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Why HC9 Believes Operators Make Better Venture Investors · Vanguards of Healthcare by Bloomberg Intelligence

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Speaker 1: Welcome to another episode of Boomberg Intelligence's Vanguards of Healthcare podcast,
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Speaker 1: where we speak with the leaders at the forefront of
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Speaker 1: change in the healthcare industry. My name is Jonathan Palmer,
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Speaker 1: and I'm healthcare analyst at Boomberg Intelligence, the in house
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Speaker 1: research arm of Bloomberg. I'm thrilled to welcome Richard Luneen
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Speaker 1: and Charlie Falcone, the co founders and general partners of
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Speaker 1: HC nine Ventures, to the program today. HC nine is
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Speaker 1: an early stage healthcare investment firm focused on technology and
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Speaker 1: service companies. Richard and Charlie bring a really interesting lens
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Speaker 1: to healthcare investing as both operators with deep relationships across
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Speaker 1: the ecosystem and a long track record. In this conversation,
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Speaker 1: we'll talk about what they see missing in the venture market,
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Speaker 1: how their backgrounds shaped HC nine, and where they see
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Speaker 1: the biggest opportunities in the market.
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Speaker 2: Today.
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Speaker 1: Welcome to the program, guys, Thank.
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Speaker 2: You for having us.
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Speaker 3: Jonathan, Hey, thanks Johnson.
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Speaker 1: Why don't we kick it off? How would you describe
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Speaker 1: HC nine's core mission to an early founder and a
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Speaker 1: few sentences sure.
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Speaker 2: In the eyes of a founder to your question, we
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Speaker 2: create a sense of acceleration and commercialization for their products
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Speaker 2: and services. Along with being operators, true functional operators give
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Speaker 2: those founders a sense that we've been in their shoes before,
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Speaker 2: and we've created a unique platform that allows those early
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Speaker 2: stage companies to accelerate their strategies, their aspirations, and their
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Speaker 2: growth by leveraging on the fact that again, we as
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Speaker 2: the general partners, are operators different which we'll get into,
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Speaker 2: but our limited partner base, this community of industry executives
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Speaker 2: also provides a very unique ingredient to allowing those entrepreneurs
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Speaker 2: and founders to launch their companies. And over the next
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Speaker 2: few minutes, it'll be worth explaining what we did before
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Speaker 2: each nine ventures Sure an almost twenty year old platform
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Speaker 2: called Leverage Health Solutions that without that, I don't think
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Speaker 2: we would be in the eight and one ventor space.
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Speaker 1: So why don't we talk about that and go a
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Speaker 1: little deeper. Where did you guys first meet and how
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Speaker 1: did you decide to come up with HC nine.
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Speaker 2: Sure, So Charlie and I met roughly thirty years ago.
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Speaker 2: You know, back in the nineties, this country in healthcare
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Speaker 2: had a lot of these non risparing preferred provider networks, PEOs.
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Speaker 2: We served as executives and operators of similar yet different PPOs.
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Speaker 2: We were on a board together of the American Association
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Speaker 2: of PPOs. I launched a platform called Leverage Held Solutions
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Speaker 2: in two thousand and seven. The goal of launching Leverage
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Speaker 2: Health was to help companies with their business development, growth
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Speaker 2: and distribution strategies into predominantly the health plan, risk bearing
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Speaker 2: provider and employer marketplace. Luckily for me, only a short
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Speaker 2: number of months after I launched the company, Charlie joined
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Speaker 2: me as my partner and we've been partners ever since.
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Speaker 1: Charlie, how would you describe the story?
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Speaker 3: Yeah, it's a good story, Jonathan, thank you. Richard's got
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Speaker 3: it there. So we met on a board at the AAPPO.
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Speaker 3: At the time, I was transitioning out of one role
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Speaker 3: leading a PPO Preferred Provider organization which I had the
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Speaker 3: benefit of joining at really dollar zero and building it
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Speaker 3: into one of the biggest PPOs in the Northeast at
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Speaker 3: the time, and as I was leaving and considering my
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Speaker 3: next role, Richard and I had spent some time together
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Speaker 3: at one of the industry events that we were at,
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Speaker 3: and being the sales guy that he is, he was
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Speaker 3: able to convince me to join him to start what
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Speaker 3: became a very successful business in Leverage Health Solutions. So
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Speaker 3: we set off on that journey and it's been quite
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Speaker 3: an interesting ride.
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Speaker 1: Leverage HELT to HT nine. So when did the light
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Speaker 1: bulb go off to maybe transition from the Leverage Health
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Speaker 1: into HC nine. What did you see that was missing
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Speaker 1: in the market.
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Speaker 2: We were sort of we sort of created our own
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Speaker 2: HT nine within Leverage. OK. We started to not just
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Speaker 2: do the business development, growth and strategy for over fifty
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Speaker 2: different companies, that we help those companies achieve success, winning
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Speaker 2: customers to over two hundred health plans across America. So
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Speaker 2: that those lessons learned really taught us a lot. And
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Speaker 2: along the way, we started making investments off of our
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Speaker 2: own balance sheet into certain companies. We started earning equity
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Speaker 2: into certain companies, and then we started making acquisitions. We
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Speaker 2: led the acquisition of an asset out of Optum, of
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Speaker 2: which I'll defer to Charlie, which he stepped in as CEO,
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Speaker 2: and we ran it quite successfully, growing it from roughly
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Speaker 2: ten million to twelve thirteen x of that number and
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Speaker 2: with the recommendation of some name brand executives in healthcare
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Speaker 2: they started to get in our year. Say, you, gentlemen,
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Speaker 2: have learned how to identify gaps in healthcare, tried to
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Speaker 2: predict where healthcare is going. You've created a unique skill
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Speaker 2: set of diligence, and you have this lens of commercialization
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Speaker 2: and operation. Plus you tend to know a lot of people,
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Speaker 2: so the network was pretty strong. So how do you
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Speaker 2: pull that together and create yet a unique platform in
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Speaker 2: venture which became h nine. So you've essentially formalized what
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Speaker 2: you were already doing at Leverage. Some would say that
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Speaker 2: HC nine is a natural extension of when we were
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Speaker 2: doing at LEVERAGELD since two thousand and seven, Yes.
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Speaker 1: So maybe how has the thesis evolved since that initial foray.
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Speaker 3: So we're just stepping back a second. I think it's
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Speaker 3: worth mentioning because it gets into how the thesis has evolved.
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Speaker 3: Something I learned from Richard early on when we joined
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Speaker 3: together was the concept of everyone's talked about build a network,
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Speaker 3: build relationships, but activating those relationships was something that we
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Speaker 3: did very well at Leverage Health. Being able to get
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Speaker 3: those relationships to help us identify new deals, closed deals,
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Speaker 3: win deals, and it's really what we set out to
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Speaker 3: build at HC nine, taking the power of that relationship base,
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Speaker 3: the community, if you will, and build that out into
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Speaker 3: something that was more active with HC nine versus Richard
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Speaker 3: and Charlie working deals with the team at Leverage Health
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Speaker 3: into something that was allows us to put more skin
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Speaker 3: into the game with bigger investments, a large community of
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Speaker 3: people that wanted to be active on boards and advisory boards.
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Speaker 3: So that's sort of the evolution of how we got there. Yeah,
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Speaker 3: and maybe just returning back to the thesis question, you know,
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Speaker 3: it was how has it kind of changed since that
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Speaker 3: initial foray, maybe in the way oughts to now.
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Speaker 2: On the HC and nine side, Yes, Well, on the
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Speaker 2: HC nine side, it's kind of worked as planned a
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Speaker 2: lot of ways. We wanted to use our LP base
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Speaker 2: at HC nine, which is over one hundred and thirty
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Speaker 2: four limited partners plus ourselves in the first fund, and
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Speaker 2: we wanted to have them help us think through again,
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Speaker 2: where's healthcare going? Could they be helpful in diligence, could
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Speaker 2: they be on boards? Could they be on advisory boards?
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Speaker 2: And we successfully invested in ten transformative companies that are
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Speaker 2: impacting the P and L. The strategies whether it's beneficiaries
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Speaker 2: for payers, risk bearing providers, and employers. So the strategy
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Speaker 2: I think has worked out fairly well lessons learned along
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Speaker 2: the way. But as we'll emphasize quite a bit, we
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Speaker 2: call our LP base, whether it's Fund one or now
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Speaker 2: into Fund two, a community, and that community hasn't been
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Speaker 2: incredibly powerful helping ourselves and our companies direct where we're
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Speaker 2: going in healthcare.
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Speaker 1: And you guys have worked together for so long, talk
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Speaker 1: to me about you know, what are your strengths and
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Speaker 1: weaknesses and where are you guys complimentary with each other.
