Podcast with Michael Greeley | Flare Capital Partners

Michael Greeley

The hot take: In this episode we talk with Michael Greeley, co-founder and general partner at Flare Capital Partners, a venture capital firm that partners with healthcare entrepreneurs and established healthcare organizations to reinvent the business of healthcare. In our discussion we talk about why Michael remains bullish on the opportunities for new healthcare companies, how early-stage companies are impacted by the broader market environment, why people are the most important component to company success, their unique way of cultivating talent, and why developing a global perspective is essential for personal and professional development.

New cohost — 0:00

• Jason Peterson is a rising 2nd year MBA in the Healthcare Management program at Wharton and a Masters in Computer Science candidate at the University of Pennslyvania’s engineering school. He also has an MPH from the Mailman School of Public Health. Before coming to Wharton he was a public market investor, worked on his own healthcare tech startup, and helped start the corporate venture capital practice at Roivant Sciences, where he invested in software for the life sciences industry.

Michael and Flare Capital’s background — 1:09

• Michael has been an investor for 25+ years. He was pre-med, took his medical exams, and then went to business school.
• Flare was started on the thesis that the venture model was being reinvented. There was an opportunity to focus on the $3 trillion healthcare category.
• How the venture landscape influenced structuring Flare: There is a barbell with huge behemoths and smaller focused firms that were at risk of being sub-scale. Flare takes advantage of being in the middle and being just the right size. They could invest in a number of companies, be patient, and invest over the lifecycle of a company. It’s all about better serving healthcare entrepreneurs.
• They also wanted to have an engaged relationship with leading healthcare companies to help entrepreneurs better navigate the complexity of healthcare.

Corporate VC impact on the space — 7:00

• They partner with innovative strategic investors that are some of the LPs in their fund.
• Flare bridges the gap between early companies and corporates. Early stage companies view Corporate VC as potentially negatively impacting their product roadmap. Corporates are either terrified or excited about the next 10 years and they want to get closer to the entrepreneurs.
• Corporates are in a great position to help scale later stage companies.

Editor’s note: As every B2B healthcare entrepreneur knows, navigating the structure of large healthcare organizations to speak to the right person can take many months. Support in accelerating that process is a huge value, especially for a young company that measures progress in weeks.

Broader market outlook and its impact on venture — 9:50

• They don’t think of themselves as digital health investors because they think the opportunity is more comprehensive than that term implies.
• What’s characterized the current funding environment is huge amounts of money. There was $8bn in funding in 2018 and 5 years ago there was just $1BN. However, Q1 in 2019 was just $1BN so he’s hoping 2018 was high water mark in terms of fundings.
• Maybe companies have just raised more than they wanted in 2018 and so you’re seeing a slowdown in 2019.
• If it’s $8bn in funding in 2018 and $4bn in funding in 2019 that risks surprising startups if the funding is slower than they expected.
• This might portend we are turning a corner towards lower capital raises and startups need to be aware of this as they manage their business.
• Michael doesn’t like to prognosticate but it’s important to be aware of this.
• US Advertising industry is $200bn and has produced some amazing companies over the last 20 years. Healthcare is 15x larger and he’s confident they will see some really important companies come out of the category.

Relationship between public market performance, political volatility, and startups — 13:50

• Medicare-for-all is definitely hurting public stock sentiment but doesn’t affect how they operate as a venture fund.
• The companies they work with are building products useful 3–5 years from now so they are relatively insulated from public market volatility and they are funded 15–18 months forward. So they are mostly heads-down building and not dependent on public sentiment.
• But if they start to see restrictions on company budgets then maybe that will eventually impact them but the public markets stuff largely doesn’t affect startups.

How Flare invests — 16:30

• Their investment themes slide is the same as it was 5 years ago but ultimately it’s all about the people. They would choose people over themes.
• There are maybe 1,000 entrepreneurs raising capital today. A small fraction create large companies, maybe a dozen or 20 of them.
• They want to find those people and want them to be looking for Flare as well.
• The other entrepreneurs can and will build nice businesses but they are looking for folks that will build really big companies.
• VC is about multiple of capital and so they are looking for 5–20x returns and these returns come from really big companies.
• Healthcare is so large and the magnitude of dollars is so large that you can build those big businesses.
• They spend a lot of time thinking about strategies to get at those people.

