Value Through the Lens of Veteran Health Tech VCs

A conversation with Steve Kraus and Sofia Guerra of Bessemer Venture Partners

This is Part 2 of our special series for the Health Impact Project. I’ll be speaking with industry thought leaders representing a range of stakeholders to hear how they think about defining the value of healthcare technologies. Be sure to subscribe to the Chilcast wherever you listen to podcasts to receive updates as we release new episodes. View Part 1 with John Glaser.

Key Takeaways:

• Healthcare is still far behind other industries in digitization and consumerization best practices, meaning there is still opportunity to deliver better solutions that can address these needs.
• Need both clinical outcomes and financial ROI to drive adoption among resource-constrained buyers.
• Resilience will be key over next 12-24 months as external shocks persist but the companies that survive will be stronger for it.
• We discuss a couple specific BVP publications co-authored by the guests: State of Health Tech 2023 and Roadmap: 10 Laws of Healthcare

Introduction

Health technology has seen incredible innovation and massive investment over the past decade since passage of watershed legislation like the HITECH Act. However, the path has been a winding one with plenty of both predictable and unforeseen obstacles.

In the latest episode of Chilcast, we hosted veteran healthcare investors Steve Kraus and Sophia Guerra from the venerable Bessemer Venture Partners (BVP) to delve into their perspectives on the successes, failures, challenges, and future outlook for health tech. With over $6 billion under management, BVP has decades of experience spanning IT, healthcare, and many other sectors, and are one of the longest-operating VC companies in healthcare. This “bilingual” expertise, as they refer to it, gives them unique insight that many other VCs merely dabbling in healthtech for their piece of the healthcare pie are not able to bring to their relationships and investments.

Regulation, Consumerization, and a Challenging Economic Environment

Steve and Sofia cover a range of critical topics from the lagging digitization of healthcare and barriers still deterring consumer engagement to tactics for demonstrating value to buyers and the role of impending regulation in creating new opportunities. They stress that while progress has occurred around EHR adoption and value-based care, healthcare has vast room for improvement in putting people first and moving from a system designed around acute care to one focused on prevention and continuous whole person health.

You don’t die from cancer tomorrow from smoking a cigarette today, right? You die years down the line. So some of these bigger issues that really need to be solved and why value-based care payment models matter, unfortunately don’t work today for a near term ROI…I hate to say it, healthcare is a business too, and the buyer has economic imperatives and a PNL. They’re going to focus their dollars and resources on vendors who can provide near-term ROI [before] those who can provide longer term ROI, even if it’s a juxtaposition to societal benefit. That’s the challenge.

Steve Kraus, Partner, Bessemer Venture Partners

As Steve emphasized, overcoming healthcare’s inertia requires meeting buyers where they are today, summed up neatly in this one sentence (also Law 5 from the 10 Laws of Healthcare): “You have to have both clinical and financial ROI. You can’t have one or the other.” Sofia concurred that while longer term clinical impact matters, addressing immediate pain points is key, as is showing how new solutions will complement existing processes without being exceedingly disruptive to current workflows. They see leaders rethinking how to “indirectly monetize” through new stakeholders to shorten sales cycles (this was a particularly interesting point that I think everyone should pay attention to – jump to ~57 minutes in for this part of the conversation).

What’s next?

It’s apparent to anyone paying attention that the road ahead will remain bumpy as healthcare mirrors broader economic trends. However, Steve believes strong companies with smart models have emerged from the first wave of health tech. As markets rebound, these standouts backed by operators who have weathered past storms will separate from the pack. Though change takes time, he affirms “there is no better industry to automate previously laborious tasks.”

By bringing empathy, patience and ecosystem thinking complemented by technology experience from other fields, the BVP team aims to realize health tech’s vast latent potential. Their advice should guide entrepreneurs looking to transform care delivery for the better.

Notable conversation timestamps:

• 4:06  What makes Bessemer’s perspective unique in healthtech venture capital?
• 7:14  Where has healthcare succeeded and stumbled as it relates to tech adoption?
• 12:10  What are today’s greatest challenges for healthcare innovators?
• 19:47  State of Healthtech 2023 Report: Industry Prioritizing ROI
• 26:40  Law 5: Shortening your sales cycle by demonstrating financial as well as clinical ROI
• 32:46  Garnering buy-in across the C-suite and Board
• 40:14  Law 6: Healthcare is human – Capture the narratives
• 45:55  The role of the “disruptors”
• 52:55  What to expect from 2024 into 2025
• 1:00:14  How to follow-up, Outro

Listen to the podcast by using the embedded player below, or on your favorite podcasting app via this link.

AI-generated transcript

John Moore III: [00:00:14] Welcome back to the Chilcast. I am the managing partner of Chilmark Research and your host, John Moore III. we are developing a mini series as part of the Chilcast, delving into how different health care industry stakeholders think about assessing the value of digital health and health IT implementations. This series ties into a new collaborative effort, the Health Impact Project. The Chilmark convened earlier this year with Pam Arlotto and Susan Irby from Maestro Strategies, Curtis Peterson of Kingfisher Advising, and Marie Copoulos of Horda Health. After hearing ad nauseam over the last couple of years how important it is for new technologies to show efficacy in the current economic climate, we decided that it was time to come up with a better metric for evaluating the impact of technology than a standard, oversimplified calculation like ROI. This series is intended to catalyze industry conversations we see as necessary to reach consensus on a new model of value that c-suites at care organizations, payers, technology developers, investment firms, and more can apply to their own initiatives. Please be sure to follow us on LinkedIn via the Health Impact Project page for updates and new content, and feel free to reach out if you’d like to get involved. For our second installment of this series, I am pleased to introduce Steve Kraus and Sophia Guerra of Bessemer Partners.

John Moore III: [00:01:32] Steve Kraus is a partner at Bessemer Venture Partners, or BVP, in the Cambridge office, and a world renowned healthcare investor. He is an author of Bessemer’s ten Laws of Healthcare and with our other guest today, Sophia Guerra Benchmarks for Growing Health Tech Businesses. Steve currently sits on the boards of Bright Health, Group, Headspace, Health, Juventus, Aspen RX Health, RX, Oshie Health, Folks Health, Mural Health, Alltrista and US Health Partners. He serves as an observer at Beth Israel Deaconess Medical Center and advisor to Boston Children’s Hospital and the Harvard Business School Center for entrepreneurship, and on the investment committees of BCBS Massachusetts and ROC health. Prior to joining Bessemer, Steve worked for a growth stage private equity firm and as a management consultant at Bain and Company. He has also worked on several different political campaigns throughout his career. Steve graduated summa cum laude from Yale University and earned his MBA from Harvard, where he was a Baker Scholar. Sofia Guerra is a vice president in the Cambridge office, where she focuses on healthcare and biotech. She has written a number of articles for BVP, including their inaugural State of HealthTech 2023, both with Steve as a coauthor. Sofia began her career as a consultant at Bain and Company, where she worked on strategy, operations and due diligence projects across healthcare and technology.

