November 7, 2024 • 55 mins
“When I looked at the industry, I saw a real opportunity set to build a best-in-class sector-focused fund,” Lynne Chou O’Keefe, founder and managing partner of Define Ventures, tells Bloomberg Intelligence in this episode of the Vanguards of Health Care podcast. O’Keefe joins BI analyst Jonathan Palmer for a deep discussion into Define’s unique approach to health-care investing, emphasizing the importance of both health-care and tech expertise. The two discuss the major trends shaping health care, including technology, consumerization and the evolution of the value chain. The podcast concludes with insights into the state of the market, including valuations, IPOs and potential consolidation.
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Episode Transcript
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Speaker 1 (00:21):
Welcome to another episode of Bloomberg Intelligence. This Vanguards of
Healthcare podcasts 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 Lynn ch O'Keeffe, founder and managing partner Define
Ventures joining us here today. Prior to starting Define, Lynn
(00:43):
was a partner at Kleiner Perkins call Field Buyers and
previously worked in the industry at Abbott. Welcome to the podcast.
Speaker 2 (00:50):
Lynn, Thank you for having me. It's great to be here.
Speaker 1 (00:52):
So why don't we start with where Define sits in
the venture community and maybe like, what's the ethos of
the firm?
Speaker 2 (00:58):
Yeah? Well, Define is a early stage, best in class
sector focus fund, and I think we think very differently
due to our core values. We have three core values,
which is defining healthcare, defining partnership, and defining leadership. From
defining healthcare, I think we think of the world intertwining
(01:18):
between having deep healthcare operating experience but also having a
tech mindset and how we build companies and bring those together.
And so, for example, really understanding the ecosystem of healthcare
with the strategics when we think about payers, providers, employers,
life science and what those go to market motions are,
but then intertwining that with the best in class like
(01:41):
tech mindset how we think about product UIUX. Putting the
consumer and the patients at the core of how we
think about products and services and intertwining those core principles
together is how I think we have a really bold
vision of where healthcare is going. Defining partnership for us
is how we deliver value to entrepreneurs, to the strategics
(02:02):
in this space, because I have a very simple you know,
I think of myself as bringing together great entrepreneurs and
having deep, longitudinal partnerships with key strategics in the industry
and matching those two together and then ultimately delivering returns
to our LPs, of course, and then lastly defining leadership.
This is how we are at the table as defined
(02:25):
is having clarity of vision, teamwork and collaboration, diverse perspectives
not only who we are, but the areas of the
industry where we've all operated in between payers, providers, employers, etc.
And then we say you know, operating relentlessly. Many of
us have been former operators. So how we bring that
to our entrepreneurs, but what we bring in, how we
(02:47):
bring that to define? And then lastly, everything done with
the highest ethical of standards. I always say, we have
the honor of reimagining the core of human life, and
we will only do so at the highest of standards.
So we kind of say, in my old role, we
used to say, as if for our family, every time
we meet an entrepreneur and or we see the product
and services, would we use that for our own family
(03:08):
as we think about our own healthcare is just that
important and we take that very seriously in how we
think about the world.
Speaker 1 (03:16):
So that there's so much to unpack there. I don't
even know where to get s. But you know, if
you can trast that to your prior role and venture,
you know, how do you see, how did you come
to the conclusion that that you need to start something
new to kind of define those values and that that
opportunity set.
Speaker 2 (03:32):
Yeah, I mean I actually think about it bottoms up
and taps down. So I'll start with the bottoms up.
I would when I was at Clenor Perkins. I would
frequently meet with entrepreneurs and they would sit down and
we'd start talking about their business and they're like, oh,
thank god, I don't have to explain what a PBM
is to you or aso business. And you know, for
many people, they'd say, Okay, all these acronyms that are
(03:54):
thrown about, but it's so important in this complex system
of healthcare. I always say, we don't have time for
entrepreneurs to teach their board members what healthcare is right,
and there's just too much to fix about this industry
and quite frankly for the care of patients. That to me,
it's like, let's start building day one, and we should
(04:14):
be a value add we should have deep partnership and
thus why one of the core values of defining partnership
and so I think what ended up happening for more
entrepreneurs is they'd have to educate their boards and they'd
have to best a breed solution stack their cap tables,
I used to say, which means they'd go to a
tech diversified fund typically that does not have a healthcare
(04:38):
partner or who focuses and specializes in it, have to
explain the ins and outs of healthcare, even though they
have a very tech mindset, if you will, or they'd
have to go to a traditional healthcare firm that may,
you know, definitely knows the healthcare industry, but might not
have a tech mindset. Typically those firms are on the
East Coast and they might not have that build principles
(05:00):
were not naming names, but I think that a lot
of these entrepreneurs felt like they had to say, Okay,
well do I go left? Do I go right? How
do I build my cab table in that way? Here?
You know, I always say with Defined, you don't have
to make those decisions. We are both those things. We
intertwine both those principles as we define healthcare. And so
(05:21):
it really resonates when I talk about that how Defined
is different for most entrepreneurs. So that's kind of the
bottoms up, if you will, tops down. When I looked
at the industry, I saw a real opportunity set to
build a best in class sector focus fun and very
much I did my homework, So you know, even though
Define was started in twenty eighteen, I really started in
(05:44):
twenty sixteen and looked at some of the what I
call best in class sector focused funds. So in consumer
we have firms like Forerunner have known Kirstin Green for
a while. She's been a great sounding board for me,
and we were on the Hymns board together, have taught
to people, you know at Ribbit as an example in
the fintech sector and others, and so really saw that
(06:07):
no one was really specializing in health tech in this
kind of intersection of these two worlds and felt there
was a real opportunity set to build something like this.
And so that's kind of the tops down and bottoms
of you.
Speaker 1 (06:20):
That's great. Maybe if we remind even further back in
your career, you know, you mentioned that you were an
industry before Abbott. You know, most people, I don't see
a lot of people making that jump from industry to
venture unless they're in business development or one of the
internal venture groups. And I know you did a little
bit of venture work earlier in your career. Was it
something that was always burning in your mind on the
back burner that this is what I want to get
(06:41):
back to to being an entrepreneur and helping entrepreneurs.
Speaker 2 (06:44):
Yeah, I might have to roll us all the way
back to kind of how I grew up. And so
you know, my my mom and dad, my dad was
a small business entrepreneur, so I've always had a bit
of that in me. We'd go into a business and
you'd be like, well, how would we make this better?
How would it be different if we were to run this,
And so have always had that mindset. My mom was
(07:06):
a career Fortune five hundred executive, and so really understand,
you know, in terms of large companies how they think
about the world and bringing those two worlds together, which
I think has always informed my view. And both of
them were immigrants to this country, so I think just
the hard work, the perseverance seeing opportunity was always kind
(07:26):
of instilled in me in a very early age. And
so from that then kind of went about kind of
where could I learn the most, and I always kind
of took a different road, I mean, in effect, like
it seems very linear, but when after being at Stanford undergrad,
many of my classmates were going off and building companies
(07:47):
right away, and I kind of said, you know what,
I think there's some things exactly and I mean this
was this was the heyday, if you will. I remember
those days of Red Herring magazine, which you know, old
people from the valley will remember that magazine and you know,
there was a cover once of this woman throwing money
in the air, you know, and but I kind of said,
(08:08):
you know what, I still think there's a lot for
me to learn. I'm just graduating and went and came
to New York, which was kind of an odd thing
to do if you think, having been at Stanford and
being at the peak of Silicon Valley in those days,
and so, you know, worked here at Goldman Sachs in
the Murders and Acquisitions group, just learning both buyside sellside,
(08:31):
but very quickly acknowledged that I wanted to feel closer
to the operations of a business, and then went into
my first venture role at Apax Partners, working for Alan
Patrick Coff, who's one of the godfathers of i'd say
East Coast Venture. And so I did that for many
years and said to myself and saw him and how
(08:52):
he worked, is if I'm going to be at that
boardroom table and I'm going to actually have a perspective
for entrepreneurs of how to build their business, I also
want to be an operator. I want to have taken
a product from R and D into launch, built teams,
built go to market motion and so after business school. Well,
many people with my background, which you would step back
(09:12):
and say, okay, with banking and having done venture, we're
going to go right back into venture, private equity, hedge fund.
That's the natural progression. And many of my HBS classmates
did that. But I said, you know what, I want
to work ground up. I want to be closer to product.
I want to be closer to building teams. And so
(09:32):
thus started really at Abbot at that time, and so
went back to the West Coast. So I finally made
my way back to California and what was brewing there.
But really also wanted to make sure that I would
get that operational experence of taking something from R and
D and in the healthcare world, go into clinical trials,
(09:53):
go into regulatory quality, right, reimbursement, all of those important
things that make I think healthcare unique, as we would say,
you're preaching to the choir here exactly, and then take
things both from development all the way to go to
market launch. And so did that both in the US,
but also did it internationally as well. So that took
(10:14):
me to Singapore, that took me to Brussels, that took
me to many places in the world where these technologies,
which at that time was interventional cardiology and cardiac surgery.
So I always say, imagine me in scrubs and I'm
sitting there right well, there's someone under a you know,
a sterile field, and literally seeing technology merged with the
(10:34):
human body. And that's when you know, I knew that
my life and healthcare would would always be changed. Having
been in Silicon Valley and been kind of an engineer,
I was from the technology space, always believed that that
could change industries, but then to see it truly merged
with the human body and what we could do, and
(10:56):
also the lack of technology in that surgical I mean
truly interventional. You know, cardiologists are looking at black and white,
fuzzy screens. I mean you have more clarity I used
to joke in the Super Bowl than you do in
some of these life threatening areas. And so just knew
that there was so much to be done here in
(11:17):
merging these two worlds together that would be a life
of driving impact, quite frankly.
Speaker 1 (11:24):
And so then how did you wind up from Abbot
at Kleiner.
Speaker 2 (11:27):
Yeah, So after many, many years and launching many products
and going to many countries around the world and seeing
their healthcare systems. There were a couple things that were
really happening in the US that were undeniable that this
was the time to come back. So the ACA was
hitting the High Tech Trust Act, which really helped digitize
(11:48):
the files. And everyone knows through their own healthcare experience,
when you go into a doctor's office, you'd see the
Manila folder, you'd see some paper printed. We still have
that today, but you know, I think through some of
these government run programs, etc. That now that data is digitized.
And so as I always say, we've started on the roads.
(12:11):
Now we have to continue to make the highways. But
you could start to see that being etched out in
what was happening in healthcare. And so because of that,
then came back into the venture industry, and I just
really felt like there were like three waves happening. First,
fundamentally is the technology enablement of healthcare. And so at
(12:33):
that time, this is even before AI, right, we were
talking about SaaS, we were talking about mobile and I
always used to say, if we just had those two
things in healthcare, it would be improved forgetting now mL
at that time, big data blockchain right, and now we
have AI right. But I do think that. Again, technology
enablement of healthcare was one trend. The second trend is
(12:54):
how the healthcare value change is truly evolving. So from
fee for service to value based care is just one example.
