July 17, 2025 • 53 mins
“We don’t have to do every great deal, but every deal we do has to be great,” says Payal Agrawal Divakaran, partner at .406 Ventures. In this Vanguards of Health Care episode, she joins Bloomberg Intelligence analyst Jonathan Palmer to unpack how .406 backs early-stage startups at the intersection of health care, tech and AI. They dive into the firm’s thesis-driven investing, why care delivery must be reimagined for complex populations and what Epic’s priorities mean for hospital-facing AI startups. Plus, the origins of the firm’s baseball-inspired name and why being mission-driven is non-negotiable for its founders.
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Speaker 1 (00:16):
Welcome to another episode of Bloomberg Intelligence's Vanguards of Healthcare podcast,
where we speak with the leaders at the forefront of
change in the healthcare industry. My name is Jonathan Palmer,
and I'm a healthcare analyst at Bloomberg Intelligence, the in
house research arm of Bloomberg. We're very excited to have
Pyle Agarol Diva Karen of four H six Ventures with
us in the studio today. She's been at four h
(00:37):
six for more than a decade and co leads the
firm's healthcare practice. She was previously a founder herself, co
founding spot Rocket. During her MBA and prior to business school,
she spent some time in the venture community and started
her career in tech banking. Welcome to the program, Jonathan.
Speaker 2 (00:51):
It's such a pleasure to be here. Thank you.
Speaker 1 (00:53):
Well, I'm so excited to have you because we started
this venture track and I'm so fascinated by the world adventures.
So maybe whyt to give us an overview of four
six and kind of where you fit in the venture ecosystem.
Speaker 2 (01:02):
Happy to four US six Ventures, the Boston based venture
capital firm. We've been around about twenty years. When the
firm was started. There was a identification of a few
gaps in the venture capital ecosystem, which was at that
time fairly vibrant in places like Boston, and it was
that many funds were large and multi stage, and there
(01:24):
wasn't an opportunity for founders to really link arms with
an early stage fund that understood the dynamics of early
stage rounds and in particular series A rounds, And so
that was a pillar upon which four or six was founded.
So we like to invest in early stage companies that
are raising sort of their Series A rounds. And we
think deeply about sector focus and think it's really important.
(01:47):
And so the sectors that we focus on are healthcare,
hence why we're here today, in addition to enterprise technology
specifically data, AI, cybersecurity, and those sectors have been with
us for twenty years. Are we're sort of based on
the founders and now make us look brilliant because they're
sort of intersecting.
Speaker 1 (02:04):
I know to say, you guys are in the right places.
There's this Ven diagram in my mind and the intersection
has got to be so exciting right now.
Speaker 2 (02:11):
We have that Ven diagram in many of our marketing
materials and it's but it's truly brilliant. We can talk
a bit about that later and how we actually do
collaborate at those intersections. And so we're a traditional venture
capital firm with I think a lot of advantages and
differentiations that we can talk about, but our goal is
to invest in early stage companies in healthcare is where
(02:33):
I focus that are really on a mission to disrupt
care delivery and technology.
Speaker 1 (02:39):
We're going to dive into the really interesting stuff in
a second, but I'm so curious where does the name
come from.
Speaker 2 (02:43):
So if you're a Boston if you're a sports fan,
and if you're a Boston sports fan, or we're talking
about Ted Williams, famous Boston Red Sox nineteen forty one,
the highest ever batting average average achieved. And he actually
the way he did it is a good analogy to
venture he said. He wrote this book called The Science
of Hitting, which we have on display in our office.
(03:03):
He said, I'm not going to swing at every ball
in the strike zone. I'm going to swing where I
have the highest on base percentage. And he had really
great vision and so then in that year was really
disciplined to say I'm only going to swing at those
at the balls that are where I have that high percentage,
and by doing so, he achieved the highest batting average
that hasn't yet been beat. And we feel similarly, which
(03:24):
is we don't have to do every deal, we don't
have to invest across stages. But where we have a
strike zone, aka where a company is in our segments,
in our stage, and where we can be particularly helpful
to the company, We're going to go for that one.
And we've just had a good track record of success
with those companies and so this concept of being disciplined
has really paid off for four US six.
Speaker 1 (03:46):
So why don't we dive right into that then? And
you know where is the strike zone? What are you
looking for? As I sit here, if I'm a founder
coming to four h six, you know where is your
sweet spot?
Speaker 2 (03:57):
Yeah, So on the health care side, we like to
say that we're looking for companies that are really improving
clinical care delivery. We think deeply about populations, and I'd
like to say that I've learned everything I know about
healthcare from Liam Dona Hues, one of the founders of
the firm, and I think the genesis of his health
(04:18):
care investing and then now mine in my philosophy is
if you think deeply about expensive, complex populations, therein lies
an opportunity to really impact use technology, the best of technology,
to deliver a new care model or a care delivery
model and really improve outcomes and decrease costs. And so
in the way that we think about that, many of
(04:39):
our companies have a proposition for health plans because health
plans are are the bearers of those populations, at least
the gatekeepers, at least the gatekeepers, and in fact they
have the right incentive to deliver better care at lower costs.
And so we think a lot about companies that are
doing that work, and I think we're really it's over
(05:00):
on two elements. One is how much technology should really
be used in care delivery. So I think when we
identify the population, we're also able to say should it
be virtual care, should it be hybrid, or should it
be a brick and mortar services disruption model? And we're
not afraid of that, and we found the areas where
you can have venture oriented returns in those So that's
a whole bucket of companies. The other area where we
(05:22):
spend a lot of time is pure technology companies and
that's where the intersection of our healthcare and tech teams
gets really interesting. And oftentimes those companies are selling the
hospital systems and in some cases health plans. But it's
everything from automation of prior authorization to EMR interoperability to
workforce management. And we're spending tremendous amount of times today
(05:44):
on the automation and healthcare concept, but those are that's
sort of how we like to think about the world.
It's enterprise healthcare companies that have a proposition for health
plans and hospital systems. We won't do direct to consumer
and we won't do something that's heavily monetizing pharma just
because we have we know the health plan in the
hospital system extremely well and we think we can be
helpful there.
Speaker 1 (06:04):
So why don't we dive into an example of each
of those two Bokash like you kind of mentioned and
are alluded to. I think we've had one of each
on the podcast before.
Speaker 2 (06:11):
Yeah, so let's talk about those ones. I think Heartbeat
Health is a great example, and you had doctor Jeff
Wessler on the podcast, and that's a company that's delivering
fully virtual care for cardiovascular health. And we at four
or six are very thesis driven, which means that at
any given time, we've thought about populations and said, you know,
(06:32):
what type of company or care delivery solutions should exist
against that. And the genesis for the Heartbeat investment was
that we've been really deep in primary care and so
we were the Series A investors in Iora Health, which
was the first to really take risk on a Medicare
advantage population. And as that company scaled would they were
telling us our number one referral is to cardiology, and
(06:55):
we're taking full risk, and we just feel like the
incentive is not aligned between us and the cardiologists who
are just administering tests and doing a large workup. And
so we were proactively looking for a company that could
sort of remove that misalignment of incentives between you know,
primary care referring out to cardiology. And simultaneous to that,
(07:18):
I had gotten to know Jeff Westler. I've known him
since he was in med school and he when he
first started, as he said on your podcast, he was
in the city with the brick and mortar that transition,
and that was at the seed stage. And this is
a common story for how we work with founders. I
said to Jeff, I said, I love what you're doing.
I see the potential for it against the risk based
(07:40):
primary care you know channel, but it's not going to
happen if you keep being a brick and mortar clinic
that's D two C. You're just not going to doesn't scale,
You're not going to really be able to deliver the
outcomes that you need to give the primary care channel
to comfort to refer you patients. And so he called me, uh,
you know, months after the seed and said, you know,
(08:01):
I heard you, and we've sort of we've been pivoting
and doing this work. And I said, that's great. Let's
partner up for the series I And so we'll often
work with founders from that, you know, the ground floor,
the seed stage, to sort of collaborate on the vision
for the company. And I think that's one of the
best ways to get there. If you can collaborate and
sort of align on a vision, then we're a great
(08:23):
series A partner for you, because then what we did
for Jeff and Herbie was sort of make that IORRA
introduction and help them scale the channel and think through
all the mechanisms of enterprise healthcare. So that's a good
example on that side. On the pure technology side, You've
had doctor Jeremy Friese on the podcast, who is the
founder and CEO of Humata Health, which is the first
(08:44):
company to really automate prior authorization on both sides, the
hospital side, which is critical, but then the health plan side,
which is harder and in fact more interesting for generative AI.
In our opinion, why is that it's so the hospital
side of authorization is fairly while it's complex, it's fairly
rules based, and it can be done in a very
(09:09):
methodical way that is ripe for machine learning and algorithms,
whereas on the health plan side there's quite a bit
of judgment there.
Speaker 1 (09:17):
Are from like a medical director. Is that where the
friction is is they send it to an actual human being.
Speaker 2 (09:22):
They're sending it to a number of human beings, and
they're also saying they're taking into account relationships with providers
and how their past behaviors of the providers and things
that are almost non rules based to think about how
they should respond to a prior authorization Because there are
clinical folks involved, there are relationships involved, and so in
(09:43):
some ways there need to be more humans involved on
the thinking side of things. On the health plans and
that tends to be a really ripe situation for llms
and gen AI and so. And that's where Jeremy took
the capital from folks like four h six to say,
I'm going to solve that harder side of the equation,
(10:03):
which is also going to require elements and steps of trust.
The health plans aren't going to give the whole kit
and kaboodle right away in terms of automation, and so
he's being really thoughtful about how do you introduce AI
into the automation side for health plans until you get
sort of the full trust.
Speaker 1 (10:18):
So we're recording this a couple of days after the
announcement in DC around prior authorization. How does that change
or reinforce the thesis.
Speaker 2 (10:26):
Yeah, it's well, it's very interesting. I think separate from
the DC announcement, I think hospitals were already there saying
beyond prior authorization. Our understanding in our sense is that
hospitals are feeling like adopting AI is existential and this
is the moment. And so it's rare in times to
see hospitals being first movers around adopting technology, but you're
(10:50):
seeing that in AI and prior authorization is just one example,
and so Humata is really benefiting from that trend on
the regulation side. On the health plan, it's simple adding
you know, the requirement for pace for health plans to
really think about automation. But it's also just creating more
and more complexity. And that's a really good situation for
(11:11):
someone like a Humata because even in a world where
you're going to have things like you know, you're going
to remove elements of prior authorization, you're gonna have gold
carting or whatnot, health plans are going to need a
technology infrastructure that supports that. And that's what Humata is.
And they're working with many health plans or thinking through
the vision with many health plans as to how Humata
(11:32):
could be that effectively that intel inside for what they're
going to need to be able to react to the
regulation within a timeframe.
Speaker 1 (11:39):
That makes sense, that's great. You know, if we rewind
back to the heartbeat example, it sounds like you already
had a thesis on where you wanted to make an
investment prior to actually making the investment. How often does
that happen?
Speaker 2 (11:53):
You know, I think we think it's the recipe for
success for our investments. I mean, part of the reason
is I don't think you know, everyone appreciates how many
deals vcs see a year. You know, we say, across
you know, our practice, we're probably seeing something like fifteen
hundred deals a year and we're making you know, about
(12:16):
five to eight across the full firm, and then half
of them are healthcare. And so you can choose to
be reactive or shoot in the dark, or you can
do what we do, which we are extremely thesis driven.
