Monday, June 4, 2018
Interview with Jay Goss, WaveMaker Three-Sixty Health
Pasadena-based WaveMaker Three-Sixty Healthcare (www.wavemaker360.com) recently ,announced a new healthcare focused venture capital fund, worth $25M. We caught up with one of the co-founders, Jay Goss, about what the new investment fund is looking for in a startup, and the types of investments it makes.
First, tell us about the fund and what you are looking to invest in?
Jay Goss: It's a fund focused on early stage companies, Seed or Series A. We're looking for companies that are doing health care. We proactively look for companies in the Los Angeles region, but we're opportunistic, and we'll look anywhere in the country or world. Our thesis, and probably the most interesting way we explain what we're looking for, is we're really fascinated by the healthcare industry's transition. The industry, after 40 years of being fee-for-service, is moving into a value-based payments model. Just about all of healthcare is gradually working towards that. It's a better alignment of health outcomes, and aligns value with the patient outcome. The Affordable Care Act is part of that, but there are also many examples of healthcare systems recognizing that in order to afford our healthcare system, we have to change the way the economics work.
Most fundamentally, it involves creating a aystem that rewards healthcare providers for keeping people out of the hospitals, instead of rewarding them when patients go to the hospital. With the new, value-based payment concepts, that is going to create a lot of disruption. We're talking about a multi-trillion dollar industry which is being disrupted. We know one thing, which is that entrepreneurs come out of a world where there is disruption. The other thing that's exciting about this fund, as we look for health startups to invest in, is that there are a number of business models today in healthcare which weren't commercially vaiable five years ago. There are now a number of products, technology, and services which are being brought to market, which a few years ago had no way for an entrepreneur to generate money. Now, they don't necessarily have to rely on the all-might CPT to bill an insurance company for a certain amount of service.
What's the story behind the fund?
Jay Goss: The fund is a joint venture between a healthcare consultancy, called the Three-Sixty Advisory Group, which is a 10 year old consultancy started by John Nackel, and Wavemaker, in West Los Angeles. John had run Ernst and Young's global healthcare practice. Wavemaker is a very established venture capital fund, a generalist fund run by Eric Manlunas. The two entities came together to form this healthcare fund. The fund, in essence, is Wavemaker's healthcare industry specialized fund. Wavemaker is the fund's largest Limited Partner. We also have other investors in the fund, including other limited partners who participated in Wavemaker's prior fund. Wavemaker, as you probably know, is on their fifth fund, and some of their investors also participated in this fund. What is most interesting, from the perspective of the startups that ready your publication, is where the remainder of where our LPs come from. Most of our LPs are healthcare industry executives, who wanted to invest in the fund. Although it took us longer to raise the fund since we had to work with one individual at a time, we're glad we went through that hard work, because we now have 36 to 37 individual investors, who are healthcare industry executives, and are an incredibly powerful part of our story. We're able to sit down with entrepreneurs, and we have something to talk about except the size of our checkbook. Entrepreneurs are able to get excited because it's not just Jay Goss and John Nackel, it's those 30 some other individuals, across all facets of health care, at the highest level, who can open those doors they probably need opened up.
Explain how you ended up working in healthcare?
Jay Goss: John and I came together about two years ago, having worked together on other early stage companies ten years earlier in our careers. As you know, I've been spending almost every day of my professional career, working with very early stage companies, from five minutes old to five years old. A number of those have been healthcare companies. Most recently, I have worked with Kumba Health, RxVantage, and Wellcaster, all in the last five or six years. I've served typically in some kind of CXO capacity, usually as CEO, COO, and in some cases, CFO. I learned a lot about healthcare from the perspective of early stage companies and the journey that goes on. At the other end of the spectrum of healthcare experience, is my partner, John Nackel. He was running Ernst and Young's global healthcare practice, and upon leaving E&Y he was the CEO of a big division of UnitedHealth Group. That's Ingenix Consulting, which is now Optum. We have coverage of the entire healthcare continuum. There's an enormous amount of early stage company experience in my shoes, and in his shoes, a lot of experience working with the biggest stakeholders in the healthcare system, from the big payers to big hospitals and hospital systems, to research universities, and all those big brick and mortar businesses which comprise a health care system. Those are all of the customers an early stage company might want.
Is sounds like the companies you are looking for are more in the software, systems, and fintech areas as opposed to medical devices and pharmaceuticals?
Jay Goss: We do invest in all of those facets of health care, anything there to improve different business processes. That means digital health and wearables, telemedicine, and we're looking at a ton of stuff related to artificial intelligence and how that can help create better decision support systems. We even are looking at service companies. So yes, our big focus is on technology and the more digital related businesses. We're also looking at companies with products. Another way to answer that question, to keep it simple, is what we're not investing in. We are looking at anything under the health care sun, as long as that business is not wrapped up in long clinical trials. That means we're not investing in things like biotech, molecules, and science-based companies. We're not investing in hard core medical devices. Though, we are looking at some medical device opportunities outside of the body, which don't require long and expensive clinical trials before they get to commercialization.
What's the ideal stage for companies, in terms of progress?
Jay Goss: We're looking for companies with sub-$10M pre-money valuation, and it's more likely for the majority of companies to be on the side of $5M pre-money. In terms of traction, we don't expect companies to have a ton of traction, given the valuation and stage we're looking at. However, we're looking for companies that have found resourceful ways to create some evidence of good product-market-fit. In some cases, if they're in the early stage, we might even be able to help, by getting them to their second customer by making an introduction to a hospital system we have a good relationship. That's very much the kind of hands-on firm that we're going to be. If we don't bring that kind of value, we'd just be another checkbook. Our unfair advantage in this marketplace, is our connection into the marketplace, and our ability to help entrepreneurs find those customers they need, even as something we might do during due diligence, even before we become investors in a compan y.
What's your biggest advice to entrepreneurs and companies, on what you're looking for?
Jay Goss: Great question. At Wavemaker Three-Sixty Health, of course we like to see great teams, so we encourage founders to focus on creating a strong nucleus around the company. But an even better piece of advice is to really practice telling your story. Just because a start-up is in healthcare, doesn't mean it doesn't need some pizazz. Remember, investors hear hundreds of business pitches every year…take the time to become a great story teller and don't hesitate to shoot for the moon, or better yet Mars!
Thanks!