What makes Health IT investors tick? An analysis of the most active investors.

November 27, 2018

There are plenty of “top investor” lists out there – everyone from CB Insights to StartUp Health has compiled a list of the top investors in digital health at some point.  We realized these lists are usually rather vague as to what type of investments these groups are making.  Intuitively, it would seem likely that the top investors for companies raising $100mm would be a very different set than that for companies raising $5mm.  So instead of simply ranking the top venture capital investors, we decided to split out the investments we’ve seen according to round size.  The following graphic shows the top investors we’ve seen in each round-size from 2016 through YTD 2018:

What we found in creating this graphic is that there are in fact a few investors that are size-agnostic, and that these size-agnostic players tend to all have one trait in common: they will invest in rounds of any size so long as they fit their investment theses around the future of healthcare.  Khosla Ventures, New Enterprise Associates, and Founders Fund all fit this category of thesis driven investor – showing up as top investors across 3 different categories of round-sizes.  The following graphic highlights these top round-size agnostic investors:

To see the types of investments made by these thesis-driven venture funds, we find that Khosla has invested in a wide range of companies: Oscar Health, Iora Health, Color Genomics, and Vicarious Surgical.  These companies impact healthcare stakeholders across the entire landscape, from innovating new ways to deliver health insurance to modernizing surgeries through advanced robotics.  As an example of the breadth of round-sizes across these companies, Oscar Health has raised $1.2bn to date, while Vicarious Surgical has seen just $21mm of funding to date.  Clearly Khosla is agnostic toward the funding round of their investments – so long as they can see the vision of innovation in the company’s mission.

Taking New Enterprise Associates (NEA) as an example, they’ve invested in a similarly wide array of companies: Paladina Health (an employer-sponsored primary care network), Welltok (a patient empowerment and population health company), and Simple Habit (a direct-to-consumer meditation application).  Here, we can see NEA has a clear thesis-driven approach around population health and patient empowerment – a slightly narrower focus than Khosla’s investment portfolio, but similar in their agnostic approach to round-sizes.

Finally, looking at Founders Fund, we find that they behave similarly to Khosla Ventures, frequently investing alongside them in companies like Oscar Health, Neurotrack Technologies, and Collective Health among others.  For these investors that take a round-size agnostic approach, we often see them co-invest in order to keep their check size within their investment parameters.

The size-agnostic investors also generally share a common trait that they are “unicorn” hunters, which generally means they seek transformational over incremental investments. Transformational (aka, disruptive) investments require more capital, and as such, these investors must earmark capital for later rounds in order to support their investments and minimize dilution.

Just because a fund has made a lot of investments does not mean they are the best investor for a given company, however it is interesting and informative to dive into how the top investors create their portfolios and see what drives them to make investments at this fast-pace.  From the deal activity we have tracked, it appears that thesis-driven investing drives the most active investors in digital health – most of which currently revolves around both transformational and incremental patient empowerment.