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Speaker 2: Well, by the time this discussion's open, as you look
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Speaker 2: at the number of minute I speak versus Charlie, you'll
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Speaker 2: start to realize where we differ. I would probably be
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Speaker 2: classified as the person on the front line helping connect
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Speaker 2: the dots, helping lead our portfolio companies with strategy, with
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Speaker 2: business development, value creation. I'm probably more than not the
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Speaker 2: person that is helping solicit and curate our limited partner base.
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Speaker 3: YEP.
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Speaker 2: So I would say if this were a sports analogy,
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Speaker 2: I'm probably more on the offensive side of the playbook,
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Speaker 2: and we're trying to separate and divide and conqueror as
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Speaker 2: we call it Troie would be on the operations and
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Speaker 2: making the trains move effectively.
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Speaker 3: It's one of those things. Again, early on in our relationship,
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Speaker 3: we had this line that we could trust to walk
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Speaker 3: out a meeting to go to the bathroom with each
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Speaker 3: other because we could rely on either one of us
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Speaker 3: really functionally on either side operations or sort of that
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Speaker 3: frontline go to market side. But you'll see to Richard's
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Speaker 3: point with kind of the talk, and I am the
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Speaker 3: back office guy, if you will, more of a technical.
9:04
Speaker 3: I was a math major in college. No one's ever
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Speaker 3: called me shy, but I certainly like to do the
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Speaker 3: things that sort of build the foundation. Richard is the
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Speaker 3: frontline business development connector access and it really works well
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Speaker 3: together for us because we stay in our lanes extremely well.
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Speaker 3: We don't question decisions, and even when we do have
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Speaker 3: something that maybe we don't come to full alignment on initially,
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Speaker 3: we're able to talk through it.
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Speaker 1: Got it. How do you think about that community of
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Speaker 1: you said one hundred and thirty, I.
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Speaker 2: Believe on hundred and thirty four in fund one.
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Speaker 1: How do you curate that and make sure you have
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Speaker 1: the right investors and the right group.
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Speaker 2: It's a little bit of an art not a science.
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Speaker 2: We've been very lucky thus far to have a LP
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Speaker 2: base of people that in a lot of ways we've known,
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Speaker 2: so we kind of know who they are, we kind
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Speaker 2: of know their temperament. But we also have created a
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Speaker 2: wonderful team at EIGHTC nine. One person on our team
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Speaker 2: led what is known as the Nashville Healthcare Council, and
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Speaker 2: she stood between thirty of the largest health systems in
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Speaker 2: America and their initiative in Nashville. So she serves as
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Speaker 2: a unique definition of head of platform or you might
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Speaker 2: view IR, but we call it head of networking community.
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Speaker 2: So as we bring on a limited partner, they're not
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Speaker 2: obligated to serve a number of hours, they're obligated to
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Speaker 2: do anything except comply with book cloths. But we are
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Speaker 2: very lucky that if we're looking at a business that
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Speaker 2: is impacting say oncology, or as impacting total cost of care,
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Speaker 2: we've been able to curate and archive the skills and
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Speaker 2: strengths and desires of our limited partners. Do they want
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Speaker 2: to lean in, how do they want to lean in,
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Speaker 2: and where's their expertise? Do some of our limited partners
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Speaker 2: serve on publicly traded boards. Some of them have been
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Speaker 2: at the highest levels in healthcare, so maybe they don't
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Speaker 2: want or desire to be on the board of a startup.
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Speaker 2: But we've been very lucky and grateful that as we're
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Speaker 2: looking at something, we have this unique amount of intelligence
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Speaker 2: to bring to the table to apply to those decision makings.
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Speaker 2: So how do we do it? We've been able to
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Speaker 2: curate their level of interest as they come in and
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Speaker 2: as the business grows, they're willing to be called on
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Speaker 2: for the most part.
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Speaker 1: That's great. How do you think about you know, where
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Speaker 1: your sweet spot is in terms of your approach? I mean,
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Speaker 1: I imagine with this huge network and all the experience and
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Speaker 1: connections you guys have, there's a ton of different deals
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Speaker 1: coming into you. Where do you find you're spending your
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Speaker 1: time now and what are you focused on?
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Speaker 3: Yeah? I think you know, if you think about what's
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Speaker 3: happening in the industry, you can't say anything without mentioning
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Speaker 3: AI right now and we can get to that there are.
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Speaker 2: And it's only Monday morning at ten thirty. Where we
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Speaker 2: said AI.
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Speaker 3: We like to stick to things that we understand. Clearly,
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Speaker 3: we're healthcare guys, both of us thirty years, sectors of
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Speaker 3: the industry that are touching insurance carriers, large employers, physician groups,
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Speaker 3: health systems. We're investing in areas that we understand well,
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Speaker 3: we're not chasing life science or device items. However, they
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Speaker 3: do show up in our world quite a bit. Look,
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Speaker 3: you talk to a lot of venture funds and we
12:27
Speaker 3: see literally thousands of deals a year. How do you
12:31
Speaker 3: decide which ones are right which ones are wrong? So
12:33
Speaker 3: obviously we do have sort of thematic approach to what
12:37
Speaker 3: we do AI Medicare Advantage Senior. But AI right now
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Speaker 3: is involved in everything, and I think we're trying to
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Speaker 3: find the areas that are unique to AI. We can
12:48
Speaker 3: spend some time talking about some of our portfolio companies,
12:50
Speaker 3: but at the end of the day, if I go
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Speaker 3: back to our network of limited partners, who they are,
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Speaker 3: what they understand, we always want to be able to
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Speaker 3: leverage them. Things that we think about with that limited
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Speaker 3: partner community are really three things sourcing. They're going to
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Speaker 3: throw deals at us, We're also going to throw deals
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Speaker 3: at them. To Richard's point, if somebody was a chief
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Speaker 3: medical officer at a national health plan and we see
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Speaker 3: a clinical solution that we think is interesting. We're going
13:18
Speaker 3: to reach out. We're going to reach out to the
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Speaker 3: head of network, to the chief financial officer, those people
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Speaker 3: in our network to help us understand what deals make sense. Then,
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Speaker 3: of course, once we get to the point where we
13:29
Speaker 3: like a deal, we get to the diligence stage, and
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Speaker 3: again we're able to tap into that limited partner community
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Speaker 3: to help us really understand from a diligence perspective, is
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Speaker 3: this a good deal? Doesn't have an opportunity to succeed?
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Speaker 3: And then finally, the third thing is value creation. How
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Speaker 3: do we tap into and activate that limited partner community
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Speaker 3: to help those companies grow, commercialize, but also operate and scale.
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Speaker 2: I would add a couple quick things please, So if
13:58
Speaker 2: you think about the story on what we've done since
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Speaker 2: two thousand and seven, looking at over roughly three thousand
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Speaker 2: companies at Levers sheelth working with over fifty different businesses,
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Speaker 2: earning equity positions in two dozen of those these words
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Speaker 2: value creation i e. Business development, growth related value add
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Speaker 2: We are not a passive capital partner. Okay, if we
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Speaker 2: lean into a business to potentially invest, we have knowledge,
14:31
Speaker 2: we have interest, and we have conviction that we're going
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Speaker 2: to move the needle on that business, not just offer
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Speaker 2: some capital and call us in three months when it's
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Speaker 2: time for the next board meeting. We lean in quite
14:43
Speaker 2: heavily to help our companies grow. And then when it
14:45
Speaker 2: comes to the whole knowledge of what do we invest in,
14:48
Speaker 2: it's a little bit of warm Buffett. You invest in
14:50
Speaker 2: what you know, so if you apply all of those ingredients,
14:55
Speaker 2: we want to make sure that if we're partnering investing
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Speaker 2: in a business, we know that even before the money
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Speaker 2: is wired, we've been able to activate and engage and
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Speaker 2: impact that business on day one.
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Speaker 1: Got it.
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Speaker 2: That's a lot of our secret sauce.
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Speaker 1: Well, why don't we go through a case study of
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Speaker 1: one of your investments? And I like the way Charlie
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Speaker 1: gave us a little bit of a framework about how
15:17
Speaker 1: you're thinking in and Richard you overweged it with with
15:19
Speaker 1: a lot more of the depth there. So what's one
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Speaker 1: case study of one of your investments. Let's start from
15:25
Speaker 1: how is it sourced? And you know what value add
15:28
Speaker 1: you guys saw from day one our day zero.
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Speaker 2: Maybe in my particulation, sure, I would also go back
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Speaker 2: a little bit when we were in two thousand and seven,
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Speaker 2: and I'll go I'll answer a question at HC nine,
15:39
Speaker 2: But to tell a quick story about share are proceeding
15:43
Speaker 2: yet it's still an existing platform. Leverage Health. In two
15:46
Speaker 2: thousand and six, I was cold called at my former employer,
15:49
Speaker 2: health Clign Services this thing called telemedicine. It was a
15:52
Speaker 2: startup at a Dallas called Teledoc, and this consultant was
15:56
Speaker 2: trying to convince me that people wanted to access care remotely.
