Venture Capital Trends in Healthcare Technology with Michael Greeley, the Co-founder and General Partner at Flare Capital Partners: Audio automatically transcribed by Sonix
Venture Capital Trends in Healthcare Technology with Michael Greeley, the Co-founder and General Partner at Flare Capital Partners: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.
Saul Marquez:
Hey everybody! Saul Marquez here, and welcome back to the Outcomes Rocket. Hope you’re doing well. Today, I have the privilege of hosting Michael Greeley on the podcast. He is the Co-founder and General Partner at Flare Capital Partners. Previously, Michael was the founding general partner of Flybridge Capital Partners, and early in his career with Polaris Partners, as well as he held positions at Wasserstein Perella and Company and Morgan Stanley Company. Currently and prior board seats include many of the companies that they’re working on, such as Aspen RX Health, Blue TARP Financial Circulation, Career Health, Iora Health. The list is long, but he serves in various innovation and investment advisory boards for health systems like Advocate Aurora, Boston Children’s Hospital, Cleveland Clinic. He’s well connected. And what I wanted to focus on today’s episode with Michael was on a topic that’s on a lot of entrepreneurs’ minds is how to raise capital. What are the things that you could do to be more successful in attracting the right investors to your company? What are the things that you could do to stand out from others that are also looking for money when a very limited number of companies are doing the majority of investments? So I’m excited for today’s discussion, Michael. Really, really excited and looking forward to the pearls you’re going to share with us today. So thanks for jumping on our podcast.
Michael Greeley:
Great to be here, Saul. Thank you for including me.
Saul Marquez:
Absolutely. Before diving into the work that you guys are doing at Flare Capital Partners, wanted to really maybe get a better feel for you and why health care? What inspires your work in health care?
Michael Greeley:
That’s an excellent question. I was an organic chemistry major in college years and years ago. I was premed. Like many frustrated ECC you run into, end up not going to medical school, but going to business school and become quite almost infatuated, excited about innovation and particularly the convergence of what we were seeing in the technology landscape and the health care landscape. And so I have been in the investment world for most of my career. Nearly twenty-five-plus years in Parallel. Have now started three venture firms, the most current one you alluded to is Flare Capital Partners. We manage about half a billion dollars early-stage health care technology-focused. And I thought there was a real market opportunity to serve entrepreneurs who are trying to reinvent or transform the business of health care but they were underserved. So I have the distinct pleasure of working in a fascinating industry, but also being out for myself, helping to partner with entrepreneurs.
Saul Marquez:
Yeah, that’s fascinating. And you also keep a blog on, right?
Michael Greeley:
I do. Ontheflyingbridge.com. It’s a reference to my prior firm, Flybridge Capital Partners and you know what, probably like your podcast turned into more of a commitment than I initially thought when I first started, maybe five or ten years ago, closer to ten years ago. But it struck me that entrepreneurs had, frankly, little visibility into the workings of a venture firm, how decisions are made, and the various kind of motivations of the investor. And that’s sort of blossomed into trying to provide commentary around the health care tech landscape, the capital markets. And as you know, the markets obviously move through various cycles. We happen to be in a really almost frothy cycle right now, part of the cycle right now and my public services to try and provide a little bit of insight into what is a pretty opaque process and give kind of the voice of the investor. I think it’s been reasonably well-received, but always open to feedback from the market.
Saul Marquez:
Yeah, for sure. I mean, just looking through it, there’s some really good stuff in there. So, folks, the link is on Flyingbridge.com and we’re going to put a link to that. Tons of really cool insights that Michael’s writing about there so make sure you check that out. So let’s dive in, Michael. The process is opaque and there’s a lot of health care entrepreneurs that don’t really know what to expect. Talk to us about how some of the things that you’re doing is helping companies pair well with venture companies like yourself.
