money20/20 Europe, which quickly became the largest FinTech event in Europe in its inaugural year with more than 3,500 attendees. Much of the support came from international sponsors of our Money20/20 U.S. event. These individuals and organizations, with businesses spanning multiple countries and global financial centers, were incredibly supportive of our European expansion.
JW: It was also important to create a unique European experience and not clone what we do in the U.S. We have a dedicated team based in Europe and hired people from within the European payments industry to drive our expansion into that region.
And from the start, we looked at the European region holistically. Many of our competitors were focusing more narrowly on the U.K., which is a major FinTech market but not singularly representative of the entire regional ecosystem. That was one of the major reasons we chose Copenhagen as our destination.
Looking into the future, how do you see Money20/20 evolving with time?
JW: Money20/20 will continue to play an important role in the evolution of payments. It’s the only event that has the critical mass and focus to sustain that. The key will be to not lose that focus. Deciding what not to do is just as important as what you do.
AA: It served as an early catalyst for growth and development of the payments ecosystem and we see Money20/20 continuing to do so into the future. As Jon says, getting that right without getting distracted is the key.
Anil Aggarwal, Jonathan Weiner, Patricia Kemp
Anil Aggarwal and Jonathan Weiner are Founders of Money20/20 and both serve as Oak HC/FT FinTech Venture Partners.
Oak HC/FT leads funding to enhance well-being of patients in chronic pain and drive value for client partners
Nashville, Tennessee (October 12, 2016) – Axial Healthcare, Inc., the nation’s leading pain care solutions company, announced today it has closed a $16.5 million Series B round of financing. Oak HC/FT, a venture growth-equity fund investing in healthcare services, led the funding round, which will be used to further drive expansion of axial’s suite of pain management capabilities, including a cloud-based, provider decision-support platform for pain treatment. Previous investors, .406 Ventures, BlueCross BlueShield Venture Partners, and Sandbox Advantage Fund, also participated in this latest round of financing.
“Over the last four years, axial has curated the country’s most comprehensive database of evidence-based best practices for pain treatment,” said Nancy Brown, Venture Partner at Oak HC/FT. “The rate of opioid misuse, abuse or overdose underscores the need for a smarter, information-driven approach to pain treatment that payers, providers and patients can use. axialHealthcare has pioneered evidence-based pain management solutions and is leading the way in addressing barriers to safe and effective pain treatment. I am excited to join their Board of Directors to continue to solve these issues.”
John Donahue, chairman and CEO of axialHealthcare, said, “We are excited to welcome Oak HC/FT into the axial family and look forward to leveraging their extensive healthcare expertise. Oak HC/FT’s funding comes as we build out our operational and clinical teams, continue to innovate and enhance our capabilities, and move to operationalize on our substantial pipeline of clients. We look forward to continuing our mission to mitigate opioid misuse and improve the care and well-being for patients in chronic pain.”
Pain treatment is a $330 billion annual spend category for payers and has escalated into an epidemic as opioid use has increased 400 percent in the last 10 years. In response to this situation, axialHealthcare was founded in 2012 to identify and address the drivers of poor clinical outcomes and escalating costs of pain management. The company has since assembled the nation’s largest data repository of patient pain claims and outcomes, as well as created the only evidence-based criteria for pain clinics.
axialHealthcare’s suite of pain management capabilities includes: predictive analytics; a decision-support platform that delivers pain population analytics, provider dashboard and content, network performance monitoring, and PharmD consultation for providers; and the nation’s only mobile patient app for patients experiencing chronic pain. axialHealthcare’s team of physicians, pharmacists, scientists, technologists and healthcare operators are uniquely positioned to ensure that patients in pain are provided with personalized, evidence-based care from informed practitioners. The company began deploying its pain care offerings with industry-leading client partners last year.
axialHealthcare is the leading pain medication and pain care management company and partners with health insurers nationwide. axial’s pain management solutions engage physicians, pain clinics and patients with coordinated care by applying advanced analytical insight, unmatched proven clinical evidence and highly effective consumer support. axialHealthcare’s solutions optimize pain care outcomes, reduce opioid misuse and materially improve financial performance for those who insure care. For more information, please visit www.axialhealthcare.com.
About Oak HC/FT
Oak HC/FT (http://oakhcft.com/) is the premier venture growth-equity fund investing in Healthcare Information & Services (“HC”) and Financial Services Technology (“FT”). Oak HC/FT is focused on driving transformation in these industries by providing entrepreneurs and companies with strategic counsel, board-level participation, business plan execution and access to an extensive network of industry leaders.
What is FastPay? What is the biggest challenge you are addressing?
FastPay is a liquidity platform that reduces working capital friction for digital media businesses. Despite the sophistication of today’s digital ad technology, the back-end process of invoicing advertisers and receiving payment is slow and inefficient. FastPay targets this challenge by providing a platform to accelerate payments while offering a functional and streamlined process for buyers and sellers to manage these transactions.
How is FastPay disrupting the conventional payments process for media and advertisers?