We inform the thesis areas by having a deep ear
to the ground with the health plan and the hospital customers.
(12:37):
And we do that over time because the magic sometimes
in theses is when is the right time to pull
the trigger? When is there a set of either regulation
or a consumer pollar push or something or a technology
shift like jen Ai that's going to make something unimaginable possible.
(12:59):
And so we are often developing these thesies over years.
Another really great example is in you know, the cancer
survivorship space. So for maybe a period of five years,
I had been seeing sort of the improvements on how
we are treating cancer in this country. Things to great,
you know, drugs and treatment capabilities, leading to more and
(13:22):
more folks surviving, I mean higher prevalence of cancer, but
then higher survival rates. But those cancer survivors were left
with really complex medical and mental health challenges and they
couldn't quite go back to primary care. They couldn't quite
go back to the oncologists. And so I had worked
with you know, Dana Farber a couple of times to
try to start a company, and just the timing was
not right. And so I had worked on that thesis,
(13:45):
knew all the puts and takes, and then when Hill Moss,
the founder and see of Recovery, walked in so young
breast cancer survivor received her treatment at Dana Farber and staid,
I'm dropping everything I'm doing to start a company that's
going to take care of cancer survivors. Because that's when
the hard work started for me. We knew that was
perfect alignment. And so that's the benefit of developing these
(14:06):
theses because when something or someone walks in, you know
that there's a fit, and you know how to pay attention.
And what is a very noisy, you know, sort of
funnel of.
Speaker 1 (14:17):
I can only imagine. So if you think about it
over your ten years at four oh six. How have
some of those changed? I mean, if you if you're
to rewind and say, I was really excited, but maybe
something never came to fruition in two thousand and sixteen
or twenty seventy. What are some examples of maybe like
the peaks and valleys and some of these ideas. Yeah,
have there been a couple that you thought would be
(14:39):
maybe worthwhile to to you know, run down the run
it down and then it never actually came to fruition.
Speaker 2 (14:46):
Yeah, it's a it's a great it's a great question.
You know, there's so many And you heard about a
thesis area that went on for years. There's so many
theses where you, you know, as an investor, and we
felt in our court four six that a company must exist.
And so I'm just you know, racking my brain. There's
so many examples where you have to be patient over
years for that opportunity to come. I think another great
(15:09):
arena example of that is in the woman's health space.
I mean, I think when I started at four or six,
ten years ago, it was sort of so apparent to
me the gap in care that there was for women,
particularly women who were going through say a pregnancy journey,
but there was just little to no understanding of the
cost of that population. And from a health plans perspective
(15:33):
and even from a hospital perspective, there was sort of,
you know, different issues or different bigger fish to fry.
I mean, when I started at four or six, it
was meaningful use and hospitals were just figuring out how
to digitize records and adopt EMRs. I mean forget thinking
about you know, service line businesses like obgyn and so
there were years where it was sort of challenging and
(15:53):
frustrating to say, why is no one paying attention to this?
But there wasn't anything to be done. And if you
did it in say the first five years I was
at four or six, the company was destined to fail
because there was just for all the aforementioned reasons. But
we developed that thesis and sort of started to understand
that more. And that's when I guess about four years ago.
So now we led the series A in Diana Health,
(16:15):
which is that woman's health company that we believe is
going to solve this problem because they partner with hospital
systems to take over the labor and delivery service line
and these are often high Medicaid hospitals, which was the
deep part of the thesis. If we want to bend
the cost curve in maternity care, you have to do
it for the Medicaid mom. But you can have a
solution like so many prior to Diana, that is just
(16:37):
focused on Medicaid, or you can't have a solution that
extricates the hospital like a birthing center, because the hospital
is the acute care center and that's where many of
the Medicaid moms do go. And so finding an elegant
solution that worked for every stakeholder, the patient, the hospital,
the health plan, and that was Diana. It's sort of
(16:59):
bringing technology oriented care to the OBGN service line, but
most importantly, it's bringing midwife led care. So the obgyns
join Diana's staff. The midwives run the show, and actually
the obguns are quite happy with that because they no
longer take call, but they also get to do the
gynological services and the complex patients and the things that
(17:19):
they were trained to do and enjoy doing. And the
midwives are the ones who spend the extra time with
the Medicaid patients and deliver the exceptional outcomes for that
population that we know is well researched and well published
on and so sort of what I love about the
companies we invest in is it's not often it can
be a it's most often a care team disruption, it's
(17:40):
a technology disruption, and then it's an economic disruption. So
in the case of Diana, while one would love to
have a value based care women's health company, that's not
the time right now either. And so Diana, what they're
doing is sort of leveraging fee for service today, but
then getting a hospital a fee from the hospital that
(18:01):
is is quite you know, it's a quite strong fee
because of the value they provide to the hospital today.
And that disruptive economic model, which no one has done today,
is what allows them to deliver this great care until
they have such a scale, multi state which they do now,
where they can then go into states with premium rates
(18:22):
with health plans. So I think the other element we're
thoughtful about is how do you transition appropriately over time
into what we all ultimately want, which is value oriented
care or value based care. But entering at the right
time with the right economic model is so much of the.
Speaker 1 (18:37):
Well, I mean, we're tent talking about value based care
for as long as I've been in the business, where
do you what inning do you think we're in? We?
Speaker 2 (18:45):
You know, there was and.
Speaker 1 (18:46):
I recognize your lens is maybe a little bit different
than a public company lens.
Speaker 2 (18:51):
Yeah, we you know. I'd also separate it between you know,
behavioral health, medical conditions, and so on, because I think
in behavioral health we were where four h six is
very deep and you know, partner Liam Donahue invested in
able to almost fourteen years ago, which was the first
(19:11):
company to really deliver virtual care for depression and anxiety
and go directly to the health plans and get a
value oriented rate for that was a successful exit to
optim and I think that case study and story really
open the aperture for value oriented rates for behavioral health.
And then all of a sudden, the health plans were
doing it for every you know, behavioral health population, and
(19:34):
then they realized, well, only some of them really work,
and so then there was a big pullback. And so
it's hard to say what inning we're in because often
what happens with the health plans is they go full
bore into it and then and then when the actuarial
data comes back, you sort of you know, retreat a
little bit, and so it's sort of the interesting thing
with healthcare. I think generally that I've come around to
(19:55):
the bend is it's sort of you know, two steps forward,
one step back, two steps forward, one step back. So
I think we are still very much in the early innings.
There's so much opportunity and so much to do, So
I'd probably say we're in the you know, the fourth
inning of value oriented care because I'm looking at companies
right now that are you know, some of the early
and first ones to take full risk on oncology populations,
(20:18):
for example, and it's just there's there's just so much
that's nascent against really expensive, big populations.
Speaker 1 (20:27):
So a couple of the areas you touched on and
there's so much to impact there. But I want to
go back to the primary care discussion just because as
a public company analyst, I've seen the big players and
non traditional players dip their toes in. So how do
you think from where you sit, how do you think
our primary care problem is going to evolve over the
(20:48):
next few years. Because we saw you know, Amazon by
One Medical, we saw the Village MD, Walgreens. There's been
a host of the a whole bunch of these that
have kind of been very popular, yeah, as a strategy,
and then I think we're seeing the inevitable one step
back yeah primary care.
Speaker 2 (21:07):
We call this the cycle of healthcare life. Is that
you know, the the companies that were disruptive and then
yet acquired and yet there's a little bit of a
step back. But also we like to say this is
why we have a job, because if you know, the
big tech companies get figuring out healthcare, then you wouldn't
need venture dollars and early stage disruption. But I think
(21:30):
our firm firmly believes that primary care is a human
to human business. I mean any attempt around saying, you know,
primary care can be done largely virtual or through some
AI agent or whatnot, we just you know, I think
Forward Health was a you know, good example of this.
Unfortunately is just yeah, it's just you know, primary care
(21:52):
at its core, it couldn't be a more human to
human interaction. And so what we're looking for or two
were thinking about as the next phase of primary care
is how do these But one thing to realize is
that the economics for the practices don't work. And that's
the challenge we're seeing today right, independent primary care practices,
shutting down, selling docs, getting out of the business, and
(22:15):
so on. And so where we see the future, at
least the near future, is how does AI play a
role in making practices successful alongside contracting that makes the
practice successful, alongside care teams at the primary care office
that allows you to deliver on that contract. And this
(22:36):
was one of the innovations of IORA was to say,
let's not put the MD as the tip of the spear. Nurses, coaches,
other members can be involved and just as good, if
not better in certain interactions, and so having that care team.
So we're spending a lot of time thinking through the
role that AI may play in, not necessarily the patient
(22:57):
interaction or or the clinical decision, but all of the
support of the practice and the infrastructure that can make
it successful against a risk based contract.
Speaker 1 (23:10):
So as we sit here today and you mentioned AI,
and I think I don't think I've had a conversation
that hasn't included AI in the last year or two.
So how do you think about it, you know, from
a broad thirty thousand foot view, And then how does
that actually culminate in you know, a check for a
series a company, what are you looking for.
Speaker 2 (23:31):
It's fascinating that at four oh six we have a
healthcare team and healthcare is fifty percent of activity. And
then we've got a deep data AI vertical agnostic data
AI team led by Graham Brooks, who's been doing His
first DAI investment was ten years ago, and that's how
long four o six has been doing vertical agnostic AI.
(23:51):
But prior to that, what's fascinating about Graham is he
was also involved with the IORA investment. Because when Graham
and I started at the firm, we were general actually
and so I get to do some tech investments, you
got to do healthcare and so that understanding of both
sides is so fascinating. But when we sit at our
partners meetings on Monday and we hear the AI team
talk about the distance there is between the consumer use
(24:16):
of gen AI and things like chat GBT versus the
enterprise use and all of the challenges that they're having
on actually implementing and adopting the AI, it is just
it's fascinating. It's also sometimes scary because you can hear
these advances in technology and what it can do and
why the enterprises are being careful around it. But then
(24:39):
I think it allows us to make just tremendously smart
decisions around AI and healthcare. The reality we believe in
healthcare is you have to solve the problem. What is
the problem, what's the first principles problem? And if you
use AI to do it, great, But for the most part,
the enterprise healthcare customers are agnostic as to what technology
(24:59):
is really being used to solve the problem. So long
as you solve it and there's hard dollar ROI. Now
in this moment in time, I think there is a
little bit of change because every hospital on health plan
is having to check the box, run what are you
doing around AI? And so you're hearing that infused into
every pitch.
Speaker 1 (25:16):
We are.
Speaker 2 (25:18):
Being really particular on not investing in something we call
a point solution and healthcare that's leveraging AI. You know,
some agent or agentic AI that's going to help you
with you know, a small problem, but ultimately is going
to be viewed as a point solution. Instead, we're spending
time around companies that can be the operating system for hospitals,
(25:39):
that can help with multiple use cases, that could take
your epic and do full medical chart abstraction and then
help you with a number of use cases over time
that will allow you to shift or ultimately reduce the
number of humans and FTEs you have. Again, healthcare is
a human business. So what we're not going to see
is that all of a sudden they're going to adopt
AI and then FTS tomorrow just not happening. And so
(26:03):
we think this is the year's long journey, but the
adoption of AI is starting now. And so what we
believe the companies that are going to sustain are going
to be the ones that do allow you to check
many boxes so that you don't have to have ten, twelve,
twenty point solutions of AI, but you have multiple you know,
maybe a few vendors that allow you to do all
(26:24):
of your clinical research and clinical trial oriented AI work,
some a vendor that allows you to do all of
your RCM oriented work and so on.
