In many ways, Providence Ventures is just like any other venture capital firm: They find companies doing cool things and they take a risk on them.
But the venture capital arm of Providence St. Joseph Health does things a bit differently, Aaron Martin, Providence Ventures’ managing general partner, told FierceHealthcare.
For starters, their typical strategy involves seeking out problems folks within their own healthcare system have identified before figuring out who could provide the right solution.
"What happens typically in traditional VC is, you’re out there looking for companies that are getting momentum in a specific space," Martin said. "That is kind of backward from what we’re talking about. We start off with the problem and work our way back."
Last week, Providence Ventures announced it had raised a $150 million healthcare venture capital and growth equity fund to invest in healthcare and technology partnerships aimed at changing how care is delivered to consumers. It is their second such fund and will target early- and growth-stage healthcare companies that specialize in healthcare information technology, technology-enabled services, medical devices, and healthcare services.
AM: It tends to almost automatically de-risk the company because it’s already found a market. We already know that it’s a problem that we’re experiencing. We’re probably the third or fourth largest health system in the country and we have the same problems and the exact same opportunities that most health systems have.
FH: How do health systems uniquely impact the investment space? What is unique about our approach to investment?
AM: We're also are a large employer and we have a health plan in Oregon. So we cover a big footprint healthcare. When we work with these companies, we get value out of them, we prove them out and then we’ll make an investment.
FH: What do health systems bring to investment that differs from venture capital?
AM: When we work with these companies, we get value out of them, we prove them out and then we’ll make an investment ... The big benefit is our ability to very quickly give these small companies access to the right people who know exactly what the problem is and to collaborate with them very, very closely. It sounds like an easy thing to do. It’s super hard because your folks still have full-time jobs obviously. The other thing is, part of the role my team plays is this translation layer between folks that typically have much more of a technology than healthcare background and folks and people who have much more of a healthcare background than tech.
FH: Who are your peers who are doing a good job in this space?
AM: The health systems I admire are Kaiser Ventures, a great health system-based venture fund. Ascension Health. New York-Presbyterian has a smaller venture fund but does a really great job of looking at deals.
FH: What advice do you have for other health systems looking to expand their investments into a venture capital strategy?
AM: Venture is, by definition a high risk and very complex investment scenario. My advice to anybody is to hire specialists like what we’ve got on our venture investing team. The three partners and two principals we have on the team have anywhere from 15 to 23 years of investing in venture in this specifically in this space of healthcare IT, medical devices, etc. That’s really important.
FH: What advice do you give companies trying to catch your attention for investments?
AM: We’re very open book about our strategy and what we’re interested in. We publish our strategy and we have six different themes. The likelihood we’re going to be interested in a deal goes up dramatically if they are in the six different areas we call "‘digital journeys." How to do a better job in Medicaid. Consumer personalization. Behavioral health. It doesn’t mean we won’t be interested in something else, but the likelihood we’ll engage goes up tenfold.