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Speaker 2: I thought it sounded fishy. The call lasted thirty seconds,
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Speaker 2: and let's just say I didn't believe in what this
16:06
Speaker 2: person was telling me. We then started Leverage Held Solutions,
16:10
Speaker 2: and I remembered that phone call and eventually made a
16:14
Speaker 2: trip down to Dallas, and let's just say I walked
16:17
Speaker 2: in a room and there were some very interesting people
16:19
Speaker 2: around the table. And that became Teledoc at twenty nine
16:22
Speaker 2: cents a share, where we literally led the business development.
16:26
Speaker 2: Before the CEO who took a public joined we were
16:30
Speaker 2: the business development team. So you think about that type
16:33
Speaker 2: of story, along with the fact that because we grew
16:35
Speaker 2: up in the PPO business, we identified the fact that
16:39
Speaker 2: this word credentialing and provider data management was fragmented, So
16:42
Speaker 2: we approached optim to carve out their asset aperture, which
16:46
Speaker 2: Charlie went for ten years. So how do you apply
16:48
Speaker 2: that to HC nine. There's a number of really good
16:51
Speaker 2: case stories at at HC nine. I would say companies
16:56
Speaker 2: like Rima. Rima's a business that is doing really hotant
17:00
Speaker 2: hard work trying to identify the Medicaid beneficiary who just
17:05
Speaker 2: doesn't want to be identified. So you think about a
17:07
Speaker 2: lot of the publicly traded MCOs where they're all struggling
17:11
Speaker 2: with engagement, they're all struggling with overcrowded ers. So Reima
17:16
Speaker 2: is a business that we invested in very early that
17:19
Speaker 2: now has realized tremendous success. We led the A round,
17:23
Speaker 2: we participated in the B round, and even United Health
17:27
Speaker 2: Group's venture arm came into the B round because of
17:30
Speaker 2: how large of a customer United has been. So that
17:33
Speaker 2: is a really good example of the business. I also
17:36
Speaker 2: think another good story and that we could also you know,
17:38
Speaker 2: as Trolie and I talk about him and Aggett, there's
17:41
Speaker 2: a business that is helping U the nine to one
17:44
Speaker 2: one EMS systems, whereby right now, if you call nine
17:49
Speaker 2: one one for an ambulance, the only place the ambulance
17:52
Speaker 2: is going to go is to the er. Well, right now,
17:55
Speaker 2: the er either a doesn't have enough staff or it's overcrowded.
17:59
Speaker 2: So with the case of RIMA, where we helped the
18:01
Speaker 2: management team identify, well, if you acted as a provider
18:06
Speaker 2: that as a FIFA service vendor, how could you scale.
18:09
Speaker 2: In the case of right Side Health, we've been working
18:12
Speaker 2: with the management team to try to bring together all
18:15
Speaker 2: the health plans in various states, how to create pricing,
18:19
Speaker 2: how to create strategy. We've also been able to bring
18:22
Speaker 2: people from our LP base and to the boards, and
18:26
Speaker 2: from our LP base to their advisory boards and to
18:29
Speaker 2: their management teams. So I think about how we apply people,
18:33
Speaker 2: which then leads to revenue, which then leads to proven
18:36
Speaker 2: ROI and then hopefully that leads to accelerated exits.
18:41
Speaker 3: And something I would add if I go backwards maybe
18:45
Speaker 3: to your specific question there, how do we thematically work
18:49
Speaker 3: our way up to those investments. If you take the
18:52
Speaker 3: RIMA example, one of the areas that we had paid
18:55
Speaker 3: a lot of attention to was understanding this engagement of
18:58
Speaker 3: members that were kind of lost in the system and
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Speaker 3: the health plans or whoever was ultimately responsible for covering
19:05
Speaker 3: them couldn't get them to engage and that was driving
19:08
Speaker 3: up significant costs. So that thesis sort of led us
19:11
Speaker 3: to this company, Rema, which had built a very good
19:14
Speaker 3: solution with community health workers to engage these members even
19:18
Speaker 3: when the health plans couldn't do it after multiple tries.
19:21
Speaker 3: And then if I move forward to that right site example, access,
19:25
Speaker 3: that's something you've heard about probably quite a bit in
19:28
Speaker 3: the industry today, access to providers. So if you think
19:31
Speaker 3: about what right site does at the nine to one
19:34
Speaker 3: one switch if you will, in the EMS, is they're
19:37
Speaker 3: taking patients that really are overutilizing or misutilizing nine to
19:42
Speaker 3: one one as primary care or something that they shouldn't
19:45
Speaker 3: be using it for. Right site is able to redirect
19:48
Speaker 3: them with a telemedicine approach, if you will, clinically triage
19:52
Speaker 3: them to the right place of care. So thematically, if
19:55
Speaker 3: you think about areas that are meaningful to us, those
19:58
Speaker 3: are two examples. Maybe I'll reference one more while we're
20:01
Speaker 3: talking about these, and it has to do with AI.
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Speaker 3: If we get to that, and we've all heard so
20:07
Speaker 3: many different use cases and solutions that AI is going
20:11
Speaker 3: to dramatically change in the healthcare industry. What we saw
20:16
Speaker 3: happening with a lot of our relationships and we were
20:18
Speaker 3: hearing this from our limited partners. And something that we've
20:21
Speaker 3: been very good about over the years is listening to
20:24
Speaker 3: buyers and it's a leverage health trait that has worked
20:27
Speaker 3: for us very well, where we'll talk to the buyers
20:30
Speaker 3: and they'll share things with us. Because we're sharing things
20:33
Speaker 3: with them, we're telling them about what we're seeing, they're
20:35
Speaker 3: telling us about what's missing. What we heard clearly was
20:39
Speaker 3: there was too much coming at them at once with AI.
20:43
Speaker 3: They couldn't figure out how to prioritize, how to implement,
20:47
Speaker 3: and how to track what was happening with AI. We
20:50
Speaker 3: made an investment, and it's our most recent investment, which
20:53
Speaker 3: happened to the end of last year, in a company
20:55
Speaker 3: called Optura, which built an orchestration layer, if you will,
20:58
Speaker 3: that helped both health plans, health systems, and other stakeholders
21:03
Speaker 3: in the industry to identify how to prioritize which AI
21:07
Speaker 3: solutions should we be implementing now, and then how to
21:10
Speaker 3: track the ROI once that happens, and they coin this
21:13
Speaker 3: term ro AI return a lot of artificial intelligence. In fact,
21:18
Speaker 3: Dirks Bentley's actually talked about that on stage. He's an investor, So.
21:23
Speaker 1: Why don't we dive into that then a little bit deeper.
21:24
Speaker 1: I mean, it seems like no conversation I have on
21:28
Speaker 1: this podcast doesn't delve into the AI go down an
21:32
Speaker 1: AI rabbit hole at some point. So when you think
21:35
Speaker 1: about AI, where are you, guys seeing the use cases
21:38
Speaker 1: be most successful within either your book of business at
21:41
Speaker 1: HC nine or more broadly in the ecosystem.
21:44
Speaker 2: Well, sure, so if you go back two years ago,
21:47
Speaker 2: the health plans and the health systems were reticent would
21:52
Speaker 2: be an understatement, everything from using AI to pick the
21:56
Speaker 2: right behavioral health therapist in time to need. In fact,
22:00
Speaker 2: we have a leverage health company who helps health plans
22:03
Speaker 2: with transitions of care from a qute to post acute,
22:07
Speaker 2: and AI was prohibited being used in that decision making process.
22:12
Speaker 2: Incredibly fast changes where now it's universal. It's almost like
22:17
Speaker 2: what is standard of care, ender of care. So we
22:20
Speaker 2: think AI has incredibly low hanging fruit, as I'm sure
22:23
Speaker 2: a lot of folks you've spoken to with operational expense. Sure,
22:29
Speaker 2: you think about the fact that there's call centers, there's
22:32
Speaker 2: triarche centers. Immediately you can apply AI. There the other
22:37
Speaker 2: thing about AI is think about rural health care. So
22:41
Speaker 2: rural health care, whether you're one hundred and fifty miles
22:44
Speaker 2: north of Manhattan or in the middle of America. With AI,
22:48
Speaker 2: you can have the same level of care as right
22:51
Speaker 2: down the street here in Manhattan. But AI is it's
22:55
Speaker 2: also given health plans and health systems the needed almost
23:00
Speaker 2: a life preserver because right now you think about total
23:03
Speaker 2: cost of care, you think about margins. It's a very
23:07
Speaker 2: tough time right now in healthcare world. So AI from
23:10
Speaker 2: a functional point of view the traditional workforces. But then
23:13
Speaker 2: you start thinking about the clinical side of it. A
23:15
Speaker 2: and I we kind of get really excited about it
23:18
Speaker 2: as to how where it can go. But there's some
23:22
Speaker 2: there's some easy wins with respect to labor and workflow.