Speaker 1 (26:34):
Interesting because we've had some conversations with CTOs at hospitals
and they are all over the map in terms of
how they're approaching this, you know, and big, big institutions,
the very well known cancer centers, I mean they have
teams of people looking at this, yeah, and the efforts
are very disparate. I think in terms of how they're
approaching it, and then smaller institutions we're finding very similar.
(26:58):
I mean maybe because they don't have as many as
many leaders, it's a little bit more consolidated, but it's
still very spread out across the entire organization. Do you
think so it's interesting that you look at the you're
thinking about it from these groupings, whether it's the clinical
side or maybe the back office side for lack of
a better term. How close do you think we are
(27:18):
on the clinical workflows being you know, actively actively using AI,
whether it's a gentic, whether it's gen, whether it's I
don't know, the physical down the road when we have
robotic surgeries. I think it's coming, but I just don't
know what.
Speaker 2 (27:34):
Yeah, well, and I agree with your earlier point. By
the way, I'm on the Dana Farber board, and so
it's been fascinating to hear sort of how they're thinking
about AI and AI governance and then hearing, you know,
other hospitals in town how they're approaching it in just
very different. I think everyone just in this mode of
trying to figure it out, and there's no uniform or
(27:55):
unified view. That being said, we're starting to see some
more collaborations and cross collaboration between hospitals. But I think,
you know, regardless, there's always you know, if you can
provide a platform as opposed to a point solution, that's
always better in the long run. So I think we're
going to sort of stick with that philosophy as it
pertains to AI. But I think on the clinical side
(28:18):
of things, I mean, I'm also married to a doctor,
so I get to see sort of some of you know,
the adoption and how he's thinking about it, I mean,
healthcare or otherwise. There's no question that AI is going
to replace humans who do not use AI. And I
think that's the same of physicians and nurses. And so
we're not going to potentially ever be at a point
(28:38):
where we replace fully replace the doctors and the nurses,
but they need to be facilet with AI. And so
the things that the physicians are loving right now is
the ambient scribing and how it's just making their lives better,
you know, the ability to sort of in epic do
certain workflows and have it sort of suggests things. Sure,
I think that's great. I mean, I just I think
(29:01):
what it's bringing us back to is again this human
element of healthcare that they are unencumbered from doing all
of the other things they have to do besides just
sitting with the patient and using their their expertise in
clinical in clinical diagnosis and clinical care.
Speaker 1 (29:17):
You've come back to EPIC a couple times. Do you
see Epic as a little bit of a gatekeeper? Do
you see Epic as a gatekeeper to some of this
from the provider perspective, because I've had conversations where the
CTO is saying, well, we're waiting to see what they're
going to do or what they're going to open up,
and it's a little bit they could probably be moving
a little bit quicker.
Speaker 2 (29:36):
Yeah, I think Epic is the most formidable player to
be thinking about as you think about at least hospital
facing AI and automation, and when we're approaching any investment
that is hospital facing, we're very careful and curious to
understand where in the pecking order is it for EPIC,
And you know Microsoft and their sort of collaboration, and
(29:57):
so surely, I think our belief is that EPIC is
going to start with the use cases that are most
proximate to what EPIC is, which is ultimately a billing platform, right,
and so it makes sense to automate around that periphery.
More and more of the RCM orient did work. I
think something like clinical trial work and clinical research is
(30:19):
a bit far. Doesn't mean that it's not on the list,
but understanding that pecking order is really important to have
a point of view on when a company can scale
for the next several years versus you know, when it
might get sideswiped next year by an epic initiative.
Speaker 1 (30:35):
Interesting, maybe switching gears here. You know, we've seen a
bunch of different funding cycles in the VC world. You know,
if I think back to pre pandemic, then the pandemic
exuberants and where are we now?
Speaker 2 (30:47):
Yeah, you know, one would have one would think it's
kind of become rational again. But then there was the
AI twist that happened, and so now we're doing a
different dance. So I would say that, well, there's a
couple other dynamics to understand as it pertains to healthcare.
Because of the shift in the market. The funds that
I would call the tourists lovingly or the generalists in
(31:12):
health you know, who are really tech funds coming into healthcare.
Speaker 1 (31:15):
We're the ones writing the big checks in twenty twenty one.
Speaker 2 (31:17):
Yeah, I think they've you know, largely exited the market.
And then what's what that has left is healthcare funds
like ours and the multi stage healthcare funds who are
deep in the category and who understand care delivery and
healthcare technology, and so that plus just fewer deals to
(31:37):
get done. So actually, given the supply demand, we are
seeing still some irrational behavior just on the core care delivery,
but then also certainly on the AI because that's just
the new flashy thing. Everyone has to tell their LPs
they've made investments there, and so we're seeing some really
unusual behavior not only in the types of companies that
(31:57):
are getting funded, but then certainly the valuations. So while
I'd love to say things have become completely rational, I
think there's still a little bit of this scarcity value
concept where and our portfolio is benefiting from it. To
be honest, is if you've built a really great clinical
care delivery that has strong ROI for the customers and
(32:18):
a great patient experience, or a technology that's just really
delivering ROI, that's a rare thing right now, because you know,
there's a real separation of the wheat and the chaft
on healthcare companies and those who have the goods and
those who don't. And for those who have the goods,
there's just there's lots of funds still available sitting on
capital to fund them. And so our portfolio is seeing
(32:41):
you know, great activity on the follow on in the
later stage rounds. Because of that what it's making it
still challenging to have perfectly rational evaluations at the early stage.
But I think that's where it comes back to the discipline.
And at four h six we've always said, look, we
don't have to do every great deal, but every deal
we do has to be great. And so we felt
(33:02):
more comfortable than not saying no to something, even if
it may be you know, on thesis or whatnot, if
we can't get it to be in the strike zone.
You know, we think really hard before we sort of
depart from what are our traditional norms.
Speaker 1 (33:16):
Where did things typically in that I guess the initial
dance or tango, where do things usually fall out? So
if you have the thesis, and I'm just thinking about
from a process perspective, how it works. So if you
have the thesis and somebody comes with the solution, you know,
more often than not. What is the reason you say no?
Is there is there something that usually comes up as
(33:37):
a red flag?
Speaker 2 (33:37):
Well, you'll I'm just sure there's tons of red spots, right.
This is the most common one you've probably heard. Is
the team, I mean, great thesis married with someone saying
the same great thing on paper versus where do you
actually have the lived experience and the execution chops so
make it happen. And so I think the team, in
(33:59):
evaluating the team is everything at the early stage, you know,
and at four or six, we love investing in what
we call live founders with lived experience. Now, lived experience
in a clinical in a population or clinical disease category
is sort of obvious. Someone who's actually lived that you
know that moment and really understands the intricacies of what
must be done, and then you know what must exist.
(34:21):
But even on the technology side, someone who has sat
in the provider's shoes and felt a problem and said
I need to create this technology to solve it. So
we just think that healthcare is hard already, that you
have to come at it from a lens of just
a depth of lived experience. And so when we don't
see that in teams or we see that you know,
(34:41):
the execution may not may not be perfect. I think
that's where things really sort of fall apart, because the
cs can be great and plants can be great. At
the end of the day, it's the people that deliver
these outcomes and help the companies grow. And then I
think it's sort of the other couple elements, or you know,
the mission centricity. I think this is why we've sort
(35:02):
of worked with so many physician founders over time, all
the way back to Rashikad Aora or someone like a
Si France at well Be Health. And the couple that
we've mentioned that you've had on the podcast is just
because when you come from the clinical care and you've
taken care of patients, I think you came into this
world of being a doctor because you wanted to solve
healthcare and change patient care. And even if you aren't
(35:24):
a doctor, I just think that all of our companies
have mission at their core. We just believe no mission,
no money, like it's just you're going to create a
better company if you have mission at the center. So
sometimes you'll fall apart when we don't. We don't see that,
and then you know, we're early stage investors. We want
to be extension of your team, and so just the
ability to really debate and collaborate and ebb and flow together,
(35:46):
including on all things like the valuation and striking the deal.
I think those are those tend to be the areas
where things either go on the tracks or off the track.
Speaker 1 (35:54):
Well said, So maybe going a little bit deeper down
into that rabbit hole.
Speaker 2 (35:58):
You know.
Speaker 1 (35:58):
Want somebody has an investment from you, guys, how do
you work with them on a day to day or
month to month basis?
Speaker 2 (36:04):
Yeah, so we in terms of profile of the deals.
So we typically lead or co lead usually a series
a round, sometimes a seed round because we are so
deep in a thesis, and then once or twice a
fun we'll start a company literally from the ground floor
because we have the thesis, we have a team, and
we know it must exist. And so Instride is a
(36:25):
good example of that, where we spun out a company
from McLain Hospital to treat severe pediatric anxiety and OCD
and the company is doing quite well. But when we
do all of our investments, we tend to take a
board seat. We do initial investment of three to seven
million and then we reserve capital for follow on investing,
so we participate in all future rounds and often what
(36:47):
that will result in is we are often the largest
institutional shareholder at exit. Even when these companies have raised
significant amounts of capital or Series D, Series D and
so on, four US six will be one of the
larger shareholders. In terms of our ability to help. We
like to say that we can introduce you to any
customer you know, health plan or hospital across the ecosystem,
(37:09):
and that's not you know, a lot of people talk
about their strategic LPs and so on. We often believe
that there can be distance in between LIP and CUP
on that I mean, we have spent twenty years developing
a network of the customer base that is evolving with
where healthcare is evolving. Sometimes if you have a strategic LP,
you're sort of stuck with that one, and what if
(37:30):
things are going elsewhere and you know, you have to
sort of work to their demands. So we like to
separate where our capital comes from, which is all sort
of traditional institutional LPs, many mission oriented and foundation and
some healthcare, but really separate that from what we can
deliver to you on an operational basis, and then we
like to be an extension of the team. We've all
(37:51):
been operators entrepreneurs at some point in our career. We
believe that creates a level of empathy and a DNA
to sort of want to be an extension of the team.
And so many a late night call I've taken to
sort of talk through a problem or be in the
trenches and work through something. I think our founders and
CEOs would often tell you four or six is the
(38:12):
one you call in good times. They're also the one
you call in bad times. And that's what we aspire
to be, is the first call in a bad time,
because that's when we know we can really help and
really really what's an example.
Speaker 1 (38:25):
Yeah, there's maybe getting too granular.
Speaker 2 (38:27):
Yeah, well it's all the things that that you might imagine.
But I still remember, you know, my first investment. There
was a when I was at four or six as
involved with our investment in Redox, which is an EMR
introroperability company, and those three founders had come out of
Epic where they you know, you know, had always been
used to everything going perfectly and implementations and all of that,
and in talking about how we help I'd helped them
(38:49):
get their first hospital customer, which was Brigham and Women's Hospital,
so they were already like thrilled with that. But the
CTO called me one evening and said, we've had, you know,
twenty four hours hours of downtime on our platform and
there's just tremendous amount of data going through it between
systems and it's going to impact two of our customers,
and I think they're going to be really upset. And
I said, Okay, let's calm down. Let's come up with
(39:11):
the remediation plan. And you know, we sort of took
here's our twenty four forty eight seventy two hour plan,
here's how you would tackle all the communication here's and
then more importantly, how do we solve the fundamental issue
of what created that downtow right. So this is an
example ten years ago that I still remember because it
was the first time that I realized how much trust
the founders can place in you if you sort of
(39:33):
interact in are part of the team. And after that,
you know, I've experienced everything. Sometimes you think you're going
to experience no more, and then something else new shows
up that you wouldn't have imagined. But in the throes
of you know, hiring and firing and raising rounds of
capital and everything. I mean, there are so many things
that can come up. These are roller coaster rides, even
(39:54):
the ones that go up into the right. But the
common theme is is so much of the success as
people and so much of the things that cause trouble
our people. And so I think the area where we
spend most of our time, because we think it has
a huge impact, is how do you put the right
people in the right places in these companies over time?
