Three Pillars Shaping Digital Health Funding — Full Transcript
Certain technologies are getting preferential funding by investment firms.
Key takeaways from this episode of StartUp Health NOW can be found here.
Steven Krein: [0:05] Welcome to StartUp Health Now, the weekly show celebrating the healthcare transformers and change makers, that are re‑imagining healthcare.
[0:11] My name is Steven Krein.
Unity Stoakes: [0:12] And I’m Unity Stoakes.
Steven: [0:14] On today’s episode, we’re going to sit down with Matt Karls from Cambia Health and talk about healthcare investing in digital health.
[0:20] Welcome to a great episode.
Unity: [0:21] Stick around.
Steven: [1:01] Welcome back to StartUp Health Now. We’re sitting down with Matt Karls from Cambia Health.
[1:04] Welcome to the show, man.
Matt Karls: [1:05] Hi, thanks for having me.
Unity: [1:06] Great to be here with you, Matt. You have really interesting background, you started as an entrepreneur…Tell us a little bit about who you are and how you got started in healthcare?
Matt: [1:16] Sure, my background, I started eons ago in the entrepreneur kind of digital space back when it was kind of round one…
Unity: [1:27] The one‑dot‑o glory days.
Matt: [1:29] The one‑dot‑o, yeah, the late 90s, I was finishing up my undergrad and I had an opportunity to join friends on their start‑up journey, really exciting, and kind of at that time I smartly made the decision to stay in school although at the time, I certainly thought I would already have my Internet millions. [laughs]
[1:50] I was part of start‑up in Michigan and another start‑up in New York city and really exciting stuff dealing with micro‑payments. After that, that world didn’t pan out as expected with the idea.
Unity: [2:05] Little too early that was for micro‑payments, keep going.
Matt: [2:07] Yeah, that is true, this was back pre‑ iTunes, pre‑everything but I transitioned over to a telecommunication company where I had really exciting product development strategy, corporate development role. We were doing everything from throwing fixed wireless equipment on the top of water towers to buying up Internet service providers and consolidating them into bundle plans.
Steven: [2:31] How did you get involved in healthcare then?
Matt: [2:34] I transitioned after Business School and I was lucky enough to secure a finance job in the corporate development department at a large group plan, Blue Cross Blue Shield of Michigan, and that was really my first exposure. I wanted to get into MBA, and honestly, at the time, I really wanted a finance job and I was excited about healthcare, but I didn’t know much about it.
[2:56] What’s funny is, you start down that path, and you start doing what you love. You develop a deep appreciation for the peoples lives who you’re touching, and how messed up the system is, and the opportunities.
[3:08] What started it as answering an interview question early on saying, of course, I care about healthcare for these reasons. You start to develop really a deep appreciation for it, so it’s become a real passion.
Steven: [3:19] You were there for how long?
Matt: [3:20] I was at the Michigan Blues for about five‑and‑a‑half years.
Steven: [3:24] Fantastic.
Matt: [3:24] I’ve been with Cambia Health in the Pacific Northwest for the past year or so.
Steven: [3:29] You’re on the investment team?
Matt: [3:30] I am.
Steven: [3:30] Tell us a little bit about what you’re doing now on the investment team at Cambia.
Unity: [3:33] Also just frame Cambia so we…
Matt: [3:36] Cambia is a really exciting place to be right now. Cambia is a health solutions company.
[3:41] The legacy business, the history is so deep in the Pacific Northwest, tracing back to when the logging people, all of the timber workers literally started carving out pieces of their pay check to contribute, so that if somebody got hurt, they would have a fund to pay for basic medical care. That was the start of group insurance, and you see it transitions to what health insurance is meant today.
[4:08] Cambia’s lineage goes back to the first of the Blues, and it’s now the four regions, Blue Cross, Blue Shield plans in Oregon, Washington, Utah and Idaho.