And even what we're seeing, you know, happening now with
in the pharma industry and the pharma value chain is
really interesting. So that's a second wave, is right, like
(13:15):
that ecosystem, that value chain is constantly changing. And then
thirdly is the consumerization of healthcare. And you have to
understand this is before COVID even, but this recognition that
in our lives, you know, health care spend is quite
a bit of people's out of pocket spend if you
think about it, and is such a different experience, right,
(13:37):
the friction, the siloed nature of it, Why isn't it.
It's not the same as what we think about food
or transportation or other areas with which we spend in
our lives and we need in our lives. And I
would argue healthcare should be better than that, right because
again it's back to the core of human life, and
so those wins were already starting. And then of course
(13:59):
you put co COVID around this, right, and the importance
of healthcare to not only the industry, to the country,
but to our human lives. And I think everyone was
touched by that when we had COVID happen, and so
I always say it took something that was an evolutionary
pace to a more revolutionary pace. Of those three trends,
so the technology enablement of healthcare, the business and the
(14:22):
value chain of health care changing, and then the consumerization
of healthcare.
Speaker 1 (14:26):
Wow. So I guess the question I have is where
are we today? You know, if we think about those waves,
are we on the crest of a wave or are
we on the uptake of a wave? Where do you
think we are?
Speaker 2 (14:38):
Yeah, I mean you'd almost have to take those three separately.
So on the technology enablement of healthcare, obviously you know
what we're seeing with AI. It truly is or shattering
and groundbreaking and it's going to take some time though,
Like there has to be trust to be built within
(15:00):
both the technology but then with clinicians and with patients, right,
So that will take some time. But we saw some
of those waves before. This is slightly this is different,
but at least seeing like the virtualization of what we
call telemedicine also kind of tested some of those things.
So remember before COVID, you know, people would go to
(15:21):
the hospital, right, That's how we saw it as a
more bricks and mortar experience. And with that, telemedicine was
really born that not only is that what consumers wanted
and patients wanted, but truly that there was trust built
with physicians and that this is a way they could
practice and still be very effective. Right, And that was
(15:44):
I'd almost say even more important to have that, right,
And I'd say that same thing here is what we
have to build with AI. And there are some real
forces in the industry to say this is not a
nice to have of like should we do this technology.
It's almost a kind of an imperative to have AI.
(16:06):
And there are a couple things. First, the supply demand
mismatch that we have in healthcare is truly a crisis.
We don't have enough primary care, we don't have enough nurses,
every we have the aging wave that's coming upon us, right,
this is going to be more and more of a
crisis in terms of that and healthcare systems and talking
(16:28):
to leaders they already feel this, but is even going
to be exacerbated more with the aging silver wave coming
at us, and so we have to find a way
right with physicians to say, how are we going to
augment them, How are we going to allow them to
kind of work as we say, top of license is
(16:48):
really important. How can we make them more effective that
they can see more patients and do so safely and
effectively with that. So that is something that's just so
important that that AI is necessary right now given where
we are. So i'd say that's where we are. It's
an exciting time from a tech enablement side. On the
(17:09):
value chain changing. I think there's some interesting we're going
to take some steps forward and we'll take some steps back, right,
And I think that in many ways we saw an
advent of like value based models, right. So again in
this healthcare world, we're going from fee for service to
value based. There have been a lot of changes in
(17:30):
Medicare advantage as of late, right, and so I think
we're still kind of but it's a necessary part of
our healthcare system that we don't pay for how many
times you go to the hospital, but we actually reward
keeping people out of the hospital. That's really important.
Speaker 1 (17:46):
Well, you are you incentivized these behaviors, right, depending on
the payment structure. That's right, It's apparent to most people
in the industry, but it's taken a long time to
get this shift to actually gain traction.
Speaker 2 (17:56):
That's right, well, because it's real change management and the
entire health care ecosystem think about it. It's the system's
processes and culture that have to fundamentally change of how
we deliver and how we pay for healthcare, and how
we think about healthcare going forward being more preventative right
than more acute and when disease progression happens. So it's
(18:20):
a fundamental shift of how we practice, but how we
pay for and how we run healthcare in this country.
So it will not be overnight as we see. But
then we see really some exciting things that are happening
quickly in terms of like how pharma is now thinking
about how it goes to market. We've seen some recent
announcements that really say to ourselves, what could this mean
(18:41):
as we look forward in the future.
Speaker 1 (18:44):
Do you mean things like like the will we direct
those sorts of models exactly?
Speaker 2 (18:47):
Exactly? So in many cases, like we've tried to say, okay,
how can we be more consumer centric right back to
a more tech driven mindset and how we think about
product UIE and removing the friction, removing the siloed nature,
and quite frankly all the steps you have to have
for healthcare to be delivered to you. I think we're
(19:09):
really testing some of those principles with what Lily is
doing is I think actually very exciting and how we're going.
And then lastly on the consumerization, I think it etches
to that point as well. I don't think we're going
to go back to the way consumers want to see healthcare.
I think we're going to have more hybrid environments of
both virtual and bricks and mortar, and being cared for
(19:31):
at the right place, at the right time, and the
right methodology will stick and always be there. And I
think for as we were talking about providers recognizing that
this is an important time that they need to be skilled.
There's just too much to do, there's too much burden
and too much that they have to realize they want
to get back to patient care and so if we
(19:52):
can leverage that with technology will be helpful and helpful
with the consumerization too.
Speaker 1 (19:57):
Well, that's a very deep backdrop. Let's dive into where
like the rubber meets the road, there So how does
that inform some of the investments you guys have made
at Define.
Speaker 2 (20:06):
Yeah. Absolutely. So we have this analogy of we're rebuilding
the house of healthcare and that starts with the front door.
So we say consumer gateways, how people come into healthcare,
is changing health and wellness, combining the consumerization of healthcare.
So we've invested in companies like Hymns found in the
weightless space that I think epitomize that. And then we say,
(20:29):
when you walk into the house, you're on the foundation
layer of that house, and that's data, liquidity and analytics.
I think for us is there's how do we really
understand who you are not only your clinical data, your
claims data, but then also your community based data and
having a full picture of who you are so that
(20:50):
we can give you that personalized experience. So we've invested
in companies like unite Us, which is really bringing community
based data to like Crescendo as we think about real
world data for clinical trials is another example. And then
when we say we understand who you are, we can
guide you in the hallways of the house to the
rooms where healthcare is delivered. And that's tech enabled services.
(21:12):
So we have companies like Concert, which is collaborative care
mental behavioral health. We collaborate with your primary care docs
so that your physical and your mental behavioral health they're
not two silos, they're actually one. And so that's one
company that we've partnered with. And then also how I
think about digital therapeutics is not just that technology is
(21:35):
the therapeutic, but how do we wrap around some of
these therapies. And so we've done a lot and we
think about story health. We've invested around heart failure and
how you take your meds really affects the outcomes, same
with weight loss as well. And then the last area
we say is like the full stack house, which is
vertical reimagination, so new entrants attacking the incumbents and doing
(21:59):
all of these things natively from day one.
Speaker 1 (22:02):
What's an example of that is that like a Waltz
because we had Mark on.
Speaker 2 (22:05):
Yeah, I'd say Waltz is one. Another one we have
is Centivo, which is an end to end commercial plan
that's thinking very differently of how do we make sure
that you have virtual primary care from the very beginning,
but then also be able to have strong health system partnerships,
be and save employers fifteen to twenty percent on healthcare costs.
(22:28):
Because we've done all of this natively right, we understand
consumers and how they go through the front door. We
have you know, digitally native information systems, and how we
think of who you are and then think about virtual
primary care and that tech and able to service the
rooms of the house and so build it again back
to these principles from first go, rather than you know,
(22:52):
traditional or archaic systems and trying to bend around those.
Speaker 1 (22:55):
So maybe let's talk a little bit about process. You know,
when an entrepreneur has an idea, how they how do
they work with define? You know, what is your prefer
I love getting into the nitty gritty of how people
prefer to be pitched. What do they want to see?
What are the criteria to actually get a check at
the end of the day.
Speaker 2 (23:11):
Yeah, I mean I even I just even hate the
word pitch. Let me just tell you it's really a partnership, okay, right,
And it's a partnership of that makes sense. How do
you want to build your business? I always say the
best meetings they're not pitching us. We're thinking together. We're
almost like whiteboarding what the world could be together, and
so we like to think in what I call a
(23:33):
V one, V two, V three. So V one is
what's your wedge point? Who are you today? V two
is how do you earn your right to be a
platform right from that wedge point? And V three is,
now you are the dominant platform? How are you going
to change healthcare? And so we love in those first
meetings of like, okay, yes, what are you going to
attack today? And how do you note to the depth
(23:55):
of that V one strategy, but then always imagine to
V two and V four of the future of what
you want to build. Those are the best meetings when
we actually feel like we're going back and forth, we're
pushing each other, we're understanding in depth how that entrepreneur
is thinking, but then also kind of saying, hey, have
you thought about this? And it's a mutual kind of building.
(24:18):
That's when the magic happens. And I think we frequently
get that feedback is like this discussion is different than
others a because you understand the space so well that
you can kind of dream with me, if you will,
and they see that partnership of how we would be
for the next seven to ten years.
Speaker 1 (24:37):
So it's interesting. You know, you talked about you understand
the entrepreneurs. You know, you're here, but you have a team,
and so I'm just wondering your philosophy around the team
that you built. What were you trying to solve for
in terms of capabilities and expertise there to help you,
you know, manage it, because there's tons of different models
that you mentioned, whether it's the DTC, life sciences providers,
(24:58):
you know, there's everything under the sun, I think to
a certain extent, So maybe just talk about your philosophy
around maybe your own internal team, which I'm sure maybe
translates to how you want to see others build their
business as well.
Speaker 2 (25:09):
Yeah, we've been really intentional about how we've thought about
the team, and that's since day one when it was
just myself and where we are today, and what we
thought was so important is to make sure that we
have that expertise in all the verticals of healthcare. So
if you look at our team, you know, I've already
talked about my operational experience being in the life sciences.
(25:33):
When I think about my partner Shrogshaw his deep experience
in the employer world, When I think about Frank Williams,
who we've brought on who has deep experience in many worlds,
but in the provider world. He was the CEO of
the advisory board, he took that public. He was a
CEO and co founder of Evelyn and then took that public.
And we have some more exciting announcements that'll be happening
(25:56):
over the next couple months as we know continue to
show that we really have operating experience across all verticals.