And those set of people have to change often, I'm sure,
And how do you.
Speaker 1 (40:14):
Know how do you different with a team of twenty
versus a team of five hundred.
Speaker 2 (40:17):
And then how do you help founder CEOs continue to
be successful and evolve as companies evolve in scale. And
so I think it's all of those We're up for
all of those things.
Speaker 1 (40:26):
Well, that's a good segue into my next question, because
we've had a couple of years where we didn't have
a lot of IPOs in this space, and now more
recently we've had hinge and amount to go out. I'd
love to get your view on kind of where we
are in the IPO cycle. And do you see I
could think of a ton of companies off the top
of my head that probably should or could be public.
I don't know if they should be public, but they
(40:47):
could be public in this space. Do you think we're
going to see a lot more IPOs in the next
twelve eighteen months.
Speaker 2 (40:55):
I think there's a particular founder, CEO or management team
that desires to be a public company. And I'd say most,
having seen the challenges in the public market, you know,
do not as much. But the reality is the most
common exit for venture backed companies is not an IPO,
it's a strategic sale. And so that's sort of a
(41:17):
little bit of how we've also designed the fund and
thought about early stage investing is because you know, we
only invest in about twenty four companies per fund, so
it's fairly concentrated. Because if you can kind of continue
to work with those companies and make the right bets
up front, there is tremendous strategic value in companies in healthcare,
(41:39):
and so almost making those bets and really helping the
companies get to their end state is I think we
view are to be an important job and so but
I'm really glad that Amada and Hinge went public. I mean,
I think they're great companies. We think very highly of
those the teams, and they're in the founders. And what
was important about it was that was twofold. Was everyone
(42:02):
was waiting with a baited breath to just see how
do they perform, And it just it created a signal
to the market that, you know, while the valuations may
have been different than in the private rounds, the valuations
were sound for the IPOs. And then secondly, it just
suggested that there's tech is an important part of healthcare
(42:23):
innovation moving forward because both of those companies had a
tech story going into their IPOs, right, and you don't
always think of them that way necessarily. And I just
think there's going to be more and more excitement for
the tech potential in healthcare and I view that to
be really important.
Speaker 1 (42:37):
You know, do you think that gets over sold at all?
And I'm just thinking back to the last wave of
the SPACs and some of the IPOs and that twenty
twenty twenty twenty one. I think that the tech enabled
was a good moniker to have at that point, and
then maybe if you fast forward it from a public
company perspective, not so good not such a good place
to be. It might have been easier to stay private.
Speaker 2 (42:58):
Yeah, it's and now it's all about AI I enabled
and are you truly or how are you? Or how
are you not?
Speaker 1 (43:03):
And so on.
Speaker 2 (43:04):
Look, I think the the in order to be a
really good clinical care delivery, you've got to leverage tech
and you've got to leverage AI. At this point, you know,
our entire portfolio is thinking about the ways in which
to use technology and AI to make their processes more efficient.
I just think it is the reality. And so you know,
(43:25):
I think how the public market evaluates and reacts to that,
you're you know better than I, but I think you know,
what we're focused on is positioning our companies to have
the right fundamentals. Think about good, good revenue growth, strong margins,
and how are you sort of using technology to benefit
you know, all all of that. And I think if
you do focus on those fundamentals, there are there's lots
(43:48):
of appetite from the strategic acquisition market.
Speaker 1 (43:50):
So when you think about strategics, you know, I think
they're looking at a west from the public company perspective.
You know, they're looking at you know, can I get
this to be the right ROI for my business. Does
it have the right growth rate, the right margin profile.
Is there a sweet spot, you know, in terms of
getting a company to profitability that the strategics really start
to wet their chops.
Speaker 2 (44:12):
Yeah, yeah, it's I think it's.
Speaker 1 (44:14):
Challenging you about that life cycle.
Speaker 2 (44:15):
Yeah, I think it's. And this is why, especially in
these types of markets, but generally we've counseled you know,
our companies and particularly later stage wants to have that
path to break even a sort of or sort of
be there or beyond, because I do. It's this delicate talent,
delicate balance of you know, you don't if you get
into the territory in the land of eba dah, you're
(44:36):
going to start to be valued off of eba da right,
and that may you may be sacrificing growth for that.
And so I think the harmonious balance is how do
you maintain the growth while showing that you are break
even or cash flow positive, but that you could turn
on a lever at any moment and really produce that
synergistic you know, ebit dah for for an acquirer, And
(44:57):
so I think that's really important. I think the there's
an element. If you had asked me sort of a
few weeks ago, I would have said, there's an element
of revenue scale that's important for the strategics. But we're
seeing interesting behavior where strategics are looking at some of
our portfolio companies just to say, wait, that might bring
infuse in the AI knowledge that I need, or the
AI understanding or the tech forward understanding that I need
(45:19):
that I know I can't get to on my own.
And so they're looking even at what i'd consider, you know,
subscale assets and acquisitions for that purpose. So it's just
this really wild time that's interesting.
Speaker 1 (45:31):
I hadn't thought about it from that angle. It's like
an ACU higher.
Speaker 2 (45:34):
Yeah, but yeah, you know, significant acquisitions, but not sort
of the billion dollar plus acquisitions.
Speaker 1 (45:40):
So maybe it doesn't change anything from a financial standpoint,
but from an operational or strategic standpoint, yeah, it makes
a lot of sense. Interesting. I wanted to switch gears
again and think about you know, there's a lot going
on in Washington. We talked a little bit about the
prior off conversation that was had earlier this week through
that lens. Knowing that DC is so fluid right now,
(46:03):
how do you guys think about where you want to
place your bets, and you know, things like Medicaid, for example,
are very fluid right now. I think Medicare could be
as well.
Speaker 2 (46:14):
Yeah, it's we had the opportunity to talk about this
that our annual meeting in June with URLPS, and I
think zooming out to the macro is really important. If
you look back over the last twenty years, healthcare spend
in the US has just steadily risen over that time period,
while our outcomes relative to our health outcomes relative to
(46:37):
the rest of the world have only gotten worse. We're
sitting at something like number twenty four twenty five on
global health outcomes and the spend is five trillion dollars
and eighteen percent of GDP. So you know what I said,
then I'll say today, which is, regardless of cuts that
may be coming down the pike, this is the most
(46:57):
one of the most important problems for the US that
must get solved. It's the math doesn't work. And so
with that that's the lens that we take. We take
what we call this long arc approach to healthcare and
just believe that if you're investing in companies that are
truly solving the fundamental problems of health care. They are
(47:18):
going to be being and important companies. Now. Is right
now a great time to be investing in medicaid? Potentially
not right, but we're being very thoughtful and particular about
which subpopulations are at risk versus which are not. So
we actually our most recent investment was a company called
Bluebird Kid's Health, which is taking full risk on managed
(47:40):
Medicaid pediatric populations. That's a population that we believe to
be safe and protected, but also one where there is
so much cost that if there is a provider and
a solution that can deliver great care and move the
needle on cost. There's tons of support from the States
and Medicaid in general, but also the team there. Chris Johnson,
(48:03):
formerly of Landmark, gave you tons of confidence on understanding
and being able to move with the nuances around regulation. Similarly, Diana,
which is focused on pregnant moms and you know, Medicaid,
but also commercial those are you know, seem to be
safe at this moment right. Similarly on Medicare, you know,
Medicare is moving into the privatization of Medicare, into MA
(48:25):
into acos and so on. Our portfolio is following a
very similar trend. And in terms of who which constituents
are our portfolio serves, it's it's a lot of MA
and ACO customers, and so we're being wary. While we
do have exposure to traditional medicaid and traditional medicare, I
think anywhere we do, those are against really expensive acute
(48:48):
populations like substance use disorder. So our full risk company,
Waste Spring, which is in full risk on substance use
disorder patients in medicaid, I mean they are really They've
had the companies like them have had audience in front
of you know, DOGE and others to just in CMS
to be part of the solution. And so I do
(49:10):
think there's a lot of solutions oriented thinking that's coming
out of you know, the current administration, particularly those who
are deep in healthcare, to think through what are the
private companies that are part of the answer here?
Speaker 1 (49:23):
Thinking about that a little bit, private companies. Is there
a white whale one that got away? I asked this
of every venture guest that we've had.
Speaker 2 (49:33):
Yeah. Well, I like to say that I rectified it
in a way because I had looked at Jeremy Friese's
first company that he started, Verrada, and had put in
a term sheet there and did not have the opportunity
to work with him was he went another direction, and
when he came back a second time, starting Humata, I said,
(49:54):
I can't make that mistake twice, And so that's I
like to tell that story because it's one that I rerected.
Speaker 1 (50:00):
How about that that's a good one. I'm sure I'll
be happy to hear that. Good for him. We're getting
near the end of the time, and one of the
ways I like to wrap these conversations up is to
ask something maybe along the personal journey, and is there
something from your personal life or your professional life, a
lesson that maybe guides you and your mission day to day,
or something that you share with your team or your
founder or the founders that you work with.
Speaker 2 (50:22):
Sure, I think i'll highlight you, know to I think
I've always my career has been a story of always
being a bit of a trail blazer as a woman
in the fields that I've been. I mean it started
all the way back to being an electrical engineer and
computer science major at MIT, where there just were not
that many other women, and then went from there to
(50:44):
investment banking on Wall Street during the Great Financial Crisis,
and then the first woman hired by a private equity
firm that had already been around twenty five years prior
to hiring me, then to sort of founding a company,
and then go into four oh six and now being
a you know, a female partner in VC. And I
take that lesson to say that, you know, there were
(51:05):
a lot of people who helped me along the way,
and just given the the places I was in the career,
when they were all they were all males, you know,
because that's who was there. But I take my role
in venture capital seriously as a way to help, you know,
others who are working up into that career, but also
the founders who are starting these companies. And so when
(51:28):
you look at my portfolio or the companies that I'm
involved with, you know, sort of fifteen of them actively
right now, there's about seven that are female founders and CEOs,
right And so I think one of the ways to
solve the challenge that we see in funding is to
have women on the check writing side of the table.
So I think my set of experiences has really informed
(51:49):
how I think about that and my role in that
and then the other, you know, final thing that I'd
say that really drives me is sort of I think
always have personally always thought about this in my my
track in my career is just how to make the
impossible possible? And I think I take that, you know,
I've always personally taken that very seriously to say, how
do I do things that people said I couldn't do
(52:12):
or it wasn't possible? And I think about that with
my founders and companies, and so I think there's so
much affinity between founders and four h six is because
we really take that approach of we can make this
impossible possible. We have to do it thoughtfully, you have
to do it with the right you know, smarts. But
that just approach and excitement to make the impossible possible
(52:32):
is something that drives me.
Speaker 1 (52:34):
Those were two excellent, excellent lessons. Thank you so much
for sharing.
Speaker 2 (52:38):
Thank you, Jonathan, and with.
Speaker 1 (52:39):
That, I guess we'll wrap it up. So thank you.
That's payel agrowaal divicaren partner at four O six Ventures.