In media and advertising, the invoicing ecosystem is still managed manually. We have built technology to digitize and optimize the process, which is a significant, positive change for the entire industry.
Historically, companies advertised with individual, large media sources. For example, a mega-brand like Campbell’s Soup might place advertisements on a network television channel. These advertising buys were paid upfront in full, with pricing based on the gross audience projections from data providers like Nielsen. But with the advent of online advertising, this simple formula for pricing and reconciliation doesn’t work. Online ads are sold by the impression in real-time, rather than billed up-front in one go. Online ads also involve multiple vendors for targeting, delivering and measuring the performance of each impression. This happens billions of times each day.
To reconcile that financially, despite the immense volume of data involved, all these media providers typically email Excel spreadsheets and call each other to confirm media delivery line by line to arrange for payment. Furthermore, the large buyers often leverage their powerful market positions to pay bills slowly to their thinly capitalized media providers. That’s the problem FastPay’s platform is targeting and solving.
How does technology play a role in your company?
Technology is front and center of everything we do.
For example, because we deal in an immense, data-rich environment, there is a need to access and analyze data real-time. Our platform has connections to hundreds of programmatic buyers in the marketplace, and is linked to all the financial data sources, accounting systems and bank account feeds. All that data is analyzed to power our underwriting and real-time risk management processes.
We are in a credit business. To date, FastPay has originated over a billion dollars in transaction volume and lost very little money. This accomplishment is founded in our data-driven approach: we leverage our data and connectivity to monitor the payment flow to avert fraudulent transactions and behavior. Through the use of technology, we end up with a better product; we make faster credit decisions; we provide more capital; and we offer less expensive capital with a more convenient process.
How do the rapid changes in digital media and online advertising impact your business and industry?
Stability is important for traditional capital providers. But for us, change is our ally and the digital media industry is changing rapidly.
Consider traditional capital sources and credit providers. Their metrics are premised on having been in business a long time. Traditional banks want to see borrowers with five to seven years of business history, and an applicant’s consistent profitability is very important. The way to process transactions is very focused on stability, too. On-site audits; physical inventory checks; meetings face-to-face. These are all at the center of underwriting credit policies. It’s how banks look at the world.
For us, we pride ourselves on being highly adaptable. When we started the business, mobile didn’t really exist, and now it is one of the predominant revenue drivers in the advertising world. New formats come online every day, like native advertising and virtual reality, and our platform has to be aware of the billing and cash flow cycle for all of them. Our ecosystem rapidly evolves to embrace change. I think that it’s a key component of what makes us competitive and unique.
What were a couple of key defining moments that led you to where you are today, as CEO of FastPay?
First is my grandmother, Silvia, who lived to be 100 years old. She was born in Chicago and graduated from university in 1930, which was an incredible achievement for a woman during that period. At 90 years old, she moved to LA full time from Chicago. This allowed me to see her nearly every day in the last several years of her life. I learned so much from her, and I was privileged to enjoy a robust relationship with her. Additionally, I played a major role in most of her healthcare decisions toward the end of her life. My relationship with my grandmother gave me the confidence that I could be a business manager, run an organization and be responsible for the lives and livelihoods of others.
Another occurred in high school, when I had the opportunity to play on USC’s Junior Olympics water polo team. The team itself had won the tournament three years running, and the expectation was that the team would win again that fourth year. Fast-forward to the semi-finals – toward the very end of the game, the referee called a penalty on me, causing the other team to take possession of the ball, score and win. I felt personally responsible for our loss, jeopardizing our place in the tournament, destroying our winning record and disappointing all my teammates. But later that afternoon, in the next game of the tournament, I scored the winning goal – against two future Olympic athletes no less! For me, it was an apt precursor to building a start-up; experiencing extreme lows and highs alongside a highly motivated team, often all in the same day.
Where do you hope to be, as an executive, in 5 years?
I’m enjoying the journey, and FastPay presents a new set of challenges and opportunities every single day. On one hand, I focus on recruiting and challenging my world-class team. On the other hand, I’m maintaining the unique culture we’ve put in place here. In reality, both of these go hand in hand, and they’re the two key challenges. Some of the problems we are currently solving did not even exist five years ago, which pushes my team and me to stay innovative and entrepreneurial.
If I weren’t a CEO I would be…
A music producer.
My favorite movie is…
The Godfather Part II
My favorite musician is…
My favorite hobby is…
My favorite food is…
Pizza. I rarely ever eat it but it’s still my favorite food. Especially from some of my favorite places in L.A., like Milo and Olive or Mozza.
Do you have any pets?
I don’t, but my sister is a veterinarian and I’m godfather to her dogs, Joppa and Trevor. Or maybe that makes me their uncle?
Annie Lamont has been working in the venture capital world for about 35 years, with the past 30 as a general partner.
So she’s been involved in plenty of venture deals and realized many exits. As such, she’s experienced the ups and downs of a fluctuating market.
Now as managing partner of the growth equity investor Oak HC/FT, she’s developed her opinions on where VC is headed, especially within the firm’s core focus areas of healthcare and fintech.