[4:20] That’s really the legacy business. Now, it’s only one pillar of what is Cambia as a health solutions company. We have a portfolio of about 17 companies under our umbrella, including seven wholly owned, that are wholly and solely focused on transforming healthcare, to make it economically sustainable and person centered.
Steven: [4:43] You’re on the investment team. What’s your investment strategy? What do you look for? What do you guys look for?
Matt: [4:49] We’re looking around different healthcare trends that…we have three main pillars that we invest around. The first is around strengthening the relationship between providers and patients. It’s also all of those enabling capabilities and technologies, that help providers accept more financial responsibility for patient outcomes.
[5:13] A second pillar is, all of the enabling capabilities that are required to provide a real retail type shopping experience for the consumers, because we have a basic tenet that consumers, and patients, and members, need to drive more of their own care. They need to be financially responsible for more of their own care, but they need the enabling tools, so that they can shop for everything else, and make these decisions in an informed manner.
[5:37] Then the last piece is around senior services and caregiver support. We have all seen the undeniable trends with the silver tsunami, with the magnitude of the aging population.
[5:49] What’s really powerful there is, a lot of the issues that are facing that population may start and originate outside of the healthcare system, but if left unaddressed, they end up inside the healthcare system. So, we’re really proactively looking for things that help families and seniors stay and age at home or in the lowest acuity care setting possible.
Steven: [6:10] In all stages, early stage, later stage?
Matt: [6:12] We’ve written nearly all check sizes. I think that probably our sweet spot, if there is one, is really kind of around late As, mid series B.
[6:26] But we’re also searching for large platform businesses that we can roll under our umbrella and help serve as either platforms to tie together capabilities that we have or that we can help shift and steer toward addressing the problems of the healthcare system from here and beyond.
Steven: [6:44] What are some of the companies in your portfolio that represent those three pillars?
Matt: [6:48] If you look at our provider enablement strategy, we have GNS Healthcare, which is a really advanced analytics big data company that right now has a really fascinating medication adherence model that’s helping to identify intervention opportunities, and they’ve got really great traction in the market.
[7:10] We just excited a company called Rise Health, which is population health management tools that we sold to Best Doctors, and that was a really great exit for us, but another example of those enabling technologies. Another one of our exits was Care Team Connect, which we sold to Advisory Board that was around care coordination.
[7:27] As you come over to the retail‑enablement space, we have marketplace solutions like SpendWell Health and PocketDoc. We have a transparency solution that’s really well‑known in the healthcare payer market called HealthSparq.
[7:41] We have other investments in point‑of‑care payments, a company called Wolero. Under the aging space, we have a really great investment in a company called Lively that’s California‑based. They’re putting sensors in seniors’ homes and pairing it to a PERS emergency alert watch, so at a punch of a button, a senior living in their home can summon help.
[8:07] But for day‑to‑day monitoring, you throw these sensors on the refrigerator, or on the pillbox, on the bathroom door. If I’m living thousands of miles away from my aging parents, I can see a dashboard that says, “Hey, they’re fine. I don’t need to call them or dial three times a day and bother them.”
Steven: [8:27] A call a day would be nice.
Matt: [8:30] Three calls a day gets a bit much. It’s about dignity, and it’s about peace of mind. We have a pretty broad portfolio.
Steven: [8:39] These 17 companies when you look at it a year, two years from now, how many companies do you think you’ll add a year to the portfolio, either through investment or acquisition?
Matt: [8:47] I would expect that we’ll make at least probably three to six investments in the next year, and very likely it could be double that.
Steven: [8:56] Where are you seeing innovation today? Where are you meeting the entrepreneurs? Where are you seeing the exciting new companies?
Matt: [9:04] Really all over the place. What we’ve been really impressed by is…
Steven: [9:07] That’s a new trend. Can you dig into that a little?