Thank you so much for joining us for our latest episode,
and please make sure to click the follow button on
your favorite podcast app or website so you never miss
a discussion with the leaders in healthcare innovation. I'm Jonathan Palmer,
and you've been listening to the Vanguards of Healthcare podcast
(52:59):
by Lumberg Intelligence. Until next time, take care,
Welcome to another episode of Bloomberg Intelligence's Vanguards of Healthcare podcast,
where we speak with the leaders at the forefront of
change in the healthcare industry. My name is Jonathan Palmer,
and I'm a healthcare analyst at Bloomberg Intelligence, the in
house research arm of Bloomberg. We're very excited to have
Pyle Agarol Diva Karen of four H six Ventures with
us in the studio today. She's been at four h
(00:37):
six for more than a decade and co leads the
firm's healthcare practice. She was previously a founder herself, co
founding spot Rocket. During her MBA and prior to business school,
she spent some time in the venture community and started
her career in tech banking. Welcome to the program, Jonathan.
Speaker 2 (00:51):
It's such a pleasure to be here. Thank you.
Speaker 1 (00:53):
Well, I'm so excited to have you because we started
this venture track and I'm so fascinated by the world adventures.
So maybe whyt to give us an overview of four
six and kind of where you fit in the venture ecosystem.
Speaker 2 (01:02):
Happy to four US six Ventures, the Boston based venture
capital firm. We've been around about twenty years. When the
firm was started. There was a identification of a few
gaps in the venture capital ecosystem, which was at that
time fairly vibrant in places like Boston, and it was
that many funds were large and multi stage, and there
(01:24):
wasn't an opportunity for founders to really link arms with
an early stage fund that understood the dynamics of early
stage rounds and in particular series A rounds, And so
that was a pillar upon which four or six was founded.
So we like to invest in early stage companies that
are raising sort of their Series A rounds. And we
think deeply about sector focus and think it's really important.
(01:47):
And so the sectors that we focus on are healthcare,
hence why we're here today, in addition to enterprise technology
specifically data, AI, cybersecurity, and those sectors have been with
us for twenty years. Are we're sort of based on
the founders and now make us look brilliant because they're
sort of intersecting.
Speaker 1 (02:04):
I know to say, you guys are in the right places.
There's this Ven diagram in my mind and the intersection
has got to be so exciting right now.
Speaker 2 (02:11):
We have that Ven diagram in many of our marketing
materials and it's but it's truly brilliant. We can talk
a bit about that later and how we actually do
collaborate at those intersections. And so we're a traditional venture
capital firm with I think a lot of advantages and
differentiations that we can talk about, but our goal is
to invest in early stage companies in healthcare is where
(02:33):
I focus that are really on a mission to disrupt
care delivery and technology.
Speaker 1 (02:39):
We're going to dive into the really interesting stuff in
a second, but I'm so curious where does the name
come from.
Speaker 2 (02:43):
So if you're a Boston if you're a sports fan,
and if you're a Boston sports fan, or we're talking
about Ted Williams, famous Boston Red Sox nineteen forty one,
the highest ever batting average average achieved. And he actually
the way he did it is a good analogy to
venture he said. He wrote this book called The Science
of Hitting, which we have on display in our office.
(03:03):
He said, I'm not going to swing at every ball
in the strike zone. I'm going to swing where I
have the highest on base percentage. And he had really
great vision and so then in that year was really
disciplined to say I'm only going to swing at those
at the balls that are where I have that high percentage,
and by doing so, he achieved the highest batting average
that hasn't yet been beat. And we feel similarly, which
(03:24):
is we don't have to do every deal, we don't
have to invest across stages. But where we have a
strike zone, aka where a company is in our segments,
in our stage, and where we can be particularly helpful
to the company, We're going to go for that one.
And we've just had a good track record of success
with those companies and so this concept of being disciplined
has really paid off for four US six.
Speaker 1 (03:46):
So why don't we dive right into that then? And
you know where is the strike zone? What are you
looking for? As I sit here, if I'm a founder
coming to four h six, you know where is your
sweet spot?
Speaker 2 (03:57):
Yeah, So on the health care side, we like to
say that we're looking for companies that are really improving
clinical care delivery. We think deeply about populations, and I'd
like to say that I've learned everything I know about
healthcare from Liam Dona Hues, one of the founders of
the firm, and I think the genesis of his health
(04:18):
care investing and then now mine in my philosophy is
if you think deeply about expensive, complex populations, therein lies
an opportunity to really impact use technology, the best of technology,
to deliver a new care model or a care delivery
model and really improve outcomes and decrease costs. And so
in the way that we think about that, many of
(04:39):
our companies have a proposition for health plans because health
plans are are the bearers of those populations, at least
the gatekeepers, at least the gatekeepers, and in fact they
have the right incentive to deliver better care at lower costs.
And so we think a lot about companies that are
doing that work, and I think we're really it's over
(05:00):
on two elements. One is how much technology should really
be used in care delivery. So I think when we
identify the population, we're also able to say should it
be virtual care, should it be hybrid, or should it
be a brick and mortar services disruption model? And we're
not afraid of that, and we found the areas where
you can have venture oriented returns in those So that's
a whole bucket of companies. The other area where we
(05:22):
spend a lot of time is pure technology companies and
that's where the intersection of our healthcare and tech teams
gets really interesting. And oftentimes those companies are selling the
hospital systems and in some cases health plans. But it's
everything from automation of prior authorization to EMR interoperability to
workforce management. And we're spending tremendous amount of times today
(05:44):
on the automation and healthcare concept, but those are that's
sort of how we like to think about the world.
It's enterprise healthcare companies that have a proposition for health
plans and hospital systems. We won't do direct to consumer
and we won't do something that's heavily monetizing pharma just
because we have we know the health plan in the
hospital system extremely well and we think we can be
helpful there.
Speaker 1 (06:04):
So why don't we dive into an example of each
of those two Bokash like you kind of mentioned and
are alluded to. I think we've had one of each
on the podcast before.
Speaker 2 (06:11):
Yeah, so let's talk about those ones. I think Heartbeat
Health is a great example, and you had doctor Jeff
Wessler on the podcast, and that's a company that's delivering
fully virtual care for cardiovascular health. And we at four
or six are very thesis driven, which means that at
any given time, we've thought about populations and said, you know,
(06:32):
what type of company or care delivery solutions should exist
against that. And the genesis for the Heartbeat investment was
that we've been really deep in primary care and so
we were the Series A investors in Iora Health, which
was the first to really take risk on a Medicare
advantage population. And as that company scaled would they were
telling us our number one referral is to cardiology, and
(06:55):
we're taking full risk, and we just feel like the
incentive is not aligned between us and the cardiologists who
are just administering tests and doing a large workup. And
so we were proactively looking for a company that could
sort of remove that misalignment of incentives between you know,
primary care referring out to cardiology. And simultaneous to that,
(07:18):
I had gotten to know Jeff Westler. I've known him
since he was in med school and he when he
first started, as he said on your podcast, he was
in the city with the brick and mortar that transition,
and that was at the seed stage. And this is
a common story for how we work with founders. I
said to Jeff, I said, I love what you're doing.
I see the potential for it against the risk based
(07:40):
primary care you know channel, but it's not going to
happen if you keep being a brick and mortar clinic
that's D two C. You're just not going to doesn't scale,
You're not going to really be able to deliver the
outcomes that you need to give the primary care channel
to comfort to refer you patients. And so he called me, uh,
you know, months after the seed and said, you know,
(08:01):
I heard you, and we've sort of we've been pivoting
and doing this work. And I said, that's great. Let's
partner up for the series I And so we'll often
work with founders from that, you know, the ground floor,
the seed stage, to sort of collaborate on the vision
for the company. And I think that's one of the
best ways to get there. If you can collaborate and
sort of align on a vision, then we're a great
(08:23):
series A partner for you, because then what we did
for Jeff and Herbie was sort of make that IORRA
introduction and help them scale the channel and think through
all the mechanisms of enterprise healthcare. So that's a good
example on that side. On the pure technology side, You've
had doctor Jeremy Friese on the podcast, who is the
founder and CEO of Humata Health, which is the first
(08:44):
company to really automate prior authorization on both sides, the
hospital side, which is critical, but then the health plan side,
which is harder and in fact more interesting for generative AI.
In our opinion, why is that it's so the hospital
side of authorization is fairly while it's complex, it's fairly
rules based, and it can be done in a very
(09:09):
methodical way that is ripe for machine learning and algorithms,
whereas on the health plan side there's quite a bit
of judgment there.
Speaker 1 (09:17):
Are from like a medical director. Is that where the
friction is is they send it to an actual human being.
Speaker 2 (09:22):
They're sending it to a number of human beings, and
they're also saying they're taking into account relationships with providers
and how their past behaviors of the providers and things
that are almost non rules based to think about how
they should respond to a prior authorization Because there are
clinical folks involved, there are relationships involved, and so in
(09:43):
some ways there need to be more humans involved on
the thinking side of things. On the health plans and
that tends to be a really ripe situation for llms
and gen AI and so. And that's where Jeremy took
the capital from folks like four h six to say,
I'm going to solve that harder side of the equation,
(10:03):
which is also going to require elements and steps of trust.
The health plans aren't going to give the whole kit
and kaboodle right away in terms of automation, and so
he's being really thoughtful about how do you introduce AI
into the automation side for health plans until you get
sort of the full trust.
Speaker 1 (10:18):
So we're recording this a couple of days after the
announcement in DC around prior authorization. How does that change
or reinforce the thesis.
Speaker 2 (10:26):
Yeah, it's well, it's very interesting. I think separate from
the DC announcement, I think hospitals were already there saying
beyond prior authorization. Our understanding in our sense is that
hospitals are feeling like adopting AI is existential and this
is the moment. And so it's rare in times to
see hospitals being first movers around adopting technology, but you're
(10:50):
seeing that in AI and prior authorization is just one example,
and so Humata is really benefiting from that trend on
the regulation side. On the health plan, it's simple adding
you know, the requirement for pace for health plans to
really think about automation. But it's also just creating more
and more complexity. And that's a really good situation for
(11:11):
someone like a Humata because even in a world where
you're going to have things like you know, you're going
to remove elements of prior authorization, you're gonna have gold
carting or whatnot, health plans are going to need a
technology infrastructure that supports that. And that's what Humata is.
And they're working with many health plans or thinking through
the vision with many health plans as to how Humata
(11:32):
could be that effectively that intel inside for what they're
going to need to be able to react to the
regulation within a timeframe.
Speaker 1 (11:39):
That makes sense, that's great. You know, if we rewind
back to the heartbeat example, it sounds like you already
had a thesis on where you wanted to make an
investment prior to actually making the investment. How often does
that happen?
Speaker 2 (11:53):
You know, I think we think it's the recipe for
success for our investments. I mean, part of the reason
is I don't think you know, everyone appreciates how many
deals vcs see a year. You know, we say, across
you know, our practice, we're probably seeing something like fifteen
hundred deals a year and we're making you know, about
(12:16):
five to eight across the full firm, and then half
of them are healthcare. And so you can choose to
be reactive or shoot in the dark, or you can
do what we do, which we are extremely thesis driven.
We inform the thesis areas by having a deep ear
to the ground with the health plan and the hospital customers.
(12:37):
And we do that over time because the magic sometimes
in theses is when is the right time to pull
the trigger? When is there a set of either regulation
or a consumer pollar push or something or a technology
shift like jen Ai that's going to make something unimaginable possible.
(12:59):
And so we are often developing these thesies over years.
