Investment firm Heritage Group has closed its second innovation fund, and now counts 15 healthcare organizations as limited partners.
The $220 million fund is the latest example of how health systems and other industry players are taking an active role in piloting, investing in, and mentoring young digital-health companies as technology continues to reshape healthcare delivery. Heritage's fund is among the largest funding pools for health-technology investments, and its combined approach allows the group to make larger investments in later-stage companies than they might otherwise be able to do on their own.
“There are a variety of ways that health systems get exposed to innovation, and we are one of them,” said Paul Wallace, managing director at Heritage Group. “We bring this aggregated perspective with multiple shots on goal.”
The Nashville-based firm launched its first innovation fund in 2011 with 10 limited partners. It ultimately invested close to $170 million in 15 portfolio companies.
Nine of those partners are investing in the latest fund along with six newcomers. The group includes a mix of investor-owned and not-for-profit health systems, insurers and technology companies. The second fund is expected to make 15 to 20 investments.
Each partner will designate four executives to sit on committees involved in evaluating potential portfolio companies. In most cases, at least one of the partners also will be adopting the technology inside their own organizations, Wallace said.
In that way, digital-health companies get introductions to, and feedback from potential clients, and the partners get a jump on new technologies to solve their business problems.
“You have to do something that creates value beyond just paying the highest price,” Wallace said. “We have a significant level of engagement between our limited partners and our portfolio companies.”
The fund has already made three investments and is close to making a fourth. The current group includes Aver, which makes technology to support bundled payments; Iggbo, a mobile phlebotomist network; and Lucro, a type of exchange for buyers and sellers of healthcare technology services.
Memorial Hermann Health System in Houston has been an investor in both Heritage innovation funds, and was one of the original limited partners. Although the fund represents just 1% of its overall investment activities, the model was appealing because it provides earlier access to new technologies, said Dennis Laraway, the system's chief financial officer.
“It was a sweet spot for Memorial Hermann to see what's ahead in healthcare,” he said. “Arguably, if we didn't have the first seat at the table with Heritage, we wouldn't have had a look at those companies.”
Memorial Hermann is still working with four or five of the technology companies from Heritage's first innovation fund, including Simplee, which makes it easier for patients to pay their bills electronically, and Vivify Health, which makes remote patient-monitoring systems.
“It's a very collaborative approach; it was very fitting for us,” Laraway said.
The partners last year also saw a return on investment when IBM Corp. acquired portfolio company Explorys, a data analytics company spun off from the Cleveland Clinic.