Indicative investment: Circulation — 20:00

• A company that focused on non-emergency medical transportation services on the back of Uber and Lyft.
• Two co-founders: Robin Heffernan who he worked with at prior firm and backed her earlier startup. John Brownstein — Chief Innovation Officer at Boston’s Children’s who is a partner of the firm. He was also Uber’s healthcare advisor and so he had some interesting insights about missed appointments which was the genesis of the company.
• They seeded the company and four of their strategic LP’s co-invested with different, but powerful, use cases.
• Started off as a way to reduce missed appointments. If you give people better transport then they won’t miss appointments and the company evolved into clinical trial management and other areas.
• The company received an unsolicited offer and was acquired.
• This underscored that if you scratch the surface on issues they blossom into great opportunities.
• Key here was people he knew well who were focused on a large problem. This has led him to think about how you can repurpose innovations in other areas to solve big problems in the healthcare industry.

Current areas of interest — 24:15

• Novel care delivery models with Iora health being an example.
• Patients as consumer.
• Payment reform — tools and infrastructure for that transformation.
• Analytics — Aetion exemplifies this. As does Health Verity.
• Infrastructure — recently seeded a blockchain company focused on healthcare.
• They aren’t bound to these themes though because it’s really about people.
• And so they think about all of the talent coming laterally into the space. There are folks coming from Google, Amex, etc. A lot of talent is also leaving legacy healthcare systems and trying to solve problems they had in their own jobs.
• Someone who has the voice of the customer and a precise understanding of what customers want is a really interesting person to talk with about starting a company.

Dispelling the whiz kid entrepreneur myth — 27:20

• Most successful entrepreneurs tend to be older actually, later 30’s and 40’s. They have had a decade of important operating experience.
• Version 1.0 of venture was young companies coming straight out of undergrad. They created interesting tools but many of those companies never scaled.
• Companies that are scaling 1) tell a near term cost reduction story and 2) can tell an outcome story in 2–3 years with attribution in both cases.
• Would push back against trying to immediately get some type of revenue with a lightweight tool. It’s more important to get the near-term cost reduction and then outcome story. Then you tell a revenue and growth story to investors.
• Dream Team would be someone with the voice of the customer and another one with deep technical chops.
• Hard to know what you don’t know if you aren’t running a PnL in a business.
• Health Verity founder worked at one of the largest data aggregators and brokers. He had firsthand experience of shortcomings of legacy provider and was willing to take the risk to fix things.

Flare Capital Scholars Program/Talent Development — 31:20

• Thesis: There are tons of great young people. The program has 109 current and former scholars with half from industry and half from schools.
• Wharton is overrepresented versus other schools this year, with three.
• They come to partner meetings and work on projects and Flare receives reciprocity if scholars see interesting things.
• This program will become more important and they are starting to back some of these scholars who are getting ready to start companies.
• They view them as part of their extended team and they are passionate about the transformation of healthcare.
• Importantly the program also includes rising stars in brand name healthcare companies.
• They will soon have a few International scholars as they need to be smart about what’s happening in China. By the time companies are series C and series D their products will serve customers in international markets.
• The #3 person at Circulation was a Flare scholar.

How to figure out who’s hiring — 35:50

• Companies that just raised are hiring. E.g. Healthverity just raised in Philadelphia.
• Somatus in Virginia is scaling quickly.
• Rx.Health will triple headcount this year.
• If you’re looking for opportunities definitely look through funding announcements.

Michael’s most influential experiences — 38:40

• Travel is important. He grew up in the far east in Hong Kong and that really reframed how he looked at the world.
• The experience really helps him understand our privileged position living in the U.S. but also allows him to be more critical when folks display poor behavior.
• Traveling gives you a global perspective. For $600 you can go to Beijing for 2 days. You should because it will completely change your view of the world. You can see other systems and it will make you more informed as an entrepreneur and investor.

Where to find Michael — 42:37

• www.flarecapital.com and his email is in the podcast
• He blogs at www.ontheflyingbridge.com to give entrepreneurs a sense as to how this industry works
• He tweets @greels1
• He’s fully transparent and fully accessible. Everyone at Flare operates this way.

Editor’s Note: When the author first started in venture capital, Michael was incredibly generous in sharing his time with me. He and his team truly do walk the talk!