Another really great example is in you know, the cancer
survivorship space. So for maybe a period of five years,
I had been seeing sort of the improvements on how
we are treating cancer in this country. Things to great,
you know, drugs and treatment capabilities, leading to more and
(13:22):
more folks surviving, I mean higher prevalence of cancer, but
then higher survival rates. But those cancer survivors were left
with really complex medical and mental health challenges and they
couldn't quite go back to primary care. They couldn't quite
go back to the oncologists. And so I had worked
with you know, Dana Farber a couple of times to
try to start a company, and just the timing was
not right. And so I had worked on that thesis,
(13:45):
knew all the puts and takes, and then when Hill Moss,
the founder and see of Recovery, walked in so young
breast cancer survivor received her treatment at Dana Farber and staid,
I'm dropping everything I'm doing to start a company that's
going to take care of cancer survivors. Because that's when
the hard work started for me. We knew that was
perfect alignment. And so that's the benefit of developing these
(14:06):
theses because when something or someone walks in, you know
that there's a fit, and you know how to pay attention.
And what is a very noisy, you know, sort of
funnel of.
Speaker 1 (14:17):
I can only imagine. So if you think about it
over your ten years at four oh six. How have
some of those changed? I mean, if you if you're
to rewind and say, I was really excited, but maybe
something never came to fruition in two thousand and sixteen
or twenty seventy. What are some examples of maybe like
the peaks and valleys and some of these ideas. Yeah,
have there been a couple that you thought would be
(14:39):
maybe worthwhile to to you know, run down the run
it down and then it never actually came to fruition.
Speaker 2 (14:46):
Yeah, it's a it's a great it's a great question.
You know, there's so many And you heard about a
thesis area that went on for years. There's so many
theses where you, you know, as an investor, and we
felt in our court four six that a company must exist.
And so I'm just you know, racking my brain. There's
so many examples where you have to be patient over
years for that opportunity to come. I think another great
(15:09):
arena example of that is in the woman's health space.
I mean, I think when I started at four or six,
ten years ago, it was sort of so apparent to
me the gap in care that there was for women,
particularly women who were going through say a pregnancy journey,
but there was just little to no understanding of the
cost of that population. And from a health plans perspective
(15:33):
and even from a hospital perspective, there was sort of,
you know, different issues or different bigger fish to fry.
I mean, when I started at four or six, it
was meaningful use and hospitals were just figuring out how
to digitize records and adopt EMRs. I mean forget thinking
about you know, service line businesses like obgyn and so
there were years where it was sort of challenging and
(15:53):
frustrating to say, why is no one paying attention to this?
But there wasn't anything to be done. And if you
did it in say the first five years I was
at four or six, the company was destined to fail
because there was just for all the aforementioned reasons. But
we developed that thesis and sort of started to understand
that more. And that's when I guess about four years ago.
So now we led the series A in Diana Health,
(16:15):
which is that woman's health company that we believe is
going to solve this problem because they partner with hospital
systems to take over the labor and delivery service line
and these are often high Medicaid hospitals, which was the
deep part of the thesis. If we want to bend
the cost curve in maternity care, you have to do
it for the Medicaid mom. But you can have a
solution like so many prior to Diana, that is just
(16:37):
focused on Medicaid, or you can't have a solution that
extricates the hospital like a birthing center, because the hospital
is the acute care center and that's where many of
the Medicaid moms do go. And so finding an elegant
solution that worked for every stakeholder, the patient, the hospital,
the health plan, and that was Diana. It's sort of
(16:59):
bringing technology oriented care to the OBGN service line, but
most importantly, it's bringing midwife led care. So the obgyns
join Diana's staff. The midwives run the show, and actually
the obguns are quite happy with that because they no
longer take call, but they also get to do the
gynological services and the complex patients and the things that
(17:19):
they were trained to do and enjoy doing. And the
midwives are the ones who spend the extra time with
the Medicaid patients and deliver the exceptional outcomes for that
population that we know is well researched and well published
on and so sort of what I love about the
companies we invest in is it's not often it can
be a it's most often a care team disruption, it's
(17:40):
a technology disruption, and then it's an economic disruption. So
in the case of Diana, while one would love to
have a value based care women's health company, that's not
the time right now either. And so Diana, what they're
doing is sort of leveraging fee for service today, but
then getting a hospital a fee from the hospital that
(18:01):
is is quite you know, it's a quite strong fee
because of the value they provide to the hospital today.
And that disruptive economic model, which no one has done today,
is what allows them to deliver this great care until
they have such a scale, multi state which they do now,
where they can then go into states with premium rates
(18:22):
with health plans. So I think the other element we're
thoughtful about is how do you transition appropriately over time
into what we all ultimately want, which is value oriented
care or value based care. But entering at the right
time with the right economic model is so much of the.
Speaker 1 (18:37):
Well, I mean, we're tent talking about value based care
for as long as I've been in the business, where
do you what inning do you think we're in? We?
Speaker 2 (18:45):
You know, there was and.
Speaker 1 (18:46):
I recognize your lens is maybe a little bit different
than a public company lens.
Speaker 2 (18:51):
Yeah, we you know. I'd also separate it between you know,
behavioral health, medical conditions, and so on, because I think
in behavioral health we were where four h six is
very deep and you know, partner Liam Donahue invested in
able to almost fourteen years ago, which was the first
(19:11):
company to really deliver virtual care for depression and anxiety
and go directly to the health plans and get a
value oriented rate for that was a successful exit to
optim and I think that case study and story really
open the aperture for value oriented rates for behavioral health.
And then all of a sudden, the health plans were
doing it for every you know, behavioral health population, and
(19:34):
then they realized, well, only some of them really work,
and so then there was a big pullback. And so
it's hard to say what inning we're in because often
what happens with the health plans is they go full
bore into it and then and then when the actuarial
data comes back, you sort of you know, retreat a
little bit, and so it's sort of the interesting thing
with healthcare. I think generally that I've come around to
(19:55):
the bend is it's sort of you know, two steps forward,
one step back, two steps forward, one step back. So
I think we are still very much in the early innings.
There's so much opportunity and so much to do, So
I'd probably say we're in the you know, the fourth
inning of value oriented care because I'm looking at companies
right now that are you know, some of the early
and first ones to take full risk on oncology populations,
(20:18):
for example, and it's just there's there's just so much
that's nascent against really expensive, big populations.
Speaker 1 (20:27):
So a couple of the areas you touched on and
there's so much to impact there. But I want to
go back to the primary care discussion just because as
a public company analyst, I've seen the big players and
non traditional players dip their toes in. So how do
you think from where you sit, how do you think
our primary care problem is going to evolve over the
(20:48):
next few years. Because we saw you know, Amazon by
One Medical, we saw the Village MD, Walgreens. There's been
a host of the a whole bunch of these that
have kind of been very popular, yeah, as a strategy,
and then I think we're seeing the inevitable one step
back yeah primary care.
Speaker 2 (21:07):
We call this the cycle of healthcare life. Is that
you know, the the companies that were disruptive and then
yet acquired and yet there's a little bit of a
step back. But also we like to say this is
why we have a job, because if you know, the
big tech companies get figuring out healthcare, then you wouldn't
need venture dollars and early stage disruption. But I think
(21:30):
our firm firmly believes that primary care is a human
to human business. I mean any attempt around saying, you know,
primary care can be done largely virtual or through some
AI agent or whatnot, we just you know, I think
Forward Health was a you know, good example of this.
Unfortunately is just yeah, it's just you know, primary care
(21:52):
at its core, it couldn't be a more human to
human interaction. And so what we're looking for or two
were thinking about as the next phase of primary care
is how do these But one thing to realize is
that the economics for the practices don't work. And that's
the challenge we're seeing today right, independent primary care practices,
shutting down, selling docs, getting out of the business, and
(22:15):
so on. And so where we see the future, at
least the near future, is how does AI play a
role in making practices successful alongside contracting that makes the
practice successful, alongside care teams at the primary care office
that allows you to deliver on that contract. And this
(22:36):
was one of the innovations of IORA was to say,
let's not put the MD as the tip of the spear. Nurses, coaches,
other members can be involved and just as good, if
not better in certain interactions, and so having that care team.
So we're spending a lot of time thinking through the
role that AI may play in, not necessarily the patient
(22:57):
interaction or or the clinical decision, but all of the
support of the practice and the infrastructure that can make
it successful against a risk based contract.
Speaker 1 (23:10):
So as we sit here today and you mentioned AI,
and I think I don't think I've had a conversation
that hasn't included AI in the last year or two.
So how do you think about it, you know, from
a broad thirty thousand foot view, And then how does
that actually culminate in you know, a check for a
series a company, what are you looking for.
Speaker 2 (23:31):
It's fascinating that at four oh six we have a
healthcare team and healthcare is fifty percent of activity. And
then we've got a deep data AI vertical agnostic data
AI team led by Graham Brooks, who's been doing His
first DAI investment was ten years ago, and that's how
long four o six has been doing vertical agnostic AI.
(23:51):
But prior to that, what's fascinating about Graham is he
was also involved with the IORA investment. Because when Graham
and I started at the firm, we were general actually
and so I get to do some tech investments, you
got to do healthcare and so that understanding of both
sides is so fascinating. But when we sit at our
partners meetings on Monday and we hear the AI team
talk about the distance there is between the consumer use
(24:16):
of gen AI and things like chat GBT versus the
enterprise use and all of the challenges that they're having
on actually implementing and adopting the AI, it is just
it's fascinating. It's also sometimes scary because you can hear
these advances in technology and what it can do and
why the enterprises are being careful around it. But then
(24:39):
I think it allows us to make just tremendously smart
decisions around AI and healthcare. The reality we believe in
healthcare is you have to solve the problem. What is
the problem, what's the first principles problem? And if you
use AI to do it, great, But for the most part,
the enterprise healthcare customers are agnostic as to what technology
(24:59):
is really being used to solve the problem. So long
as you solve it and there's hard dollar ROI. Now
in this moment in time, I think there is a
little bit of change because every hospital on health plan
is having to check the box, run what are you
doing around AI? And so you're hearing that infused into
every pitch.
Speaker 1 (25:16):
We are.
Speaker 2 (25:18):
Being really particular on not investing in something we call
a point solution and healthcare that's leveraging AI. You know,
some agent or agentic AI that's going to help you
with you know, a small problem, but ultimately is going
to be viewed as a point solution. Instead, we're spending
time around companies that can be the operating system for hospitals,
(25:39):
that can help with multiple use cases, that could take
your epic and do full medical chart abstraction and then
help you with a number of use cases over time
that will allow you to shift or ultimately reduce the
number of humans and FTEs you have. Again, healthcare is
a human business. So what we're not going to see
is that all of a sudden they're going to adopt
AI and then FTS tomorrow just not happening. And so
(26:03):
we think this is the year's long journey, but the
adoption of AI is starting now. And so what we
believe the companies that are going to sustain are going
to be the ones that do allow you to check
many boxes so that you don't have to have ten, twelve,
twenty point solutions of AI, but you have multiple you know,
maybe a few vendors that allow you to do all
(26:24):
of your clinical research and clinical trial oriented AI work,
some a vendor that allows you to do all of
your RCM oriented work and so on.
Speaker 1 (26:34):
Interesting because we've had some conversations with CTOs at hospitals
and they are all over the map in terms of
how they're approaching this, you know, and big, big institutions,
the very well known cancer centers, I mean they have
teams of people looking at this, yeah, and the efforts
are very disparate. I think in terms of how they're
approaching it, and then smaller institutions we're finding very similar.
