Healthcare giant McKesson Corp. plans an aggressive move into venture capital funding for healthcare technology, expecting to commit several hundred million dollars to the effort over the next five to eight years, and hiring long-time venture capitalist Tom Rodgers as managing director of strategic venture capital operations.
McKesson's new undertaking joins a crowded list of corporate venture capital firms investing in healthcare and digital health. Qualcomm Ventures seems to be the most active corporate digital investor, said Stephen Kraus, a healthcare-focused partner with Bessemer Venture Partners. Companies like Merck &Co. and Blue Cross and Blue Shield also have active healthcare funds.
McKesson's venture capital arm will invest in roughly 15 to 25 companies over the next two to three years, with the potential of “several hundred million” dollars to be spent over the next five to eight years, Rodgers said. It has already made one undisclosed investment.
Rodgers and his team will focus on startups in four areas: direct-to-consumer companies, like decision-support software for patients; alternative care delivery methods such as house calls and telehealth; employer-enabled healthcare focused on wellness or nudging employees into better use of healthcare resources; and data analytics, particularly software that helps doctors manage expanding reams of data from wireless sensors, new diagnostics and social media, among other sources.
The fund's ambitious scale should make it a major player in the healthcare startup marketplace. “The fact that they are aggressively moving into early stage investing … is awesome for the industry's future,” Kraus said.
The commitment suggests McKesson may become one of the most active digital health investors overall. According to data from healthcare accelerator Rock Health, the most active investors have made seven deals through the third quarter of this year.
Corporate venture funds have historically had a mixed reputation in Silicon Valley. Kraus said corporations have often hired the wrong talent, relying on internal finance or business development staff rather than experienced venture capitalists.
Rodgers acknowledged that reputation. “Most corporate venture firms fall well short of their promise [to add value,]” he said. To counter that negative expectation, Rodgers intends to build an internal team to actively help companies post-investment. The goal is to help the companies with relationships that McKesson has already built.
Additionally, Rodgers said he believes the McKesson fund will be more patient than most other investors. “Building a company in healthcare can be a slow, painful process,” he said. “I don't know if it lends itself well, by nature, to the traditional venture model. It may take eight to 12 years for these companies to reach maturity and grow into what their value should be.”
The firm is not looking for short-term, small acquisitions. Rodgers anticipates only one of 10 companies will be acquired by McKesson.
Such investments from corporations like McKesson comes at a welcome time, said healthcare business consultant Lisa Suennen, since many traditional investors are fading away. “This capital has filled the big black hole left in healthcare by the exit, demise, or zombie state of so many venture funds, thus supporting entrepreneurs in the space in a big way,” she said.
Follow Darius Tahir on Twitter: @dariustahir