Spectrum Health Forms VC Fund to Invest up to $100M in Health Care Companies
Tuesday, March 14, 2017
GRAND RAPIDS — Spectrum Health has formed a new venture capital fund that could invest up to $100 million into health care-related companies over the next decade, MiBiz has learned.
The new fund, Spectrum Health Ventures LLC, plans to invest in companies commercializing new technologies, products and services that improve patient health and drive down costs, according to a senior executive at Grand Rapids-based Spectrum Health.
Creating a corporate venture capital fund that would co-invest with other health systems around the U.S. can put Spectrum Health at the forefront of developing and accessing medical innovations for care locally, said Roger Jansen, chief strategy officer at the health system.
“We want to continue to say, ‘We’re not done. We want to be nation-leading and we have to continue to push ourselves and our thinking,’” Jansen said. “With all of the dynamic nature of health care right now, it’s really important to be on the front cutting end of some of the new technologies and therapies and interventions that are going on, and one of the ways to do that is to start looking at who you partner and invest with around those things.”
Jansen said Spectrum Health Ventures will invest up to $2 million per deal, and perhaps more with follow-on investments, and focus on five “big” areas: artificial intelligence and cognitive computing to understand disease prevention; behavioral health and well-being; genomics and personalized medicine; digital innovations for consumers; and population and health analytics.
The move comes at a time when “science and technology is at one of those critical points” and “you have so many entrepreneurs in non-traditional companies entering (health care), it’s creating a revolution of care in how we think about not just ‘sick care’ but really the wellness and health side and how do we capitalize on that,” Jansen said.
“What we’re trying to do at Spectrum is make sure that everything that we can do is going to make for being well as long as you can,” he said. “For us, that’s a bit of a new journey, and so we want to make sure that we’re in the game around how do we partner with these companies, how do we sync with them, how do we create with them, and how do we deliver these things that make everybody’s health care in the community the absolute best.”
Formation of the corporate venture capital fund is in its “very early” stages, Jansen said. Spectrum Health incorporated Spectrum Health Ventures just before Christmas by filing papers with the state and work continues to determine how best to prospect for deals, manage deal flow and develop metrics for grading potential investments.
Spectrum Health Ventures does not have a timeline for making its first investment, or a specific goal for the number of investments annually, although Jansen expects two to four deals per year. The fund already has looked at prospective deals “that have just been opportunistic and have come in,” he said.
In getting involved in venture capital investing, Spectrum Health brings to bear a vast knowledge base and staff of clinicians and professionals in the industry who can contribute to vetting innovations, judging their potential, and advising companies in which the fund invests, said Mike LaPenna, principal of the health care strategic consulting firm The LaPenna Group Inc. in Grand Rapids.
“Spectrum Health is now recognizing that it has a tremendous talent base and they’re going to be able to capitalize on that,” LaPenna said.
The largest health system in the region, Spectrum Health operates 12 hospitals and 180 ambulatory care locations, employs more than 25,000 people, and includes a 1,400-member medical group and the health insurance plan Priority Health. In the 2016 fiscal year that ended last June, the health system had total operating revenue of $5.22 billion with net operating income of $269.7 million.
The venture capital fund hired Scott McLean, a CPA and former CFO, to manage its investments. Spectrum Ventures also is working with Chicago-based Avia, an innovation network that helps manage venture capital funds for health systems.
Spectrum Health Ventures will likely make its investments as a Series A or Series B investor and generally won’t lead deals. Investments will typically go to companies generating initial revenue of $2 million to $10 million, McLean said.
The fund also will look at companies that are more mature, but are still supporting the health system and could use the cash and the partnership to improve their efficiency or to scale their business, he said.
“It’s more of a private equity approach than a venture capital approach with those types of investments,” McLean said.
Spectrum Health Ventures is among a growing number of venture capital funds across the U.S. that are run by health care systems to drive and access innovation in the industry.
Experts estimate there are about 45 such funds around the country. Among them is Clayton, Mo.-based Ascension Ventures, whose 13 limited partners include Ascension Health, the parent company of Borgess Health in Kalamazoo, and Livonia-based Trinity Health, which owns Mercy Health in West Michigan. Ascension Ventures has $800 million in capital under management and its limited partners run 86 hospitals in 21 states.
In Michigan, Spectrum Health Ventures is also one of four corporate VC funds based here. The others are the Dow Chemical Co.’s $100 million Dow Venture Capital; General Motors Ventures; and Battle Creek-based Kellogg Co.’s 1894 Capital that will invest up to $100 million in new ingredients, foods, packaging, and technologies.
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