About 5 years ago, after a nearly 35-year career as a healthcare operator and strategist for firms like Cigna, Humana, UnitedHealth Group, DaVita, and DXC Technology, as well as being a multiple time entrepreneur, I decided to try my hand at venture capital. I did this after using the Japanese structure of Ikigai to find the intersection of what
- I’m good at,
- I’m passionate about,
- Makes the world a better place, and
- I can make money doing.
I aimed to be a very early-stage VC that would not only invest in great founders and ideas but also use my decades of experience and relationships to help my portfolio firms drive revenues, the hardest thing for startups to do in healthcare.
I’ve reviewed over 650 very early-stage concepts in those 5 years and invested in 25 of them. I am proud to say that 22 of those 25 are still in business years later.
The Surprise
Over these past 5 years, I’ve had more fun but faced more challenges than I could have expected. This was particularly true in my first Fund, where I made one glaring error of judgment: I used logical thinking in healthcare.
As a former executive, I knew how difficult deals would be with health plans and hospital systems: the size of these organizations, the politics, and the lack of incentives to improve anything except the top and bottom lines. Therefore, I assumed that these issues would be less dramatic with self-insured employers, where improvements directly impact the bottom line and there are a smaller number of decision makers.
As a result, I invested disproportionately into startups aimed at improving care and costs in the self-insurance world. What I’ve found was surprising:
- I can generally close a deal with a large health plan faster than I can with a self-insured employer.
- When a health plan or health system signs a deal, they generally put their full effort into ensuring a successful implementation. Not employers.
- The broker community associated with employers is not helpful. Generally, with few exceptions, brokers are even barriers to innovation.
In an effort to incentivize innovation for self-insured employers, new legislation has been passed that makes company executives the fiduciary of how effectively their health benefit dollars are spent. Experienced healthcare people across the industry roared with approval and excitement: this would change the world!
So far, nothing has changed. Employers and brokers continue to avoid and evade responsible business action on this massive cost.
The Learnings
When I started my second Fund, I invested almost exclusively in portfolio companies targeting payers and health systems. In the short time I’ve led that Fund, its performance has already overshadowed the first Fund in less than half the time.
So, what’s the most surprising thing I’ve learned since becoming a healthcare VC? Despite expensive, wasteful expenditures on healthcare benefits, employers lack the leadership, the will, and the expertise to fix their huge problem. I honestly didn’t see that one coming.
Michael Brouthers is the Founder/Principal of Ikigai Growth Partners and a General Partner for Ikigai Healthcare Funds I and II. Connect with him here.