John Moore III: [00:02:50] Prior to joining BVP, she was an investor at Boxgroup Ventures and the co-founder and president of Nucleate Bio, a national life sciences entrepreneurship program, helping PhDs, postdocs, and students commercialize scientific projects. Sofia earned her MBA from Harvard Business School and her BA with high honors in chemistry from Harvard University. While in school, she conducted research alongside Bob Langer, a serial entrepreneur and one of 12 institute professors at MIT widely recognized for his contributions to drug delivery and tissue engineering fields. Uh, you basically have to be living under a rock in the Boston health innovation ecosystem to not know who Bob Langer is. He’s probably one of the biggest rock stars in that sector. So getting into the discussion now, Bessemer Venture Partners has been investing in healthcare innovation for decades now, which makes it one of the more mature firms operating in this vertical. So the first question is how does this experience affect how BVP perceives the role of venture capital in supporting healthcare innovation and the adoption of new digital tools for the industry? What do you think is different about your perspective relative to your counterparts in venture capital?

Steve Kraus: [00:03:59] Yeah. Um, well, John, thanks for having us. Um, I’m happy to, uh, to kick off, and then Sophia can add her perspective. Um, you know, I think I’d say Bessemer is a what we call a bilingual firm because we have both a deep experience and understanding of the healthcare industry and our healthcare team, but we also invest in a bunch of other leading technology industries. Right? Everything from software as a service across many different verticals financial, technology, consumer, and even into space tech these days. And so I think it’s it’s an interesting perspective because on the one hand, if you come from those industries, you look at healthcare and you kind of go, WTF? Like what’s going on? Um, it’s completely, you know, laborious, not automated. The technology looks like it was built in the 1960s because frankly, a lot of it was, um, way, way, way inefficient. Um, when it comes to, you know, how how the industry uses technology. And so that’s great because that that provides an outside in perspective for us about kind of like where the puck’s going. You know, I always say healthcare is a decade or two behind. So things that my partners were working on in other industries are now finally coming to healthcare.

Steve Kraus: [00:05:14] So that’s good, because that helps us to think about where we want to invest in the future. But at the same time, we have a deep healthcare team that has gray hair. Your listeners can’t see me right now, but I’ve got plenty of it and understands that, you know, it’s really freaking hard in healthcare, um, to innovate in for a whole host of reasons that we can talk about today, many of which are good, by the way, some of the things we’re going to talk about, outcomes. Unlike other industries, you actually have to prove not only financial outcomes, but actually that you’re doing good for the system, right? So there’s a higher bar, but it’s so slow. As a result. There’s lots of regulation and and lots of stakeholders. And so I think just having that duality of perspective makes us not unique. But we’re one of the firms that has been around for a long time that has both the deep technology and deep healthcare perspective. And I think that that helps us as we look at opportunities.

John Moore III: [00:06:04] Fantastic Steve. And yes, I can relate to the gray hairs and the difficulty of operating in this space for sure. Sophia. Anything to add to that?

Sofia Guerra: [00:06:13] When some of the work that we’ve been doing over the last two years kind of sheds light on how we’re learning also from other industries. For example, our cloud colleagues have been doing a lot of this benchmarking and metrics tracking for the SaaS business model. And one of the reasons we kind of kicked off a lot of this work in the last few years was really seeing kind of that early cohort of companies that have scaled in, in digital health and health tech in the last ten years, just after kind of the Hitech act and the ACA act. And really thinking about what can we learn from the companies that have scaled or that are in the process of scaling? How do we quantify some of that and put some metrics around it so we can be more data driven in the way we think about what requirements are necessary to scale in the industry, and specifically putting KPIs around the different business models, because there’s a lot of diversity and business models. And in our industry as well, it’s not just all, all software. So that’s been part of the work that we’ve been doing in the last two years.

John Moore III: [00:07:14] So that I think reflects the next question, which is that we’ve seen a lot of industry change in the last decade, and especially since high tech and ACA both went into effect. So where do you think we, the royal we for the entire health care industry have succeeded? And where do you think we’ve stumbled with technology implementations and trying to find ways that technology can fit into these new innovations around health care transformation?

Steve Kraus: [00:07:36] Yeah, I’ll go first. I you know, I thought about this question, John, and I kind of want to frame it in the our three North stars as we think about where we want to invest in terms of changing the industry, all of which are driven by technology to some extent. Um, so the three North stars are, you know, what we call digitization, the digitizing of the industry. That’s number one. Number two would be validation. So the move from fee for fee for service payment system to a fee for value payment system. And the third would be consumerization. And I’ll posit that I actually think on the first two on digitization and validation, people can poo poo a lot of what’s happened and we’re not far enough along, but we’ve come a long way since you and I first started this industry. Like fast flashback. You know, 12 years ago, doctors were still using pen and paper to to record your medical record. You know, today, EHRs, as much as we hate them, they’re ubiquitous datas and zeros and ones. And now you’re starting to see technologies like AI actually come in and improve the workflow and the experience and and the ability to actually digitize a note fully. Right, like through ambient scribing, one of our companies, a bridge does that. And it’s amazing. Technology could have never dreamed that ten years ago that that exists and exists today. So we can all say, oh, hi tech act was a disaster and meaningful use never worked.

Steve Kraus: [00:08:52] And yeah, there’s a lot of a lot of, you know, arrows we can throw. But man, we’ve digitized the largest industry of our economy in ten in a decade. Basically. That’s remarkable. And we should celebrate that. And we should improve upon the things that need to be improved upon. But I’d say check lots of work to be done. But that’s really one thing that technology’s helped. The second is validation. You know, it was tried two decades ago with Hillarycare, right. And failed miserably. And it was because, frankly, for those people who have gray hair, like the Clinton administration tried this and they bombed because I don’t think physicians were ready. Fundamentally, you need an EMR to do some of that stuff, and you need investment, you know, and value based care is we’re like in any number two. But, you know, a lot of the primary care, you know, a lot of the successful companies like Oak Street and Iora and Chenmed and Villagemd, like at the end, Privia at their core, these are real companies and they have value based movement underneath them. And that’s a huge success. That’s been driven by CMMi at CMS. Um, but now you start to see not surprising. It’s worked in primary care. Let’s take it to other industries. And honestly, what’s happening in kidney care, which is, by the way, we spend 1% of the federal budget on dialysis, 1%.

Steve Kraus: [00:10:01] That’s equivalent to the federal budget we spend on education of our kids. Okay, so that whole industry is being now moved to a value based setting. Um, just the kidney care industry alone. And there’s a lot for very successful companies in that space. I think that’s a huge victory. It’s going to happen in ecology. It’s going to happen in cardiology. So I’d say again, huge amounts of room to run. It’s a small percentage of American system that’s actually under value based care. But wow, we’ve come a long way. The area where I’ve been disappointed, save for a few companies like Hims and a few indications that tend to be more out of pocket. Out of pocket pay is honestly consumerization. Like, I still think the consumer is so far out of the health care system compared to where it is in other industries, like it’s just not even close. And so, you know, that’s a real bummer because I think every other industry, when a consumer is given a choice, if it’s equivalent quality, they’ll choose price. And frankly, that that force that has moved so many industries to be more efficient doesn’t exist in our industry yet. Um, and it should exist. And so that, to me is the biggest bummer is like, I don’t feel we’ve gone as far as we could in that, that third North Star. So that’s how I’d summarize it.