That's really important because, as I said, yeah, it's such
a complex ecosystem. You really have to have that payer knowledge,
you have to have the provider knowledge, the employer knowledge,
the government, and then also life science to really bring
(26:19):
all of this to light. And so have thought very
intentionally about that team build. And then on our platform side,
we have our head of people, our head of marketing,
our head of partnerships, who all of them have been
in digital health companies and startups. And I always say
it's like seal team six is that they can go
in be highly strategic work with our entrepreneurs because they've
(26:44):
lived that world. We've all lived that world either in
healthcare or health tech startups, and that's a very unique
place to be which you can really only do with
a sector focused fund right. When you're diversified, you'd have
to go across so many industries, and this is such
a complex and there's so many motes around this that
if you really understand and have these relationships, you can
(27:06):
really drive impact and change. And so that's been a
core philosophy of this team build. And then back to
our core values. Does each of these team members exhibit
how we talk about defining leadership right, that collaboration, that
relentless operating drive right, and then everything done at the
highest of ethical nature. I'm really proud of the fact
(27:27):
while we have some amazing people who have had such
deep careers and success, at the core, they're very much
tied to the values of define beyond their successes, of
who they are as people and how they think about
the impact of healthcare.
Speaker 1 (27:47):
So you talked about being an entrepreneur, and one of
the things that always fascinates me about entrepreneurs is that
you know, kind of getting that company off the ground,
and you know, you've done a couple of fun since
your inception, you know what has resonated with institutional investors
with what you're doing, and how easy has it been
to raise, you know, additional capital for these additional funds.
Speaker 2 (28:06):
Yeah, I would to reflect back. It's now been almost
six funds and six years, like going back to where
the first fund, I think we had clear intention and
focus and vision of what we were building, and I
think that has made all the difference. So I have
(28:27):
a slide that I like to even I've shown the
team multiple times that I built back in twenty eighteen,
and that slide had our core objectives around our core
values for fun one, Fund two, Fund three. I had
already mapped out all those funds from day one, right,
and so you know it's the simple aspects of you know,
(28:49):
even having our core values day one, and then how
does that map to our fund objectives? How does that
map to the OKRs of our team. I start every
LP meeting those core values as our table of contents
for our annual meeting with the LPs. I mean, that's
how intentional this has been. And I think it's because
I've learned, you know, from being at you know, Kleiner
(29:13):
Perkins and working with people like Brooke Buyers, the founder
of Kleiner Perkins, caw Field and Buyers and John Dorr,
but then also Alan Patrick hov at APAX, having learned
you know, how we wanted to build this going forward
and how you know that with great strategy, I say,
you're just executing on that vision. So that slide built
(29:34):
in twenty eighteen is absolutely relevant today. Haven't really touched
a word on that slide. That's great because I think
with great strategy, you're just executing to it. And that's
exactly what we've done. And so we've almost two x
our fund from fund one to fund two to fund three.
But now making the very conscious decision, which also is
you know, with funds, it's very easy to keep saying, Okay,
(29:57):
I want to grow my AUM. That's not who we are.
We're fundamentally early stage builders. And so for me, as
I think of even fund four, fun five, Fund six
going forward, we've really reached that fund size that we
think is ideal for this space. And so instead of
two xing you know yet again we're going to stay
(30:19):
very consistent. We want to be early stage builders, early
stage fund with venture like returns. And you know that
is something that I've also known in kind of what
we want to build and the intentionality going forward.
Speaker 1 (30:32):
So you brought up that your inception was twenty eighteen,
and I think the world obviously, we all know the
pandemic has changed a lot. But if we think about healthcare,
technology and digital, I think there has been varying degrees
of exuberance around those business models. And from the public
market side, you know, we saw a number of companies
come public in twenty twenty, twenty twenty one. Most of
(30:53):
those haven't done so well and their performance. So you know,
looking back, you know, on the privates side and the
public side, you know, how would you describe that period,
you know, since your inception.
Speaker 2 (31:06):
I mean, you really have to look at health tech
as a space that's only emerged since twenty nineteen. So
why do I say that because it was in twenty nineteen.
Speaker 1 (31:15):
We're not counting the cerners and other previous.
Speaker 2 (31:18):
From a venture perspective, right, so there were earlier eras,
But when you really look at when has health tech
been almost ten percent of all venture dollars. So we
did an analysis that we actually looked back to some
of our precursors and if you remember, I said, we
modeled this like when we saw you know, fintech exploding
and there was early stage sector focused funds like Ribbit
(31:41):
or consumer like uh a forerunner. And so we actually
went back and we charted health tech versus fintech and
consumer and we we said, okay, whin of each of
those industries crossed ten percent of all venture funding. And
that was to say that there's real money going into
this space, right, And so this is health tech is
(32:03):
one of the earlier sectors. You know, for fintech it
was like all the way back to like twenty sixteen,
and consumer even earlier than that. And so you have
to look at it on that curve. And we know
that most companies it takes seven to ten years from
begin you know, truly first inception to exit generally in
venture capital. And so that just shows you, given that
(32:25):
the sector start in twenty nineteen really to crust into
true venture dollars, how early this sector is. So we
look at it and if you look at and you
bring all of those sectors back to T equal zero,
we've had more exits in this space than fintech or
consumer at that time, right. And we also when you
(32:45):
look at the average exit valuation has been almost double
from when those those sectors had exits again back to
T equal zero. So it's really exciting actually what health
tech has done in such a short period of time.
You're absolutely right as we think about the public markets.
But when I look at the aggregate of how how
(33:06):
tech performance against traditional tech two, it's not that dissimilar.
I think there are some categories that have been hit harder,
like the payer area has been hit harder. But if
you take most growth health tech stocks with you know,
the tech world as well, it's it's very similar performance
in that way. But I'm also buoyed by you know,
(33:27):
this year we had tempest Ai go out, so Eric,
you know, I'd say they're performing really well, and so
there was I think, you know, when I look at
it in that light and we look at how early
this space is still again, you know, we're only you
know again talking about five years or so. I'm very
(33:48):
excited too about this next crop of IPO candidates because
we've had longer to kind of mature them. Right, They're
going to be coming out at a different revenue scale
launched right.
Speaker 1 (34:00):
There was in the twenty twenty twenty twenty one period,
you know, high revenue growth was fine, profitability in the future,
There's definitely been a shift in the tenor of terms
of what's acceptable from you know, reaching profitability and when
that's going to happen. So i'd love to get your
view on the IPO window and when when you think
it's going to be more fully open, or any views
(34:21):
you have really around what's going on with the IPOs.
Speaker 2 (34:24):
Yeah, I mean, hey, I'm sure there are a lot
of conversations in this building at Bloomberg around that very topic.
You know, seeing Tempest go out was very exciting, and
of course we also had was Star this year. But
I think that you know, twenty twenty five, as we
think about the markets opening up a little bit, we
see it on the private side. Just even the pace
(34:47):
of deal flow of what's happening right now is you know,
again it's really picked up. And to give you an example,
entrepreneurs are coming to us and within a week or
two they have a term sheet. I mean that's again,
if I to roll back in the last year, that
wasn't necessarily happening, right, So we've come back and it
is definitely more focused around AI. But I can see how,
(35:10):
you know, how other firms are starting back up in
their pace again in terms of deal flow, getting to
term sheet closing deals is definitely feeling like back not
I wouldn't say necessarily twenty twenty one, but it has
some of that aspects for AI and so I see that,
plus how the two IPOs I'm really hopeful for twenty
(35:31):
twenty five in terms and then knowing that there are
companies that have been waiting in the wings in our
sector in space to go out, that have been ready
for a couple of years now, it's just the window
asse we probably exactly, we probably are thinking the same
ones we're anxiously waiting, exactly, and we're going to see
(35:52):
much more mature players than we did when the first
window again back when again twenty nineteen is when we
really were putting real venture dollars. I think our first
class of IPOs went out early, as you would think,
and it was a different time to what you said.
And I think we're going to see a very different
(36:12):
class of maturity here for the second wave of health
tech IPOs.
Speaker 1 (36:18):
So with that in mind, you know you talked about
the ease of founders raising additional capital. Are you seeing
that purely on the early stage part of the business
or is that also in the later stage, which I
know you're not necessarily focused on. But is that access
to capital still relatively easy?
Speaker 2 (36:35):
Easy? It's never easy. Let me be really clear, I
would say that, you know, I do think later stage
is harder. That's just an aspect because until that IPO
window really opens up and people see how things perform,
I think people are just again more hesitant. It's it's
just that's I think where we are in that market.
(36:55):
When it's an early stage, it's different. It's different check
sizes too, obviously, so we focus on the seed A
and B mainly, and I would say that it has
really picked up. There is still on kind of the
later stage. There's the have and have nots. I think
we're seeing, you know, some deals you know, again it
(37:15):
could be the timing, but some deals that it's within.
We have one that's one week from starting truly a
formal process to having a term sheet.
Speaker 1 (37:26):
Wow.
Speaker 2 (37:26):
And that's a later stage for us deal. Right, So
that's you know, how we think about it. And then
on the earlier stage side, we see that movement and flow.
Obviously there's a little more gravitation to AI companies that
are going a little faster than others. But I think
that we've really kind of turned a corner here in
the back half of this year and what we're seeing, So.
Speaker 1 (37:49):
How do evaluations play into that discussion as well? You know,
as a public equity analyst, I'm always curious what's happening
in the private market, just because I know a lot
of these companies are going to be part of the
public companies that I cover.
Speaker 2 (37:59):
Yeah, yeah, I mean, valuations have stayed steady in health tech,
both at the seed and the Series A, and so
I think we're going to see a little more of
an uptick at the Series A as the AI valuations
flow through our business. Again, I don't think it's to
the degree of General Tech as usual, and you've seen
(38:22):
a real spike. I mean, the pre money on a
Series A of General Tech is around seventies seventy million
as a pre money in the Series A by our data,
that's a huge step up from you know, average I
would say is like forty to fifty and I think
that's really reflecting of the AI valuations that you see
(38:43):
in general Tech. We will also probably have that, but
it's remained pretty steady in the forties for Series A deals.
As one example of the valuation, you know, I'll be
the first to say this, just a step back to
the numbers are the numbers. We absolutely have ownership targets,
as most early stage firms have, and that's at the
(39:06):
seed in the A and we map those all out
for our LPs. We judge ourselves against how we met
those metrics every year to our LPs. At the same token,
I would say, every time in my career where we
have backed a company that's scaled and exited, be at
a Levongo, be at a Hymns, or otherwise, at some
(39:28):
point you say, like, this is the right team, this
is the right vision in that extra ten twenty thirty
percent of valuation or whatever it might be, is not.
Let's not worry ourselves over right, right. So like, as
an example, I mean, i'll tell you right now, I
remember sitting there debating with our partners. We had put
(39:49):
for the Series B of Levongo. We would put down
a term sheet in the sixties, so sixty million ish,
let's say for a Series B pre money, and we
knew it might not get there and or sorry, it
might not win. So we were debating, like do we
put something higher than that? You know, we ultimately got
to the eighties, let's say, and we were really thinking
(40:12):
that through and now you know, flashback, that's an eighteen
billion dollar exit. That again that differential in the end, right.