(26:58):
I mean maybe because they don't have as many as
many leaders, it's a little bit more consolidated, but it's
still very spread out across the entire organization. Do you
think so it's interesting that you look at the you're
thinking about it from these groupings, whether it's the clinical
side or maybe the back office side for lack of
a better term. How close do you think we are
(27:18):
on the clinical workflows being you know, actively actively using AI,
whether it's a gentic, whether it's gen, whether it's I
don't know, the physical down the road when we have
robotic surgeries. I think it's coming, but I just don't
know what.
Speaker 2 (27:34):
Yeah, well, and I agree with your earlier point. By
the way, I'm on the Dana Farber board, and so
it's been fascinating to hear sort of how they're thinking
about AI and AI governance and then hearing, you know,
other hospitals in town how they're approaching it in just
very different. I think everyone just in this mode of
trying to figure it out, and there's no uniform or
(27:55):
unified view. That being said, we're starting to see some
more collaborations and cross collaboration between hospitals. But I think,
you know, regardless, there's always you know, if you can
provide a platform as opposed to a point solution, that's
always better in the long run. So I think we're
going to sort of stick with that philosophy as it
pertains to AI. But I think on the clinical side
(28:18):
of things, I mean, I'm also married to a doctor,
so I get to see sort of some of you know,
the adoption and how he's thinking about it, I mean,
healthcare or otherwise. There's no question that AI is going
to replace humans who do not use AI. And I
think that's the same of physicians and nurses. And so
we're not going to potentially ever be at a point
(28:38):
where we replace fully replace the doctors and the nurses,
but they need to be facilet with AI. And so
the things that the physicians are loving right now is
the ambient scribing and how it's just making their lives better,
you know, the ability to sort of in epic do
certain workflows and have it sort of suggests things. Sure,
I think that's great. I mean, I just I think
(29:01):
what it's bringing us back to is again this human
element of healthcare that they are unencumbered from doing all
of the other things they have to do besides just
sitting with the patient and using their their expertise in
clinical in clinical diagnosis and clinical care.
Speaker 1 (29:17):
You've come back to EPIC a couple times. Do you
see Epic as a little bit of a gatekeeper? Do
you see Epic as a gatekeeper to some of this
from the provider perspective, because I've had conversations where the
CTO is saying, well, we're waiting to see what they're
going to do or what they're going to open up,
and it's a little bit they could probably be moving
a little bit quicker.
Speaker 2 (29:36):
Yeah, I think Epic is the most formidable player to
be thinking about as you think about at least hospital
facing AI and automation, and when we're approaching any investment
that is hospital facing, we're very careful and curious to
understand where in the pecking order is it for EPIC,
And you know Microsoft and their sort of collaboration, and
(29:57):
so surely, I think our belief is that EPIC is
going to start with the use cases that are most
proximate to what EPIC is, which is ultimately a billing platform, right,
and so it makes sense to automate around that periphery.
More and more of the RCM orient did work. I
think something like clinical trial work and clinical research is
(30:19):
a bit far. Doesn't mean that it's not on the list,
but understanding that pecking order is really important to have
a point of view on when a company can scale
for the next several years versus you know, when it
might get sideswiped next year by an epic initiative.
Speaker 1 (30:35):
Interesting, maybe switching gears here. You know, we've seen a
bunch of different funding cycles in the VC world. You know,
if I think back to pre pandemic, then the pandemic
exuberants and where are we now?
Speaker 2 (30:47):
Yeah, you know, one would have one would think it's
kind of become rational again. But then there was the
AI twist that happened, and so now we're doing a
different dance. So I would say that, well, there's a
couple other dynamics to understand as it pertains to healthcare.
Because of the shift in the market. The funds that
I would call the tourists lovingly or the generalists in
(31:12):
health you know, who are really tech funds coming into healthcare.
Speaker 1 (31:15):
We're the ones writing the big checks in twenty twenty one.
Speaker 2 (31:17):
Yeah, I think they've you know, largely exited the market.
And then what's what that has left is healthcare funds
like ours and the multi stage healthcare funds who are
deep in the category and who understand care delivery and
healthcare technology, and so that plus just fewer deals to
(31:37):
get done. So actually, given the supply demand, we are
seeing still some irrational behavior just on the core care delivery,
but then also certainly on the AI because that's just
the new flashy thing. Everyone has to tell their LPs
they've made investments there, and so we're seeing some really
unusual behavior not only in the types of companies that
(31:57):
are getting funded, but then certainly the valuations. So while
I'd love to say things have become completely rational, I
think there's still a little bit of this scarcity value
concept where and our portfolio is benefiting from it. To
be honest, is if you've built a really great clinical
care delivery that has strong ROI for the customers and
(32:18):
a great patient experience, or a technology that's just really
delivering ROI, that's a rare thing right now, because you know,
there's a real separation of the wheat and the chaft
on healthcare companies and those who have the goods and
those who don't. And for those who have the goods,
there's just there's lots of funds still available sitting on
capital to fund them. And so our portfolio is seeing
(32:41):
you know, great activity on the follow on in the
later stage rounds. Because of that what it's making it
still challenging to have perfectly rational evaluations at the early stage.
But I think that's where it comes back to the discipline.
And at four h six we've always said, look, we
don't have to do every great deal, but every deal
we do has to be great. And so we felt
(33:02):
more comfortable than not saying no to something, even if
it may be you know, on thesis or whatnot, if
we can't get it to be in the strike zone.
You know, we think really hard before we sort of
depart from what are our traditional norms.
Speaker 1 (33:16):
Where did things typically in that I guess the initial
dance or tango, where do things usually fall out? So
if you have the thesis, and I'm just thinking about
from a process perspective, how it works. So if you
have the thesis and somebody comes with the solution, you know,
more often than not. What is the reason you say no?
Is there is there something that usually comes up as
(33:37):
a red flag?
Speaker 2 (33:37):
Well, you'll I'm just sure there's tons of red spots, right.
This is the most common one you've probably heard. Is
the team, I mean, great thesis married with someone saying
the same great thing on paper versus where do you
actually have the lived experience and the execution chops so
make it happen. And so I think the team, in
(33:59):
evaluating the team is everything at the early stage, you know,
and at four or six, we love investing in what
we call live founders with lived experience. Now, lived experience
in a clinical in a population or clinical disease category
is sort of obvious. Someone who's actually lived that you
know that moment and really understands the intricacies of what
must be done, and then you know what must exist.
(34:21):
But even on the technology side, someone who has sat
in the provider's shoes and felt a problem and said
I need to create this technology to solve it. So
we just think that healthcare is hard already, that you
have to come at it from a lens of just
a depth of lived experience. And so when we don't
see that in teams or we see that you know,
(34:41):
the execution may not may not be perfect. I think
that's where things really sort of fall apart, because the
cs can be great and plants can be great. At
the end of the day, it's the people that deliver
these outcomes and help the companies grow. And then I
think it's sort of the other couple elements, or you know,
the mission centricity. I think this is why we've sort
(35:02):
of worked with so many physician founders over time, all
the way back to Rashikad Aora or someone like a
Si France at well Be Health. And the couple that
we've mentioned that you've had on the podcast is just
because when you come from the clinical care and you've
taken care of patients, I think you came into this
world of being a doctor because you wanted to solve
healthcare and change patient care. And even if you aren't
(35:24):
a doctor, I just think that all of our companies
have mission at their core. We just believe no mission,
no money, like it's just you're going to create a
better company if you have mission at the center. So
sometimes you'll fall apart when we don't. We don't see that,
and then you know, we're early stage investors. We want
to be extension of your team, and so just the
ability to really debate and collaborate and ebb and flow together,
(35:46):
including on all things like the valuation and striking the deal.
I think those are those tend to be the areas
where things either go on the tracks or off the track.
Speaker 1 (35:54):
Well said, So maybe going a little bit deeper down
into that rabbit hole.
Speaker 2 (35:58):
You know.
Speaker 1 (35:58):
Want somebody has an investment from you, guys, how do
you work with them on a day to day or
month to month basis?
Speaker 2 (36:04):
Yeah, so we in terms of profile of the deals.
So we typically lead or co lead usually a series
a round, sometimes a seed round because we are so
deep in a thesis, and then once or twice a
fun we'll start a company literally from the ground floor
because we have the thesis, we have a team, and
we know it must exist. And so Instride is a
(36:25):
good example of that, where we spun out a company
from McLain Hospital to treat severe pediatric anxiety and OCD
and the company is doing quite well. But when we
do all of our investments, we tend to take a
board seat. We do initial investment of three to seven
million and then we reserve capital for follow on investing,
so we participate in all future rounds and often what
(36:47):
that will result in is we are often the largest
institutional shareholder at exit. Even when these companies have raised
significant amounts of capital or Series D, Series D and
so on, four US six will be one of the
larger shareholders. In terms of our ability to help. We
like to say that we can introduce you to any
customer you know, health plan or hospital across the ecosystem,
(37:09):
and that's not you know, a lot of people talk
about their strategic LPs and so on. We often believe
that there can be distance in between LIP and CUP
on that I mean, we have spent twenty years developing
a network of the customer base that is evolving with
where healthcare is evolving. Sometimes if you have a strategic LP,
you're sort of stuck with that one, and what if
(37:30):
things are going elsewhere and you know, you have to
sort of work to their demands. So we like to
separate where our capital comes from, which is all sort
of traditional institutional LPs, many mission oriented and foundation and
some healthcare, but really separate that from what we can
deliver to you on an operational basis, and then we
like to be an extension of the team. We've all
(37:51):
been operators entrepreneurs at some point in our career. We
believe that creates a level of empathy and a DNA
to sort of want to be an extension of the team.
And so many a late night call I've taken to
sort of talk through a problem or be in the
trenches and work through something. I think our founders and
CEOs would often tell you four or six is the
(38:12):
one you call in good times. They're also the one
you call in bad times. And that's what we aspire
to be, is the first call in a bad time,
because that's when we know we can really help and
really really what's an example.
Speaker 1 (38:25):
Yeah, there's maybe getting too granular.
Speaker 2 (38:27):
Yeah, well it's all the things that that you might imagine.
But I still remember, you know, my first investment. There
was a when I was at four or six as
involved with our investment in Redox, which is an EMR
introroperability company, and those three founders had come out of
Epic where they you know, you know, had always been
used to everything going perfectly and implementations and all of that,
and in talking about how we help I'd helped them
(38:49):
get their first hospital customer, which was Brigham and Women's Hospital,
so they were already like thrilled with that. But the
CTO called me one evening and said, we've had, you know,
twenty four hours hours of downtime on our platform and
there's just tremendous amount of data going through it between
systems and it's going to impact two of our customers,
and I think they're going to be really upset. And
I said, Okay, let's calm down. Let's come up with
(39:11):
the remediation plan. And you know, we sort of took
here's our twenty four forty eight seventy two hour plan,
here's how you would tackle all the communication here's and
then more importantly, how do we solve the fundamental issue
of what created that downtow right. So this is an
example ten years ago that I still remember because it
was the first time that I realized how much trust
the founders can place in you if you sort of
(39:33):
interact in are part of the team. And after that,
you know, I've experienced everything. Sometimes you think you're going
to experience no more, and then something else new shows
up that you wouldn't have imagined. But in the throes
of you know, hiring and firing and raising rounds of
capital and everything. I mean, there are so many things
that can come up. These are roller coaster rides, even
(39:54):
the ones that go up into the right. But the
common theme is is so much of the success as
people and so much of the things that cause trouble
our people. And so I think the area where we
spend most of our time, because we think it has
a huge impact, is how do you put the right
people in the right places in these companies over time?