Michael Greeley:
So I think there are obviously many layers to that answer and I’ll just highlight one. We consider ourselves culturally to be the invited guest. And so we’re not there to run the company. We’re not here to have outsized influence but we want to be helpful. And I think we contribute in a couple of important ways. Obviously, we provide capital. The composition of our investor base is roughly half of the capital we manage come from two dozen or so strategic investors, hospital systems, payers, retailers, consumer device companies, lab companies, pharma companies. And so we try and bring that extended network to each of our portfolio companies. We have about two dozen active portfolio companies now. We’re on the board of all our companies. And as I said, we’re not in any way, shape, or form getting close to running the business, but we really want to be the partner of the entrepreneur. I think we help, so in addition to capital, we obviously spend a lot of time thinking about the composition of teams and recruiting and trying to lean on our network, sort of our extended networks to help recruit, and that’s obviously essential to the early stages of these companies. And then we work really hard to try and get some early customer traction, early customer adoption. And as early-stage investors, oftentimes our companies don’t have revenues, maybe not even a product. And so bringing, helping the entrepreneur kind of navigate the market partnerships, early pilot customers, and all that frankly, takes a lot of time and patience. We get it. These companies, unlike maybe in some other sectors like consumer Internet, may be more asymptotic. And that is the first couple of years, it’s heads down trying to figure out product-market fit and build the right management team and then it begins to get traction. And so I think we’re quite empathetic, sympathetic to the journey. And I guess one of the things I would say Saul is, you know, I think venture investors, the other service that they provide is sort of pattern recognition of what’s worked well and not so well in other circumstances. And we want to just bring that to the discussion at the board level with the CEO and the privileged position for us to be the first call. And so when something happens or there’s an issue that the founders, CEOs think that we want to earn that respect and be the first call that we can partner with them. All that sounds like motherhood and apple pie. At the end of the day, we’re trying to build really big businesses and together. And more often than not, if you nail the product-market fit, good things can come from that.
Saul Marquez:
Totally. And the process of being able to team up with venture firms and leveraging those network effects that you mentioned can be really valuable even beyond the capital. Obviously, both are important, but, you know, talk to us a little bit about how some of those things work. And as entrepreneurs try to get the resources, the eyes, the ears, the money, what are some tips that you would give them?
Michael Greeley:
Yes, so I think the venture industry has kind of gone through different incarnations. I happen to believe we’re in a phase now where our investors are looking for firms like ours that are deeply expert in fewer sectors. So not a generalist, but more specialist. And so what we’ve tried to do and as I mentioned earlier about, for instance, the composition of our investor base, having so many strategics involved, we want to be thoughtful and informed about what the market opportunities are in the health care tech space. We’re not doing cleantech. We’re not doing enterprise software. We’re focused on health care tech. And so we have a handful of, we think, really important themes that will generate, will create the environment for really important companies to be built over the next five, 10, 15 years. And so if entrepreneurs are approaching us and they have a vision that maps to those themes, we immediately resonate with that. And we’re very eager to meet with those entrepreneurs. Last year we had a little over eleven hundred companies kind of hit our top of the funnel. And so notwithstanding the pandemic and maybe because of the pandemic level, activity really spiked. And so we saw a lot of activity. And to your point, how does one navigate or breakthrough that? And so I think, thoughtful about the firms you’re targeting, and making sure that what you’re doing is understood and appreciated by the firms that you’re targeting is certainly one way to begin to get through the clutter in the market. And then I think being frankly realistic about what milestones are and what is achievable and that path forward is also really appreciated. And then clearly, first and foremost is the strength of the team. And so if you think you have gaps in your team, backfill those as quickly as you can with really A+ talent, build an advisory board, maybe get really credible angels early in the journey that can help be your kind of quasi spokesperson and lend credibility and so presumed success early there to be great and start to build the components early of the team. Great teams break through all the noise and a lot of very successful entrepreneurs in our sector have become quite prolific angels. And so try and get in front of them in parallel, getting in front of the more institutional firms like ours. But it’s not easy for a lot of shoe leather and a lot of networking into these firms. I’ll make one other comments in the landscape. I used to be on the board of what’s called the National Venture Capital Association NVCA.
Saul Marquez:
Okay.
Michael Greeley:
Analysts think they’re about thirteen hundred venture firms. I think they’re probably one hundred that account for 80 percent of the activity. So there’s sort of a long tail distribution to my industry. within that list of one hundred, let’s say it’s one hundred, maybe 20 percent or 30 percent are pretty actively investing in the health care tech land opportunities landscape. And so it’s not, you don’t see thirteen hundred firms. It’s a more concentrated group. And then don’t forget the strategics. They have a very big voice in this and many of them have very strong in-house venture teams. And so just be thoughtful about the beginning, the first couple steps of the journey so you’re not wasting a lot of your time.