So I always feel like with great companies, you're going
to feel like you paid up a little bit, but
in retrospect. But it is important to have calibration, to
have the metrics because there are a lot of venture
(40:33):
investors that I think in twenty twenty one everything was
up into the right and there's going to be some
real pain there in terms of the valuations that were paid.
I mean, they were simply untethered when we think from
a multiple perspective. So you have to have you know,
I go back to venture as an art in a science,
you have to have both these in mind. You have
(40:53):
to have like focus but see opportunity and you have
to have both these things. And so that comes to
play all the time and making any decisions.
Speaker 1 (41:02):
I can't help but think about the Levogo example. You know,
eighteen billion. I think Teledoc was roughly around the same
size at that point. It's single digits for the combined
company today. Are you concerned at all on the AI
side that the exuberance there kind of mirrors that that narrative. Yeah,
I mean, I don't know that it matters, you know,
necessarily if you're getting out at the multiple of a
(41:23):
of a levongo.
Speaker 2 (41:24):
But yeah, I think I am. I am concerned about that.
I think in health tech we have to be clear.
What I said earlier is the trust of the industry, right,
and that does not come overnight in healthcare because to
really scale your AI business, you need to have that trust.
And we are learning so much about the different the
(41:49):
different llms, how they perform. There's just so much And
I think in healthcare first it's let's make sure we're
doing no harm, right, Like that is it's almost like
a credo, right. And I think it will take some
time so to pay you know, lofty valuations like we
see in the tech industry at this point, I think
(42:09):
we have to be really thoughtful, and we've been really
thoughtful at define. Time will tell if we're right or not.
But I would say where we have played, we've almost
been semi builders. Like I wouldn't say it was an
incubation per se, but it's been much more of a
blend where we think there's a really interesting team. The
(42:31):
concept is very early, and we're bringing these strategic partners
with us that we have deep, longitudinal relationships with and
so the valuations of what we're having reflect that and
being really thoughtful of like the type of entrepreneurs in
AI that we're also backing, because that's really flipped itself
(42:54):
on its head a little bit of what an AI
founder and founding team look like and what does what
will be optimal I think is going to be a
very interesting that.
Speaker 1 (43:04):
A little bit more that's really intriguing, Like what do
you mean by that that that that view has changed.
Speaker 2 (43:08):
Yeah, So if you look at the historical of our
partnerships with founders, I think to find really spikes in
multi time repeat founders who are veterans. So Mark there's
a great example. I mean Mark, there was the CEO
of Canamran. He sold that for thirteen billion to Optum.
He was the CEO of Optimarx. I mean when you
(43:29):
think of the PBM space, I always say I would
never back a first time founder in that space, right,
Like you just have to understand the labyrinth and all
of the attributes and the complexity there. And that is Mark, right,
So that is our prototypical founder and I can go
on about all our founders. They tend to be repeat
long time you know, kind of veterans really understand the space.
(43:52):
Well with AI, there is no what does repeat mean? Well,
repeat doesn't mean anything. And secondly, those people who have
been really forward thinking and on the cutting edge of
AI tend to be PhDs and have done a lot
of research around this space. But I think what's really
important in healthcare is also have you scaled these things?
(44:12):
Have you actually integrated into current technical infrastructure stacks? So
if we're talking about a payer stack, I mean, right,
that's very complex, right, it can't just be this AI
off to the side. We really believe that we think
about things like workflow and integrations of what really is
(44:33):
going to make AI scale in these large health systems,
these large payers, you know, as we go down the list,
and so we've really thought heart of how do we
create blended teams where you can take that AI technical
talent but really marry it with people who understand infrastructure
stacks as it is today, the commercial side, the workflow.
(44:54):
And so I think some early AI companies we saw
are like PhD LAD and sometimes that's the CEO or
and or the CTO, right, And I think what we're
going to see going forward is going to be that
marrying of yes, the PhD led and where is AI
taking us, but then really also married with people who
have built in those stacks before, built in that workflow,
(45:16):
and had go to market experience. I think that's where
it really comes together, intertwines and becomes can be very successful.
And that's how we're thinking about teams. But it's been
really different, as you know, because we're all learning this together,
to be you know, to be honest, right everyone right,
this is this is a title wave here and and
(45:37):
it just keeps scaling. We actually had Greg Brockman at
one of our events earlier this year at JP Morgan
who he is the co founder and president you know,
of open Ai, and you know, he said, I've been
here eight years in every eight years, every year, we
only release something if it's been exponentially better than the
prior version. And he said, for the next eight years,
(45:59):
we continue to think we're going to release at least
once a year because we're going to have that exponential
performance differential. And so when you when an industry is
moving as quickly as that, right, we are all learning
and we all are scaling. So it's it's an exciting
time definitely.
Speaker 1 (46:17):
You know, through your career you've had a number of
I think big wins, big exits. Lavongo Hymns has been
a great one. I love to ask, is there been
like a white whale one? Everybody has one that they
should have done that got away.
Speaker 2 (46:30):
Oh that's such a good question, and it's so funny
because I've asked a lot of the people that I've
learned from that very question. And for us, I think
that you know, there are a couple of companies they
haven't gone out yet. Remember this back to my point
of this industry twenty nineteen, right, So some of those
(46:51):
that we had opportunity, they haven't gone and exited. It
looks good for them, right. And so there are some
in the eployer facing space, I mean having a front
seat to see when Teledoc we partnered with Teledoc, this
was back when I was at Kleiner. We partnered with Levongo.
We also partnered with Progeny. These were some very big
(47:13):
wins in the space. I think there were next ones
that I had seen at the earlier stages and for
various reasons didn't get there, but look like they're scaling, right,
I'd say, like thematically, I'll just I will say. One
thing is when when I started Define, it was twenty eighteen,
(47:37):
and at that space, we saw a lot of like
companies that were second or third in their categories, and
we said to ourselves, well, we really only want to
invest if we think it's going to be first in
its category. Because this space was so early, and when
you looked at it, you know, Levongo went out, went public.
You know Amada is still a private company. You know
(47:58):
what's going to happen there. At that time, Teledoc had
gone out, but Amwell hadn't right that then went out
but didn't perform really as well as Teledoc, and then
obviously we had There are other things there. So there
are times where we've said to ourselves, this is a
number two number three player either timing to market or
otherwise or skill wise. Don't know if this industry is
(48:23):
ready to have like multi billion dollar exits like Deca
Korns for the number two and three players, that might change, right,
and we might have been write something, but you have
to invest in the sector. Remember, this is an emerging sector.
So there are certain attributes like that, like you don't
want to get too far ahead of the curve to
(48:43):
where the maturity of the sector is. Does that make sense?
It's very different than investing in enterprise software, let's say,
even team building. You ask about team building a lot
of LPs. I say, this isn't like I'm building an
enterprise software sector focused fund where there's been twenty years
of investors and people who have gone from associate to
principle to partner. There's not that many people with track
(49:07):
record in this space, and so that had a lot
of implications how we built the team as well. You
have to come back always when you're a sector focused
fun to the attributes of that sector, where it is
in its maturity, and that has flowed throughout the stack
of how we think about defining from the team, our approach,
our check sizes, our fund size, and then to your
(49:28):
point of the actual investments we make. When do we
where do we believe the industry is ready to again
build that billion dollar plus player? And that's one where
I would say time will tell. But maybe where we
were we a bit conservative there, could we have still
built you know, multi billion dollar players from a number
(49:49):
two number three.
Speaker 1 (49:50):
Well, it's interesting because we're recording this a couple weeks
before HLTH and I'm sure you'll be there. I'll be there.
But I've walked around that exhibit for and kind of
had the epiphany of that there's a fair number of
companies that look like they do the same thing, and
so I keep thinking there needs to be some consolidation here,
and I think maybe it plays into that theme that
maybe the number two player isn't you know, at scale today,
(50:13):
but two or three acquisitions down the road they might be.
Do you see a similar, I guess theme of consolidation
amongst some of.
Speaker 2 (50:21):
These Absolutely, I'll give you an example.
Speaker 1 (50:24):
Also, Rams that might be the right way to say it.
Speaker 2 (50:26):
Yeah, I mean I think we saw an overinvestment in
the employer space and that was heralded by many of
the investments that I've made in my career. Right in
that opening, you know, let's talk about how many MSK
companies there.
Speaker 1 (50:41):
Are all different point solutions.
Speaker 2 (50:43):
Yeah, they're just there are tons, right, and so when
you actually look at Defines Portfolio and our partner companies,
we're lighter on employer than you would think. When we
talk about go to market motion we're in life science,
payer provider, and then some slight D two C. But
(51:03):
and that was purposeful in a sense of if we
can't really, if we can't really sit back and say,
why is this clearly a differentiated solution? We absolutely have
not played in that space. And there are other areas
where you know, we're not afraid. You know, we're the
kind of firm we have high conviction, meaning we're not
(51:24):
going to place a bed on every red and black
square with every number right. We're going to be really
thoughtful of where we play. And I think you've seen
that we've actually played lighter and employer at this point
because of a lot of me too. Where's the real
differentiation and where that that buyer is right now I
(51:46):
think has been oversaturated in some ways.
Speaker 1 (51:49):
Well, we're getting to the top of the hour and
I like to kind of wrap these conversations up with
something personal from the guests, And I always ask everybody
to think about a life lesson that drives them in
their day to day or some that they share with
their team. You know, in terms of that ethos, could
you point to one thing in your life that you
share with your team about you know what drives you
to do this job day to day.
Speaker 2 (52:10):
Oh gosh, so many things, but I would say like
it comes back how we started a little bit. You know,
my parents came here as immigrants and they saw opportunity,
to put it simply, and so that has been something
that when I have taken a little of the road
less traveled, and I had my own reasons of why
(52:32):
this would be the right opportunity for me at that time,
be it, you know, starting as a product manager from
Abbot at you know, entry level, when a lot of
my you know, people with my background in banking and
finance would never go and be a product manager. It
was right for me at the right time. I wanted
to learn ground up those things. And then once you
(52:55):
have that learning and that set seeing opportunity, So taking
the opportunity and also seeing the opportunity, and I think
that is very much what drove me to found define
was not seeing that best in class sector focus fund,
seeing entrepreneurs that we're having a really hard time having
(53:15):
someone who understood them and their business and could really
help them build and grow. And so it presents itself
today as I always say to our team, is like,
how can we be offensive, right, how can we with
what we do at DEFINE? I want to make sure
it's something that Sequoia or Excel can't do, right, Like
(53:35):
if we write a piece or we have a community.
You know, we have a founder summit in Deer Valley.
Could Sequoia or Excel do that? And if they can,
well we haven't done it to the level of Define.
So we always just see that opportunity and how can
we be offensive and distinctive about what we The value
(53:56):
and our core values of what we're bringing.