And those set of people have to change often, I'm sure,
And how do you.
Speaker 1 (40:14):
Know how do you different with a team of twenty
versus a team of five hundred.
Speaker 2 (40:17):
And then how do you help founder CEOs continue to
be successful and evolve as companies evolve in scale. And
so I think it's all of those We're up for
all of those things.
Speaker 1 (40:26):
Well, that's a good segue into my next question, because
we've had a couple of years where we didn't have
a lot of IPOs in this space, and now more
recently we've had hinge and amount to go out. I'd
love to get your view on kind of where we
are in the IPO cycle. And do you see I
could think of a ton of companies off the top
of my head that probably should or could be public.
I don't know if they should be public, but they
(40:47):
could be public in this space. Do you think we're
going to see a lot more IPOs in the next
twelve eighteen months.
Speaker 2 (40:55):
I think there's a particular founder, CEO or management team
that desires to be a public company. And I'd say most,
having seen the challenges in the public market, you know,
do not as much. But the reality is the most
common exit for venture backed companies is not an IPO,
it's a strategic sale. And so that's sort of a
(41:17):
little bit of how we've also designed the fund and
thought about early stage investing is because you know, we
only invest in about twenty four companies per fund, so
it's fairly concentrated. Because if you can kind of continue
to work with those companies and make the right bets
up front, there is tremendous strategic value in companies in healthcare,
(41:39):
and so almost making those bets and really helping the
companies get to their end state is I think we
view are to be an important job and so but
I'm really glad that Amada and Hinge went public. I mean,
I think they're great companies. We think very highly of
those the teams, and they're in the founders. And what
was important about it was that was twofold. Was everyone
(42:02):
was waiting with a baited breath to just see how
do they perform, And it just it created a signal
to the market that, you know, while the valuations may
have been different than in the private rounds, the valuations
were sound for the IPOs. And then secondly, it just
suggested that there's tech is an important part of healthcare
(42:23):
innovation moving forward because both of those companies had a
tech story going into their IPOs, right, and you don't
always think of them that way necessarily. And I just
think there's going to be more and more excitement for
the tech potential in healthcare and I view that to
be really important.
Speaker 1 (42:37):
You know, do you think that gets over sold at all?
And I'm just thinking back to the last wave of
the SPACs and some of the IPOs and that twenty
twenty twenty twenty one. I think that the tech enabled
was a good moniker to have at that point, and
then maybe if you fast forward it from a public
company perspective, not so good not such a good place
to be. It might have been easier to stay private.
Speaker 2 (42:58):
Yeah, it's and now it's all about AI I enabled
and are you truly or how are you? Or how
are you not?
Speaker 1 (43:03):
And so on.
Speaker 2 (43:04):
Look, I think the the in order to be a
really good clinical care delivery, you've got to leverage tech
and you've got to leverage AI. At this point, you know,
our entire portfolio is thinking about the ways in which
to use technology and AI to make their processes more efficient.
I just think it is the reality. And so you know,
(43:25):
I think how the public market evaluates and reacts to that,
you're you know better than I, but I think you know,
what we're focused on is positioning our companies to have
the right fundamentals. Think about good, good revenue growth, strong margins,
and how are you sort of using technology to benefit
you know, all all of that. And I think if
you do focus on those fundamentals, there are there's lots
(43:48):
of appetite from the strategic acquisition market.
Speaker 1 (43:50):
So when you think about strategics, you know, I think
they're looking at a west from the public company perspective.
You know, they're looking at you know, can I get
this to be the right ROI for my business. Does
it have the right growth rate, the right margin profile.
Is there a sweet spot, you know, in terms of
getting a company to profitability that the strategics really start
to wet their chops.
Speaker 2 (44:12):
Yeah, yeah, it's I think it's.
Speaker 1 (44:14):
Challenging you about that life cycle.
Speaker 2 (44:15):
Yeah, I think it's. And this is why, especially in
these types of markets, but generally we've counseled you know,
our companies and particularly later stage wants to have that
path to break even a sort of or sort of
be there or beyond, because I do. It's this delicate talent,
delicate balance of you know, you don't if you get
into the territory in the land of eba dah, you're
(44:36):
going to start to be valued off of eba da right,
and that may you may be sacrificing growth for that.
And so I think the harmonious balance is how do
you maintain the growth while showing that you are break
even or cash flow positive, but that you could turn
on a lever at any moment and really produce that
synergistic you know, ebit dah for for an acquirer, And
(44:57):
so I think that's really important. I think the there's
an element. If you had asked me sort of a
few weeks ago, I would have said, there's an element
of revenue scale that's important for the strategics. But we're
seeing interesting behavior where strategics are looking at some of
our portfolio companies just to say, wait, that might bring
infuse in the AI knowledge that I need, or the
AI understanding or the tech forward understanding that I need
(45:19):
that I know I can't get to on my own.
And so they're looking even at what i'd consider, you know,
subscale assets and acquisitions for that purpose. So it's just
this really wild time that's interesting.
Speaker 1 (45:31):
I hadn't thought about it from that angle. It's like
an ACU higher.
Speaker 2 (45:34):
Yeah, but yeah, you know, significant acquisitions, but not sort
of the billion dollar plus acquisitions.
Speaker 1 (45:40):
So maybe it doesn't change anything from a financial standpoint,
but from an operational or strategic standpoint, yeah, it makes
a lot of sense. Interesting. I wanted to switch gears
again and think about you know, there's a lot going
on in Washington. We talked a little bit about the
prior off conversation that was had earlier this week through
that lens. Knowing that DC is so fluid right now,
(46:03):
how do you guys think about where you want to
place your bets, and you know, things like Medicaid, for example,
are very fluid right now. I think Medicare could be
as well.
Speaker 2 (46:14):
Yeah, it's we had the opportunity to talk about this
that our annual meeting in June with URLPS, and I
think zooming out to the macro is really important. If
you look back over the last twenty years, healthcare spend
in the US has just steadily risen over that time period,
while our outcomes relative to our health outcomes relative to
(46:37):
the rest of the world have only gotten worse. We're
sitting at something like number twenty four twenty five on
global health outcomes and the spend is five trillion dollars
and eighteen percent of GDP. So you know what I said,
then I'll say today, which is, regardless of cuts that
may be coming down the pike, this is the most
(46:57):
one of the most important problems for the US that
must get solved. It's the math doesn't work. And so
with that that's the lens that we take. We take
what we call this long arc approach to healthcare and
just believe that if you're investing in companies that are
truly solving the fundamental problems of health care. They are
(47:18):
going to be being and important companies. Now. Is right
now a great time to be investing in medicaid? Potentially
not right, but we're being very thoughtful and particular about
which subpopulations are at risk versus which are not. So
we actually our most recent investment was a company called
Bluebird Kid's Health, which is taking full risk on managed
(47:40):
Medicaid pediatric populations. That's a population that we believe to
be safe and protected, but also one where there is
so much cost that if there is a provider and
a solution that can deliver great care and move the
needle on cost. There's tons of support from the States
and Medicaid in general, but also the team there. Chris Johnson,
(48:03):
formerly of Landmark, gave you tons of confidence on understanding
and being able to move with the nuances around regulation. Similarly, Diana,
which is focused on pregnant moms and you know, Medicaid,
but also commercial those are you know, seem to be
safe at this moment right. Similarly on Medicare, you know,
Medicare is moving into the privatization of Medicare, into MA
(48:25):
into acos and so on. Our portfolio is following a
very similar trend. And in terms of who which constituents
are our portfolio serves, it's it's a lot of MA
and ACO customers, and so we're being wary. While we
do have exposure to traditional medicaid and traditional medicare, I
think anywhere we do, those are against really expensive acute
(48:48):
populations like substance use disorder. So our full risk company,
Waste Spring, which is in full risk on substance use
disorder patients in medicaid, I mean they are really They've
had the companies like them have had audience in front
of you know, DOGE and others to just in CMS
to be part of the solution. And so I do
(49:10):
think there's a lot of solutions oriented thinking that's coming
out of you know, the current administration, particularly those who
are deep in healthcare, to think through what are the
private companies that are part of the answer here?
Speaker 1 (49:23):
Thinking about that a little bit, private companies. Is there
a white whale one that got away? I asked this
of every venture guest that we've had.
Speaker 2 (49:33):
Yeah. Well, I like to say that I rectified it
in a way because I had looked at Jeremy Friese's
first company that he started, Verrada, and had put in
a term sheet there and did not have the opportunity
to work with him was he went another direction, and
when he came back a second time, starting Humata, I said,
(49:54):
I can't make that mistake twice, And so that's I
like to tell that story because it's one that I rerected.
Speaker 1 (50:00):
How about that that's a good one. I'm sure I'll
be happy to hear that. Good for him. We're getting
near the end of the time, and one of the
ways I like to wrap these conversations up is to
ask something maybe along the personal journey, and is there
something from your personal life or your professional life, a
lesson that maybe guides you and your mission day to day,
or something that you share with your team or your
founder or the founders that you work with.
Speaker 2 (50:22):
Sure, I think i'll highlight you, know to I think
I've always my career has been a story of always
being a bit of a trail blazer as a woman
in the fields that I've been. I mean it started
all the way back to being an electrical engineer and
computer science major at MIT, where there just were not
that many other women, and then went from there to
(50:44):
investment banking on Wall Street during the Great Financial Crisis,
and then the first woman hired by a private equity
firm that had already been around twenty five years prior
to hiring me, then to sort of founding a company,
and then go into four oh six and now being
a you know, a female partner in VC. And I
take that lesson to say that, you know, there were
(51:05):
a lot of people who helped me along the way,
and just given the the places I was in the career,
when they were all they were all males, you know,
because that's who was there. But I take my role
in venture capital seriously as a way to help, you know,
others who are working up into that career, but also
the founders who are starting these companies. And so when
(51:28):
you look at my portfolio or the companies that I'm
involved with, you know, sort of fifteen of them actively
right now, there's about seven that are female founders and CEOs,
right And so I think one of the ways to
solve the challenge that we see in funding is to
have women on the check writing side of the table.
So I think my set of experiences has really informed
(51:49):
how I think about that and my role in that
and then the other, you know, final thing that I'd
say that really drives me is sort of I think
always have personally always thought about this in my my
track in my career is just how to make the
impossible possible? And I think I take that, you know,
I've always personally taken that very seriously to say, how
do I do things that people said I couldn't do
(52:12):
or it wasn't possible? And I think about that with
my founders and companies, and so I think there's so
much affinity between founders and four h six is because
we really take that approach of we can make this
impossible possible. We have to do it thoughtfully, you have
to do it with the right you know, smarts. But
that just approach and excitement to make the impossible possible
(52:32):
is something that drives me.
Speaker 1 (52:34):
Those were two excellent, excellent lessons. Thank you so much
for sharing.
Speaker 2 (52:38):
Thank you, Jonathan, and with.
Speaker 1 (52:39):
That, I guess we'll wrap it up. So thank you.
That's payel agrowaal divicaren partner at four O six Ventures.
Thank you so much for joining us for our latest episode,
and please make sure to click the follow button on
your favorite podcast app or website so you never miss
a discussion with the leaders in healthcare innovation. I'm Jonathan Palmer,
and you've been listening to the Vanguards of Healthcare podcast
(52:59):
by Lumberg Intelligence. Until next time, take care,
Host
Jonathan Palmer
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