23:26
Speaker 1: And then that office the process of that ass But.
23:28
Speaker 2: Then there's more exciting things about how's it going to
23:31
Speaker 2: help people's lives down the road.
23:33
Speaker 1: Well, where do you guys see the most application or
23:36
Speaker 1: the most interesting applications of that and the clinical.
23:38
Speaker 3: Side, Yeah, the I think one of the obvious areas
23:44
Speaker 3: on the clinical side, I'll go back to that access word.
23:49
Speaker 3: There's going to be a shortage. I think it's estimated
23:53
Speaker 3: by the middle of about ten years from I think
23:55
Speaker 3: twenty thirty seven eighty thousand. Primary care physician shortage. Access
24:02
Speaker 3: is a huge issue. I know some of the other
24:06
Speaker 3: people you've talked to. There's so many different opportunities to
24:09
Speaker 3: use AI as a front door to really triage. It's
24:13
Speaker 3: almost the right site example, where people are going to
24:17
Speaker 3: see a doctor when they really don't need to. And
24:20
Speaker 3: if you talk to doctors you would probably hear many
24:22
Speaker 3: of them say that they're spending a lot of time
24:25
Speaker 3: directly with patients. Obviously, administratively as well, you hear about
24:29
Speaker 3: how much administrative work physicians have to do that's being
24:32
Speaker 3: solved with scribes and a lot of the AI tools
24:35
Speaker 3: at least the first wave of AI in health care administratively,
24:39
Speaker 3: so now I get to this clinical so certainly access
24:42
Speaker 3: and then decision support at the point of care is
24:44
Speaker 3: another huge one obviously because today with the ambient listening
24:49
Speaker 3: being able to hear what a patient says, clinicians can
24:53
Speaker 3: get real time feedback from an AI tool that tells them, hey,
24:57
Speaker 3: these are more questions that you should probe in to
25:00
Speaker 3: where historically a really good physician would maybe know those
25:03
Speaker 3: things right away. But even the smartest physician isn't going
25:07
Speaker 3: to hit on everything that AI can so decision support
25:10
Speaker 3: at the point of care access. Those are the types
25:14
Speaker 3: of areas that I think will be the next big
25:15
Speaker 3: wave and the types of companies that we're spending time
25:18
Speaker 3: really digging in on.
25:19
Speaker 1: Maybe you talk to me a little bit about that.
25:21
Speaker 1: How are you separating the wheat from the chaff? You know,
25:24
Speaker 1: in terms of AI. You know we've all heard stories about,
25:27
Speaker 1: you know, three folks in a hoodie, I don't know,
25:30
Speaker 1: a fifty million dollar term sheet, you know, with no product,
25:33
Speaker 1: just to have a background, you know in neural netty
25:36
Speaker 1: really warner I diligence than that, by the way, of course,
25:39
Speaker 1: So how how are you guys doing your diligence around?
25:41
Speaker 1: Is just given it's moving so quickly. And you know
25:44
Speaker 1: what you said, Charlie just resonated with me really well.
25:46
Speaker 1: I was at the Abridge keynote a couple of weeks ago,
25:49
Speaker 1: and you know, they were showing demos of all this
25:51
Speaker 1: stuff happening in real time, and query that wave is coming.
25:55
Speaker 3: Yeah, I think, look it's the wild West. A little bit.
26:00
Speaker 3: This reminds us, you know, going back in time of
26:03
Speaker 3: you could say, the dot com and if you go
26:05
Speaker 3: back into the sort of these things that have happened
26:07
Speaker 3: over the course of history, this is certainly one of
26:10
Speaker 3: the most dramatic. Healthcare is positioned to benefit as well
26:14
Speaker 3: or better than any other industry. You're talking about today
26:19
Speaker 3: almost six billion of spend. It's only going to keep
26:22
Speaker 3: growing almost twenty percent of the GDP. Now, so how
26:26
Speaker 3: do we separate It's it's hard. The benefit we have,
26:30
Speaker 3: or at least one of the strong benefits we have,
26:32
Speaker 3: is back to that community. We have a large community
26:36
Speaker 3: in Fund one one hundred and thirty four plus Richard
26:39
Speaker 3: and I one hundred and thirty six. Really Fund two,
26:41
Speaker 3: we've already added forty new limited partners, So we're approaching
26:45
Speaker 3: we're approaching one hundred and eighty senior executives from across
26:49
Speaker 3: the industry that have seen things, that see things today.
26:53
Speaker 3: We're able to leverage those relationships and I'll go back
26:56
Speaker 3: to that word, activate our community to help us understand
27:00
Speaker 3: what's real, what's not real, and what are the things
27:03
Speaker 3: that we should be going deeper on. Because again, we're
27:05
Speaker 3: seeing thousands of companies and unbelievably well maybe not surprisingly
27:10
Speaker 3: most of them have AI in some way associated with them.
27:13
Speaker 2: And it may not anecdotal, but and I know you
27:17
Speaker 2: know you'll speak to a lot of PE and VC firms.
27:20
Speaker 2: Going back to what we've done since two thousand and seven,
27:23
Speaker 2: we speak to the buyers weekly in a scheduled cadence,
27:27
Speaker 2: Dozens and dozens of health plans and providers and employers,
27:30
Speaker 2: predominantly health plans, from the largest publicly traded to the
27:34
Speaker 2: single state blues or provider owned health plans. They tell
27:38
Speaker 2: us a lot about what's going on. Because Chari said,
27:41
Speaker 2: we share at no charge back to them. That's the
27:44
Speaker 2: playbook we've had since two thousand and seven. That's the
27:48
Speaker 2: uniqueness of HC nine. So when it comes to AI,
27:51
Speaker 2: or if it came down to other somewhat crowded spaces
27:55
Speaker 2: a few years ago MSK Medicine, we've been lucky enough
27:59
Speaker 2: that if we give, we might get when it comes
28:02
Speaker 2: to collaborative information. And now in our second fund, we
28:05
Speaker 2: have Strategics as limited partners, and that has further accentuated
28:09
Speaker 2: the reciprocal conversation, whether it's AI or oncology or behavioral health.
28:17
Speaker 2: That the ability to have a trusted relationship with the
28:20
Speaker 2: entity on the other side of the table. The perspective
28:23
Speaker 2: buyer has been incredibly helpful to us.
28:26
Speaker 1: Maybe diving into those conversations a little bit more, what
28:28
Speaker 1: are some of the key themes that you keep hearing
28:30
Speaker 1: over and over of late just generally generally, I mean
28:34
Speaker 1: AI has to be one of them, but outside of
28:37
Speaker 1: you know, it's obviously the hottest topic at the moment.
28:39
Speaker 2: So you can't get away with senior care. So it's
28:44
Speaker 2: only a few years from now that we'll have more
28:47
Speaker 2: seniors than children being born. You can't get away from
28:52
Speaker 2: mental behavioral health, you can't get away from total cost
28:56
Speaker 2: of care. Those type of themes are prominent in our conversation.
29:02
Speaker 2: You would think that people have solved and dropped anchors
29:05
Speaker 2: and behavioral health and mental health and substance abuse, but
29:09
Speaker 2: the truth matter is we haven't yet. There's doctors that
29:13
Speaker 2: are going out of network, especially in cities like Manhattan
29:16
Speaker 2: where it's cash pay. So the mental health and behavioral health,
29:19
Speaker 2: even though we have three investments in that space, there's
29:22
Speaker 2: still a lot of wood to chop in that space
29:24
Speaker 2: there the senior population. If you look at the trends
29:29
Speaker 2: in medicare, the last few years. It's been challenging right now,
29:33
Speaker 2: but a lot of the publicly traded MCOs looks like
29:35
Speaker 2: that they could see the forest through the trees and
29:38
Speaker 2: they're getting out of that. So we think that there's
29:40
Speaker 2: a lot of more opportunity in how to treat seniors comfortably, happily,
29:45
Speaker 2: safely in their homes with quality clinical guidelines and programs.
29:51
Speaker 2: And the other thing we could go backwards is a
29:54
Speaker 2: lot of non operators may not really understand the impact
29:58
Speaker 2: of total cost of care right now. The total cost
30:01
Speaker 2: of care, whether it's the clinical total cost of care
30:04
Speaker 2: and the time and the expense it takes to answer
30:06
Speaker 2: the phone, and that impacts cost the care, and then
30:09
Speaker 2: there's a patient and a provider on the other side.
30:12
Speaker 2: All that impacts underwriting pricing mlr EPs. So a lot
30:18
Speaker 2: of those are the trends that we can see that
30:20
Speaker 2: we can dive into and no matter if we talk
30:22
Speaker 2: and then anything about on college or what have you,
30:23
Speaker 2: but those are the things that health plans and buyers
30:26
Speaker 2: are staying up at night thinking about.
30:28
Speaker 3: Share we anything add yeah, I think you know it does.