Speaker 1 (53:58):
To entrepreneurs won full We brought it full circle. I think.
Thank you so much for joining us.
Speaker 2 (54:03):
Thank you so much for having me.
Speaker 1 (54:05):
That's Lynn chu O'Keeffe, founder and managing partner of Defined 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 site 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
by Bloomberg Intelligence.
Welcome to another episode of Bloomberg Intelligence. This Vanguards of
Healthcare podcasts 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 Lynn ch O'Keeffe, founder and managing partner Define
Ventures joining us here today. Prior to starting Define, Lynn
(00:43):
was a partner at Kleiner Perkins call Field Buyers and
previously worked in the industry at Abbott. Welcome to the podcast.
Speaker 2 (00:50):
Lynn, Thank you for having me. It's great to be here.
Speaker 1 (00:52):
So why don't we start with where Define sits in
the venture community and maybe like, what's the ethos of
the firm?
Speaker 2 (00:58):
Yeah? Well, Define is a early stage, best in class
sector focus fund, and I think we think very differently
due to our core values. We have three core values,
which is defining healthcare, defining partnership, and defining leadership. From
defining healthcare, I think we think of the world intertwining
(01:18):
between having deep healthcare operating experience but also having a
tech mindset and how we build companies and bring those together.
And so, for example, really understanding the ecosystem of healthcare
with the strategics when we think about payers, providers, employers,
life science and what those go to market motions are,
but then intertwining that with the best in class like
(01:41):
tech mindset how we think about product UIUX. Putting the
consumer and the patients at the core of how we
think about products and services and intertwining those core principles
together is how I think we have a really bold
vision of where healthcare is going. Defining partnership for us
is how we deliver value to entrepreneurs, to the strategics
(02:02):
in this space, because I have a very simple you know,
I think of myself as bringing together great entrepreneurs and
having deep, longitudinal partnerships with key strategics in the industry
and matching those two together and then ultimately delivering returns
to our LPs, of course, and then lastly defining leadership.
This is how we are at the table as defined
(02:25):
is having clarity of vision, teamwork and collaboration, diverse perspectives
not only who we are, but the areas of the
industry where we've all operated in between payers, providers, employers, etc.
And then we say you know, operating relentlessly. Many of
us have been former operators. So how we bring that
to our entrepreneurs, but what we bring in, how we
(02:47):
bring that to define? And then lastly, everything done with
the highest ethical of standards. I always say, we have
the honor of reimagining the core of human life, and
we will only do so at the highest of standards.
So we kind of say, in my old role, we
used to say, as if for our family, every time
we meet an entrepreneur and or we see the product
and services, would we use that for our own family
(03:08):
as we think about our own healthcare is just that
important and we take that very seriously in how we
think about the world.
Speaker 1 (03:16):
So that there's so much to unpack there. I don't
even know where to get s. But you know, if
you can trast that to your prior role and venture,
you know, how do you see, how did you come
to the conclusion that that you need to start something
new to kind of define those values and that that
opportunity set.
Speaker 2 (03:32):
Yeah, I mean I actually think about it bottoms up
and taps down. So I'll start with the bottoms up.
I would when I was at Clenor Perkins. I would
frequently meet with entrepreneurs and they would sit down and
we'd start talking about their business and they're like, oh,
thank god, I don't have to explain what a PBM
is to you or aso business. And you know, for
many people, they'd say, Okay, all these acronyms that are
(03:54):
thrown about, but it's so important in this complex system
of healthcare. I always say, we don't have time for
entrepreneurs to teach their board members what healthcare is right,
and there's just too much to fix about this industry
and quite frankly for the care of patients. That to me,
it's like, let's start building day one, and we should
(04:14):
be a value add we should have deep partnership and
thus why one of the core values of defining partnership
and so I think what ended up happening for more
entrepreneurs is they'd have to educate their boards and they'd
have to best a breed solution stack their cap tables,
I used to say, which means they'd go to a
tech diversified fund typically that does not have a healthcare
(04:38):
partner or who focuses and specializes in it, have to
explain the ins and outs of healthcare, even though they
have a very tech mindset, if you will, or they'd
have to go to a traditional healthcare firm that may,
you know, definitely knows the healthcare industry, but might not
have a tech mindset. Typically those firms are on the
East Coast and they might not have that build principles
(05:00):
were not naming names, but I think that a lot
of these entrepreneurs felt like they had to say, Okay,
well do I go left? Do I go right? How
do I build my cab table in that way? Here?
You know, I always say with Defined, you don't have
to make those decisions. We are both those things. We
intertwine both those principles as we define healthcare. And so
(05:21):
it really resonates when I talk about that how Defined
is different for most entrepreneurs. So that's kind of the
bottoms up, if you will, tops down. When I looked
at the industry, I saw a real opportunity set to
build a best in class sector focus fun and very
much I did my homework, So you know, even though
Define was started in twenty eighteen, I really started in
(05:44):
twenty sixteen and looked at some of the what I
call best in class sector focused funds. So in consumer
we have firms like Forerunner have known Kirstin Green for
a while. She's been a great sounding board for me,
and we were on the Hymns board together, have taught
to people, you know at Ribbit as an example in
the fintech sector and others, and so really saw that
(06:07):
no one was really specializing in health tech in this
kind of intersection of these two worlds and felt there
was a real opportunity set to build something like this.
And so that's kind of the tops down and bottoms
of you.
Speaker 1 (06:20):
That's great. Maybe if we remind even further back in
your career, you know, you mentioned that you were an
industry before Abbott. You know, most people, I don't see
a lot of people making that jump from industry to
venture unless they're in business development or one of the
internal venture groups. And I know you did a little
bit of venture work earlier in your career. Was it
something that was always burning in your mind on the
back burner that this is what I want to get
(06:41):
back to to being an entrepreneur and helping entrepreneurs.
Speaker 2 (06:44):
Yeah, I might have to roll us all the way
back to kind of how I grew up. And so
you know, my my mom and dad, my dad was
a small business entrepreneur, so I've always had a bit
of that in me. We'd go into a business and
you'd be like, well, how would we make this better?
How would it be different if we were to run this,
And so have always had that mindset. My mom was
(07:06):
a career Fortune five hundred executive, and so really understand,
you know, in terms of large companies how they think
about the world and bringing those two worlds together, which
I think has always informed my view. And both of
them were immigrants to this country, so I think just
the hard work, the perseverance seeing opportunity was always kind
(07:26):
of instilled in me in a very early age. And
so from that then kind of went about kind of
where could I learn the most, and I always kind
of took a different road, I mean, in effect, like
it seems very linear, but when after being at Stanford undergrad,
many of my classmates were going off and building companies
(07:47):
right away, and I kind of said, you know what,
I think there's some things exactly and I mean this
was this was the heyday, if you will. I remember
those days of Red Herring magazine, which you know, old
people from the valley will remember that magazine and you know,
there was a cover once of this woman throwing money
in the air, you know, and but I kind of said,
(08:08):
you know what, I still think there's a lot for
me to learn. I'm just graduating and went and came
to New York, which was kind of an odd thing
to do if you think, having been at Stanford and
being at the peak of Silicon Valley in those days,
and so, you know, worked here at Goldman Sachs in
the Murders and Acquisitions group, just learning both buyside sellside,
(08:31):
but very quickly acknowledged that I wanted to feel closer
to the operations of a business, and then went into
my first venture role at Apax Partners, working for Alan
Patrick Coff, who's one of the godfathers of i'd say
East Coast Venture. And so I did that for many
years and said to myself and saw him and how
(08:52):
he worked, is if I'm going to be at that
boardroom table and I'm going to actually have a perspective
for entrepreneurs of how to build their business, I also
want to be an operator. I want to have taken
a product from R and D into launch, built teams,
built go to market motion and so after business school. Well,
many people with my background, which you would step back
(09:12):
and say, okay, with banking and having done venture, we're
going to go right back into venture, private equity, hedge fund.
That's the natural progression. And many of my HBS classmates
did that. But I said, you know what, I want
to work ground up. I want to be closer to product.
I want to be closer to building teams. And so
(09:32):
thus started really at Abbot at that time, and so
went back to the West Coast. So I finally made
my way back to California and what was brewing there.
But really also wanted to make sure that I would
get that operational experence of taking something from R and
D and in the healthcare world, go into clinical trials,
(09:53):
go into regulatory quality, right, reimbursement, all of those important
things that make I think healthcare unique, as we would say,
you're preaching to the choir here exactly, and then take
things both from development all the way to go to
market launch. And so did that both in the US,
but also did it internationally as well. So that took
(10:14):
me to Singapore, that took me to Brussels, that took
me to many places in the world where these technologies,
which at that time was interventional cardiology and cardiac surgery.
So I always say, imagine me in scrubs and I'm
sitting there right well, there's someone under a you know,
a sterile field, and literally seeing technology merged with the
(10:34):
human body. And that's when you know, I knew that
my life and healthcare would would always be changed. Having
been in Silicon Valley and been kind of an engineer,
I was from the technology space, always believed that that
could change industries, but then to see it truly merged
with the human body and what we could do, and
(10:56):
also the lack of technology in that surgical I mean
truly interventional. You know, cardiologists are looking at black and white,
fuzzy screens. I mean you have more clarity I used
to joke in the Super Bowl than you do in
some of these life threatening areas. And so just knew
that there was so much to be done here in
(11:17):
merging these two worlds together that would be a life
of driving impact, quite frankly.
Speaker 1 (11:24):
And so then how did you wind up from Abbot
at Kleiner.
Speaker 2 (11:27):
Yeah, So after many, many years and launching many products
and going to many countries around the world and seeing
their healthcare systems. There were a couple things that were
really happening in the US that were undeniable that this
was the time to come back. So the ACA was
hitting the High Tech Trust Act, which really helped digitize
(11:48):
the files. And everyone knows through their own healthcare experience,
when you go into a doctor's office, you'd see the
Manila folder, you'd see some paper printed. We still have
that today, but you know, I think through some of
these government run programs, etc. That now that data is digitized.
And so as I always say, we've started on the roads.
(12:11):
Now we have to continue to make the highways. But
you could start to see that being etched out in
what was happening in healthcare. And so because of that,
then came back into the venture industry, and I just
really felt like there were like three waves happening. First,
fundamentally is the technology enablement of healthcare. And so at
(12:33):
that time, this is even before AI, right, we were
talking about SaaS, we were talking about mobile and I
always used to say, if we just had those two
things in healthcare, it would be improved forgetting now mL
at that time, big data blockchain right, and now we
have AI right. But I do think that. Again, technology
enablement of healthcare was one trend. The second trend is
(12:54):
how the healthcare value change is truly evolving. So from
fee for service to value based care is just one example.
