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Todd Schwarzinger, MBA, Partner at Cleveland Clinic Ventures underscored the role of hospital venture capital arms in aiding healthcare startups.
Health systems worldwide have been grappling with significant financial challenges in the global pandemic's aftermath. To counteract these obstacles, an innovative method of revenue generation has been adopted: the establishment of internal venture capital (VC) arms. This approach, according to Becker’s Health IT tracker, is currently being utilized by at least 23 health systems.
The pandemic has increased costs in workforce and supplies, causing a strain on traditional areas of revenue generation in hospitals and health systems. The VC arms present an opportunity for growth amidst these financial constraints. These VC arms typically invest in diverse companies, from early-stage startups to established entities in digital health, therapeutics, and medical devices. However, unlike conventional third-party VC firms, health system VCs seek more than just financial returns. As Doug Hayes, executive director of New Jersey-based Atlantic Health Venture Studio, explained, they also aim to approve technologies that can be used within their systems, potentially benefiting their employees and enhancing patient care.
Venture capital arms also aim to propel the future of healthcare by discovering and developing new products and therapeutics. Any profits generated by health system VCs are typically reinvested into the system, rather than being distributed among partners. Danielsen emphasized that their team, much like their physicians, is salaried, removing any incentive for individual compensation from the venture fund. Interestingly, some health systems take on a more hands-on role in the development of the companies they invest in, compared to third-party VC funds.
At the University of Pittsburgh Medical Center (UPMC), their venture arm, UPMC Enterprises, has seen significant success through their investment in health tech startup Health Fidelity, which has generated substantial revenue for the system's health plan.
Cleveland Clinic Ventures has also seen promising progress, with several of its portfolio companies beginning to mature. Todd Schwarzinger, a partner at Cleveland Clinic Ventures, highlighted that one Cleveland Clinic Innovation portfolio company, Cleveland Diagnostics, recently closed a $75 million funding round, marking the largest single raise for a portfolio company to date. Schwarzinger emphasized the importance of hospital VCs in the current challenging fundraising environment for healthcare startups. He suggested that hospital VCs can often provide support to startups when traditional VCs cannot, helping them navigate through difficult times. This innovative approach to revenue generation and healthcare advancement is likely to shape the future of health systems worldwide.
Read the full article via Healthcare Brew.
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