Ascension Ventures' Matt Hermann on VC and healthtech

Print 08 April 2016
PitchBook Blog

We recently sat down with Ascension Ventures senior managing director Matt Hermann to talk about his firm's unique approach to investing and how VC investment in the healthcare sector has changed in recent years. Wonder what's next for the industry? Check out our conversation with Mr. Hermann below:

Ascension Ventures isn’t a typical VC or corporate VC firm. What is Ascension Ventures all about, and how does it fit into Ascension Health’s non-profit business model?

Ascension Ventures was created in 2001 in response to a call for innovation from our sponsoring congregations. Today, we operate as a wholly owned subsidiary of Ascension, the nation’s largest non-profit and largest Catholic health system, which operates more than 130 hospitals and recognizes more than $20 billion in annual net patient revenue. Ascension Ventures was created to deliver appropriate risk-adjusted returns from its investments while providing a window on external developments that could help transform healthcare, in alignment with Ascension’s vision. The need and opportunity for initiatives like Ascension Ventures is even greater today than it was 15 years ago, given all the regulatory and reimbursement changes in the industry. We now have eight health systems as limited partners, have invested in more than 50 companies and have $550 million in assets under management across our three funds.

VC investment in healthtech has seen incredible growth over the past few years. AV has been investing in the healthcare space for 15 years, what about the industry has changed? Why is it only recently that venture capital is flocking to healthcare, and healthtech especially?

Timing is everything. The convergence of technology advancements, a changing regulatory landscape and an evolving reimbursement environment make this a ripe area for disruptive and sustaining innovation. Investors originally flocked to this space leading up to the internet bubble years of 1999-2001, but there are several differences during this second phase. First, the technologies are more powerful, affordable and accessible. Second, the environment is different, as current healthcare participants want to disrupt themselves, creating more opportunities to test, partner and collaborate. Third, the cost to build a product and create a company keeps coming down. Fourth, the American culture celebrates technological entrepreneurship in a way it never has before. 

More than $4 billion was invested in healthtech last year, double the amount from 2014. What is next for VC in healthcare? Do you see the investment boom continuing?

Given the dramatic changes of how healthcare is paid for in this country and the increasing responsibility of consumers for their healthcare costs, we certainly see a robust innovation environment continuing for the foreseeable future. Having said that, we are concerned about valuations that appear to be ahead of where companies are.

Underlying many venture capital investments is the need for a big return on an investment. Big pharma continues to be in the news for the wrong reasons, more recently being because of price gouging as the companies try to make sure their investors are happy. Is it possible for venture firms to get their returns, while helping to keep healthcare affordable to consumers?

The simple answer is yes, but there are several points worth noting. First, the rewards for those who are successful are increasing, making healthcare look like other high-risk/high-return venture markets. At the same time, the risks are increasing, as accelerators have ramped up the number of new companies being created, making it more difficult to assess the competitive landscape. Second, at Ascension Ventures we are in business to earn a return, but we also have a mission focus, given we are part of Ascension and all of our limited partners are non-profit health systems trying to serve their communities. Many people who get into healthcare do it to try to help people, and an environment like ours brings us closer than other venture firms to directly helping others. Third, we expect to see closer relationships form between pharma and health systems in the future as payment reform takes hold, and could foresee a day when these relationships become risk or population health based. 

AV’s LPs being operators of hundreds of acute care hospitals and other healthcare facilities enables you to be very in-tune with what kinds of technologies are up-and-coming. Which healthcare technologies are going to be the next to have major impacts on the industry?

Our eight limited partners operate more than 400 acute care hospitals. I will highlight two of our more recent investments. Syapse is helping bring personalized medicine to community hospitals with its clinical decision-support and workflow tool. Zipnosis is helping health systems deliver telemedicine through a unique asynchronous model, which enables the provider to respond more quickly as part of the regular workflow.

We have entered a phase where companies need to demonstrate material improvement in care (quality and outcomes) and/or make care delivery more efficient and cost effective. The journey of healthcare operating more like a traditional business, while always remembering our goal of doing no harm, is in the early innings. Stay tuned to see how the game turns out!

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