Matt: [9:10] Yes, absolutely. We spend a lot of time in the Valley, and we’ve historically spent a lot of time in the Valley, and we keep going back for conferences and to meet with companies, and take nothing away from that
[9:19] But when you’re in the Valley, and you’re meeting particularly with tech entrepreneurs, what we find is there’s a lot of competition for those deals. There are expectations that are sometimes we would think lofty.
Steven: [9:36] High valuations.
Matt: [9:38] Yes, as Mark said, they’re getting a little warm. What we’re finding is really great companies out of the Midwest, and so I’m happy to be here in Cleveland today in search of the companies that are really innovative.
[9:53] We’re finding them in the Midwest. We’re finding them certainly on the East Coast as always. But really it’s in these under‑ventured areas that we find our really solid management teams, really motivated, and they understand healthcare. That’s really a key piece, because you need people in healthcare who understand the small gears.
Unity: [10:12] Healthcare is very regional, obviously, in many ways. We’re noticing the same thing. We’re a global organization, and we see innovation from all over the world. It’s interesting when you start cross‑pollinating the business models, the technology solutions.
Steven: [10:28] Even outside the US. You go into India and look at consumerism, or you go to Tel Aviv and look at some of the cutting edge technology that’s coming out of there and merging it into the US is pretty interesting. Are you guys looking outside the US at all?
Matt: [10:41] It’s tougher for us. It’s a tougher sell for us to look outside of the US, because we’re active strategic value add investors that we go in with the expectation to be active on our companies’ boards and to be adding value in a variety of ways.
[10:55] I think that the difficulty that’s presented by international opportunities is just, practically speaking, when you’re trying to get back to ‑ well, not just for board meetings and that sort of thing, but ‑‑ just to interact with management teams on nearly a daily basis, it just becomes much more difficult even in today’s modern age of telecommunications.
Steven: [11:14] So digging a little deeper into the companies that you’re selecting, the ones that “Made it into your three‑year selection process and into your portfolio and kind of what you’re looking at,” what are you looking for?
[11:26] I’m not just asking for the back of a leadership team and a great business mind and a great idea. What are you looking for? Besides the three themes too, what are you looking for in qualities and characteristics of the entrepreneurs and the companies that you’re investing in?
Matt: [11:36] Sure. I’ll skip all of the “It’s the horse” or “It’s the jockey, not the horse,” all the cliche things. What I would say is we look for really smart, hardworking people who are driven by a passion typically. We look for people who really understand healthcare and kind of going a step further, I think we’re looking for entrepreneurs who can articulate what the path looks like.
[11:58] We’re looking for people who understand the difference between optionality and focus. We prefer the latter, people who know that there are many paths that they could take, there are many markets they could conquer, but they know what that path forward looks like.
Steven: [12:14] So, what should entrepreneurs be focusing on today?
Matt: [12:17] In my opinion, the things that we look for is, we look for people who’ll say “This is what our road map looks like and here are our different components that may add value and different potential pivots, but this is really where we need to be. This is what the end of state vision is and here are the potential hurdles along the way” but can articulate “Here is how we are going to there.”
[12:41] I think what we find particularly in healthcare is that a lot of the challenges, companies that have really strong value propositions and really great products, that’s no guarantee in this market that you’re going to be successful. Especially if you have to sell them to a pair or you have to sell them to a provider, organization or health system, dear god, those are things that don’t come easily. You need people who really understand that and understand how to get there. That would be kind of the next thing that we look for.
Steven: [13:08] Is there a type of solution you guys are looking for if you could wave a magic wand? Gosh if someone was building this now, we would invest.
Matt: [13:16] Absolutely. Beyond just the generic or the specific themes that I mentioned, one of the obvious ones is saying, “If you have apps, if you have businesses, if you have technologies that help people make the right decision at the right time when it actually matters,” that was that kind of statement in general, I would challenge.
