A hospital run by a small group of nuns in Peoria, Ill., probably isn't the first place you'd look for the cutting edge.
But OSF HealthCare, which runs 11 hospitals across the state, is one of a few dozen hospitals nationwide directly investing in startups. Some of the more well-known hospitals with venture funds include Cleveland Clinic, Intermountain Healthcare, Providence Health and Ascension.
OSF has set aside about $75 million to invest in startups. It plans to do four to six deals a year, says Stanley Lynall, director of venture investments. The fund already has made four investments, including Chicago-based Avia, which helps hospitals evaluate startups and innovation. It also invests in startups.
Other completed deals include Dallas-based Pieces Technology, which makes data-sharing software for hospitals, and Salt Lake City-based Health Catalyst, a data-analytics company. It has a pending deal with a Chicago-area medical-device company, Lynall said. In taking on startup investments, OSF is treading where many of its peers, including giants such as Northwestern Memorial Hospital and University of Chicago Medicine are not.
“We're expecting to make a financial return on our investment,” Lynall said. “But it's mainly about finding new technology to deploy that will improve (care). Traditionally, there hasn't been a lot of R&D done at (hospital systems.”
OSF has a long history of innovation, he says. It got a turbo boost about three years ago from Jump Trading, which donated $25 million for a training and simulation center in Peoria.
Successful innovation and venture investing “can be done from Peoria,” Lynall said, though he adds, “it might us take a little longer to get there,” given flight schedules that can sometimes be challenging.
It already partners with startups looking to test new technologies, says Matthew Warrens, the hospital's vice president of innovation. OSF is a backer of Matter, an incubator for health-tech startups at the Merchandise Mart, and in pilot programs with two of its member companies.
“This was a logical next step,” he says of investing directly. “We think there's value in feedback we can provide that they might not get from a traditional VC.”
Ideally, the hospital will look to partner with other investors on deals, rather than lead them. A number of insurance companies, such as Blue Cross Blue Shield Association, have their own funds. But few hospitals have made the leap.
Overall corporate venture capital investment in startups from software to real estate, is on the rise. About 27 percent of deals had some corporate venture component in the first quarter. That's up from 22 percent a year earlier, according to CB Insights, a New York-based research firm. Investment in digital health startups was $1.7 billion, up from about $1 billion a year ago, according to the Venture Pulse Report from CB Insights and KPMG.
“If I'm a startup founder and CEO, and I'm choosing which capital to bring in, it's a two-fer to get a health system to invest,” says Garrett Vygantas, a partner at Jump Capital, a Chicago-based venture fund that also is backed by the founders of Jump Trading. It partnered with OSF Ventures on the Pieces Technology investment. “They're going to get deluged with deal flow.”