Hospitals Back New LRVHealth Fund to Forge Alliances With Startups
The healthcare industry has a reputation for being slow and resistant to adopting new technologies. But more hospitals are starting to collaborate with—and even invest in—high-tech startups.
The latest example is a new Boston-based venture capital fund announced Monday. LRVHealth, formerly known as Long River Ventures, said it’s planning to raise $100 million for its fourth venture fund, which will back early-stage companies spanning healthcare IT, tech-enabled health services, medical devices, and diagnostics. Founded in 2000, LRVHealth’s previous investments include GetWellNetwork, Phreesia, MedVentive, and LifeImage.
LRVHealth has raised an undisclosed amount for its latest fund, and its leaders hope to hit the $100 million goal by late summer or early fall, according to an e-mailed statement from a spokesman.
The money isn’t the most interesting part here. What’s notable is that LRVHealth’s investors and partners in the new fund include hospitals, health insurers, and other industry players. One of the fund’s investors is the Innovation Institute, a for-profit venture owned by six non-profit hospital systems that operate in 20 states. The institute invests in and incubates healthcare startups, connecting them with doctors and other healthcare companies.
Collaboration between startups and the healthcare organizations they’re trying to sell to is a key feature of the new fund. LRVHealth said the plan is for hospitals and other healthcare groups to scout and test its portfolio companies’ products and services. The initiative will also set up “fellowships,” through which, say, investors would advise a portfolio company for a defined period of time on a specific “innovation area,” according to a press release. LRVHealth and its partners said they also plan to create and scale up new ventures.
The new fund is being launched as hospitals, insurers, and other healthcare companies are starting to work more closely with startups, especially at the earliest stages, to tap into new technologies—and help shape them.
Another group spurring such alliances is Pulse@MassChallenge in Boston, whose digital health startup accelerator program matches young tech companies with healthcare industry partners to work on specific projects for several months. The goal is to test startups’ products and services in real-world environments, and turn pilot programs into paying customer agreements. (Unlike most accelerators and incubators, startups don’t give up any equity to participate in Pulse@MassChallenge.)
Most healthcare-focused venture capital firms don’t guarantee those kinds of partnerships to companies they invest in, but many tout the value of their healthcare industry connections, especially as VC deal competition gets stiffer. Optum Ventures, for example, says its portfolio companies will likely benefit from its direct ties to Optum, a healthcare services business, and Optum’s parent company, the giant health insurer UnitedHealth Group. Optum Ventures launched its debut fund, a $250 million early-stage vehicle, last year.
There’s also Leerink Transformation Partners (LTP), which raised $313 million last year for its first growth equity fund that invests in healthcare IT and services companies. LTP is affiliated with the healthcare investment bank Leerink Partners, and the venture firm’s portfolio companies have access to Leerink’s network of industry experts, including doctors and regulatory specialists.
We should expect more of these kinds of collaborations going forward, LRVHealth argues.
“The healthcare sector is traditionally known for being conservative or risk averse, but the rise of healthcare consumerism and the flood of related data is forcing us into a phase of disruption not seen in our lifetimes,” said LRVHealth partner Will Cowen in a prepared statement. “Clinicians are rapidly and successfully embracing new care delivery models, administrators are adopting new perspectives on value and risk, CIOs are demanding system interoperability and data sharing, provider networks are revaluating the scope and scale of their operations, and boards and CEOs across the sector are focusing on innovation as a top-tier issue.”