If Kip Kirkpatrick had it to do all over again, he says he might become a doctor. As it turns out, though, he’s playing a key role in developing companies that will help patients in many ways.
Kirkpatrick is one of the founders of Water Street Healthcare Partners, Chicago, a fledgling venture capital firm that in its two-year history has already raised
$400 million and invested in half a dozen companies in areas such as diagnostic supplies, laboratory services, high-tech patient identification wristbands and device management for medical implants.
Kirkpatrick grew up in Lexington, Ky., and attended Northwestern University, Evanston, Ill., on a full athletic scholarship in basketball. He majored in history, one of his loves, but resisted well-meaning advice that he should study law. “I was always impressed with the businesspeople I knew in Lexington, and I knew I wanted to do something in business,” he says. “I wanted to wear a suit and tie every day and have an office. But law wasn’t a good fit.”
After graduating, Kirkpatrick joined a training program at First Chicago, a bank that also underwrote his MBA at Northwestern’s Kellogg School of Business. He became involved in the bank’s private equity group in 1996, and healthcare began to capture his imagination when the group invested in a division of DuPont that made centrifuges.
“I fell in love with the whole idea of research—new medicines, the human genome project, biology,” Kirkpatrick says. “I was impressed with the size of the market, the fragmentation and the knowledgeable people that I met. It was a great place to invest, but the barriers to entry were significant if you didn’t understand the market.”
They formed a healthcare-specific private equity group at J.P Morgan Chase & Co., which had acquired First Chicago. But after it grew to $5.5 billion, the group started feeling a little too big.
“We felt like healthcare was a middle-market thing, and the bigger we got, the harder it became to do the small and midsize deals,” Kirkpatrick says. The answer was for him and several colleagues to break off on their own to form Water Street Healthcare Partners. The group invests in companies that already have a track record and just need a boost to get to the next level, where larger companies often acquire them as a strategic move.
Kirkpatrick is excited about the whole field. “There’s never been a wealthier country with an aging population like we have, and there are so many opportunities to help solve those issues,” he says. “It’s difficult to know how it will all shake out, but that’s the fun of this business.”