Health 2.0 Recap: The Opportunities and Challenges of Disruptive Strategic Investing

Providence Ventures’ Partner, Dan Galles shares his perspective at Health 2.0’s 2019 Venture Connect event.

In the face of a rapidly changing healthcare industry, including the entry of powerful new players such as Amazon, Apple, and Google, many healthcare organizations have started strategic venture capital funds to invest in start-ups that can help drive needed innovation in their businesses. These funds traditionally invest in start-ups that can help their parent organizations improve their core operations. Increasingly, though, many strategic funds are also investing in start-ups that are threatening to disrupt and disintermediate their own businesses.

For strategic venture investors, a parent company’s willingness to invest in, and partner with, disruptive new entrants presents both exciting opportunities and challenges. Even with strong senior executive-level support, strategic investors need to navigate the balance between new business opportunity creation and competitive erosion of the parent’s core business.

At Health 2.0’s Venture Connect event last week, one of our very own Partners, Dan Galles joined a panel of investors from Carefirst Blue Cross Blue Shield, and Johnson & Johnson to share perspectives on managing the challenges of disruptive strategic investing.

“In a way, we (Providence St. Joseph Health) are cannibalizing ourselves. Hospitals aren’t going away, but from an economic perspective, they’re kind of a gorilla on our back. We know that a lot of the services we’re developing a need to be outpatient. We need to push care outside the hospital, which will lead to a need for redesign.”

Dan went on to explain that an example of this trend is reflected in one of our newer partnerships with One Medical:

“Historically, investing in businesses that cannibalize or challenge our own organization is something we might have been much more cautious about. Recently, however, Providence Ventures made an investment in a company that Providence St. Joseph Health announced a big partnership with, One Medical, which I’m sure has ruffled a lot of feathers across our organization, in particular, some of our primary care physicians. So they’re launching centers that are co-branded with us. Our view is, we need to be where our patients are — to meet them at the venues they seek care. We need to get them into our system, work with One Medical to provide that experience, and then wrap our system around that to make it a better experience for our patients, as well as bring more patients into our system.”

The One Medical example highlights that there are a great deal of challenges to overcome in making disruptive strategic investments. However, if we can thoughtfully navigate these challenges, we can perhaps unlock tremendous opportunities as well.

This post contains selected content from an article, “Investing in your own disruptor: The opportunities and challenges of strategic investing”, originally appearing on MobiHealthNews on September 16, 2019.