Sofia Guerra: [00:11:05] The one thing I’ll add is like staying healthy and the the things I need to do as a consumer to to minimize the risk for certain conditions is hard work, right? It goes against kind of human behavior. So thinking about how do we align incentives but also provide kind of the the right resources or opportunities for our consumer to to stay healthy and engage, I think is very important. That will ultimately drive the cost down. So I think I think about it the other way of we’re only going to progress on the value, um, value ization North Star. Further, once consumers are kind of bought in.

John Moore III: [00:11:45] Fully agree with that. Yeah, 100%. And obviously, you know, another issue with the consumer side of things is that there just a lot of times isn’t much choice provided to the consumer because they are in an area where they only have one provider to go to or only one outlet that they can actually access. So that’s the other thing that I think is really interesting with the changing in digital, is that it opens up a lot more nodes of access to care. Okay. So what are some of the biggest challenges facing healthcare innovators in today’s market?

Steve Kraus: [00:12:15] I think the biggest challenge like, listen, I think at the early stage I would think about, um, kind of four types of risk, right? There’s there’s sort of product technology risk. There’s distribution go to market risk. There’s team risk and there’s financing risk. And I think if I were to think about those four buckets, I think the, um, amount of advancements that we’ve made in the product side and the ability to build really innovative products, it’s a little bit linked to the team as well. And the people who know how to build and understand how to build, um, disruptive products and all the nuances of the products that need to exist in health care. Um, is way different than it was ten years ago, John. So I think that actually is de-risked, right. I think like, um, even what we talked about just in the last few minutes around EHRs, you know, we had to pay doctors like $40 billion to adopt EHRs ten years ago. Now doctors are paying to actually adopt these I ambient scribe solutions just as one example. Right. So people are more used to using technology that’s only going to continue to improve. Um, I think so that’s that’s a positive. The team is a positive. There’s more people who’ve come into healthcare from other industries who understand healthcare and its nuances. Of course, we hear all these horror stories of people who’ve done wrong and and get salacious headlines.

Steve Kraus: [00:13:34] But the truth of the matter is, is we’re way more diversified in terms of the talent that’s now in healthcare. That’s a positive. The two areas where I think there’s challenges are distribution. You know, it hasn’t gotten any easier for companies to distribute, um, you know, healthcare, maybe value based care. And some of the models that allow, um, innovation have improved a little bit. But it’s still hard to sell to payers. It’s still is hard to sell the providers. It’s still hard to sell the government. It’s still hard to sell to the self-insured employers. So that’s still a huge challenge. Um, and I haven’t seen anybody really increase those sales cycle times. Um, and then, you know, honestly, compared to a couple of years ago, financing risk. Is a lot higher right now, right. Because the overall markets are challenged. Our market we can talk about the reasons is challenged. Um, and so I think that risk is more challenging today than it was in, you know, the least the past, you know, 5 to 10 years. Um, I think that’ll change. But I think that’s the so those I’d say distribution today hasn’t really made any strides. And I think finance and risk is higher today than it was, say, five years ago for innovators.

Sofia Guerra: [00:14:38] One thing to add to maybe from the buyer perspective as well as I think Covid was an amazing, like watershed moment for our industry and how technology was at the forefront of how do we access patient service them, how do we develop better drugs? All of that. And coming at the heels of that, I think the two Steves, one on the distribution side, understanding what attribution we give to a solution or a company on the benefit that’s providing the buyer and also the patient, it’s hard to articulate, and I think we’ll get into talking a lot about how to measure ROI. But first and foremost, how do we show attribution of what your what your solution is doing and how fast it’s proving benefit, uh, in today’s day and age is like the bar is really high and just given all of the different solutions that have been adopted in the last, uh, say 3 to 5 years.

John Moore III: [00:15:34] Yeah, I know that attribution is one of the big issues that we keep coming back to in these conversations. And just internally, as we think about this is, uh, a lot of organizations haven’t been great about tracking the KPIs or the metrics that would allow you to actually do the attribution element to so that you don’t have the preexisting data before you go in and you buy something. So it can be hard to actually, you know, get to that next step of showing what the impact actually was because you didn’t have anything to compare it against.

Steve Kraus: [00:15:58] You’re talking about the competitors, John, like you’re the customer. Sorry. You mean like the health plans themselves, right? Yeah, totally. Yeah.

John Moore III: [00:16:04] The health plans or health organizations? Either one.

Steve Kraus: [00:16:06] Yeah, totally.

John Moore III: [00:16:07] It’s um, and that’s partly because of the transition to digital, like you were saying before, Steve. Like we just didn’t have the tools. Yeah.

Steve Kraus: [00:16:12] No, it’s a huge issue. I completely agree with that. Um, yeah. That’s that is a that’s part of the challenge of the transition we’re making right now.

John Moore III: [00:16:21] So same question, but thinking about what are some more society focused? So what are some of the greatest challenges facing society today as related to healthcare that, you know, this conversation can kind of tie into.

Steve Kraus: [00:16:34] I mean, the biggest one is we have marginal outcomes at too high of a cost. Like everything starts there. Um, and you can.

John Moore III: [00:16:45] Yeah. I mean, US healthcare’s always raked over the coals for that relative to our other wealthy nation counterparts. Yeah.

Steve Kraus: [00:16:50] And you can go through almost every single. And I’d say that’s number one. And I’d say mostly I believe it’s a derivative of our payment system actually that just incents, you know, episodic based care rather than proactive, comprehensive, you know, um, population health care. Um, and then you go to every single subspecialty and you can point how things, almost every single one, I want to say, you know, oncology might be a little harder, but I still think there’s even oncology, you know, innovation that’s happening today around, you know, and models out of CMI that are incenting value based care. But like, you know, metabolic disease, cardiology. We’ve already talked about nephrology, you know, oncology, gastrointestinal care. Like all of these ones. The the payment model leads to certain, you know, actions that are not supportive necessarily of improving quality and decreasing cost. Right. So that’s where you think you start.

Sofia Guerra: [00:17:50] I lived in Singapore for a few years of high school and became really obsessed about their health care system, just really understanding that the high quality of outcomes that they have and the low cost and saying, okay, what did they get? Right? What, what what do they put in place to make this make this work? And I think one of the things that takeaways that I had is one, it’s a it’s a small, very small country. And it also they started from scratch. Right. Building a system from the ground up. And that’s something that we are not able to do in the US and not to disencourage anyone. But I don’t think there’s going to be like a silver bullet that’s really going to change the impact, the trajectory of where we are. So one, being patient about the progress that we’re making and then how do we are able to track the progress and quantify that, like in in a slow way, but still showing that progress to maintain innovation investment and then, um, change from the regulation side, which really opens a lot of opportunities in business models and, um, new companies to be built and celebrate some of those wins before, um, we can actually put a dent in those outcomes and accelerating cost.

John Moore III: [00:19:02] Yeah, that makes a lot of sense. I think we’ve seen some innovation happen in smaller like Nexuses, like the Chenmed or the aero health that Steve brought up earlier, um, where people are able to innovate because their practice is smaller and more focused, and then they can show a proof of concept that this is something that can be applied to the entire system. But it does take a while for that to happen. It’s not going to necessarily be the incumbents that make those experimental changes at first. They’re going to see what’s working for other people out there, and then they might adopt it internally. Um, but yeah, we’ve got a lot of entrenched interests and a lot of, a lot of very structured models right now that are pretty inflexible, that everybody kind of agrees needs to change. It’s just how do we get there is the difficult part right now. Okay. So thinking about your work developing the State of Health Tech 2023 report, what are some of the emerging trends right now that reflect the shifting priorities of the C-suite and care organizations? And what do you see as the new priorities?