[13:40] I ask people in healthcare audiences if they twisted their ankle right now, do they know what the economic impact for them is? Whether they should go to the Emergency room, to the Urgent care, to their doc…
Unity: [13:53] Yeah, to being able to press a button, you could even get a…
Steven: [13:56] Yeah. I could tell you having had a HSA for the last six or seven years, that’s the first one we think about when we need to go somewhere which is “OK, do we need that actually or where do we need to go and what should be those efficient and least expensive way if we have time to think about it?” but yeah.
Matt: [14:11] You know, it’s funny. It’s so funny. Ask people. Ask professional healthcare people how much, what the different is. How much extra does it cost or even which one is the best site for them?
[14:21] I think that with all of the exciting things happening, you can get really great population health management solutions and really great interventions for chronic diseases and those types of things, but it’s getting down to the moment where that person has to make a decision that really matters. That seems to be what’s missing, and even for those of us in the industry we still don’t have it. You know what it tells us.
Steven: [14:42] So do you fancy yourself a corporate strategic investor? Do you think of yourselves more as venture investors? How do think about it because as a health solutions company, one of the things we were talking about on a past episode with JC Simbana from Silicon Valley Bank is this rise of the corporate venture?
Unity: [15:02] It has increase from 10 to 35 percent of the funding in less two years.
Steven: [15:07] Serious days now include corporate strategics.
Matt: [15:11] For us, the answer is definitely we are cause‑driven investors. That’s not just a cop out.
[15:20] Let me start by saying we’re not the corporate development arm of a health plan. We’re not investing in vendors, trying to get some equity, keep some cash off the table, and trying to make sure that we have options that would prohibit our key strategic vendors from being souls united. We’re not just pure play financial investors that are looking for an [indecipherable 0:15:46] extra real cost.
[15:48] We’re really looking for the sincere alignment between…We have a company with an expectation of a financial return. We’re going to put our money to work, and we’re expected to get a risk appropriate reward for that. We’re looking to put that cash or to support to be a catalyst for these transformative, enabling technologies and businesses. It’s definitely in the middle.
Steven: [16:12] It’s unique.
Matt: [16:12] It’s unique, yeah.
Steven: [16:12] Do you typically do these deals yourself, or do you actually syndicate them out with other investors?
Matt: [16:17] No. we’re happy to syndicate. Over the course of our history, we have a long track record of working with others. We look for really smart partners who bring things to the table. We often find ourselves as the lead investor because like I said, we go in with the expectation that we’re going to be active at the board level. You have to write that appropriate track size.
[16:42] We work with both financials and strategics to get to the right deal, and we’d say with emphasis on what really is truly best for the company.
Steven: [16:51] What do the next few years look like? Some predictions on where you think healthcare is going. What actually happens, how things get transformed over the next five to 10 years?
Matt: [17:04] What I’m really excited about is we see so much momentum, and yet so much noise versus signal. Over the next few years, we’re going to start to see some of the digital health companies, in particular, get a lot of traction. What you’ll start to see is them getting plugged in with the right data sources and having accumulating enough data to inform really, really smart decision‑making.
[17:30] You’re going to see the data analytics piece space obviously take off, especially enabled by additional sensor technology that we’re monitoring closely, and trying to understand how we add the services layers on top of that, so that you can make close right decisions at the right time. You’re going to see much broader adoption by consumers of the different tools that employers, insurers and provider groups are putting out there.
[17:58] You’ll look and say, “How long have patient portals existed, and how many people actually know that they have them?” That broad adoption is going to drive a lot of utilization of these solutions that would make a bigger impact today if people really understand how to do it.
[18:14] At the same time though, there are going to be new challenges around how much are people going to stand for, or are they willing to allow their providers to push them in a certain direction, or allow the employers to push them in a certain direction.
[18:31] You’re going to see new ethical issues that come to the forefront. You’re going to see people who are the traditional privacy advocates that get involved and say, “I don’t think that it’s really my employer’s space to try to nudge me.” In this direction, there’s people with certain traditions that don’t want the care, or don’t prescribe to the treatments or approaches that people are trying to push them, especially as the risk arrangements start to shift.