30:32
Speaker 3: Total cost of care is a big one. And I
30:34
Speaker 3: think even when if you start with AI and almost
30:38
Speaker 3: get to the point where everything is going to use AI,
30:41
Speaker 3: or at least say they use AI in some capacity.
30:44
Speaker 3: How do you focus on what areas are going to
30:46
Speaker 3: be most relevant and important? The senior care, aging, at home, longevity,
30:53
Speaker 3: those things start to matter here, right, So those are
30:56
Speaker 3: areas where we are spending time. Richard mentioned oncology. We
31:00
Speaker 3: don't have a direct oncology investment, but it's an area
31:03
Speaker 3: that we've spent a lot of time on AI we
31:06
Speaker 3: think will be dramatic in terms of some of the
31:08
Speaker 3: opportunities there to drive savings. Total cost of care is
31:12
Speaker 3: a very big one because we hear that from so
31:15
Speaker 3: many of the buyers struggling to control the costs, the
31:18
Speaker 3: medical costs for the people they serve. And there are
31:22
Speaker 3: many areas there that we think can drive change. And
31:25
Speaker 3: it's really some of our investments. If you think about
31:27
Speaker 3: we have a company called Gather which is focused on
31:30
Speaker 3: senior care, a lot of duels that are the highest
31:33
Speaker 3: cost individuals. From many of these payers, Gather has driven
31:38
Speaker 3: significant cost savings, sometimes as much as sixty five percent
31:43
Speaker 3: on a per member per month basis measuring how cost goes.
31:47
Speaker 3: So it's an area that we think about.
31:49
Speaker 1: You know, maybe just going back to the oncology statement
31:53
Speaker 1: is what are your thesis there? And as a public
31:56
Speaker 1: equities guy, I spend actually a fair amount of time
31:58
Speaker 1: in that space just because of all the therapy that
32:00
Speaker 1: are coming. We've seen consolidation on the provider side with
32:04
Speaker 1: the MSOs and the distributors. How are you thinking about
32:07
Speaker 1: the ontology space? And I guess maybe from your perspective,
32:09
Speaker 1: where would you like to play? Well, I'm going to
32:12
Speaker 1: tell a little story if that's okay, yeah, please do so.
32:15
Speaker 1: My father passed away two months ago. I'm so sorry
32:17
Speaker 1: to hear about cancer. So I'll tell you the story
32:20
Speaker 1: as to why now we I are very passionate about cancer.
32:25
Speaker 1: So I grew up one hundred and ten miles north
32:27
Speaker 1: of the city in Sullivan County. My father was diagnosed
32:32
Speaker 1: with the type of lymphoma you don't want to have.
32:36
Speaker 1: But as a multiple award winning Vietnam soldier, cancer picked
32:42
Speaker 1: on the wrong guy. But even after four years, he's
32:45
Speaker 1: succumbed to that disease. When you have cancer living in Monticello,
32:49
Speaker 1: New York, and your doctors are memorial slung kettering and
32:53
Speaker 1: you're on two different EMRs, and the doctors don't talk
32:56
Speaker 1: to each other, and the distance of travel. I learned
33:02
Speaker 1: a lot about another element of cancer. There's digital oncology,
33:07
Speaker 1: there's the pharma. But the experience of watching a loved
33:11
Speaker 1: one not being able to have coordinated care and localize
33:15
Speaker 1: care really opened up my eyes that we have a
33:19
Speaker 1: bigger problem than just finding a cure to cancer. We
33:22
Speaker 1: have a geographic problem. We have a locality problem. And
33:28
Speaker 1: it taught me a lot. And quite honestly, you know,
33:31
Speaker 1: with my partner and close friend here, he watched me
33:33
Speaker 1: struggle through this because I'm supposed to be the guy
33:36
Speaker 1: that has all the answers and has all the connections.
33:39
Speaker 1: But even with that, it's so difficult for someone to
33:44
Speaker 1: navigate their way through that process. And as a former
33:48
Speaker 1: employee of the State of New York, even their benefit
33:51
Speaker 1: plan is rich yet complicated. So supposedly my father's medical
33:57
Speaker 1: bills were close to twenty million dollars over it's the
34:01
Speaker 1: number we're trying and get a handle on. But the
34:03
Speaker 1: navigation of oncology and the distance between one doctor to
34:08
Speaker 1: the other that does not communicate is something that you
34:12
Speaker 1: might not have expected. In my answer, but watching this
34:16
Speaker 1: process the last years and months. There's a lot of
34:20
Speaker 1: work to do there. So rural health care, suburban healthcare,
34:26
Speaker 1: coordinated healthcare is something that cancer patients all around America
34:31
Speaker 1: probably the world too. But what do I know about
34:33
Speaker 1: the world. Just here is something that I'd like to
34:37
Speaker 1: see us get involved with. Something I would add to that.
34:42
Speaker 1: And so my story, I'll tell you I had cancer
34:47
Speaker 1: twenty one years ago.
34:48
Speaker 2: I also had len foma.
34:49
Speaker 3: Oh wow, it was interesting. So this is two thousand
34:54
Speaker 3: and four, is when I was diagnosed and I was
34:58
Speaker 3: treated at Hospital of University of Pennsylvania, say, a very
35:02
Speaker 3: good facility. I had the benefit of something that Richard's
35:06
Speaker 3: father didn't, which was access to good care, but I
35:10
Speaker 3: still took me an hour to get down there. Sometimes
35:12
Speaker 3: you'd have to wait for two hours to see the doctor, etc.
35:16
Speaker 3: But what was happening at that point was really the beginning,
35:20
Speaker 3: maybe not the direct beginning, but the early on stage
35:23
Speaker 3: of genetic testing and biologics, and it was changing how
35:28
Speaker 3: cancer was being treated because historically there was sort of
35:32
Speaker 3: one path for certain types of cancer, even breast cancer
35:36
Speaker 3: was really one bucket, where today, as we know, there's
35:39
Speaker 3: literally hundreds of different types of breast cancer that you
35:43
Speaker 3: can have and probably thousands of ways that you could
35:46
Speaker 3: treat it depending on your genetic composition, your age, And
35:51
Speaker 3: what's happening today now with AI is really enabling clinicians
35:55
Speaker 3: to go deeper with truly understanding individualized cancer because it's
36:00
Speaker 3: unique for every person. Even though it might be lynphoma
36:04
Speaker 3: or colon cancer or lung cancer, they're all very different
36:08
Speaker 3: depending on that person. And today with therapies, especially with
36:13
Speaker 3: some of the biologics today, they're able to treat people differently,
36:17
Speaker 3: but the cost of those therapies is extremely expensive. You've
36:21
Speaker 3: heard the cost of specialized pharmacy is really a big
36:25
Speaker 3: driver of medical costs. It's the biggest, right, it's the
36:28
Speaker 3: biggest trend enormous, So you think about how can AI
36:32
Speaker 3: really drive not just better health for everybody, because it's
36:36
Speaker 3: not about just saving money, it's really driving better health
36:39
Speaker 3: while also doing it in a way that's going to
36:42
Speaker 3: be efficient from a cost perspective. Well, thank you both
36:45
Speaker 3: for sharing those stories as a really powerful and maybe
36:47
Speaker 3: I'll add one as well. I have a family member
36:49
Speaker 3: who's going through a breast cancer dirty right now. And
36:53
Speaker 3: to your point around genetic testing, I mean, it's the
36:55
Speaker 3: type of breast cancer that you want to have. It's
36:57
Speaker 3: hr positive urtwo negative that outcomes are great. But what
37:01
Speaker 3: you said resonating with me, Rich, is that you know,
37:04
Speaker 3: the journey is very difficult, and I consider myself pretty
37:07
Speaker 3: knowledgeable about healthcare. And you know, whether the surgical oncologist
37:12
Speaker 3: talks to the radiog radiation oncologist or the medical oncologists,
37:16
Speaker 3: there's a lot to be desired even though they're all
37:18
Speaker 3: in the same building, in the same system. And it's
37:21
Speaker 3: it's fascinating because we just had a guest on recently
37:23
Speaker 3: who talked about advocacy and how maybe AI could actually
37:27
Speaker 3: be you know, one of these areas where an AI
37:30
Speaker 3: advocate can help close some of those gaps.
37:32
Speaker 1: So would be fair to think, say, you guys are
37:34
Speaker 1: thinking about reducing the complexity and the friction, and that's
37:38
Speaker 1: where you're maybe going to put your chips in the future.
37:40
Speaker 2: It's definitely needed. I for one, would like to see
37:43
Speaker 2: that happen, absolutely, but we'd also like to then put
37:46
Speaker 2: our investor hat on and make sure that it's one
37:49
Speaker 2: thing investing with passion and with emotion. But when you
37:53
Speaker 2: have you know, close to two hundred limited partners who
37:56
Speaker 2: are quite sophisticated. We want to make sure that those
37:59
Speaker 2: interests also align with experienced entrepreneurs, good business models, sound outcomes.
