April 12, 2016
We recently sat down with Ascension Ventures senior managing director Matt Hermann to talk about his firm's unique approach to investing and how VC investment in the healthcare sector has changed in recent years. Wonder what's next for the industry? Check out our conversation with Mr. Hermann below:
Ascension Ventures isn’t a typical VC or corporate VC firm. What is Ascension Ventures all about, and how does it fit into Ascension Health’s non-profit business model?
Ascension Ventures was created in 2001 in response to a call for innovation from our sponsoring congregations. Today, we operate as a wholly owned subsidiary of Ascension, the nation’s largest non-profit and largest Catholic health system, which operates more than 130 hospitals and recognizes more than $20 billion in annual net patient revenue. Ascension Ventures was created to deliver appropriate risk-adjusted returns from its investments while providing a window on external developments that could help transform healthcare, in alignment with Ascension’s vision. The need and opportunity for initiatives like Ascension Ventures is even greater today than it was 15 years ago, given all the regulatory and reimbursement changes in the industry. We now have eight health systems as limited partners, have invested in more than 50 companies and have $550 million in assets under management across our three funds.
Timing is everything. The convergence of technology advancements, a changing regulatory landscape and an evolving reimbursement environment make this a ripe area for disruptive and sustaining innovation. Investors originally flocked to this space leading up to the internet bubble years of 1999-2001, but there are several differences during this second phase. First, the technologies are more powerful, affordable and accessible. Second, the environment is different, as current healthcare participants want to disrupt themselves, creating more opportunities to test, partner and collaborate. Third, the cost to build a product and create a company keeps coming down. Fourth, the American culture celebrates technological entrepreneurship in a way it never has before.
Given the dramatic changes of how healthcare is paid for in this country and the increasing responsibility of consumers for their healthcare costs, we certainly see a robust innovation environment continuing for the foreseeable future. Having said that, we are concerned about valuations that appear to be ahead of where companies are.
The simple answer is yes, but there are several points worth noting. First, the rewards for those who are successful are increasing, making healthcare look like other high-risk/high-return venture markets. At the same time, the risks are increasing, as accelerators have ramped up the number of new companies being created, making it more difficult to assess the competitive landscape. Second, at Ascension Ventures we are in business to earn a return, but we also have a mission focus, given we are part of Ascension and all of our limited partners are non-profit health systems trying to serve their communities. Many people who get into healthcare do it to try to help people, and an environment like ours brings us closer than other venture firms to directly helping others. Third, we expect to see closer relationships form between pharma and health systems in the future as payment reform takes hold, and could foresee a day when these relationships become risk or population health based.
Our eight limited partners operate more than 400 acute care hospitals. I will highlight two of our more recent investments. Syapse is helping bring personalized medicine to community hospitals with its clinical decision-support and workflow tool. Zipnosis is helping health systems deliver telemedicine through a unique asynchronous model, which enables the provider to respond more quickly as part of the regular workflow.
We have entered a phase where companies need to demonstrate material improvement in care (quality and outcomes) and/or make care delivery more efficient and cost effective. The journey of healthcare operating more like a traditional business, while always remembering our goal of doing no harm, is in the early innings. Stay tuned to see how the game turns out!