Sofia Guerra: [00:20:03] No, I think that the the priorities or the big pain points that a lot of the, the systems are experiencing one is one rising costs on labor and kind of. Physician burn and clinician burn and how fast those costs are rising. Number two is engagement on the consumer or the patient to actually, uh, bring them in and kind of impact those outcomes. And then three is just the immediacy of seeing some of the results, right, of, hey, something can really provide impact in three years, but the average member is only a part of a health plan for less than that. Like, how do we think about what can impact, what ROI can we capture in less than 12 months, and how do we quantify that? So I think that’s a very top of mind from a lot of the conversations and some of the things that we’re thinking about, uh, in the criteria that we outline in kind of these phenixes rising from ashes is what’s addressing a really big pain point or hair on fire problem. How do you quantify that? And then lastly, on a business perspective, we think a lot about how do you scale those those business models and the capital requirements for that, just given some of the financial, uh, financing risk that Steve outlined?

John Moore III: [00:21:22] Okay. So you mentioned people looking for, you know, 12 month ROI. How realistic is that? Actually, as far as a timeline, when you have to consider the change management that typically goes into the effect of adoption and implementation of new technologies.

Sofia Guerra: [00:21:35] That’s about a specific timeline, but more how do you drive or work with your buyer to quantify this over time? And how do you think about what are some leading indicators that a program or a project is going the right way and being kind of quantitative in that sense, some of the things that we talk a lot internally that are great leading indicators of success for, um, adoption is kind of activation, utilization of kind of the main user, either that the patient or is it clinician. And it’s like a good indicator that you’re being you’re providing value to the end user in a short period of time as a weekly, monthly, um, you name it. And then I think that there’s going to be lagging indicators on the financial and probably some of the clinical outcome side that will take longer to, to realize or show. But then there’s this kind of trade off of how fast you can prove that that solution is being adopted.

John Moore III: [00:22:37] Yeah. So you’re saying that it’s really just the those leading indicators come back to uptake and satisfaction with the tool more than anything else. And then you can start looking at the other outcomes when you’ve had more time to actually achieve that change transformation.

Steve Kraus: [00:22:50] Yeah. And John, I think I think that’s right. I think, um, those leading indicators that we’d love to talk more about and, and, and have talked about in our pieces, those are true, um, and need to be thought about by every entrepreneur and product designer across our industry, regardless of what, what vertical or what solution you’re developing. But I do think some entrepreneurs have been smart about picking indications where there is more likely to be near Terme ROI. So let me give you an example. We’re an investor in a company called hinge. You know, hinge is main value. Prop is physical therapy ultimately trying to avoid a surgery. Right. And oftentimes that can be linked to an, you know, within the first 12 months it’s not always clean. But like, you know, someone feels like, oh, I need to go get a surgery. And you know what? Hinge tries to insert itself and says, hey, try physical therapy first. Right? And so that’s a near terme ROI. We’re also investor in a group company called groups, which is avoiding helping folks avoid, you know, deal with opioid addiction and get treatment for it. Right. If that patient doesn’t get treatment as a medicaid patient, like there’s a chance that they could overdose. And that’s like real near terme cost, right, for a payer. Okay. Those are just two examples. I could give many more. Those are sort of both near Terme, unfortunately. You think about big societal issues, you know, like weight loss or smoking. Right? Like just because you’re obese does not mean you’re going to have a heart attack today.

Steve Kraus: [00:24:09] In fact, it probably means that you won’t. You might not have a heart. You might not have a heart attack at all. Or at least the heart attack is probably not going to come for, you know, five, ten, whatever number of years. And that’s to Sophia’s point. By that point, if you’re, you know, Aetna covering that patient right now, most likely that patient’s going to turn off your just just happens. And there’s going to be a united patient. You know for four years from now. Why would Aetna pay for something. Now that United’s going to get the benefit from four years from now. It just makes no sense. Same thing with smoking unfortunately. Right. You don’t die from cancer tomorrow from smoking a cigaret today, right? You die years down the line. So some of these like bigger issues that really need to be solved and why value based care payment models matter, right? Um, I actually don’t work today for a near terme ROI, unfortunately. And so some of those businesses have been harder to actually, um, get traction on because people I hate to say it like, you know, healthcare is a business too, and the buyer has economic imperatives and a PNL. And so they’re going to focus, you know, their their dollars and resources on vendors who can provide near-tum ROI than those who can provide longer terme ROI, even if it’s if it’s juxtaposition to societal benefit, you know, and so that’s the challenge.

John Moore III: [00:25:14] Yeah. That’s one of the things that we’re trying to kind of tease out here is how much does financial ROI just relate to incrementalism, as opposed to truly achieving that big, hairy, audacious goal of transforming your care delivery system? Well, I mean.

Steve Kraus: [00:25:27] Listen, I don’t I get your point. But like the two examples that I gave with Near-tum ROI, well, you know, opioid preventing someone from overdosing opioid and also I honestly having someone have a better quality of life through physical therapy rather than getting surgery and, you know, like those are like, I’m not making a moral judgment about them. I’m just saying some of the bigger issues that are are, you know, like smoking and weight loss, even you could say CKD before. Like, listen, our system is set up so that people are only paid for crashing in the dialysis center. That made no sense, right? That’s the way it’s worked since 1965 when Nixon passed that legislation. Right. That’s like what I don’t know how many years is that? You know, 60 years. That’s crazy. Only until the payment system changed did we actually start treating nephrology upstage. Right. You know, you know, rather than crashing. So I think things can change. But, you know, yeah, it’s you got to you got to hit on both. We think you got to have both clinical ROI and financial ROI. You can’t have one or the other. You have to have both.

John Moore III: [00:26:19] Makes sense. Um, okay. So Steve, back in 2020, you, Morgan Cheatham and Andrew Hedden published ten Laws of Healthcare. I’ll link to the full article because we don’t have time to break them down one by one. But I’d like to dig into a couple. So let’s look at law five. Shorten your sales cycle by demonstrating financial as well as clinical ROI, which you are just talking about. You state that ROI must be evident and multidimensional. 60% of decision makers at hospitals and health systems said that they seek to improve clinical outcomes when deciding to purchase healthcare it, and 50% said they tried to achieve financial ROI. So I’ve got a few questions to follow up on that law. How have market dynamics shifted since this was originally written in 2020? And what are you seeing buyers looking for today when thinking about the value proposition and market fit for their technology investments?

Steve Kraus: [00:27:07] I actually don’t think anything’s changed. I think I think, um, I think this is one of these things that’s like the golden rule in health care, right? If you’re going to try to innovate, you got to have both. We just we just pointed unfortunately. And I hope people solve, you know, ways to make smoking cessation both. Obviously it’s amazing clinical evaluation validation. Right. Like we know that offhand. There’s so many reasons not to do it and improve upon it. But I hope someone finds the financial ROI. Two in a near-tum way, so I don’t think much has changed on I think those those buyers are still looking, um, for both of those things. What I would say is our industry became, since we wrote that article, even more fragmented, right. Like way more point solutions. Um, and like, you know, take mental health, right? Which is also, by the way, a huge success story of our industry is the progress that has been made in mental health. Mental Health Parity Act started it, but there’s been a lot of great innovative companies that have come through and improved upon it. But I mean, there was a subcategory, uh, in every single mental health, you know, and there was tens of companies. And I think, unfortunately, these large customers and health care can only do so much in any given year, and they’re going to have strategic priorities, um, and they’re going to have only so much bandwidth.