38:05
Speaker 2: But if everything checked out, absolutely.
38:07
Speaker 1: See you guys, you're interesting in that you cross both sides.
38:11
Speaker 1: You talk to the startups who are really changing the system,
38:15
Speaker 1: and then you know a lot of your network is
38:18
Speaker 1: based on the incumbents. What are the what do the
38:20
Speaker 1: incumbents traditionally get wrong from your perspective? Or maybe where
38:25
Speaker 1: are they slow to kind of recognize that things are changing?
38:28
Speaker 2: Are we able to filter that some of them might
38:30
Speaker 2: be listening right now? So this is a general statement
38:32
Speaker 2: so our relationships that these health plans could be listening.
38:36
Speaker 2: These are large, multi billion dollar organizations and blue Cross
38:41
Speaker 2: plans in Philadelphia or Des Moines or you know health
38:46
Speaker 2: plans in Minnetonka. These are large, complicated legacy systems. What
38:52
Speaker 2: do they get wrong? I would say that it's sounds
38:58
Speaker 2: much what they get wrong. The incumbent systems, the layers
39:02
Speaker 2: of decision making just prevent swiftness to make moves which
39:10
Speaker 2: then would have a really big impact on their business.
39:15
Speaker 2: A lot of entrepreneurs and this is the hat that
39:17
Speaker 2: Charlie and I wear uniquely for just about twenty years.
39:20
Speaker 2: A lot of entrepreneurs really believe that their solution is
39:24
Speaker 2: going to change United Health Group, it's going to change CBS.
39:29
Speaker 2: Those are large, large companies. You can't Last time I
39:32
Speaker 2: looked at the Hudson River, you can't really turn the
39:35
Speaker 2: Queen Elizabeth around so quickly. So anyone's point solution, disruptive
39:40
Speaker 2: solution isn't going to change it, but will impact it.
39:43
Speaker 2: So the incumbents, if there was an ability to make
39:47
Speaker 2: decisions faster, pilot take tests. But right now, Jonathan, the
39:54
Speaker 2: aperture of willingness for a new solution is really the
40:00
Speaker 2: aperture at an incumbent to bring And this is not
40:04
Speaker 2: just a pat on the back for us, but it's
40:05
Speaker 2: a fact. The aperture of willingness to bring in a
40:09
Speaker 2: new solution with an entrepreneur or an executive being never
40:12
Speaker 2: heard from, whereby there's no trusted relationship. It's close to
40:17
Speaker 2: zero right now.
40:18
Speaker 1: That makes sense.
40:19
Speaker 2: So it's not what they get wrong to your question,
40:22
Speaker 2: it's the systems and the processes and the bureaucracies mitigate
40:28
Speaker 2: and prevent opportunities. Now, you always have these innovative, transformative executives.
40:34
Speaker 2: There are some wonderful people in healthcare, they're willing to
40:36
Speaker 2: take chances, but there's still a big company to pull
40:40
Speaker 2: through diligent security assessments. Now there's AI committee, so those
40:46
Speaker 2: things just get in the way of the fricators that bureaucracy. Yeah,
40:50
Speaker 2: at the end, Unfortunately, if you would add anything to that.
40:53
Speaker 3: The only thing I might add is it's interesting. At
40:56
Speaker 3: our annual meeting last year, we had a terrific panel
41:00
Speaker 3: and we spent a good amount of time talking about
41:02
Speaker 3: AI and it was scary when you listen to the
41:05
Speaker 3: numbers of what's expected to happen really with labor. We
41:09
Speaker 3: labor such a big part of spend in healthcare, and
41:13
Speaker 3: it's going to take jobs, but it's also going to
41:15
Speaker 3: create opportunities. And we had a panel where a leader
41:20
Speaker 3: of a big health plan was on stage and asked
41:23
Speaker 3: a direct question into why are you not implementing AI
41:27
Speaker 3: more quickly? And the realistic answer was implementing it in
41:33
Speaker 3: our environment with thousands of employees is very difficult. We
41:37
Speaker 3: can't just snap our fingers and things are going to change.
41:39
Speaker 3: It resonates to what Richard said, where these are big
41:42
Speaker 3: organizations with a lot of moving parts, and they have
41:45
Speaker 3: to make decisions that they know they can implement and
41:48
Speaker 3: see returnal And it gets to why we invested in Optura.
41:52
Speaker 3: We believe Obtura is a platform that's going to help
41:56
Speaker 3: these big organizations make decisions on the best play places
42:00
Speaker 3: where they can make investments in AI and track the
42:04
Speaker 3: return that they're getting from those investments.
42:06
Speaker 2: Jonathan, I think again, if it wasn't for the business
42:09
Speaker 2: that we've had since seven, the relationships and the knowledge
42:13
Speaker 2: that we've been lucky luckily to earn with mistakes along
42:17
Speaker 2: the way, we don't think this type of knowledge we
42:21
Speaker 2: would have. And Charlie made a comment about our annual meeting.
42:24
Speaker 2: A lot of funds have annual meetings and a lot
42:27
Speaker 2: of it's more of a check the box and give
42:29
Speaker 2: reports our annual meeting. This ecosystem is also a reason
42:33
Speaker 2: why our limited partners have come together. We'll have well
42:37
Speaker 2: in excess of two hundred and twenty five people down
42:40
Speaker 2: in Lake Nona. The limited partners get a chance to
42:43
Speaker 2: spend time with each other, network with each other, maybe
42:46
Speaker 2: beyond boards that they wouldn't have able to get access to,
42:48
Speaker 2: but the knowledge that's shared at that event. Along with
42:53
Speaker 2: our investments, getting exclusive access to the industry leaders has
42:58
Speaker 2: also proved to be a very element on how we
43:01
Speaker 2: make decisions. And while you didn't ask, I would also
43:04
Speaker 2: say something that we're very passionate about that's missing in
43:07
Speaker 2: healthcare is how do you groom the next generation of executives.
43:12
Speaker 2: So we've we've implemented a unique program at HC nine
43:15
Speaker 2: and that if you're a dependent of one of our investors,
43:17
Speaker 2: we have this program called the Next Generation, and we've
43:20
Speaker 2: put our arms around these kids eighteen to twenty five
43:23
Speaker 2: young adults. Sorry it's the father of three college kids,
43:26
Speaker 2: and we give them a curriculum, it's an ongoing curriculum
43:29
Speaker 2: throughout the year to help them make decisions, get access
43:34
Speaker 2: to executives, and maybe they'll want to be in healthcare
43:37
Speaker 2: because we got to groom those folks and give them
43:40
Speaker 2: the reasoning as to, you know, what they want to
43:43
Speaker 2: do in life. And maybe that's maybe that's healthcare. It's
43:45
Speaker 2: a little bit more about us. You might not have known.
43:47
Speaker 1: No, that's I read about that. That's a great program.
43:49
Speaker 1: I think, you know, we need new leaders and new
43:52
Speaker 1: minds in the industry. Maybe taking a step back, when
43:56
Speaker 1: you work with your portfolio companies, where do you typical?
44:00
Speaker 1: And I know everyone is different, so this is a
44:01
Speaker 1: very broad generalization, but you know, where do you start
44:05
Speaker 1: working with them? Most of them initially is it on
44:07
Speaker 1: the product? Is it is it on recruiting, is it
44:11
Speaker 1: on the board? Where where do you find? You know,
44:13
Speaker 1: your initial forays typically tend to we'll start well.
44:17
Speaker 2: So we have some pretty strong thematic approaches as to
44:21
Speaker 2: why and when we invest. And I'm trying out with
44:24
Speaker 2: Divide and Conquer on it as far as ops and finance.
44:27
Speaker 2: But when we're looking at a company, even before we
44:30
Speaker 2: quote wire the money, we're already thinking about product, product enhancement,
44:34
Speaker 2: go to market, the team, sure the team that's in place,
44:39
Speaker 2: and how can we help accelerate and connect some dots
44:43
Speaker 2: in the industry. A lot of young emerging companies, they
44:47
Speaker 2: need proof points, they need development partners. So we're putting
44:50
Speaker 2: our arms around these things during the diligence process, not
44:54
Speaker 2: waiting for the ghost sign guy that we get busy.
44:57
Speaker 2: In fact, one of the things that we did to
44:59
Speaker 2: add or gate knowledge we created. This may sound goofy,
45:04
Speaker 2: but the Revenue Leader Council do all the revenue leaders
45:08
Speaker 2: of all of our portfolio companies get together on a
45:10
Speaker 2: frequent basis to share lessons learned, headwinds, maybe decision makers strategies.
