LRVHealth raises $200M to fund the 'second wave' of digital health innovation

Venture capital firm LRVHealth raised $200 million to invest in healthcare startups with a focus on connecting industry incumbents with digital health entrepreneurs.

The fund is the Boston-based firm's fifth and largest to date and will be invested with a strategic focus on "Care Anywhere," according to Keith Figlioli, LRVHealth managing partner.

The fund’s initial investments include Greater Good Health, a company that developed a primary care model centered around nurse practitioners, and KeyCare, a virtual-first care platform built with Epic.

Care Anywhere represents the continued shift of health and medical care out of acute care settings with a greater emphasis on preventive, personalized and participatory care, Figlioli said.

The healthcare industry is entering what Figlioli refers to as a "second wave" of digital health innovation. This will be defined by a fundamental transformation in how and where care is delivered, driven by clinical scarcity and enabled by advancements in technology from artificial intelligence and machine learning to sensors, optics and robotics, he noted.

"Care Anywhere is about delivering preventative, personalized and seamless care where, when and how consumers want it. Working with the healthcare incumbents in our strategic network as an extension of their operating teams, we’ll identify investment areas within this construct and create opportunities for unique partnerships with the entrepreneurs addressing them, just as we’ve been doing for more than two decades," Figlioli said in an interview.

Back in 2009, the federal government doled out $38 billion to providers to spur the adoption of electronic health record software, what Figlioli refers to as "wave one" of digital health innovation.

"This kind of laid out the core systems and additional digital systems to be able to move up to a layer of abstraction and use data to do different things," he said. With the second wave, the healthcare industry will develop new business models and also finally see a return on its digital health investments, he noted. "The digitization and automation of a lot of activities over the next decade or two is really going to start showing a different pace of ROI."

Amid a downturn in the economy and the collapse of Silicon Valley Bank earlier this year, the digital health investment market has hit rough waters. This year is on pace to see the lowest level of digital health funding since 2019, according to data from Rock Health.

LRVHealth is clearly still bullish on the growth potential for digital health startups. In fact, Figlioli referred to the record of level of digital health funding in 2021 as an "outlier" as healthcare startups are still in "early innings."

"2021 was a fake year, in my opinion, and now we can look at the sustainability of what's going to happen in venture capital and private equity. We have now matured to a place where we have a sustained amount of opportunities and sustained amount of capital that's actually going into this marketplace," he said. "I think the market has matured to a place now where I think it's really healthy. I don't think where we were was healthy, actually. I think there were a lot of things being funded that, frankly, shouldn't have been funded without sustainable business models. We may be in a little bit of a downturn, but I believe we're on a much more sustainable path."

As part of its Care Anywhere investment strategy, LRVHealth plans to invest in digital health startups that focus on the specialty pharmaceutical market, Medicaid innovation, data platforms and new care delivery models around specialty care. "If you look back over the last 10 years and think about what's happened to primary care, and how the capital markets have come into that and other disruptive players have come into that, we think that same pathway is going to take place in specialty pathways," Figlioli said.

LRVHealth is backed by a network of strategic investors including Texas Health Resources along with 28 other major healthcare providers, payers and vendors.

The firm also has expanded its team of investors, operators and executive advisers to develop a deep bench of healthcare expertise. Its executive advisory board includes Lawrence Cho, chief strategy and growth officer at Allina Health, Karen DeSalvo, M.D., Google's chief health officer, and Sachin Jain, M.D., president and CEO of SCAN Group and SCAN Health Plan, among others.

Josh Flum, formerly chief strategy officer at CVS Health, recently joined the firm as managing partner. 

As the digital health market evolves, LRVHealth sees opportunities for entrenched incumbents like health systems to work with innovative startups rather than viewing it as a competitive threat.

"We are almost an extension to the incumbent players including large healthcare systems and large healthcare payers. We almost look like an independent corporate venture group for them, if you will," Figlioli said. "You can imagine thinking about the changing landscape that they're in, both sides of that coin. We spent an exorbitant amount of time helping them translate what's happening downstream to the innovation markets and figuring out what the best investments can be made to not only impact them strategically and operationally but also obviously have long-term value creation." 

Seventy-five percent of portfolio companies have a customer that is part of LRVHealth’s strategic network. Portfolio companies typically have three to five customers that are members of the LRVHealth network as a result of its collaborative model.  

“Our partnership with LRVHealth goes beyond making a sound investment decision for superior financial returns. It’s a much deeper and strategic relationship with a team that truly understands the complexity of our business, and at the same time, is deeply entrenched in the innovation ecosystem working side-by-side with the entrepreneurs driving it,” said Barclay Berdan, CEO of Texas Health Resources, a strategic limited partner of LRVHealth. 

The way healthcare is paid for and delivered is fundamentally changing, according to Michele Courton Brown, Zaffre Health Plan Solutions' vice president of business development and managing director.

"With one foot in the world of healthcare incumbents who understand the complexity of the U.S. healthcare system best, and the other in the world of the innovators bringing fresh ideas and new technologies, LRVHealth adds tremendous value as we navigate this transformation," she said.

Digital health entrepreneurs say they have also benefited from LRVHealth's network of healthcare players.

"[The firm] has been instrumental in helping us establish and refine our business model, understand the payer and provider landscape, and open doors to the right kind of partners," said Josh Hix, CEO of food-as-medicine platform Season Health, in a statement.