Steve Kraus: [00:28:33] So, you know, I think they are going to look for, um, as where they can one stop shops that can do more than one thing. And, you know, for instance, in mental health, try to address multiple subcategories. Right. Um, and I think that’s going to be the lens that they bring to this. They’re still going to look for financial and clinical ROI. They’re probably going to look for fewer vendors than may have existed in the past. Now for the big categories of which mental health is one, you know, MSC is one. Cardiology like there’s going to they’re going to do best of breed over like one stop shop is my view like there’s not going to be a one size fits all for all specialties in health care, but within a specialty, you’re probably not going to have, you know, 5 to 10 vendors. You’re probably might have one or 2 or 3 at most. And so I think people need to be cognizant of that, of how they differentiate themselves. Right. As, as an innovative startup company versus umpteen other number of solutions out there. And that was a little different than when we first wrote that article. Right. Our industry’s matured a lot, even over, you know, 3 to 4 years.

Sofia Guerra: [00:29:37] Yeah. Just quickly, just quickly to add on the mental health point as well. I think you made this comment earlier on the focus on increasing access. And I think we’ve come a long way in improving access to mental health, um, services, while still kind of a huge unmet need in certain categories. But I think also from the payer perspective, how do you ensure kind of quality of care? And there’s been a lot a bigger shift on figuring out how do we quantify quality, and especially for for services that are kind of, um, newer and adoption or reimbursement to figure out where can you pay higher reimbursement rates for higher quality care? Um, and that’s a lot. It’s been a big part of the conversation more recently than it was two years ago.

John Moore III: [00:30:27] Yeah, I appreciate that. You guys both brought in the mental health space, because that’s one of the main things that got me into this sector in the first place was the fact that technology innovation can actually have a very significant impact on behavioral health outcomes, um, much more than what we can do today with drugs, because, you know, I’ve seen the drug treatment process with family members and friends and just how much of it is shooting in the dark until they figure out the right mix of medications for the patient. And so there’s a lot that can be done with the digital side that can help either speed that up or get people other resources and, um, therapies that they can apply while they’re kind of getting their medications balanced, if that’s the course that they decide to go down.

Steve Kraus: [00:31:05] Yeah, but but it’s totally agreed, by the way, I and you made the point. They made the point about access and, and um, and increasing that and providing different modalities. But even like to the point of how healthcare is really hard, like, you know, think about pear therapeutics, like what an amazing company trying to solve a certain aspect of digital health through non-therapeutic interventions, by the way, many of which, you know, the the end patients didn’t like. Right. And it had, you know, they had to do the missionary work more than any other industry technology you have to do in any industry. They had to like, prove that it work scientifically and then prove that it worked clinically and then prove that they could, you know, get it, you know, reimbursed. Right. And then prove that, you know, they could sell it commercially. And honestly, like there’s some good reasons for that, right? We have you know, we have to do well and do good and do no harm. But like that company was awesome. And unfortunately it didn’t work out. Um, and I’m, you know, Cory and that team, did, you know, missionary God’s work to create that category? I believe that category exists someday, but it just tells you how hard healthcare is, because companies like that should exist and provide another modality to your point that aren’t therapeutic and probably more safe and equally as efficacious. They prove that from their studies, even better in some cases. So it’s just an example of how hard our industry is. Um, and I hope, I hope ten years from now we’ll do this podcast and they’ll be, you know, tens of pairs that are out there in the market to helping patients.

John Moore III: [00:32:30] Yeah. The digital therapeutics concept is definitely still very new for a lot of people, both the consumer as well as the, you know, prescriber. So I can understand why they’re struggling to basically just create an entirely new industry and market. Uh, okay. So the law number five also includes a quote from Kairos co-founder Graham Gardner stating that improving care delivery requires buy in from multiple stakeholders and functions across a network to convey meaningful. Roi, companies have to demonstrate how their solution will complement existing processes, or how it will justify any risk or change management required. So how does somebody make the case for adoption of new technology to multiple stakeholders in the C-suite with very different operational directives, and this can be an innovator trying to sell into the C-suite, or it can be somebody, you know, a population health, uh, you know, the head of the population health group trying to convince the rest of their executive board to go along with their strategy.

Steve Kraus: [00:33:24] Yeah. So I think there’s like it’s a really good question. I break down the stakeholders simplistically, and there could be multiple stakeholders within these groups. But I’d say it’s sort of the the end user. Right. Call that a nurse case manager, uh, provider, you know, a biller, whatever the end user I’d say, um, there’s the, the, the, you know, the technology and information office who’s often dealing with the integration and the implementation of the actual solution and product. And then there’s who’s the payer? And I’ll sort of put that with the decision maker kind of the it could be a CFO, it could be a CMO. But you got to got like those are the three buckets that you have to think about. Right. Um, and, and my view is like, um. The most successful companies that have sort of solved the the adoption put aside if there’s regulatory mandates, like by the way, the best way to get through any of that is a regulatory mandate, i.e. you need an EMR or by the way, you need a software that measures, you know, uh, uh, you know, uh, haedus measures or what have you like. Those are the best.

Steve Kraus: [00:34:41] Those are the best wedges to be there. And entrepreneurs should look for those. Um, but if you don’t have that, I think, um. All of those different three stakeholders can be huge barriers. I think if you can get end user love. Right. Um, first, um, and adoption, there is some virality among physicians. It’s not as good as like on, you know, the best, best designed apps that we use in our daily lives. But there is some word of mouth if you can get end user love, kind of almost like a product led growth strategy, and you can have a pretty strong, um, ROI, some of the clinical, you know, outcomes that we’ve been talking about earlier, um, to get to the decision maker slash payer, I think you can, you know, convince the CTO Cmio CIO. So I’d be thinking about those two groups first and then going the CTO Cmio all of them can be blockers, but I think those two groups can can override the third if they need to. So that’s how I’d be thinking about it as an entrepreneur, just in big, bold strokes. That’s what I’d say.

Sofia Guerra: [00:35:52] I think it goes back to like solving a hair on fire problem for your user, and who’s going to accrue some of that value. Is it from because it’s a big pain point either to that user, but it’s also generating revenue that’s attributable to that solution. And who’s making the decision to use that and adopt it. So generally we we think about kind of if you’re in a coming out of a budget for, say, a clinical group, you really need to be solving a really big pain point for that user or clinician to either be like magically saving a lot of time and very easy to adopt and their existing workflow and kind of already existing processes versus pushing them to really change the way that they’re doing something to really realize some of that value. Um, and yeah, realizing or showing kind of that value early, some of those leading indicators going back to what we talked about, um, of like user love that Steve was talking about is is really critical.

