Thesis-Driven Investing in Digital Health: An Interview with Rebecca Lynn

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These days, record amounts of venture funding is pouring into the digital health space. Yet, that hasn’t always been the case. Matthew Holt sat down with Rebecca Lynn, a General Partner with the Canvas Venture Fund, ahead of her appearance at WinterTech to discuss the quick and explosive growth in VC interest in digital health, as well what Canvas’ thesis-driven investment strategy means for its current and growing portfolio.

Matthew Holt: This is Matthew Holt. I’m talking to Rebecca Lynn. Rebecca is a General Partner at Canvas, which is a VC fund that came out of the better-known Morgenthaler fund about a year and a half ago. Is that right, Rebecca?

Rebecca Lynn: Yes. That’s right.

MH: Rebecca has done a number of things we were just talking about offline. Her very, very first deal was in the Lending Club, she has a background in personal finance, and the Lending Club just went public, so congratulations, Rebecca.

RL: Thank you.

MH: She’s also in the last four or five years been working hard on getting up to speed in health care and now you’re more than up to speed. You’re one of the leading venture capitalist experts in health technology. So that’s obviously what we are going to talk to you about and you’re going to be on the investor panel at Health 2.0’s WinterTech which is coming up on January the 15th. Also, you are the founder of something, which I was there at the start with you called, “DC to VC” which is a group putting together venture capitalists with government officials.

So you’ve been doing a lot around the whole notion of health care, in putting Washington D.C. and Silicon Valley together, and also doing some startup competitions as part of that as well. So you’ve been very, very busy in the last four or five years in health care space.

Why don’t you tell us Rebecca, you’ve got a sort of different approach to investing some of the other VCs. You tend to study things for a long time and pick your winners early rather than just doing the more scattershot approach that some of your colleagues may do. So why don’t you tell us a bit about your approach to investing in health technology?

RL: Yeah, Matthew, thank you for that introduction. Our approach overall as a firm is to be very thesis-driven and what that means is we do exactly what you said, Matthew. We look at the area pretty deeply. We talk to a lot of different players. We get our own thoughts about kind of where things are going in the space and then we pick what company that we would like to back.

Before we invested in Doximity, for example, we looked at more than 300 companies in health care IT alone. We did that and after following Doximity for years, we said, “Okay, this is the one company we believe can be a winner in this area.”

We actually started really diving deeply into health care IT back in 2009 and that was when just a handful of VC firms were considering investing in health care IT. You and Indu had just gotten Health 2.0 off the ground. I believe in ’09, you had the conference up and running for a couple of years at that point, is that right? Maybe two years?

MH: That was started in ’07, so your memory is very good.

RL: In ’09, that was the year we invested in Lending Club in Q1 and then we started looking around and saying, “Where are the other big opportunities?” And I thought there was no better or bigger opportunity than health care. But we really had to believe some things were different at that point in time to get excited about it, right? Health care has been inefficient for a long time. It was an experience in a foreign country, in New Zealand, that opened my eyes. I actually had an EMR, Electronic Medical Record, in 2002 in New Zealand. I didn’t have one in 2009 in the United States, which I thought was pretty insane.

We started looking pretty deeply at it. We went to Health 2.0 to get immersed in what was going on, talked to a lot of different companies and we thought, “Wow! This is really all about data. You really have to work with data to change health care.” And the only way to get a lot of data is really through the EMR. But the data has to be in the cloud. Then you have to have a compelling value proposition to actually get doctors to adopt it.

Practice Fusion had just very recently changed their model to be free. So we pulled the trigger. We invested in Practice Fusion in November of 2009, another Series A there, and they were doing exactly that. It was an EMR in the cloud, easy product to use and it was free to doctors. At that time, only 6% of doctors were using electronic medical records. Now EMRs are widely adopted. I think you probably know that number better than I do, Matthew.  What is it like, 50% or 60% now?

MH: Yes. I believe it’s about 60%.

RL: I mean that was our first foray into health care IT. We actually started DC to VC because when Practice Fusion was going to raise their Series B, we came to a very scary conclusion that there were probably only three investors or venture capitalists in Silicon Valley actually doing health care IT in 2010. So I thought, “What do we do about that?” We decided to throw a conference to bring together VCs and DC policymakers and grow excitement for the sector. We got really interested in health care IT because we saw the changes happening and how money was being spent, and how incentives were being offered.

The HITECH Act rolled out in 2009. The Affordable Care Act was coming in 2010. It was obvious knowing what was going on in DC that big changes were going to happen.

So we brought out Aneesh Chopra, Todd Park, and Melinda Buntin. It was supposed to be a very small conference when we first started planning it; maybe 25 to 50 people. It ended up ballooning into about 130 that first year because we had invited a lot of VCs, who were really good tech investors and invested in health IT sometime in their past, and they came. We had a lineup of pretty interesting entrepreneurs as well as bigger companies like McKesson and Microsoft. Venrock’s Brian Ascher, who is a great health care investor, actually co-sponsored the first event with us and that really helped get things off the ground. At that time, there were no health IT incubators. Matthew, what’s the number now? It’s large I know.