And even what we're seeing, you know, happening now with
in the pharma industry and the pharma value chain is
really interesting. So that's a second wave, is right, like
(13:15):
that ecosystem, that value chain is constantly changing. And then
thirdly is the consumerization of healthcare. And you have to
understand this is before COVID even, but this recognition that
in our lives, you know, health care spend is quite
a bit of people's out of pocket spend if you
think about it, and is such a different experience, right,
(13:37):
the friction, the siloed nature of it, Why isn't it.
It's not the same as what we think about food
or transportation or other areas with which we spend in
our lives and we need in our lives. And I
would argue healthcare should be better than that, right because
again it's back to the core of human life, and
so those wins were already starting. And then of course
(13:59):
you put co COVID around this, right, and the importance
of healthcare to not only the industry, to the country,
but to our human lives. And I think everyone was
touched by that when we had COVID happen, and so
I always say it took something that was an evolutionary
pace to a more revolutionary pace. Of those three trends,
so the technology enablement of healthcare, the business and the
(14:22):
value chain of health care changing, and then the consumerization
of healthcare.
Speaker 1 (14:26):
Wow. So I guess the question I have is where
are we today? You know, if we think about those waves,
are we on the crest of a wave or are
we on the uptake of a wave? Where do you
think we are?
Speaker 2 (14:38):
Yeah, I mean you'd almost have to take those three separately.
So on the technology enablement of healthcare, obviously you know
what we're seeing with AI. It truly is or shattering
and groundbreaking and it's going to take some time though,
Like there has to be trust to be built within
(15:00):
both the technology but then with clinicians and with patients, right,
So that will take some time. But we saw some
of those waves before. This is slightly this is different,
but at least seeing like the virtualization of what we
call telemedicine also kind of tested some of those things.
So remember before COVID, you know, people would go to
(15:21):
the hospital, right, That's how we saw it as a
more bricks and mortar experience. And with that, telemedicine was
really born that not only is that what consumers wanted
and patients wanted, but truly that there was trust built
with physicians and that this is a way they could
practice and still be very effective. Right, And that was
(15:44):
I'd almost say even more important to have that, right,
And I'd say that same thing here is what we
have to build with AI. And there are some real
forces in the industry to say this is not a
nice to have of like should we do this technology.
It's almost a kind of an imperative to have AI.
(16:06):
And there are a couple things. First, the supply demand
mismatch that we have in healthcare is truly a crisis.
We don't have enough primary care, we don't have enough nurses,
every we have the aging wave that's coming upon us, right,
this is going to be more and more of a
crisis in terms of that and healthcare systems and talking
(16:28):
to leaders they already feel this, but is even going
to be exacerbated more with the aging silver wave coming
at us, and so we have to find a way
right with physicians to say, how are we going to
augment them, How are we going to allow them to
kind of work as we say, top of license is
(16:48):
really important. How can we make them more effective that
they can see more patients and do so safely and
effectively with that. So that is something that's just so
important that that AI is necessary right now given where
we are. So i'd say that's where we are. It's
an exciting time from a tech enablement side. On the
(17:09):
value chain changing. I think there's some interesting we're going
to take some steps forward and we'll take some steps back, right,
And I think that in many ways we saw an
advent of like value based models, right. So again in
this healthcare world, we're going from fee for service to
value based. There have been a lot of changes in
(17:30):
Medicare advantage as of late, right, and so I think
we're still kind of but it's a necessary part of
our healthcare system that we don't pay for how many
times you go to the hospital, but we actually reward
keeping people out of the hospital. That's really important.
Speaker 1 (17:46):
Well, you are you incentivized these behaviors, right, depending on
the payment structure. That's right, It's apparent to most people
in the industry, but it's taken a long time to
get this shift to actually gain traction.
Speaker 2 (17:56):
That's right, well, because it's real change management and the
entire health care ecosystem think about it. It's the system's
processes and culture that have to fundamentally change of how
we deliver and how we pay for healthcare, and how
we think about healthcare going forward being more preventative right
than more acute and when disease progression happens. So it's
(18:20):
a fundamental shift of how we practice, but how we
pay for and how we run healthcare in this country.
So it will not be overnight as we see. But
then we see really some exciting things that are happening
quickly in terms of like how pharma is now thinking
about how it goes to market. We've seen some recent
announcements that really say to ourselves, what could this mean
(18:41):
as we look forward in the future.
Speaker 1 (18:44):
Do you mean things like like the will we direct
those sorts of models exactly?
Speaker 2 (18:47):
Exactly? So in many cases, like we've tried to say, okay,
how can we be more consumer centric right back to
a more tech driven mindset and how we think about
product UIE and removing the friction, removing the siloed nature,
and quite frankly all the steps you have to have
for healthcare to be delivered to you. I think we're
(19:09):
really testing some of those principles with what Lily is
doing is I think actually very exciting and how we're going.
And then lastly on the consumerization, I think it etches
to that point as well. I don't think we're going
to go back to the way consumers want to see healthcare.
I think we're going to have more hybrid environments of
both virtual and bricks and mortar, and being cared for
(19:31):
at the right place, at the right time, and the
right methodology will stick and always be there. And I
think for as we were talking about providers recognizing that
this is an important time that they need to be skilled.
There's just too much to do, there's too much burden
and too much that they have to realize they want
to get back to patient care and so if we
(19:52):
can leverage that with technology will be helpful and helpful
with the consumerization too.
Speaker 1 (19:57):
Well, that's a very deep backdrop. Let's dive into where
like the rubber meets the road, there So how does
that inform some of the investments you guys have made
at Define.
Speaker 2 (20:06):
Yeah. Absolutely. So we have this analogy of we're rebuilding
the house of healthcare and that starts with the front door.
So we say consumer gateways, how people come into healthcare,
is changing health and wellness, combining the consumerization of healthcare.
So we've invested in companies like Hymns found in the
weightless space that I think epitomize that. And then we say,
(20:29):
when you walk into the house, you're on the foundation
layer of that house, and that's data, liquidity and analytics.
I think for us is there's how do we really
understand who you are not only your clinical data, your
claims data, but then also your community based data and
having a full picture of who you are so that
(20:50):
we can give you that personalized experience. So we've invested
in companies like unite Us, which is really bringing community
based data to like Crescendo as we think about real
world data for clinical trials is another example. And then
when we say we understand who you are, we can
guide you in the hallways of the house to the
rooms where healthcare is delivered. And that's tech enabled services.
(21:12):
So we have companies like Concert, which is collaborative care
mental behavioral health. We collaborate with your primary care docs
so that your physical and your mental behavioral health they're
not two silos, they're actually one. And so that's one
company that we've partnered with. And then also how I
think about digital therapeutics is not just that technology is
(21:35):
the therapeutic, but how do we wrap around some of
these therapies. And so we've done a lot and we
think about story health. We've invested around heart failure and
how you take your meds really affects the outcomes, same
with weight loss as well. And then the last area
we say is like the full stack house, which is
vertical reimagination, so new entrants attacking the incumbents and doing
(21:59):
all of these things natively from day one.
Speaker 1 (22:02):
What's an example of that is that like a Waltz
because we had Mark on.
Speaker 2 (22:05):
Yeah, I'd say Waltz is one. Another one we have
is Centivo, which is an end to end commercial plan
that's thinking very differently of how do we make sure
that you have virtual primary care from the very beginning,
but then also be able to have strong health system partnerships,
be and save employers fifteen to twenty percent on healthcare costs.
(22:28):
Because we've done all of this natively right, we understand
consumers and how they go through the front door. We
have you know, digitally native information systems, and how we
think of who you are and then think about virtual
primary care and that tech and able to service the
rooms of the house and so build it again back
to these principles from first go, rather than you know,
(22:52):
traditional or archaic systems and trying to bend around those.
Speaker 1 (22:55):
So maybe let's talk a little bit about process. You know,
when an entrepreneur has an idea, how they how do
they work with define? You know, what is your prefer
I love getting into the nitty gritty of how people
prefer to be pitched. What do they want to see?
What are the criteria to actually get a check at
the end of the day.
Speaker 2 (23:11):
Yeah, I mean I even I just even hate the
word pitch. Let me just tell you it's really a partnership, okay, right,
And it's a partnership of that makes sense. How do
you want to build your business? I always say the
best meetings they're not pitching us. We're thinking together. We're
almost like whiteboarding what the world could be together, and
so we like to think in what I call a
(23:33):
V one, V two, V three. So V one is
what's your wedge point? Who are you today? V two
is how do you earn your right to be a
platform right from that wedge point? And V three is,
now you are the dominant platform? How are you going
to change healthcare? And so we love in those first
meetings of like, okay, yes, what are you going to
attack today? And how do you note to the depth
(23:55):
of that V one strategy, but then always imagine to
V two and V four of the future of what
you want to build. Those are the best meetings when
we actually feel like we're going back and forth, we're
pushing each other, we're understanding in depth how that entrepreneur
is thinking, but then also kind of saying, hey, have
you thought about this? And it's a mutual kind of building.
(24:18):
That's when the magic happens. And I think we frequently
get that feedback is like this discussion is different than
others a because you understand the space so well that
you can kind of dream with me, if you will,
and they see that partnership of how we would be
for the next seven to ten years.
Speaker 1 (24:37):
So it's interesting. You know, you talked about you understand
the entrepreneurs. You know, you're here, but you have a team,
and so I'm just wondering your philosophy around the team
that you built. What were you trying to solve for
in terms of capabilities and expertise there to help you,
you know, manage it, because there's tons of different models
that you mentioned, whether it's the DTC, life sciences providers,
(24:58):
you know, there's everything under the sun, I think to
a certain extent, So maybe just talk about your philosophy
around maybe your own internal team, which I'm sure maybe
translates to how you want to see others build their
business as well.
Speaker 2 (25:09):
Yeah, we've been really intentional about how we've thought about
the team, and that's since day one when it was
just myself and where we are today, and what we
thought was so important is to make sure that we
have that expertise in all the verticals of healthcare. So
if you look at our team, you know, I've already
talked about my operational experience being in the life sciences.
(25:33):
When I think about my partner Shrogshaw his deep experience
in the employer world, When I think about Frank Williams,
who we've brought on who has deep experience in many worlds,
but in the provider world. He was the CEO of
the advisory board, he took that public. He was a
CEO and co founder of Evelyn and then took that public.
And we have some more exciting announcements that'll be happening
(25:56):
over the next couple months as we know continue to
show that we really have operating experience across all verticals.
That's really important because, as I said, yeah, it's such
a complex ecosystem. You really have to have that payer knowledge,
you have to have the provider knowledge, the employer knowledge,
the government, and then also life science to really bring
(26:19):
all of this to light. And so have thought very
intentionally about that team build. And then on our platform side,
we have our head of people, our head of marketing,
our head of partnerships, who all of them have been
in digital health companies and startups. And I always say
it's like seal team six is that they can go
in be highly strategic work with our entrepreneurs because they've
(26:44):
lived that world. We've all lived that world either in
healthcare or health tech startups, and that's a very unique
place to be which you can really only do with
a sector focused fund right. When you're diversified, you'd have
to go across so many industries, and this is such
a complex and there's so many motes around this that
if you really understand and have these relationships, you can
(27:06):
really drive impact and change. And so that's been a
core philosophy of this team build. And then back to
our core values. Does each of these team members exhibit
how we talk about defining leadership right, that collaboration, that
relentless operating drive right, and then everything done at the
highest of ethical nature. I'm really proud of the fact
(27:27):
while we have some amazing people who have had such
deep careers and success, at the core, they're very much
tied to the values of define beyond their successes, of
who they are as people and how they think about
the impact of healthcare.