Steve Kraus: [00:36:58] Yeah. John, I’d say I’d say one other thing is we say we point out in our benchmarking work, um, I forgot which piece it was, but you can find them on our website that, you know, frankly, 80% of spend is in tech enabled service and 20% is in healthcare it. And as a result, the unicorns. I always hated that turn. But there’s more unicorns and tech enabled service than there are in healthcare. It. And I think one of the reasons is like, for the most part, those tech enabled services companies, they’re basically taking over a part of their acting as a medical group themselves. I mean, or a payer or, you know, they’re they’re they’re consuming the risk dollar, right? They own the dollar. And so therefore they can decide how what they want to do with that dollar. You know, of course, they have to integrate with referral sources and payer, but like they’re the ones controlling that dollar. Whereas if you’re a healthcare IT solution, you’re selling into someone else a department, as Sofia said, right? In a hospital or a department in a payer, um, or a department in a self-insured. And you have to like, work within their framework and their stakeholder group, if it makes sense in order to how to like, convince them that there’s ROI in clinical, you know, like it’s just a different game. You’re almost like a vendor vended solution versus like actually a vendor yourself. And that that requires a lot more nuance in the art of the sale and the art of the implementation and the art of the customer service and success and actually controlling the dollar yourself. So I think it’s it’s a very different equation depending on what your business model is in our industry.

Sofia Guerra: [00:38:20] And the number of committees that you have to go through to get approval to be fully launched and not just piloted in, you know, that’s.

Steve Kraus: [00:38:31] Right. Well, but by the way, that’s why those tech enabled services now, they have very different gross margin profiles as we tell. But that’s why they scale faster. That’s why venture capital dollars all went to them is because, oh my God, 100 million of revenue is $1 billion of gross revenue. Like lots of mistakes made by people, by the way. But like that was the thing, you know, health care loves scale whereas health care it, by the way, health care, it has produced a lot of good venture returns. It’s just a little slower. It’s like you go 0 to 3 and you go 3 to 10 and you go 10 to 25, and you go 25 to 50, and then, you know, 50 to 100 and but, you know, finance the right way. They can be really attractive businesses. They’re great businesses for private equity and growth. Equity like they love healthcare. It.

Sofia Guerra: [00:39:08] So we’ve also been playing around with the opportunities that kind of artificial intelligence, um, opens up. Now that you’re delivering more of a service or the output of that model is just performing a piece of work, and does that enable you to tap into non IT budgets? Because those were tech enabled services, businesses that were outsourced in some way to someone or could be outsourced. And you can tap into that while providing a service, leveraging technology and AI to deliver that at almost marginal no cost. Right. Because then your gross margins will be, um. Improved, leveraging the best technology out there. And that’s not just delivering care, because obviously I think we’re a long way from AI delivering any care, and we believe that it’s just going to improve and bolster the, the efficiency of of clinicians, but also in lots of other services in the payment stack, for example, that we see a ton of outsourcing and administrative services that could be addressed that way.

John Moore III: [00:40:15] That makes a lot of sense. Um, Sophia, I think earlier when we were talking about the last law and, you know, getting multiple stakeholder buy in. You mentioned something about the human element. So that’s lost six in the ten laws. Healthcare is human. Capture the narratives. I personally love that this is called out as one of the rules. And can you elaborate on what you meant by this and how it applies in today’s market? And some of the examples of these narratives that both of you have heard over the course of your investing career.

Sofia Guerra: [00:40:44] I can kick off and Steve, uh, weigh in, but I’ll give you two examples. And I think one is capturing the narratives from the patient outcomes and really not only helps, uh, bringing great talent to companies, but also kind of aligning and focusing on providing clinical ROI and outcomes is what’s going to ultimately be successful for for a company. And they’re like early signs that you’re kind of on the right track. But then the second thing, and this applies both for either software or services, is, uh, capturing the narratives of your customer or some of that, um, benefit or feedback that you’re providing. Because in healthcare, if sales cycles are really long, you’re going to need customers that you can reference in kind of your sales cycle to speed up, um, the, the processes with other customers. So even early on, focusing on your how you’re landing and satisfying a customer and having them be a reference for you on kind of that next sales cycle is going to open doors. And we’ve seen that kind of the even measure that on kind of the customer acquisition costs and the payback for that in healthcare. As you scale those, those costs either go down or stay, uh, flat. Whereas in software, sometimes acquiring that next customer is going to be a lot harder. Right. So I think there’s a lot of economies of scale so that get reflected on focusing on those narratives early on.

Steve Kraus: [00:42:17] I’d give two examples in our portfolio. One is a company called groups where, um, they open up with every board meeting with a story of either, uh, a patient, a member who has been helped, i.e like their life has been saved, um, from groups service preventing, you know, helping them get over an opioid addiction or a counselor. And usually it’s a, it’s a, it’s a video between a counselor and, and a patient that’s really honest. Like what was your best day groups. What was your worst date groups? What was the hardest moment of groups like? And it’s just it’s super impactful. As an investor. It’s super impactful. Honestly. It’s impactful, as Sofia said, to for the people who do the hard work every day to remind about why they’re doing it, which is not easy in a services business, by definition. It’s a it’s a it’s a grind. Um, you know, it’s helpful in selling to payers. Like, you know, everyone works in healthcare. At the end of the day, you know, to do well and do good. And there is the point of like the doing good. And so people, you know, other payers who might not work with groups, we show those videos to them. Right. I’d say that’s one. And then another company that’s in our portfolio that I really like on it, which is actually more of a technology company we mentioned before called The Bridge. You know, a bridge sells an ambient scribe business. So what they do is they, um, help using AI doctors who are taking notes while you’re talking to a patient. Basically, it automates that process. So essentially you can use your iPhone, um, and record the conversation and then it’ll scribe with 100% accuracy.

Steve Kraus: [00:43:44] What was said. Populate the note. That’s great for the doctor, for the system. It allows the doctor to focus on the patient in the moment. It prevents them to have to do that work after hours. Right. There’s a huge cost savings, huge issue around clinician burnout. It solves that. But a bridge was really thoughtful. They also built a patient facing application. So that same note, you know, think of you. Unfortunately if you’re diagnosed with oncology I’ve had loved ones. And it’s a you know, that first conversation like you can barely even think, let alone take down all these terminologies. Now, the bridge app, not only does it have a doctor purpose where the scribe the note for the doctor, but then you can send it to the patient so that once they go home with their loved ones or they want to get a second opinion, that entire conversation is recorded. You know, key medical terms are highlighted, actually. You can click into them and understand what they mean. You can actually click in and hear the conversation itself so that, you know, and you can do that across any single indication diagnosis. It’s really powerful. So they they built the technology to be both, you know, enterprise facing, physician facing but also patient facing. And that think about that. You’re buying it as a health system. Mayo for instance, let’s say. But then and you’re doing it for your doctors to lessen burnout. But then you can have the nice added benefit of also being patient, you know, consumer facing focused. And I think that’s a really good design principle to to think about where you can do both in a product.

John Moore III: [00:45:01] Yeah, I love that example because I only knew about a bridges, uh, you know, enterprise facing side of things because, you know, I saw the demo at um, and I’ve been hearing them hyped up a bit, but I didn’t realize that they actually had a patient facing solution.

Steve Kraus: [00:45:13] I used it today. I use it today for a loved one. I actually had my, uh, someone record a conversation that I can listen to, uh, afterwards. So it works.

