When we think of venture capital firms, we usually think of large, established Silicon Valley based firms, or the venture capital arms of established companies like Google Ventures or Microsoft Ventures. We don’t usually think of hospitals as venture capital firms. But, in an increasingly competitive industry with ever shrinking margins, an increasing number of hospitals and healthcare systems are turning to technological development and financial gains of startups to emerge ahead of their competitors.
Examples of hospital and healthcare affiliated venture firms include Kaiser Permanente Ventures (affiliated with the Kaiser Permenente health care system), Mayo Medical Ventures (affiliated with the Mayo Clinic), and Partners Innovation Fund (affiliated with Brigham and Women’s Hospital and the Massachusetts General health care system). Partners Innovation Fund, for example, has invested in 24 startups to date- 3 of which have been acquired and 2 of which have gone public.
By nature, venture capital investments are long term, illiquid, high yield investments. This plays to hospitals’ favors, whose capital can stay generally illiquid and whose investments can lead to developments in the technology of their industry. Despite this, venture capital in startups is an inherently risky investment.
Opinions among investors from hospitals and healthcare systems vary. Some believe that the value of the healthcare or biotech startups extend sufficiently past pure financial gains, so much so to justify high risk, high reward investments. Others believe that while hospitals and healthcare systems generally have large pools of capital, they are not free to throw their money away to many high-risk startups in hunt of a big payoff. Such conservative opinions mean that hospitals and healthcare systems will only give in to high risk startups when the technology is impressively disruptive, but will generally stick with more conservative, safe investments. However, the immense knowledge of the industry and the advice that the investing hospitals and healthcare systems can provide to funded startups allows hospitals to mitigate much of the risk when investing.
Specifically, most hospitals and healthcare systems focus their venture capital on strategic investing: investing in healthcare and biotech related startups in anticipation that the startups’ work will disrupt or innovate the industry, improving the service of the hospital or healthcare system. Investing in such startups early leads to the ability of the hospital or healthcare system to directly involve themselves in the startup’s decisions as well as the ability to aid the startup in the development or scaling of their technology or product. If successful, these healthcare and biotech startups’ value extends past financial gains.
Therefore, these healthcare and biotech startups make sensible investments from hospitals’ and healthcare systems’ perspectives; not only do they come with potential financial gain, but the technology developed by them provides potential disruption or innovation in the competitive industry that is healthcare.