Speaker 1 (27:47):
So you talked about being an entrepreneur, and one of
the things that always fascinates me about entrepreneurs is that
you know, kind of getting that company off the ground,
and you know, you've done a couple of fun since
your inception, you know what has resonated with institutional investors
with what you're doing, and how easy has it been
to raise, you know, additional capital for these additional funds.
Speaker 2 (28:06):
Yeah, I would to reflect back. It's now been almost
six funds and six years, like going back to where
the first fund, I think we had clear intention and
focus and vision of what we were building, and I
think that has made all the difference. So I have
(28:27):
a slide that I like to even I've shown the
team multiple times that I built back in twenty eighteen,
and that slide had our core objectives around our core
values for fun one, Fund two, Fund three. I had
already mapped out all those funds from day one, right,
and so you know it's the simple aspects of you know,
(28:49):
even having our core values day one, and then how
does that map to our fund objectives? How does that
map to the OKRs of our team. I start every
LP meeting those core values as our table of contents
for our annual meeting with the LPs. I mean, that's
how intentional this has been. And I think it's because
I've learned, you know, from being at you know, Kleiner
(29:13):
Perkins and working with people like Brooke Buyers, the founder
of Kleiner Perkins, caw Field and Buyers and John Dorr,
but then also Alan Patrick hov at APAX, having learned
you know, how we wanted to build this going forward
and how you know that with great strategy, I say,
you're just executing on that vision. So that slide built
(29:34):
in twenty eighteen is absolutely relevant today. Haven't really touched
a word on that slide. That's great because I think
with great strategy, you're just executing to it. And that's
exactly what we've done. And so we've almost two x
our fund from fund one to fund two to fund three.
But now making the very conscious decision, which also is
you know, with funds, it's very easy to keep saying, Okay,
(29:57):
I want to grow my AUM. That's not who we are.
We're fundamentally early stage builders. And so for me, as
I think of even fund four, fun five, Fund six
going forward, we've really reached that fund size that we
think is ideal for this space. And so instead of
two xing you know yet again we're going to stay
(30:19):
very consistent. We want to be early stage builders, early
stage fund with venture like returns. And you know that
is something that I've also known in kind of what
we want to build and the intentionality going forward.
Speaker 1 (30:32):
So you brought up that your inception was twenty eighteen,
and I think the world obviously, we all know the
pandemic has changed a lot. But if we think about healthcare,
technology and digital, I think there has been varying degrees
of exuberance around those business models. And from the public
market side, you know, we saw a number of companies
come public in twenty twenty, twenty twenty one. Most of
(30:53):
those haven't done so well and their performance. So you know,
looking back, you know, on the privates side and the
public side, you know, how would you describe that period,
you know, since your inception.
Speaker 2 (31:06):
I mean, you really have to look at health tech
as a space that's only emerged since twenty nineteen. So
why do I say that because it was in twenty nineteen.
Speaker 1 (31:15):
We're not counting the cerners and other previous.
Speaker 2 (31:18):
From a venture perspective, right, so there were earlier eras,
But when you really look at when has health tech
been almost ten percent of all venture dollars. So we
did an analysis that we actually looked back to some
of our precursors and if you remember, I said, we
modeled this like when we saw you know, fintech exploding
and there was early stage sector focused funds like Ribbit
(31:41):
or consumer like uh a forerunner. And so we actually
went back and we charted health tech versus fintech and
consumer and we we said, okay, whin of each of
those industries crossed ten percent of all venture funding. And
that was to say that there's real money going into
this space, right, And so this is health tech is
(32:03):
one of the earlier sectors. You know, for fintech it
was like all the way back to like twenty sixteen,
and consumer even earlier than that. And so you have
to look at it on that curve. And we know
that most companies it takes seven to ten years from
begin you know, truly first inception to exit generally in
venture capital. And so that just shows you, given that
(32:25):
the sector start in twenty nineteen really to crust into
true venture dollars, how early this sector is. So we
look at it and if you look at and you
bring all of those sectors back to T equal zero,
we've had more exits in this space than fintech or
consumer at that time, right. And we also when you
(32:45):
look at the average exit valuation has been almost double
from when those those sectors had exits again back to
T equal zero. So it's really exciting actually what health
tech has done in such a short period of time.
You're absolutely right as we think about the public markets.
But when I look at the aggregate of how how
(33:06):
tech performance against traditional tech two, it's not that dissimilar.
I think there are some categories that have been hit harder,
like the payer area has been hit harder. But if
you take most growth health tech stocks with you know,
the tech world as well, it's it's very similar performance
in that way. But I'm also buoyed by you know,
(33:27):
this year we had tempest Ai go out, so Eric,
you know, I'd say they're performing really well, and so
there was I think, you know, when I look at
it in that light and we look at how early
this space is still again, you know, we're only you
know again talking about five years or so. I'm very
(33:48):
excited too about this next crop of IPO candidates because
we've had longer to kind of mature them. Right, They're
going to be coming out at a different revenue scale
launched right.
Speaker 1 (34:00):
There was in the twenty twenty twenty twenty one period,
you know, high revenue growth was fine, profitability in the future,
There's definitely been a shift in the tenor of terms
of what's acceptable from you know, reaching profitability and when
that's going to happen. So i'd love to get your
view on the IPO window and when when you think
it's going to be more fully open, or any views
(34:21):
you have really around what's going on with the IPOs.
Speaker 2 (34:24):
Yeah, I mean, hey, I'm sure there are a lot
of conversations in this building at Bloomberg around that very topic.
You know, seeing Tempest go out was very exciting, and
of course we also had was Star this year. But
I think that you know, twenty twenty five, as we
think about the markets opening up a little bit, we
see it on the private side. Just even the pace
(34:47):
of deal flow of what's happening right now is you know,
again it's really picked up. And to give you an example,
entrepreneurs are coming to us and within a week or
two they have a term sheet. I mean that's again,
if I to roll back in the last year, that
wasn't necessarily happening, right, So we've come back and it
is definitely more focused around AI. But I can see how,
(35:10):
you know, how other firms are starting back up in
their pace again in terms of deal flow, getting to
term sheet closing deals is definitely feeling like back not
I wouldn't say necessarily twenty twenty one, but it has
some of that aspects for AI and so I see that,
plus how the two IPOs I'm really hopeful for twenty
(35:31):
twenty five in terms and then knowing that there are
companies that have been waiting in the wings in our
sector in space to go out, that have been ready
for a couple of years now, it's just the window
asse we probably exactly, we probably are thinking the same
ones we're anxiously waiting, exactly, and we're going to see
(35:52):
much more mature players than we did when the first
window again back when again twenty nineteen is when we
really were putting real venture dollars. I think our first
class of IPOs went out early, as you would think,
and it was a different time to what you said.
And I think we're going to see a very different
(36:12):
class of maturity here for the second wave of health
tech IPOs.
Speaker 1 (36:18):
So with that in mind, you know you talked about
the ease of founders raising additional capital. Are you seeing
that purely on the early stage part of the business
or is that also in the later stage, which I
know you're not necessarily focused on. But is that access
to capital still relatively easy?
Speaker 2 (36:35):
Easy? It's never easy. Let me be really clear, I
would say that, you know, I do think later stage
is harder. That's just an aspect because until that IPO
window really opens up and people see how things perform,
I think people are just again more hesitant. It's it's
just that's I think where we are in that market.
(36:55):
When it's an early stage, it's different. It's different check
sizes too, obviously, so we focus on the seed A
and B mainly, and I would say that it has
really picked up. There is still on kind of the
later stage. There's the have and have nots. I think
we're seeing, you know, some deals you know, again it
(37:15):
could be the timing, but some deals that it's within.
We have one that's one week from starting truly a
formal process to having a term sheet.
Speaker 1 (37:26):
Wow.
Speaker 2 (37:26):
And that's a later stage for us deal. Right, So
that's you know, how we think about it. And then
on the earlier stage side, we see that movement and flow.
Obviously there's a little more gravitation to AI companies that
are going a little faster than others. But I think
that we've really kind of turned a corner here in
the back half of this year and what we're seeing, So.
Speaker 1 (37:49):
How do evaluations play into that discussion as well? You know,
as a public equity analyst, I'm always curious what's happening
in the private market, just because I know a lot
of these companies are going to be part of the
public companies that I cover.
Speaker 2 (37:59):
Yeah, yeah, I mean, valuations have stayed steady in health tech,
both at the seed and the Series A, and so
I think we're going to see a little more of
an uptick at the Series A as the AI valuations
flow through our business. Again, I don't think it's to
the degree of General Tech as usual, and you've seen
(38:22):
a real spike. I mean, the pre money on a
Series A of General Tech is around seventies seventy million
as a pre money in the Series A by our data,
that's a huge step up from you know, average I
would say is like forty to fifty and I think
that's really reflecting of the AI valuations that you see
(38:43):
in general Tech. We will also probably have that, but
it's remained pretty steady in the forties for Series A deals.
As one example of the valuation, you know, I'll be
the first to say this, just a step back to
the numbers are the numbers. We absolutely have ownership targets,
as most early stage firms have, and that's at the
(39:06):
seed in the A and we map those all out
for our LPs. We judge ourselves against how we met
those metrics every year to our LPs. At the same token,
I would say, every time in my career where we
have backed a company that's scaled and exited, be at
a Levongo, be at a Hymns, or otherwise, at some
(39:28):
point you say, like, this is the right team, this
is the right vision in that extra ten twenty thirty
percent of valuation or whatever it might be, is not.
Let's not worry ourselves over right, right. So like, as
an example, I mean, i'll tell you right now, I
remember sitting there debating with our partners. We had put
(39:49):
for the Series B of Levongo. We would put down
a term sheet in the sixties, so sixty million ish,
let's say for a Series B pre money, and we
knew it might not get there and or sorry, it
might not win. So we were debating, like do we
put something higher than that? You know, we ultimately got
to the eighties, let's say, and we were really thinking
(40:12):
that through and now you know, flashback, that's an eighteen
billion dollar exit. That again that differential in the end, right.
So I always feel like with great companies, you're going
to feel like you paid up a little bit, but
in retrospect. But it is important to have calibration, to
have the metrics because there are a lot of venture
(40:33):
investors that I think in twenty twenty one everything was
up into the right and there's going to be some
real pain there in terms of the valuations that were paid.