45:17
Speaker 2: So we're aggregating that knowledge, but we're getting We're getting
45:20
Speaker 2: involved with our companies really early to help them. So
45:24
Speaker 2: as we get out of the gate upon investment, there's
45:28
Speaker 2: there's an element of acceleration and then it goes to
45:30
Speaker 2: I'll defer to Charlie with governance and operations and financial
45:34
Speaker 2: responsibility as well. Yeah, what I would add to that point,
45:38
Speaker 2: Just like any other fund, Hopefully, we are spending hours
45:42
Speaker 2: and hours every week with the team talking about the
45:45
Speaker 2: companies that we say we're investing in companies that fit
45:48
Speaker 2: into one of our thematic areas where we believe we
45:51
Speaker 2: can lean in and help that company grow. But there
45:54
Speaker 2: needs to be a product market fit. There needs to
45:56
Speaker 2: be a good management team. We like companies that are
45:59
Speaker 2: general capital efficient. We're not likely going to invest in
46:03
Speaker 2: something that we think is going to need hundreds of
46:05
Speaker 2: millions of dollars to have success. We like to see
46:08
Speaker 2: cash runway behind our investment, So when we make investments,
46:12
Speaker 2: we want to see companies.
46:13
Speaker 3: That are ready to scale. They've already had a customer,
46:16
Speaker 3: a successful product, and we believe we can lean in
46:19
Speaker 3: with our community with our knowledge and help them commercialize. Yes, grow,
46:24
Speaker 3: But also we're going to spend a lot of time
46:25
Speaker 3: on the opside with making sure they have the right team.
46:28
Speaker 3: We'll look at the whole ORG chart are their gaps.
46:30
Speaker 3: So those are the things that we think about. Jonathan,
46:32
Speaker 3: you brought up capital. Maybe i'd love to get your
46:35
Speaker 3: view on where we are in the cycle.
46:37
Speaker 1: You know where our valuations today for the investments that
46:40
Speaker 1: you're making, and how do you think about I guess
46:42
Speaker 1: your exit strategy on these investments.
46:44
Speaker 3: Yeah, the fund one is great. We're very excited about
46:48
Speaker 3: the portfolio. We have not made any exits. Richard mentioned earlier.
46:52
Speaker 3: We have ten investments so far. Almost every single one
46:56
Speaker 3: of them has an opportunity to produce a great return.
46:59
Speaker 3: Probably four to six of them are showing extremely good
47:03
Speaker 3: opportunity for an outlier type return. Even though we haven't
47:06
Speaker 3: made an exit yet. It's TBD. If we're going to
47:10
Speaker 3: make another investment out of this first fund, we have
47:13
Speaker 3: the ability to do it. I think it gets to
47:15
Speaker 3: maybe a little bit Jonathan on how we think about
47:18
Speaker 3: investing in reserving capital behind our investments. We obviously want
47:22
Speaker 3: to have capital available to follow on to our good companies.
47:26
Speaker 3: And again we have a number of them right now
47:28
Speaker 3: which we're tracking to see what are the ones that
47:30
Speaker 3: we're going to follow on with. We already have followed
47:32
Speaker 3: on with a number of them going in the Fund two.
47:35
Speaker 3: I think it'll be the same strategy we're going to
47:39
Speaker 3: look at probably I'm going to say twelve to fourteen
47:42
Speaker 3: investments in FUN two, so maybe a couple more than
47:45
Speaker 3: Fund one with the same type of strategy. Initial investments
47:49
Speaker 3: are going to be two to four or five million,
47:52
Speaker 3: reserving capital behind it for follow on for follow on
47:57
Speaker 3: reserving capital there. So yep, that's sort of how we
48:01
Speaker 3: think about it. And maybe, Richard, what's your view of
48:03
Speaker 3: where we are in the market. I mean, as a
48:05
Speaker 3: public equity guy, we've seen a number of interesting companies
48:08
Speaker 3: kind of market and I pos the last couple of years.
48:10
Speaker 3: I mean, obviously you're not in the public markets, but
48:13
Speaker 3: I like to get everybody's view on where they think
48:15
Speaker 3: valuations are, you know, either on the private side or
48:18
Speaker 3: the public side today.
48:20
Speaker 2: Well, I think where we are we spend it awful
48:21
Speaker 2: lot of time. But I guess your your peer group
48:25
Speaker 2: and the bankers, you know, leveraging of what we of,
48:29
Speaker 2: what we think about, and how to stay connected and network.
48:33
Speaker 2: It seems to be more on the positive side right now,
48:36
Speaker 2: without sounding vague, that the companies that have the platform,
48:40
Speaker 2: companies that are that have financial support from private equity,
48:44
Speaker 2: some of them are struggling to grow organically. So the
48:47
Speaker 2: inorganic growth we believe that as we're growing are smaller
48:52
Speaker 2: emerging companies there could be really interesting tuckns. So the
48:55
Speaker 2: positive we hear from the bankers and the private equity folks,
48:59
Speaker 2: and even the the publicly traded platforms that I think
49:03
Speaker 2: we're starting, we're starting to get on the other side
49:06
Speaker 2: of it. As far as valuations, Charlie and I were
49:10
Speaker 2: very intentional when we started our fund. It was on
49:13
Speaker 2: the backside of those very frothy valuations. So I think
49:17
Speaker 2: we're investing in a very smart way on behalf of
49:21
Speaker 2: our investors. That's a bully way to say it, Yes,
49:24
Speaker 2: that's bullybar trying to be I was raised by a prosecutor.
49:27
Speaker 2: I guess he didn't get that earlier on. But we
49:30
Speaker 2: think the market is waking up and showing really good
49:32
Speaker 2: positive signs.
49:34
Speaker 1: Maybe thinking about the future. You know, what do you
49:36
Speaker 1: think is going to surprise us in the next couple
49:38
Speaker 1: of years here? I mean we I know this always
49:40
Speaker 1: comes back to AI, but if you think about, you know,
49:43
Speaker 1: your journeys over the last twenty thirty years in healthcare,
49:47
Speaker 1: what do you think we're going to look at and
49:49
Speaker 1: the next couple of years that you know, today we'll
49:51
Speaker 1: say that seems just you know, you know, I can't
49:54
Speaker 1: believe we did that in twenty twenty six or twenty twenty.
49:59
Speaker 3: I mean, I think there's a lot of areas that
50:01
Speaker 3: you could go there and to many people it won't
50:04
Speaker 3: be a surprise. But the healthcare system, and you've probably
50:09
Speaker 3: heard this, Jonathan, where somebody might talk about the financial
50:13
Speaker 3: system where you know your credit card was used five
50:17
Speaker 3: seconds after you use it because something pops up on
50:19
Speaker 3: your phone. Healthcare is going to dramatically change administratively. Those
50:25
Speaker 3: things are going to happen with interoperability, the availability of data.
50:29
Speaker 3: AI is going to change how we are treated from
50:32
Speaker 3: the front door of primary care. It's going to be
50:35
Speaker 3: easier to use for every single person. The inequities around
50:40
Speaker 3: not everybody has access, it's going to level out. So again,
50:45
Speaker 3: I think there's a lot of people that you talk
50:47
Speaker 3: to that see that coming, and many others that don't
50:50
Speaker 3: because maybe they don't have the visibility into some of
50:52
Speaker 3: the things that we're seeing. But there are dramatic changes coming,
50:56
Speaker 3: and quite frankly, probably more quickly than even most people
51:00
Speaker 3: believe because of what's happening with AI right now, it's
51:04
Speaker 3: moving very quickly.
51:06
Speaker 1: Richard, would you echo that, I.
51:07
Speaker 2: Would absolutely echo that. Charlie's words of leveling out I
51:10
Speaker 2: think is absolutely appropriate. Whether it's the whether it's the
51:14
Speaker 2: age side of it. I know that when my father
51:17
Speaker 2: was in the hospital, my mother spent a lot of time.
51:19
Speaker 2: They called it missus Google. Well, I think now there's
51:21
Speaker 2: missus chat Gibt. Those doctors would walk in the room
51:25
Speaker 2: and my mother was pretty well educated. So even an
51:28
Speaker 2: example like that, But I'm thinking about the world nature
51:31
Speaker 2: of healthcare and those inequities. This leveling out is absolutely
51:36
Speaker 2: going to happen. It is happening right now.
51:38
Speaker 1: Maybe one last one on that thought, how do you
51:42
Speaker 1: think about policy and regulation you know in this future state?
51:48
Speaker 1: I mean, what are you really paying attention to that's
51:50
Speaker 1: coming out of Washington right now, or maybe what it's
51:52
Speaker 1: your network telling you to pay attention to.
51:54
Speaker 2: Oh, we're lucky that some of our network that they're
51:57
Speaker 2: probably there. We're lucky that some of our network might
52:00
Speaker 2: be involved. We well obviously will be having a new
52:05
Speaker 2: election before we know it. There are some initiatives coming
52:09
Speaker 2: out of DC that are quite frankly without getting political,
52:12
Speaker 2: quite exciting here. So I'll give an example of one.
