Venture capital and healthcare startups have had a tumultuous relationship over the past few years. Before the pandemic, the majority of venture investment in health tech and healthcare startups came from VCs focused on the sector. That changed in 2020, when seemingly every flavor of VC flooded into the market.
Much of this newfound interest was seemingly driven by investors chasing pandemic tailwinds and reacting to FOMO as opposed to a desire to build a lasting healthcare portfolio. In fact, many VCs retreated from the sector shortly after the world started returning to normal.
Not everyone did, of course; some decided to double down. General Catalyst was one of those, and that stance has resulted in an interesting development this week.
At the HLTH conference in Las Vegas last weekend, General Catalyst said it was launching a new initiative, Health Assurance Transformation Corporation (HATCo). The new project will work with the firm’s portfolio companies and existing partnerships with healthcare institutions to advance the concept of health assurance, which aims to get consumers to interact with healthcare provided on a proactive basis.
General Catalyst declined to comment on the HATCo effort beyond the blog post it issued.
Now, a lot of VC funds set up such partnerships with large entities for the sake of their portcos — often replete with lofty goals and mission statements — but this project is different. Why? Because a key plank of the HATCo initiative is that General Catalyst intends to buy an entire healthcare system.
There’s a lot to unpack here
Why would a VC firm want to own its own healthcare system? Why would it want that stress or such a costly asset when it could just continue with its healthcare partnerships?
It appears that General Catalyst has been moving in this direction for years — and I’m not just saying that because I met a VC this week who seemed generally confused that people were so surprised by this news.
The venture firm had built a sizable healthcare startup portfolio well before the HATCo announcement. In fact, it has been the most active VC investor in healthcare since the beginning of 2020, according to PitchBook. The firm has raised more than $1 billion specifically for health tech startups to date. It also launched multiple SPACs in 2020 on its hunt for companies that could become health assurance platforms.
The firm has also been bringing in the expertise needed to run such an initiative. Daryl Tol, the former CEO of AdventHealth, was hired to bolster the program’s partnerships with healthcare systems in 2022. Marc Harrison, the former president and CEO of Intermountain Healthcare, starting working with General Catalyst earlier this year to help build what would become HATCo — he is now co-founder and CEO of the initiative.
But building a platform or corporate strategy is one thing; buying a healthcare system is an entirely different ballgame. Dan Primack smartly pointed out in a recent edition of the Axios Pro Rata newsletter that this would be the 23-year-old firm’s first acquisition. (General Catalyst has yet to dip its toe into private equity transactions, unlike many of its venture peers of the same size.)
If General Catalyst successfully buys a healthcare system, there will be obvious benefits for both the firm and its portfolio. The firm could not only attract promising startups in this space, but it could also give them the resources to better help them test and improve their offerings — resulting in stronger companies.
If there is anything I’ve learned from talking to health tech founders on TechCrunch’s Found podcast, it’s that selling to healthcare systems is hard, even if they like your tech and have the budget for it. Perhaps a program like HATCo can help boost startups’ ability to sell to the healthcare sector?
The focus on healthcare assurance is also interesting. A lot of VCs have flocked to companies that sought to treat ailments and illnesses instead of preventing them. You can’t blame them: It seems the vast majority of health tech startups are focused on that side of the problem. But it seems like things are starting to change, since we’ve been seeing an increasing number of startups like CancerIQ and Forward that are more focused on prevention than on treatment.
General Catalyst also seems to have a realistic timeline for this initiative. HATCo is funded by a permanent capital vehicle, which the firm said makes more sense because it is a project that won’t fit a standard venture or private equity fund timeline. All that said, it’s unclear where the money to fund the work is coming from.
This seems to be the latest example of how tech, healthcare and nontraditional players are becoming increasingly intertwined. A few years ago, a handful of hospitals started launching their own venture arms; pharmacy chains like CVS morphed into major acquirers over the last few years; and this year, Amazon closed a deal for a primary care provider.
But healthcare is a thorny, costly and heavily regulated industry that is significantly harder to succeed in than many other sectors. It will be interesting to see how this program pans out. It’s got a great mission, but that doesn’t mean it will be an easy journey.