Saul Marquez:
Man, that is so helpful. Thank you for that insight. And I’m sure, folks, you’re listening. You’re like, wow, those numbers are crazy. Like one hundred. And then out of that, 20 percent are actively investing. I mean, that’s just like, wow.
Michael Greeley:
In the health care landscape.
Saul Marquez:
Yeah.
Michael Greeley:
And I’m making that up. But I think the firms in this market, it’s relatively easy to raise capital. It’s hard. Absolutely it’s hard. But on a relative basis, there is a lot of respect and excitement about this sector. So a lot of firms may be dabbling like they’ll do one or two investments in the health care tech space. But I’m a swag. 20 or 30 percent of the most active hundred firms have a dedicated partner or set of investors within those firms that are saying, hey, this is a massive market opportunity. There’s three or four trillion of spend that’s being kind of re-architected. And we need the set of portfolio companies investment in this space. And so go to those firms first because they’ll better appreciate what you’re doing. And actually take any interaction as a fundraising pitch. But it’s also a chance to learn to listen from what their experiences are. And if you find you’re being unfortunate, turn down, ask for critical feedback what wasn’t resonating and you may be turned down for perfectly good reasons. If they’re slightly later-stage investors and your seed stage company is just not a good fit for what they’re trying to do. And so don’t take any of it personal, but do take away from those interactions, whatever valuable lessons you can get. And there are a lot of lessons to be learned. As I said, two dozen or so active portfolio companies. So when I’m meeting entrepreneurs for the first time, I’m trying to bring the experiences and insights from all of those companies as they’re trying to navigate these markets. And so look at each of these is a chance to get smarter, but also to find a business partner that could be super helpful.
Saul Marquez:
Yeah. Now, this is great advice. And how do you find out, like, so the small number of companies doing the active investing like Flare Capital in health care, how do you find out who they are? Is it pretty well known?
Michael Greeley:
I think there’s a lot of word of mouth that entrepreneurs,they all compare notes. We get probably six or eight daily newsletters announcing the deals that were funded the day before or closed the day before. So if entrepreneurs are kind of plugging into those resources, you can begin to see a lot of the same name showing up or go to the NVCA website, nvca.org and you can screen for firms. But the best way to do it coming in cold is it’s like a sales pitch. It’s super hard to break through. Do try and figure out if you’re one or two derivatives away from these firms and lean on those contacts to help make introductions. And that’s a much more productive way of getting in. And I mean, obviously, our job is to make investments. So we’re actively looking for great entrepreneurs. Almost as hard as great entrepreneurs are actively looking to raise capital. So it’s a little bit of a chaotic time right now in the market. As I mentioned, we saw just over eleven hundred companies last year. There’s a lot of activity. I think there’s zoom fatigue. But notwithstanding that, we’ve all figured out how to navigate Zoom and we’ve become, I think, as a group pretty fast with it. And so you should be able to get interesting first meetings relatively easily, given that nobody’s having all the unproductive time of traveling is out. This is not a factor. I think the number of first meetings is actually much higher right now than it would be in a more normalized environment.
Saul Marquez:
Yeah, that’s really interesting, Michael. And what do you think the impact of the pandemic has been because of that? Do you feel like it’s gotten maybe a little bit easier to get your foot in the door?