52:17
Speaker 2: Please ties back to our portfolio. One of our earlier
52:20
Speaker 2: companies was co founded by Congressman Patrick Kennedy and an
52:24
Speaker 2: entrepreneur that joined him. And if you think about what's
52:28
Speaker 2: happening in the mental health and behavioral health world is
52:32
Speaker 2: there are no benchmarks for how good a clinician is
52:38
Speaker 2: in behavioral health or not. And if you go on
52:41
Speaker 2: any of these websites of mental health therapists, you don't
52:45
Speaker 2: know if you're getting a mental health therapist who's good
52:47
Speaker 2: at senior care or adolescent care, or drug alcohol, weight loss,
52:53
Speaker 2: or stress. So we are company psych Club is creating
52:56
Speaker 2: a national platform so that a clinician will a single
53:00
Speaker 2: set of guidelines, whereby you will know that if that
53:04
Speaker 2: individual is marked a certain way, he or she has
53:08
Speaker 2: gone through those guidelines, and this is being talked about
53:11
Speaker 2: in DC with the administration and being launched in collaboration
53:16
Speaker 2: with the administration. So good things like that on an
53:19
Speaker 2: entrepreneurial way are happening. Luckily for us, they're happening with
53:23
Speaker 2: one of our portfolio companies, but quite frankly, luckily for
53:26
Speaker 2: all of us. I have a family member who struggled
53:29
Speaker 2: with mental behavioral health. I think we all have in
53:32
Speaker 2: some ways in our families, and I think we can
53:34
Speaker 2: all use a little bit of insights to make sure
53:37
Speaker 2: that before someone walks in the room with a therapist,
53:39
Speaker 2: they know that that person is scored the same way
53:42
Speaker 2: a restaurant has reviews or a movie has reviews with
53:45
Speaker 2: rotten tomato. So I think the administration is allowing these
53:50
Speaker 2: things to happen right now.
53:51
Speaker 1: It's amazing how we I have all these conversations and
53:54
Speaker 1: we come back to these same themes, whether it's access,
53:57
Speaker 1: quality of care, it just always comes back to these
54:01
Speaker 1: same frictions in healthcare. You know, as we're kind of
54:04
Speaker 1: getting to the end of our time, you know, I
54:05
Speaker 1: wanted to give you guys an opportunity to maybe just
54:08
Speaker 1: touch on a couple of the things that we talked about.
54:11
Speaker 1: You know, for those who don't know HC nine or
54:13
Speaker 1: maybe the perspective founders that are out there, you know,
54:17
Speaker 1: why should they give you guys a call? And you
54:19
Speaker 1: know what, what can you I guess help them with
54:23
Speaker 1: day one, day zero in their journey.
54:27
Speaker 2: So for an entrepreneur out there, whether you're whether you're
54:31
Speaker 2: in school and you have an idea, or whether you're
54:36
Speaker 2: working to get your idea off the ground, hit us up.
54:41
Speaker 2: We're always good to talk to anyone. I was always
54:44
Speaker 2: taught never hurts to have a conversation if we could
54:46
Speaker 2: offer some advice or connect some dots and pay forward.
54:49
Speaker 2: Please don't hesitate to reach out to Charlie or myself
54:52
Speaker 2: or a team. We think we bring without creating the commercial.
54:56
Speaker 2: But you did. You did allow us to do it.
54:58
Speaker 1: I asked for it.
54:59
Speaker 2: You did ask for We think to the we think
55:01
Speaker 2: to all stakeholders in the industry. We provide a unique
55:06
Speaker 2: set of attributes. We think to the buyer side, we
55:09
Speaker 2: are thoughtful. We know your business. We study the health plans,
55:13
Speaker 2: the employers, the providers. So when we're opening up our
55:16
Speaker 2: mouths offering a suggestion of our portfolio, they know that
55:20
Speaker 2: this is not a shiny object without proof points. So
55:24
Speaker 2: that credibility, I think has been tried and trued with
55:26
Speaker 2: Charlie and I for twenty years with two hundred health plans.
55:30
Speaker 2: But to the entrepreneur who has a wonderful idea, know
55:34
Speaker 2: that we've looked at a couple thousand companies and we
55:36
Speaker 2: are operators, so we're going to ask hard questions. But
55:40
Speaker 2: we serve as a vehicle on a platform to accelerate
55:43
Speaker 2: those early stage companies into the market by leveraging the
55:48
Speaker 2: fact that we have distribution that has been built for
55:50
Speaker 2: two decades or more, a limited partner base that we
55:53
Speaker 2: think is second to none, us as general partners and
55:57
Speaker 2: also limited partners with the wonderful team that has been
56:01
Speaker 2: in the trenches building, growing, and exiting companies. And then
56:05
Speaker 2: I would add that health care is personal to us.
56:09
Speaker 2: I mean, I told my story about my father, you
56:11
Speaker 2: learned about Charlie's battle with cancer, you talked about someone
56:14
Speaker 2: with breast cancer. You know, there's a lot of work
56:18
Speaker 2: to do in healthcare. So when we work with a
56:21
Speaker 2: company that has an impact on a patient or a
56:24
Speaker 2: human being who are relative, a loved one, a colleague,
56:29
Speaker 2: someone we don't know someone who might be sleeping on
56:32
Speaker 2: the street or living on Park Avenue. We want to
56:36
Speaker 2: make a difference for everyone. So if that company is
56:39
Speaker 2: going to change and impact the delivery and the outcomes
56:42
Speaker 2: of health care for patients and Americans, it's very important
56:47
Speaker 2: to us. Making money is important, but also changing the
56:50
Speaker 2: course of health care, and that passion will come true
56:53
Speaker 2: and loud and clear on the phone when we speak
56:56
Speaker 2: to somebody for the first time.
56:57
Speaker 1: That's great. We preempted my last question where I usually
57:00
Speaker 1: ask about something that guides the guests, and we all
57:04
Speaker 1: shared a story about, you know, cancer journey. So maybe
57:07
Speaker 1: i'll ship the question a little bit, if that's okay
57:09
Speaker 1: with you. Guys. You know, if you think about your career,
57:11
Speaker 1: have you had one mentor that's really guided how you
57:15
Speaker 1: see the world and maybe changed your view of what
57:18
Speaker 1: you see as your mission day today, I've had several mentors.
57:25
Speaker 1: I won't mention names.
57:27
Speaker 3: What I'll say about mentors is I think it's extremely
57:30
Speaker 3: important to have them, even if they're not at the
57:34
Speaker 3: time thought of as a mentor. Me and I do
57:37
Speaker 3: think from mentors you can learn both good and bad.
57:42
Speaker 3: It's in life, you know, you learn from what you
57:44
Speaker 3: did well, and you learn from what you didn't do well.
57:48
Speaker 3: If I think back, probably some of the biggest lessons
57:51
Speaker 3: I've learned over the years has been being able to
57:57
Speaker 3: maybe walk away and say no more quickly versus hanging on,
58:01
Speaker 3: because I've seen again the downside of not moving on
58:05
Speaker 3: from something, whether it's an investment and area, from a product,
58:09
Speaker 3: a person on an ORG chart. So lots of mentors.
58:12
Speaker 3: I think the point would be, Jonathan, there's good mentors
58:15
Speaker 3: and bad mentors that you can learn from both.
58:18
Speaker 2: Richard, I would agree there are people out there who
58:21
Speaker 2: I may have never told them that they are a mentor,
58:24
Speaker 2: but they've offered little nuggets of advice that I would
58:28
Speaker 2: walk out of their room. And Charlie knows probably some
58:30
Speaker 2: of the people I'm thinking of like, wow, I should
58:34
Speaker 2: have known that, or be that's insightful. And I think
58:39
Speaker 2: I think you need a number of mentors so you
58:41
Speaker 2: can aggregate that knowledge and shape your decision making as
58:46
Speaker 2: you go forward. So I would offer that people should
58:49
Speaker 2: talk to as many people as they can. But I
58:51
Speaker 2: have I've been lucky enough to have some folks that
58:53
Speaker 2: have been that have helped me along the way.
58:55
Speaker 1: That's great. Thank you guys both so much for sharing.
58:57
Speaker 1: This has been a fantastic episode of your history with
59:02
Speaker 1: leverage and HC nine, and the personal stories were very
59:04
Speaker 1: powerful as well. Thank you both.
59:06
Speaker 2: Thank you Jonathan, thank you Jonath Thank you for having us.
59:09
Speaker 1: It's my pleasure. That's Richard Lundon and Charlie Falcon, general
59:12
Speaker 1: partners of HC nine Ventures. Thank you for listening to
59:15
Speaker 1: this episode of the Vanguards of Healthcare podcast by Bloomberg Intelligence,
59:19
Speaker 1: and don't forget to click the follow out and on
59:20
Speaker 1: your favorite podcast app or website so you never miss
59:23
Speaker 1: an interview with the leaders rewriting the playbook on healthcare innovation.
59:27
Speaker 1: I'm Jonathan Palmer and until next time, take care.