Tuesday's announcement of 7wireVentures' second fund raises the question of whether the digital health venture capital firm can deliver another slam dunk akin to its early investment in Livongo, which exited to the tune of $18.5 billion.
The Chicago-based firm has raised $150 million in its second fund, dubbed the Connected Consumer Fund, and expects to deploy the money to roughly a dozen companies over the next 3 years. It has already named its first two picks: Transcarent, a tool for self-insured health plan members, and Jasper Health, a care navigation platform for cancer patients.
The leaders behind 7wire are feeling the pressure after the success of their first fund, from which investors received "substantial distributions," said Robert Garber, a partner with 7wire.
"We're bullish, but I would never represent that we can keep repeating the magic over and over again," he said. "You've got to be good and you've got to be lucky."
But for 7wire's strategic investors—a list that includes prominent health systems and health insurers—it's about much more than money. The real value is getting in early on innovative technologies that can improve the way they operate, ideally cutting costs and boosting outcomes. Strategic limited partners include Allina Health, Memorial Hermann, Rush, Spectrum Health, Cigna, Arkansas Blue Cross and Blue Shield and Horizon Blue Cross and Blue Shield of New Jersey.
For Spectrum, whether to invest in 7wire's second fund wasn't even a question after the "wildly successful" first fund, in which the Grand Rapids, Mich.-based system's venture arm was also a limited partner, said Scott McLean, vice president and managing director of Spectrum Health Ventures. The first fund didn't just generate a financial return, it helped Spectrum build relationships with firms exploring new care models, for example, he said.
Now, McLean said he's arranging a meeting between the leaders of Spectrum's health plan and those at Transcarent, a company McLean may not have known about if not for 7wire.
Just like health systems and insurers want to find innovative tech solutions, the companies building them want to get buy-in from providers and payers.
In this case, 7wire provides startups with connections, said T.J. Ferrante, a partner at Foley & Lardner. Its pool of strategic investors—who collectively touch up to 30 million lives in the U.S.—gives 7wire a competitive advantage over other venture capital firms. Leverage in the venture capital world has shifted to company founders, who have a lot of choices when it comes to shopping for their next funding round, he said.
"If your business model is to get into networks with health plans, even if you have money, it's still a very bureaucratic process," Ferrante said. "If you have an inside track to that, it's extremely appealing to get in that space."
For Jasper Health, which offers a digital platform that helps cancer patients manage their care, right now is all about finding partners who will deploy the tool for its members. In that respect, 7wire has already been "instrumental," said Adam Pellegrini, the company's CEO.
"Really this marks the launching point of Jasper Health specifically for health systems, employers and payers," he said. "We'll use this to build out that B2B healthcare platform that leverages this amazing consumer experience."
The firm's managing partners, Glen Tullman and Lee Shapiro, have worked together in the healthcare industry for three decades. Tullman in March was named CEO of Transcarent, one of the companies 7wire invested in with the second fund.
Ferrante said it's not common for venture capital firms to invest in companies their partners head up, but 7wire is somewhat of an anomaly. Tullman founded Livongo in 2013 and served as its CEO until its merger with Teladoc.
Garber said 7wire has a "good template" that helps it manage potential conflicts of interest, which includes one of the other partners stepping in if Tullman must recuse himself from a decision. Over the past seven years, that's only happened once, though, he said.
The theme of the second fund is empowering informed patients through a consumer-first, tech-enabled convergence of the health and care markets, the firm said.
"In healthcare, you've been hearing that for a while," Ferrante said. "But it's hard stuff. It's a broken, fragmented system. Most people don't understand it."