John Moore III: [00:45:20] Okay, nice.

John Moore III: [00:45:21] Sophia, did you have any specific narratives that you wanted to share from companies that you’ve worked with?

Sofia Guerra: [00:45:26] I think the other example is in our portfolio, and they’ve been incredibly thoughtful about quantifying the impact for the patient and, uh, satisfaction and feedback as well. And that’s really opened just a ton of doors for them on the payer contracting side. So there’s not just the benefits from, uh, engagement on the on the patient side, but also, just like I mentioned before, the sales cycles.

John Moore III: [00:45:52] Wonderful. Okay. So moving on. There’s a lot of talk about the various disruptors like Best Buy, Amazon and Walmart entering the health care sector these days. And we’ve seen a number of failures from these large incumbents, um, over time. So what actual impact do you foresee these organizations having on the full life cycle of care delivery? It seems like they’ve gotten a little bit smarter from watching failures in the past, and they’re being a little bit more targeted to where their traditional strengths are best. By being a good example, they’re not trying to be a health care organization. They’re leveraging their their geek squad to do home installations of remote patient monitoring devices and things like that, and helping to set up a home. So do you think that they’ve learned from past mistakes, and where do you think that they fit into that full life cycle going forward?

Steve Kraus: [00:46:38] I think it’s so. I think you’re right. Listen, by the way, version 1.0. I feel like we’re doing a tour of health care history here. John. Version 1.0 was not, you know, was not was not a success, right. You know, health vault and uh, and the like um, but I think each company and they’re all different. I think they’ve understood where their strengths are and tailored their strategy to that. Like health care is so large as an industry, right? It’s three point whatever trillion dollars like, you know, and Jonathan Bush actually of Athenahealth said it best. It’s like, you know, yeah, it’s $3.4 trillion. But it’s like, you know, you know, it’s like a thousand, right? Um, uh, you know, uh, $3 billion markets, right, or whatever you want to say. So you can you don’t have to do it all like Amazon. Um, hey, maybe they get into the electronic medical record space, but they don’t need to. They can take their consumer chops and focus on things like pillpack, where, by the way, it just totally makes sense that Amazon would be a pharmacy, right? It always has. I always thought, I thought and I was wrong, that when they bought Whole Foods they were actually doing it obviously for the, the, the food presence. But also I thought they’d create specialty pharmacies in those stores still might do that. But you know, now they’ve gotten one medical again makes sense, a very consumer focused of any company in our space, consumer focused care provider. Um, I think that’s where they’re focusing. Right. Is that space? And that makes sense for them. You know, um, like Microsoft, I don’t think they should get into the pharmacy space or, or the consumer focused care space, but they acquired nuance, um, and they had a thought around AI at that point, for sure.

Steve Kraus: [00:48:23] And that’s going to play out for them. And, you know, I think health care, because of the things Sophia said, the ability for AI to automate previously laborious tasks, there is no better industry to do that than health care. And so that’s where Microsoft should focus. And you mentioned Best Buy, right. And what they’re doing around connected devices and the like. So I think you’re right I think it’s just like I think these folks are going to make a dent like um. Especially around the digitization and the consumerization. If you take those two North stars, we need those companies in our space because I love United. You know, you could say United’s a big bad devil, but you can also say United’s done a lot of interesting things in our system. And so, um, you know definitely around care delivery. And so but is United going to move the needle around consumerization and digitization. Probably not. Right. They’re going to move the needle hopefully around value based care and some other things. But you know I think we need other players who are going to move the needle on those two North stars. And it’s not going to be the traditional health care incumbents. It’s going to be folks from outside of health care. So that’s kind of how I view it. Happy to talk about individual companies. But I think you’re right. It’s like, know your game, play your game. And there’s a lot of game to be played in a very large industry if you play it smartly. Yeah.

John Moore III: [00:49:32] Yeah, exactly. And spicy take on UGH with them getting, uh, exposed recently for their automated denials program that they were running. Um, we’ll be interesting to see how that plays out. So, Sophia, anything you’d like to add to the disruptors aspect of this conversation?

Sofia Guerra: [00:49:51] The one thing to add outside from kind of playing on their core competencies is in what timeline they want to see impact, because depending on whoever their shareholders are is where the value will lie. And if it’s a public market that’s placing value on short tum gains, like we know healthcare is long and you really need to align those incentives and the timelines that you’re going to see the impact in. So hopefully we can see iterative process towards progress because we need more players in this space. Big companies that can also acquire a lot of businesses in in the early stages or that are scaling, um, as other kind of, uh, types of outcomes or exits for companies. So I think the more companies that are trying to change, um, the industry, the better, as long as those incentives are aligned.

Steve Kraus: [00:50:38] But but John, I’d also had another bucket to disruptors for a second. Like I think there are there are companies like Oak Street. I mean, they’ve unfortunately gotten acquired, but there are companies that have, um, come out of the first cohort of digital health companies. Right. Remember, if you think our industry really only started ten years ago, it takes about ten years for a company to mature to the scale which they can go public, um, which they can be independent. Um, we saw that crop happen prior to the market meltdown. We can talk about that. But even though we’re at the, the, the nadir, as Sophie and I have talked, detailed on our report, like, you know, everyone feels woe is me, our industry stinks, you know, is it ever going to be like, we’re going to get out of this? I can guarantee you it’s a huge. And so there’s going to be another there’s going to be a bunch of companies that came out of the first crop, and there’s going to be a whole bunch of other companies that come out of the second crop that are going to be standalone, independent disruptors. Um, and so I think there’s the Amazon, the Microsofts, the CVS, you know, like the CVS, maybe more in the comments. But you know, best buys. There’s those disruptors. And then I think there’s going to actually be, you know, venture backed disruptors that become standalone independent companies. So there’s going to be more disruptors in our space.

Sofia Guerra: [00:51:43] And into add something um, to and as well as we live in, live and breathe healthcare. But a lot of the pressure that the innovation economy is experiencing in healthcare, it’s also impacting lots of industries and sectors. Uh, biotech take take one, it was impacted way earlier than than health tech, uh, SaaS and cloud, even though there are a lot more mature of a sector, is also seeing a lot of the pullback on the VC and some of the public, um, multiples and, and performance and in some of those stocks. So I think we we are in kind of this trough of disillusionment as we talk about in our state of health tech. And uh, there are specific nuances and the mistakes, um, in, in the industry and maybe the last few years and how we evaluated companies and the capital requirements and a lot of that. But all of this is learnings and, um, how we standardize some of the process and how we’re going to see more companies, uh, scale and be successful. And, um, the need for a lot of the adoption of technology and changes in payment models are still there. So, um, I’m bullish for the future.

John Moore III: [00:52:55] Okay. That’s a perfect segue into the last couple questions, which are going to be a little bit more forward looking. Uh, so what should our listeners expect from 2024 or, you know, 12 to 18 months out from when this gets released in terms of fundraising exits and market consolidation? Because we’ve seen a lot of that in the last year, particularly people exiting the market, not in a positive way like Babylon and, you know, pair, um, as well as just general market consolidation with a lot of M&A activity. So what do you think will be playing out in the next 12 to 18 months?