I mean, they were simply untethered when we think from
a multiple perspective. So you have to have you know,
I go back to venture as an art in a science,
you have to have both these in mind. You have
(40:53):
to have like focus but see opportunity and you have
to have both these things. And so that comes to
play all the time and making any decisions.
Speaker 1 (41:02):
I can't help but think about the Levogo example. You know,
eighteen billion. I think Teledoc was roughly around the same
size at that point. It's single digits for the combined
company today. Are you concerned at all on the AI
side that the exuberance there kind of mirrors that that narrative. Yeah,
I mean, I don't know that it matters, you know,
necessarily if you're getting out at the multiple of a
(41:23):
of a levongo.
Speaker 2 (41:24):
But yeah, I think I am. I am concerned about that.
I think in health tech we have to be clear.
What I said earlier is the trust of the industry, right,
and that does not come overnight in healthcare because to
really scale your AI business, you need to have that trust.
And we are learning so much about the different the
(41:49):
different llms, how they perform. There's just so much And
I think in healthcare first it's let's make sure we're
doing no harm, right, Like that is it's almost like
a credo, right. And I think it will take some
time so to pay you know, lofty valuations like we
see in the tech industry at this point, I think
(42:09):
we have to be really thoughtful, and we've been really
thoughtful at define. Time will tell if we're right or not.
But I would say where we have played, we've almost
been semi builders. Like I wouldn't say it was an
incubation per se, but it's been much more of a
blend where we think there's a really interesting team. The
(42:31):
concept is very early, and we're bringing these strategic partners
with us that we have deep, longitudinal relationships with and
so the valuations of what we're having reflect that and
being really thoughtful of like the type of entrepreneurs in
AI that we're also backing, because that's really flipped itself
(42:54):
on its head a little bit of what an AI
founder and founding team look like and what does what
will be optimal I think is going to be a
very interesting that.
Speaker 1 (43:04):
A little bit more that's really intriguing, Like what do
you mean by that that that that view has changed.
Speaker 2 (43:08):
Yeah, So if you look at the historical of our
partnerships with founders, I think to find really spikes in
multi time repeat founders who are veterans. So Mark there's
a great example. I mean Mark, there was the CEO
of Canamran. He sold that for thirteen billion to Optum.
He was the CEO of Optimarx. I mean when you
(43:29):
think of the PBM space, I always say I would
never back a first time founder in that space, right,
Like you just have to understand the labyrinth and all
of the attributes and the complexity there. And that is Mark, right,
So that is our prototypical founder and I can go
on about all our founders. They tend to be repeat
long time you know, kind of veterans really understand the space.
(43:52):
Well with AI, there is no what does repeat mean? Well,
repeat doesn't mean anything. And secondly, those people who have
been really forward thinking and on the cutting edge of
AI tend to be PhDs and have done a lot
of research around this space. But I think what's really
important in healthcare is also have you scaled these things?
(44:12):
Have you actually integrated into current technical infrastructure stacks? So
if we're talking about a payer stack, I mean, right,
that's very complex, right, it can't just be this AI
off to the side. We really believe that we think
about things like workflow and integrations of what really is
(44:33):
going to make AI scale in these large health systems,
these large payers, you know, as we go down the list,
and so we've really thought heart of how do we
create blended teams where you can take that AI technical
talent but really marry it with people who understand infrastructure
stacks as it is today, the commercial side, the workflow.
(44:54):
And so I think some early AI companies we saw
are like PhD LAD and sometimes that's the CEO or
and or the CTO, right, And I think what we're
going to see going forward is going to be that
marrying of yes, the PhD led and where is AI
taking us, but then really also married with people who
have built in those stacks before, built in that workflow,
(45:16):
and had go to market experience. I think that's where
it really comes together, intertwines and becomes can be very successful.
And that's how we're thinking about teams. But it's been
really different, as you know, because we're all learning this together,
to be you know, to be honest, right everyone right,
this is this is a title wave here and and
(45:37):
it just keeps scaling. We actually had Greg Brockman at
one of our events earlier this year at JP Morgan
who he is the co founder and president you know,
of open Ai, and you know, he said, I've been
here eight years in every eight years, every year, we
only release something if it's been exponentially better than the
prior version. And he said, for the next eight years,
(45:59):
we continue to think we're going to release at least
once a year because we're going to have that exponential
performance differential. And so when you when an industry is
moving as quickly as that, right, we are all learning
and we all are scaling. So it's it's an exciting
time definitely.
Speaker 1 (46:17):
You know, through your career you've had a number of
I think big wins, big exits. Lavongo Hymns has been
a great one. I love to ask, is there been
like a white whale one? Everybody has one that they
should have done that got away.
Speaker 2 (46:30):
Oh that's such a good question, and it's so funny
because I've asked a lot of the people that I've
learned from that very question. And for us, I think
that you know, there are a couple of companies they
haven't gone out yet. Remember this back to my point
of this industry twenty nineteen, right, So some of those
(46:51):
that we had opportunity, they haven't gone and exited. It
looks good for them, right. And so there are some
in the eployer facing space, I mean having a front
seat to see when Teledoc we partnered with Teledoc, this
was back when I was at Kleiner. We partnered with Levongo.
We also partnered with Progeny. These were some very big
(47:13):
wins in the space. I think there were next ones
that I had seen at the earlier stages and for
various reasons didn't get there, but look like they're scaling, right,
I'd say, like thematically, I'll just I will say. One
thing is when when I started Define, it was twenty eighteen,
(47:37):
and at that space, we saw a lot of like
companies that were second or third in their categories, and
we said to ourselves, well, we really only want to
invest if we think it's going to be first in
its category. Because this space was so early, and when
you looked at it, you know, Levongo went out, went public.
You know Amada is still a private company. You know
(47:58):
what's going to happen there. At that time, Teledoc had
gone out, but Amwell hadn't right that then went out
but didn't perform really as well as Teledoc, and then
obviously we had There are other things there. So there
are times where we've said to ourselves, this is a
number two number three player either timing to market or
otherwise or skill wise. Don't know if this industry is
(48:23):
ready to have like multi billion dollar exits like Deca
Korns for the number two and three players, that might change, right,
and we might have been write something, but you have
to invest in the sector. Remember, this is an emerging sector.
So there are certain attributes like that, like you don't
want to get too far ahead of the curve to
(48:43):
where the maturity of the sector is. Does that make sense?
It's very different than investing in enterprise software, let's say,
even team building. You ask about team building a lot
of LPs. I say, this isn't like I'm building an
enterprise software sector focused fund where there's been twenty years
of investors and people who have gone from associate to
principle to partner. There's not that many people with track
(49:07):
record in this space, and so that had a lot
of implications how we built the team as well. You
have to come back always when you're a sector focused
fun to the attributes of that sector, where it is
in its maturity, and that has flowed throughout the stack
of how we think about defining from the team, our approach,
our check sizes, our fund size, and then to your
(49:28):
point of the actual investments we make. When do we
where do we believe the industry is ready to again
build that billion dollar plus player? And that's one where
I would say time will tell. But maybe where we
were we a bit conservative there, could we have still
built you know, multi billion dollar players from a number
(49:49):
two number three.
Speaker 1 (49:50):
Well, it's interesting because we're recording this a couple weeks
before HLTH and I'm sure you'll be there. I'll be there.
But I've walked around that exhibit for and kind of
had the epiphany of that there's a fair number of
companies that look like they do the same thing, and
so I keep thinking there needs to be some consolidation here,
and I think maybe it plays into that theme that
maybe the number two player isn't you know, at scale today,
(50:13):
but two or three acquisitions down the road they might be.
Do you see a similar, I guess theme of consolidation
amongst some of.
Speaker 2 (50:21):
These Absolutely, I'll give you an example.
Speaker 1 (50:24):
Also, Rams that might be the right way to say it.
Speaker 2 (50:26):
Yeah, I mean I think we saw an overinvestment in
the employer space and that was heralded by many of
the investments that I've made in my career. Right in
that opening, you know, let's talk about how many MSK
companies there.
Speaker 1 (50:41):
Are all different point solutions.
Speaker 2 (50:43):
Yeah, they're just there are tons, right, and so when
you actually look at Defines Portfolio and our partner companies,
we're lighter on employer than you would think. When we
talk about go to market motion we're in life science,
payer provider, and then some slight D two C. But
(51:03):
and that was purposeful in a sense of if we
can't really, if we can't really sit back and say,
why is this clearly a differentiated solution? We absolutely have
not played in that space. And there are other areas
where you know, we're not afraid. You know, we're the
kind of firm we have high conviction, meaning we're not
(51:24):
going to place a bed on every red and black
square with every number right. We're going to be really
thoughtful of where we play. And I think you've seen
that we've actually played lighter and employer at this point
because of a lot of me too. Where's the real
differentiation and where that that buyer is right now I
(51:46):
think has been oversaturated in some ways.
Speaker 1 (51:49):
Well, we're getting to the top of the hour and
I like to kind of wrap these conversations up with
something personal from the guests, And I always ask everybody
to think about a life lesson that drives them in
their day to day or some that they share with
their team. You know, in terms of that ethos, could
you point to one thing in your life that you
share with your team about you know what drives you
to do this job day to day.
Speaker 2 (52:10):
Oh gosh, so many things, but I would say like
it comes back how we started a little bit. You know,
my parents came here as immigrants and they saw opportunity,
to put it simply, and so that has been something
that when I have taken a little of the road
less traveled, and I had my own reasons of why
(52:32):
this would be the right opportunity for me at that time,
be it, you know, starting as a product manager from
Abbot at you know, entry level, when a lot of
my you know, people with my background in banking and
finance would never go and be a product manager. It
was right for me at the right time. I wanted
to learn ground up those things. And then once you
(52:55):
have that learning and that set seeing opportunity, So taking
the opportunity and also seeing the opportunity, and I think
that is very much what drove me to found define
was not seeing that best in class sector focus fund,
seeing entrepreneurs that we're having a really hard time having
(53:15):
someone who understood them and their business and could really
help them build and grow. And so it presents itself
today as I always say to our team, is like,
how can we be offensive, right, how can we with
what we do at DEFINE? I want to make sure
it's something that Sequoia or Excel can't do, right, Like
(53:35):
if we write a piece or we have a community.
You know, we have a founder summit in Deer Valley.
Could Sequoia or Excel do that? And if they can,
well we haven't done it to the level of Define.
So we always just see that opportunity and how can
we be offensive and distinctive about what we The value
(53:56):
and our core values of what we're bringing.
Speaker 1 (53:58):
To entrepreneurs won full We brought it full circle. I think.
Thank you so much for joining us.
Speaker 2 (54:03):
Thank you so much for having me.
Speaker 1 (54:05):
That's Lynn chu O'Keeffe, founder and managing partner of Defined 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 site 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
by Bloomberg Intelligence.
Host
Jonathan Palmer
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