Steven: [18:56] Along those lines when an entrepreneur comes into your office or sends you plan, the plan comes across your desk, and you’re interested, but mistakes are made. What are the biggest mistakes that are made by those that are making their way through, because there’s this notion of some people don’t get it passed the first meeting, and some do, and then things fall apart along the way.
[19:15] I don’t want to talk about the mistakes to get to the first meeting. I want to talk about what made it passed the first one. What as entrepreneurs go through the process to end up being the mistakes that prevent deals from getting done?
Matt: [19:26] The biggest thing that an entrepreneur can do to fall in their faces after you’ve picked our interest in, and we’re going down first to find out that the story isn’t as whole as they made it out to be.
Steven: [19:40] Entrepreneurs do that?
Matt: [19:41] Yeah. You believe that? I’ll say this though. We put a lot of emphasis on honesty and integrity. I know that that sounds clichÈ, but people really pay attention. We’d much rather find out early on precisely where you are with an honest assessment of the business. We look at that as qualifying the management team, a CEO just to give the honest assessment of what the landscape looks like, and where the weaknesses really are. Be honest on that.
Steven: [20:08] An honest assessment where the challenges are and these trends are, so that no one is mistaken on what’s there or not there.
Matt: [20:15] My recommendation would be come in and say, “Here’s where we are today. Here’s the challenges that we face.”
Steven: [20:21] Which is difficult, because we’ve been counting the first time you come in. You just celebrate your selling. You’re trying to make division, and get them excited. Now, you’re excited. You’re getting down to a little more informal or formal conversation where transparent.
Matt: [20:35] I would say VCs don’t expect entrepreneurs to be super humans. They don’t expect to have…we want to fought behind business plans that sort of thing. Don’t come in and assume that you have an execution plan that you just need to get right down to it, and you’re good. If entrepreneurs don’t come in and say, “Here are my unknowns. Here are the areas that could go sideways.”
Matt: [20:59] We see that all the time.
Steven: [21:03] What percentage deals do you think that you really are authentically interested to fall apart, and actually to don’t make it down?
Matt: [21:11] I would say that we probably screen through. There are probably of the deals that make it through, we probably lose 60 to 80 percent on the way for one reason or another.
Steven: [21:27] So, you got to keep the pipeline big?
Matt: [21:27] Yeah.
Steven: [21:29] Besides the transparency, what else is the other?
Matt: [21:33] We look for the attitude of management teams, particularly as reflected through as we’re talking to customers or as we’re talking to partners, as we’re talking about people’s background.
Steven: [21:43] Likeable, coachable, good people.
Matt: [21:45] Yeah. On the other side, we have a deal we’re working on now where the management team, when we started referencing them. We heard over and over again that in this early implementation, those people were physically present. They were there every step of the way. That just jacks up our enthusiasm for them because we understand that we have people that get it.
Steven: [22:07] Are you excited? Are you excited about where we are? What’s your general sense?
Matt: [22:10] Very excited. We’re on the cusp of so many big things. All you have to do is look around at the landscape and say, “Look at how screwed up this is. Look at how we accept this every day.” Those things are coming to an end. Finally, we have momentum around key forces that are changing where consumers have to be engaged, families have to be engaged, employers have to be engaged. The role of the health plan has to change.
[22:37] It’s not even like this could end up in somewhere cool. There’s so many transformative forces that it’s going to end up somewhere, the opportunity for entrepreneurs to address these huge problems, these huge pain points, and add value all other places. I’m personally very excited.
Steven: [22:58] One final question I would ask you is about what an entrepreneur should think about when they’re looking at and talking to Cambia. In particular, why your money versus somebody else’s? Obviously, in this environment where there’s over five billion dollars already flowing into digital health companies this year, what should make an entrepreneur choose Cambia?
Matt: [23:21] We’re very transparent from the beginning about who we are. We love to tell our story. What our team brings is, besides all the value adds, we bring a real sincere dedication to our cause. So, we’re going to go and do everything that we can to help the entrepreneur succeed and to support the management team, to add the value, to bring in the right people in.