In brief, Lamont has outlined three areas, which she calls “the Three Manias”:
Early 1990s: Biotech Mania. IPO market frothy and public market stable, with 35 IPOs completed in 1991.
1998-2001: Dotcom Mania. Frothy private and public markets. Internet companies Amazon, eBay and Priceline founded.
Today: Stay Private Mania. IPO market anemic, although public market is frothy.
So I reached out to Lamont to talk about the state of VC and the current exit environment.
She and Oak HC/FT have been busy, to say the least.
The Greenwich, Connecticut, firm, which is led by Lamont and General Partners Andrew Adams and Patricia Kemp, has invested in more than a dozen companies in the past two years. And it has boosted its team, most recently adding two venture partners: Ezekiel Emanuel, focused on healthcare, and Michael Heller, focused on fintech.
Oak HC/FT, which is investing from a $500 million fund raised in 2014, in June led a $50 million Series B investment in US HealthVest, which develops behavioral health facilities nationwide. Also participating were current investors Polaris Partners, F-Prime Capital Partners and Dr. Richard A.Kresch.
In April, the firm led a Series C round for Trov, the Danville, California, provider of on-demand insurance services via mobile phone. Other investors in the $25.5 million round include Australian insurer Suncorp Group, insurance technology provider Guidewire and fintech-focused venture firm Anthemis Group.
In addition, Lamont herself has stayed active investing and speaking. In June, she participated in a panel on women’s entrepreneurial leadership at the seventh Global Entrepreneurial Summit at Stanford University. The panel was moderated by U.S. Secretary of Commerce Penny Pritzker.
Q: I read about your involvement in the GES. What are your thoughts on women in VC?
A: In terms of the present and future, I am seeing female expansion at every level of VC and entrepreneurial activity.
There are significant players like Kleiner Perkins Caufield & Byers being dominated by awesome women with Mary Meeker, Beth Seidelberg and Lynne Chou, and Canaan Partners with Wende Hutton and other female partners.
Women, now more than ever, have become mainstream in some of the best venture brands in the business.
Q: So many smaller venture funds are emerging and accelerators are coming into existence, many of which have female advisers. Is that where you are seeing growth for women in VC?
A: Yes. Small funds and accelerators are creating more opportunities for women to get in the door, which we are also seeing.
However, they still remain a much smaller fraction than their male entrepreneur counterparts. But at the end of the day, the odds of seeing a female CEO at a company is 5x higher than a decade ago, and that is progress.
Q: You wrote about mentoring after you participated in the GES. Whom did you look up to and perhaps use as a mentor when you came into VC in 1982?
A: I found qualities I admired in many venture capitalists I worked with early on and still to this day. However, one stands out the most to me. Jerry Gallagher [a general partner at Oak Investment Partners, who died in 2014 at age 73] was an exceptional venture capitalist and human being. He taught me to never compromise on people [and] my values and to always maintain a long-term outlook.
He had the single best track record in retail VC of anyone in the country and he did it in the most modest and deliberate way. He personified the word “character.” When dealing with him, an entrepreneur would always know what he/she would get: a thoughtful response supported by the facts and fair treatment.
These are the qualities that we strive to emulate every day, at every meeting, with every investor and entrepreneur at Oak HC/FT.
Q: At Oak HC/FT, are you seeing pricing return to normal levels?
A: We’re still seeing great companies getting founded and at high valuations. The good companies are still getting funding at more reasonable valuations. The poor companies, which could raise money a year ago, now, I don’t know, probably not.
Part of the problem with VC is that we’ve been very focused on valuations. We’re starting to see a normalization.
Q: What types of company trends are you seeing?
A: In healthcare services, it’s about delivery of care. The trend is in consumerism and how patients are being managed.
Look at our investment in Hometeam in New York. It’s about connecting seniors and providing home-care services for older adults. It’s more about keeping people out of the hospital.
Q: What are you seeing in fintech?
A: A lot of focus is on payments and data, as well as compliance.
Insurance is a growing area. Look at our investment in Trov, which provides on-demand micro-insurance. It’s an interesting and innovative approach for consumers, like Millennials, to jump on, as opposed to traditional insurance-sales models.
Q: In regard your Three Manias, do you see startups raising capital today exiting on the public market?
A: I don’t see a mania for the next three years. There will come a time when there’s a backlog of companies from being created now that will go public. But historically, 70 percent of companies are bought via strategic acquisition.
Still, good companies will always go public, and you’re seeing that now.
Q: What are your thoughts on the current IPO market, particularly for life sciences?
A: As I am no longer actively involved in biotech, I can’t intelligently comment on that space other than to say that as long as big pharma continues to buy promising companies at exceptional valuations, you will have a robust but perhaps more selective IPO and public market.
In the coming years, I believe there will be a number of great tech-enabled and healthcare-services companies emerging as excellent targets for strategics, but also good candidates for the public market because of their ability to scale.
Action Item: To read a blog post from Annie Lamont about women in venture capital, go to http://bit.ly/29DmpzH