MH: I think it’s globally 125, depending on how you define it, which is something people like me like to argue about and that tells you there’s something there, right?

RL: Yes. I remember two years into it, there were 13 incubators and then it just got to be too big to track anymore.

So it’s really exciting and interesting to see that evolution. Practice Fusion was our first investment in health IT. Doximity was our second. We led the Series B in Doximity in 2010, and now Doximity has more than half of all the doctors in the nation on their network.

And then the next investment we did was in the area of care coordination. Providers are no longer getting paid when people have readmission events and things of that nature. Hospitals have had to evolve; they’re actually hiring CMOs, not Chief Medical Officers, but Chief Marketing Officers. For the first time ever, how people perceive their care is starting to become very, very important to hospitals. HealthLoop really helped with patient satisfaction and patient engagement. So we led the Series A investment in HealthLoop, our third investment in health care IT.

Viewics is our fourth investment. We started with saying, “Okay. What can you do with the data now that the data is electronic? Now that it’s out there? How can we help these hospitals run their businesses better and smarter?” Viewics is actually a company we had trust in since 2010. That’s the company that was founded by a Berkeley graduate. I am a Berkeley alum myself. They made some really impressive progress over the past 12 to 18 months. So we jumped into Viewics in Q4 of 2014. They provide a business-intelligence solution for laboratories and hospitals and they’ve got some pretty interesting partnerships that they have lined up.

Again, each investment followed a pretty intensive deep dive into the space. Then we placed a bet on who would be a winner in that particular area.

MH: Great. Can you just say a bit about why you think thesis investing is a better way of doing it than say Khosla Ventures, who now backs about 30 companies in the space and seemed to be doing more of the scattershot approach?

RL: There are a couple of reasons. One is just pure mathematics, right? If you do a scattershot approach, you’re hoping that one investment really hits it big. But if you have a very tiny piece of that investment, it still oftentimes doesn’t move the needle, unless you hit a Google or something. The other way to invest is to think of your investment as two things, one is money and returns. And the second is time. We invest in Series A or Series B companies typically. We invest in a few deals a year, two, maybe three, deals a year per partner. And we get really involved.

When I look at where our portfolio companies have been successful, I think the biggest difference I can make as an investor is to help them recruit, and help with business development and strategy. You just don’t have that much time to do a scattershot approach, serve on boards, and put a lot of money to work in those early rounds. We spend a lot of time with the companies to help make sure they’re successful. So we take a very focused approach and so far that’s paid off. I mean so far, knock on wood, we’ve had pretty good success with that strategy.

MH: So let’s end Rebecca with the obvious question, which is you’ve now done sort of the underlying EMR in Practice Fusion. You’ve done the physician online community with Doximity. You’ve done the patient-physician communication piece with HealthLoop. You’ve done the overarching business intelligence piece with Viewics.  What areas are you looking at next?

RL: We are looking at a lot of different areas right now. I tend to really like companies that are going after reducing cost and inefficiency in health care, broadly speaking. The whole insurance space I think is something that we continue to look at pretty closely too.  I mean there are a lot of flavors of the insurance space from the exchanges to the TPAs

MH: And then let me ask you one last question related to things we’ll be showing at WinterTech. We will have a panel in the retail space with retailers like Walmart, Walgreens, and Target, which offer care delivery onsite, as well as online services. And then we’re also looking at the major platforms, like Samsung, Apple, and Microsoft offering mobile healthcare platforms. Any comment on the importance of either of those two different types of phenomenon?

RL: I think making health care more convenient and more accessible is probably what both of those two questions touch on. I think it is really important to make services convenient. If you’re at Walmart or Target, you can get a flu shot, which you can do today. The more affordable and more accessible we can make care, the better off as a nation we will be. That’s how we put a dent in our health care budget and expenditures. In terms of Apple and Samsung and wearables and mobile devices in general, hopefully, it provides more accessibility and better connectivity. I found just simply by wearing my Fitbit after having a baby, it helped me get closer to my pre-baby physique. The sheer awareness that mobile devices allow you to maintain is pretty interesting.

And then there’s also the community as a social site, like Strava, which is compelling. They bring in a whole social layer where you benchmark yourself against other people and ultra-athletes. I think that social piece has worked for Weight Watchers for example.

MH: Well, thanks Rebecca. Rebecca is a General Partner at Canvas. She will be part of our investor panel at the WinterTech Health 2.0 conference on January 15th.  Come back next week, Rebecca. Thank you for your time.

RL: Thank you as well, Matthew. I’ll see you next week. Have a good night. Bye!

Kim Krueger is a Research Analyst at Health 2.0 where Matthew Holt is the Co-Founder and Co-Chairman. WinterTech is happening this Thursday, January 15th, in San Francisco at the Julia Morgan Ballroom. 

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