The world of startups has been on the rise in recent years, and with it, the demand for investors and funding has also increased. While traditional venture capitalist (VC) firms have long been the go-to option for startups seeking financial support, a new trend has emerged in the healthcare industry – the rise of health system VC arms.
Health system VC arms, which are entities created by healthcare systems to invest in startups, have been gaining popularity in recent years. Many startup founders have found these arms to be a more promising option than traditional VC funds, and for good reason. These health system VC arms offer a variety of benefits that traditional VC firms may not be able to provide.
One of the major advantages of partnering with a health system VC arm is the alignment of incentives. In traditional VC funds, the main goal is to generate a profit, which often means prioritizing the interests of the investors over the interests of the startups. However, with health system VC arms, the incentives are more aligned between the healthcare system and the startup. This is because the healthcare system is invested in the success of the startup’s technology, as it will eventually be deployed within their system. This alignment of incentives creates a more symbiotic relationship, where both parties are working towards a common goal – the success of the startup.
Startup founders who have partnered with health system VC arms have reported that the tech pilots they launch with their health system partners are more effective compared to those launched with traditional VC firms. This is because health systems have firsthand knowledge of the challenges and issues faced by the healthcare industry and can provide valuable insights and feedback to the startups. This allows the startups to fine-tune their technology to better suit the needs of the healthcare system, leading to a more successful pilot and eventually a more effective solution.
For health systems, investing in a startup through their VC arm allows them to have a hand in shaping the tools they will eventually deploy across their enterprises. This level of involvement gives the health systems a sense of ownership over the technology and the opportunity to shape it according to their needs. This is especially important in the healthcare industry, where issues like physician burnout, payment delays, and excessive hospital readmissions are prevalent. By investing in startups that are working to solve these problems, health systems can play a role in improving the overall state of healthcare and ultimately benefit their patients.
Moreover, health system VC arms also provide startups with access to valuable resources and expertise. As part of their investment, health systems may offer startups access to their network of healthcare providers, allowing them to conduct user testing and receive feedback from real-world users. This can be incredibly valuable for startups, as it gives them the opportunity to validate their technology and make necessary improvements before launching it in the market. Additionally, health systems can also provide startups with access to their infrastructure and resources, such as data sets and patient populations, which can help accelerate the development of the startup’s technology.
In addition to the practical benefits, there is also a certain level of prestige associated with being backed by a health system VC arm. This can be attractive to other potential investors, as it serves as a stamp of approval from a reputable healthcare institution. This can also open up opportunities for the startup to collaborate with other healthcare systems and expand their reach.
The success of health system VC arms is evident in the numbers. In 2019, healthcare startups received a record-breaking $10.6 billion in funding from venture capitalists, with a significant portion of that coming from health system VC arms. This trend is expected to continue, as more and more health systems are recognizing the potential benefits of investing in startups.
In conclusion, health system VC arms are proving to be a game-changer in the world of healthcare startups. They offer a variety of advantages, including aligned incentives, valuable resources and expertise, and the opportunity for health systems to have a hand in shaping the future of healthcare. As the demand for innovative solutions in the healthcare industry continues to grow, we can expect to see more health systems embracing the concept of VC arms and investing in promising startups. This is a win-win situation for both parties, as it not only benefits the startups, but also has the potential to drive positive change in the healthcare industry.
