HC9 Ventures closed its first fund with $83 million to invest in healthcare software and services startups at seed and series A stages.
While healthcare funds are not unique, HC9 Ventures' general partners say the VC firm is unique in its approach to leverage a deeply engaged investor community and industry expertise to help guide emerging companies.
"There are obviously many sources of capital for an emerging, early-stage business and we wanted to be different. What makes us unique are a few things. Predominantly, the composition of our capital is absolutely unique. We were intentional to bring together a community of healthcare leaders as our only source of capital," Richard Lungen, co-founder and general partner of HC9, said in an exclusive interview.
"We are 125-plus healthcare leaders, name-brand people who have operated some of the most scaled institutions in healthcare, such as UnitedHealth Group, Anthem, LabCorp, Cigna, Express Scripts and private equity. Those folks have committed to their own personal capital exclusively, no institutional money whatsoever."
The fund is anchored by several leading healthcare investors including Jory Capital, which is led by Dave Wichmann, the former CEO of UnitedHealth Group. Leveraging its 70-plus years of collective experience, HC9 is tackling the "toughest and most meaningful problems in the industry," Wichmann said in a statement, with a "deep understanding of the challenges and opportunities in healthcare and a pragmatic and hands-on approach."
HC9 represents an evolution of the venture capital model, bringing together industry expertise from healthcare executives, entrepreneurs and investors to support portfolio companies, according to Lungen.
The firm's limited partners also commit their time and expertise as part of an engaged community. "Early-stage companies get what they're looking for which is help, support and guidance, not just financial means," Lungen noted.
Lungen teamed up with healthcare leaders Jon Gordon and Charlie Falcone to launch HC9. Gordon previously founded and led New York-Presbyterian’s corporate venture arm, and is a multi-time entrepreneur and operator. Lungen and Falcone have a track record of success as founders of Leverage Health, a business development organization described as a "healthcare venture catalyst."
“When we founded HC9, we realized we had an incredible opportunity to build upon the best aspects of venture capital—the financial support it provides for emerging businesses with the potential to transform healthcare—with the insights and relationships from our community. As a result, we can greatly improve the odds of success for the truly transformative businesses we see,” Lungen said.
HC9 focuses on early-stage investments in healthcare software and services businesses, with an emphasis on companies that address care delivery or operational needs for payers and providers. Additionally, the team looks for founders who are seeking an engaged investor, businesses that have transformative potential and opportunities where the HC9 and its community can add meaningful value, according to the general partners.
The three founders recognized a market gap, said Gordon, co-founder and general partner. "On the side of the portfolio companies, there are certain perspectives around, 'How do you drive growth?' 'How do you sell into these really complex organizations like payers and providers?' Our peers definitely know this," Gordon said.
On the flip side, there was a gap for healthcare executives, investors and entrepreneurs who want to play an active role in supporting emerging, innovative companies as part of a community that's purpose-built around them, Gordon said.
HC9 has made three investments to date: Forge Health, a provider of “one-stop-shop” mental health and substance use care for individuals; Psych Hub, the go-to solution for mental health education and navigation; and vision care startup XP Health.
Lungen, Gordon and Falcone identified early-stage companies as the "sweet spot" when HC9's community of industry experts could have the biggest impact.
"We started looking at, where does this kind of expertise really make the most difference? And it's really in that sort of late-seed, series A stage where companies have a sign of product-market fit but they're trying to figure out that go-to-market. How do they really start to hit that initial scaling? That's where this expertise really makes the most difference in the trajectory of these companies," Gordon said.
Forge Health, a company that integrates digital health services and in-person care for behavioral health and substance abuse care, picked up $11 million in new financing to build out its tech capabilities and expand its value-based partnerships.
Eric Frieman, co-founder and CEO of Forge Health, said HC9’s support has been "invaluable" in areas such as opening doors with payers and bringing recognized industry talent to the company's board. Tim Wentworth, former CEO of Evernorth and Express Scripts, was recently appointed to Forge Health's board, a relationship that was facilitated through Wentworth’s investment in HC9, according to the companies.
HC9 Ventures is launching its $83 million fund at a time when health tech funding has slowed amid a market downturn after hitting a fever pitch in 2020 and 2021.
"We feel exceptionally fortunate with our timing," Gordon said. "A lot of the drop in terms of funding is on the later stage side. Now, both investors' expectations and founders' expectations are more reasonable around valuation, more reasonable around terms and more reasonable around engagement. I think that's a healthy thing for this market. It also enforces more discipline on the founders. So, more discipline, more focus and a recognition that it's not about scale above everything else, but it's actually about building as a sustainable, meaningful business."
He added, "There's still plenty of dry powder in the market. Healthcare is not a shrinking part of this economy. The need will be there and there are still plenty of challenges to be solved in healthcare, both big and small. For us to be able to buy into good companies and build meaningful value with the substance that we can bring to the table, I think is really exciting."