Sofia Guerra: [00:53:25] You know, some of the analysis that we did on the public market showed that we’re kind of at the trough in terms of, um, performance of of healthcare, health care stocks and their revaluation. That’s happened. I think that we’re still a few quarters away of seeing all of that, uh, take place in the private market because the private market is always behind. So I think we’re going to continue to see some of the, um, the same pace of investing, um, and candidly, reckoning from a lot of the companies that, uh, perhaps don’t have those strong unit economics or the ability to scale efficiently, um, in the next two quarters. But I think we’re going to be better off at the end with really strong companies coming out of this cohort. That will be those phenixes that we talk about in that report.

Steve Kraus: [00:54:13] Yeah, I think it’s going to be a tale of Two cities. I think for the majority of people. Uh, companies, it’s going to be tough times. Um, and, you know, I don’t I think, frankly, um, a lot of people are hopeful that some of these bellwether tech IPOs, like a Clavio or an ARM or Instacart would, would trade. Well, they’ve gone out, but they’ve sort of done so-so. And, um, you know, frankly, digital health is going to be fall far behind those. So I think you need to see another crop of SaaS, you know, tech companies that the market really understands get out and get successful. And then I think a couple quarters after that you’ll see digital health. So you know there’ll be some standouts. There’s some you know, there are some really good by the way, scaled, uh, healthcare companies out there that people aren’t talking about because people aren’t talking about risk or growth or any of these companies right now. They’re sort of talking about woe is me and all parts of the market. But there there are some Sophie, and I know because we see the data like there’s some really good scaled companies with really.

Steve Kraus: [00:55:11] So it’s only when the market opens with that those will get out. Um, and I think once those get out and if they’re priced right, they’ll perform okay. Then I think you’ll see, you know, venture capitalists follow. Right. So, you know, I think it’s going to take a while. I think we got to buckle down and be prepared for another tough year ahead. Um, that’s why focusing on efficiency and sort of weathering the storm is going to be important. But there are going to be some really great companies that come out, and that’s those are going to be the next crop that I talk about that I’ve talked about. We talked about, you know, uh, earlier, John, and and we’re excited about those companies and they’re both within our portfolio and outside our portfolio. We’ve seen the data. There’s there’s some good ones to come in lots of different interesting verticals to mental health. Msk, metabolic, um, you know, nephrology, you know, primary care. Like there’s gonna be a lot of good success stories there RCM space. So okay.

John Moore III: [00:55:58] Yeah that makes sense. So you see this rebounding once the general markets rebound there will be a little bit of a lag for our vertical specifically. But people investors need to see that there’s they need to be comfortable in the market’s rebounding in general before we see that kind of trickle down to healthcare specifically. And it’ll lag a bit more.

Steve Kraus: [00:56:16] One area that and this is true across the entire venture capital, regardless of industry, is the sort of, uh, AI application and companies that are focused on them. I think they will, um, continue to get, you know, outsized fundings, um, uh, because of the potential there to really transform both, you know, existing tasks that are technology based as well as like things that have been services before, as Sofia said, that now can look more like software. I think there’s um, and again, healthcare is one of the prime targets of that technology.

John Moore III: [00:56:48] Yeah. So the last question is getting back to the state of health tech report. There are, I believe, four predictions in there that you guys talk about. You actually just kind of alluded to all four of them in that last recap. But is there anything specifically that you want to dig into a little bit more before we close this out?

Sofia Guerra: [00:57:07] Into the one that we alluded a lot earlier in our conversation, but it’s something that we’re thinking about is how do you gain and distribution advantage and in health care and kind of shoring those cell cycles. And we’ve been seeing some companies be incredibly successful at thinking about how do you indirectly monetize, um, your go to market if you’re selling software per se to a group of folks and you can either generate additional revenue to them. So it’s kind of free to adopt, um, or nearly free, and then you’re making money or monetizing it through a different stakeholder that really cares about either the data or you’re monetizing it because it’s a marketplace and you’re taking part of, um, a take rate on that, um, or there’s a marketing opportunity. So there are different ways of indirectly monetizing, um, the, the aggregated demand or use that you’re getting from, from a particular service or software that, um, we’ve seen a ton of companies scale incredibly efficient using those business models.

Steve Kraus: [00:58:10] I’d also say, um, around 2 to 2024. You know, health care is generally not a great industry when there’s election cycles, because when there’s election cycles, there means there’s potential for regulatory change, um, and, and administration change. And so I think that will make 2024 also a challenging year. Two for health care. That’s a health care specific reason. Now, on the other side of that, you know, I won’t reveal my political identity, but I have I have I have a certain hope of what happens. And and if that, you know, either way, there will be new regulation that comes out. Um, whether it’s the Biden administration, let’s hope that’s my political identity gets gets reelected or whether it’s another administration yet to be named who that runner will be, um, there will be new regulations that are promulgated on the health care side. And the one thing I know, having worked in this industry for 20 years is when there’s new regulation, there is new opportunity for entrepreneurs. And I always say to every entrepreneur that I speak to at business school panels or wherever, like the greatest thing about PPACA was it was like a thousand page document, and there were little sections that say, The Secretary shall and it promulgated some piece of law, and that law was like billions and billions of dollars of opportunity. You just need to go figure out how to make it happen. And so, you know, whatever happens in this election in 2025, there’s going to be new opportunities that new entrepreneurs are going to create and investors are going to back, and it’s going to create a whole set of new companies, products, services that we don’t even imagine. As we sit here today talking on this call. And I think that’s a great that’s a great thing too. So that would be my one plug for always look out for that opportunity.

John Moore III: [00:59:44] Yeah. No, that’s a really good insight. I think that makes a lot of sense. Um, I’m very curious to see how the shifting focus on climate change and the responsibility for healthcare organizations to rein in waste and, you know, kind of contain the costs around, uh, electricity and other things contributing to greenhouse gases, uh, with the California regulation will affect new innovation in that area, because we haven’t seen a whole lot of that yet. So I’m very curious to see what plays out in that area specifically related to what you were just talking about. Okay. So thank you both so much for joining us today. As we explore the many ways that different industry stakeholders think about the value of healthcare data technologies and tech enabled services. If our listeners would like to further engage with you, what’s the best way for them to do so?

Sofia Guerra: [01:00:27] They can reach out to us via email. You can find it on BVP website.

Steve Kraus: [01:00:34] Yeah, and please, please, please come to our website. We’re putting a lot of content out there. I’m trying to publish our our thoughts, our learnings, and hopefully they’re helpful to, um, to everyone in our space. Um, as we all try to improve it.

John Moore III: [01:00:46] Yeah, I’ve been seeing more coming out from you guys and it’s been great content. So definitely to our listeners, be sure to subscribe or just, you know, check back periodically to see what’s new there. So there you have it, folks. A big thank you to Steve Kraus and Sophia Guerra for sharing their expertise with us throughout this conversation. A lot of great insights on how at least one deeply experienced venture capital firm thinks about opportunity and value realization from healthcare data technologies to continue following along with these conversations. Be sure to subscribe to the Chilcast on your favorite podcast app and follow the Health Impact Project on LinkedIn. We have quite a few conversations planned with other industry leaders, representing a broad array of stakeholder roles who will be sharing their perspectives on the value of health tech. Feel free to reach out with any questions or suggestions for additional guests to host as part of this series, and thanks for tuning in and being part of the solution.