[23:47] We’ve been at this for long enough and collectively, as a team, we have enough experience, we have enough scars, we have enough lessons learned to go beyond that first cut of being able to provide feedback and support. We know where some of the landmines are in the space.
Steven: [24:03] You think you go further?
Matt: [24:04] We absolutely go further.
Steven: [24:06] What else makes that unique about…?
Matt: [24:09] Entrepreneurs have a lot of options as they’re seeking capital these days. I think that an entrepreneur needs to assess fit…I would challenge an entrepreneur to find out which of their investors are actually going to spend the time and ask the direct question, “What is an investor?” “What are you going to do for us?”
[24:32] In the case of Cambia, we look at it on a case by case basis. Some need help with scale, some need help with building pipelines, some need help with building more formal constructs around your different pieces of infrastructure. Those are the types of things that…
Steven: [24:48] Opening doors to different things that get them access?
Matt: [24:51] We really brought the leverage to our network. We leverage the region in the Pacific Northwest. We like to think and I think we have the references to say that we’re entrepreneur friendly.
[25:06] The other thing I would say is, we’re not structured as a fund so we don’t have an artificial fund life where we have to seek an exit but we’re very exit friendly.
Unity: [25:14] That’s significant. What’s your take on communities like StartUp Health? We’re three‑and‑a‑half years old, or three years old at this point.
[25:25] The perception from the corporate side and the investor side of organizations like StartUp Health and other communities like ours that are emerging to help entrepreneurs.
Matt: [25:36] There’s a reason that I keep showing up, Unity. I don’t have a pin yet but…
Matt: [25:40] …I’d like to get a pin.
Steven: [25:43] We’re going to get you a pin.
Matt: [25:44] Good. I saw Dr. Cosgrove with a pin yesterday and I was a little bit envious. We think it’s really great. We have our own initiative in the Pacific Northwest.
Steven: [25:54] By the way I wasn’t kidding. If we can get a pin, that’d be great. Thanks.
Matt: [25:59] We have a collaboration institute that we’re building next year called the Cambia Growth. As we look across the landscape, anything that helps entrepreneurs, particularly in healthcare, get there faster.
[26:12] It helps to bridge the lengths, bridge the networks, educate the people and just promote. We’re really aligned in the similar cause with being a transformative force in healthcare. Generically, we’re all for it. Anyone who can do this…The challenges are huge.
Steven: [26:33] It’s such a big challenge. So much opportunity to really transform things. It really takes everyone working together to make this happen.
Matt: [26:42] Yeah. We’re not talking about consumer goods or something. We’re talking about healthcare, this is something that touches people’s lives and families. It matters.
[26:52] We’re really excited to work with you. We work with other programs too but what you guys have accomplished is really exciting and I’ll keep showing up.
Steven: [27:01] Fantastic. You’re now officially pinned.
Matt: [27:06] Good.
Steven: [27:07] It’s really…You can, we’ll wait for you to put it on. We’ll wait, it’s fine. It’ll take…it’s another 15 seconds…
Matt: [27:16] …Thank you so much.
Steven: [27:17] Thank you so much. What would be the one word you choose to sum up how you’re feeling right now?
Matt: [27:23] Enthusiastic. I’m excited every day. I’m excited to be in places like this. I’m excited to meet the people that are in your network, who I’m meeting and to see the great work that Cleveland Clinic is doing and others and with the entrepreneurs.
[27:35] We’re really excited to hear their story, to understand the passion. We love to tell our story, we love to hear theirs and so I encourage everyone to just reach out. We’re decent people.
Steven: [27:49] Thanks so much, Matt. Thank you for joining us. Thanks for spending time with us on another episode of StartUp Health Now. You can find all StartUp Health Now episodes at StartUpHealth.com/Now. Matt, thanks for joining us.
Matt: [28:00] Thank you.