Michael Greeley:
Yeah, I think we’re all really struggling with what will be the kind of near medium long-term impact. And I hate to sound so upbeat about it because so many people are struggling in their personal lives. So we all acknowledge that it’s devastating. It would be devastating for many people for many years to come. I think for health care tech entrepreneurs and investors, it’s perversely sort of the golden age. And, you know, we saw ten years of innovation and adoption get compressed into ten months. And I’m not being kind of hyperbolic about it. We have a healthcare system that is moving to real-time on-demand virtual when all the forces were kind of a lot of friction in that journey. It had to happen over the course of a few months last year. And it’s hard to see consumer behavior completely going back to what it was. All of that required novel new technologies. The irony is Saul, so the solutions are themselves not that novel, because they’ve been in other industries. They just finally, the urgency to be responsive forced the reordering of the CIO, Chief Innovation Officer, Chief Investment Officer, and Information Officers, all three CIOs in health care and the health care industry to kind of reorient their budgets. So we saw many of our portfolio companies dramatically exceeded plan last year because of the urgency to purchase solutions. If there will be one more second. I say this often and I think this for me frames why I’m so excited again, notwithstanding COVID and how horrible it’s been. The advertising industry starting 20 plus years ago was re-architected, $265 billion dollars to spend, it was a terrific phenomenon. Several trillion, maybe more than 10 trillion dollars of venture capital market value was created. Google, Facebook, Twitter, as that industry was reinvented, it’s an incredibly profound time for the advertising industry. Health care is 13 times larger in spend, and I think it will be harder, undoubtedly. But directionally, over the next one to two decades, new risk comes into the system as new revenue opportunities come into the system, I just think there’s sort of an inevitability that great, great venture backed companies will emerge out of what is a horrible pandemic, the period of the pandemic. But once we get through that, I think you’re just going to see this really profoundly interesting run of great companies get created. So I’m super excited. I think the medium to long term to your question is actually quite encouraging. But I don’t want to sound so naive. These are hard companies to build. It is not up until the right straight line, unlike maybe in consumer internet where you see massively rapid consumer adoption and then they try and figure out modernization later on. In health care, monetization is front and center at every step of the way. And so these products really need to have measurable, attributable ROI quickly. And so I think there’ll be fits and starts. But directionally over the next few decades, I just think we’re going to see a profoundly interesting investment horizon.
Saul Marquez:
It really is. And to your point, while it’s been terrible, it’s affected a lot of people, COVID has also accelerated a lot of the innovation that we’re seeing. And the future is promising. I think, like even the digital health, right something like three hundred and eighty billion health care economy. It’s a big, big, big pie.
Michael Greeley:
Yeah. And we’re not even talking about drug discovery and therapeutics impact on all of those sectors with these technologies. The fact that within 12 months we have three or four now approved vaccines for something we didn’t even understand in March as it was washing ashore, is March of last year. Just the power of AI, all the buzz words we’re now actually seeing those investments in technology have a dramatic impact on care delivery. And for us, what’s so interesting about sort of our company cell and the pharma industry, so we see how important they are. Even business model innovation, the ability using AI and predictive algorithms to take on risk on populations. We’re quite excited about some of our services businesses that can take the risk and be risk bearing on certain populations around outcomes. And you wouldn’t have been able to do that with high confidence even five years ago. People tried and many of them struggled because they couldn’t fully assess the risk. So we see that there’s just a lot of kind of second-order implications for this rapid adoption of technology is to even our own business model innovation. For us, one of the great frontiers is the home. And the ability to move hospital services in or closer to the home, testing capabilities, the intersection of public health. All of that is now because of the pandemic. We’ve all seen the shortcomings of it, and we’re able to grab solutions from other industries and say, oh, well, the American Express figured out how to underwrite credit risk. We have certain capabilities that are risk-bearing. Now, what response service models, health care service companies can now take over. I’m being a little dramatic just to show you the rapid adoption is going to have downstream implications, which we think is really exciting.
Saul Marquez:
That is for sure. Man, super interesting. Michael, really want to want to thank you for sharing some of these tips for the entrepreneurs listening to entrepreneurs that are looking to raise money. This has been great. Just want to remind everybody that you could find Michael’s blog ontheflyingbridge. Ontheflyingbridge.com. Flarecapital.com. We’ll include all these links inside on the show notes. Michael, leave us with the closing thought and best place that our listeners can reach out to you if they want to connect.
Michael Greeley:
Closing thought I must be repetitive. I do think better days are ahead for the country, for the world. Clearly, I think we’re much closer to the end, the beginning of this incredible disruption. Notwithstanding all of that, I think if you’re in the health care tech space, much, much better days are ahead. I’m super excited about it. The firm is Flare Capital Partners based in Boston, although we obviously operate around the country and we encourage anybody to come and visit us virtually now and then in person when people are back on planes. But we are super excited to hear from great entrepreneurs. So look forward to continuing the conversations.
Saul Marquez:
Thanks, Michael. Appreciate you jumping on.
Michael Greeley:
Yeah, all the best. Really appreciate you bringing light to all these opportunities.
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