Enmi Kendall and Anya Schiess met more than 10 years ago while attending The Wharton School at the University of Pennsylvania. At the time, they both showed an interest in health care field, but after graduation the two MBAs went their separate ways.
Kendall worked in venture capital at IDG Ventures and Boston Millennia Partners, while Schiess joined Thomas, McNerney & Partners and Cardinal Health.
Now, the two longtime friends have reunited to form Healthy Ventures, a new seed-stage venture capital firm that’s attempting to get digital health ventures off the ground. The fund actually formed out of their frustration trying to find an investment fund that dug deep into early-stage health care startups, a lucrative but treacherous area of investing.
“We started this fund because there was no other fund doing what we wanted to do,” said Kendall.
There’s no shortage of health-care focused accelerators, but once startups graduate from those programs and look to raise $100,000 or more, Kendall said companies tend to land in the “valley of death.”
Furthermore, digital health entrepreneurs who successfully raise funds from IT investors typically have to burn a lot of energy explaining the healthcare pieces of their businesses. “Health care is very, very different,” said Kendall, adding that now is the time for health care entrepreneurs to capitalize on the same trends that benefitted IT and Internet entrepreneurs over the past decade.
While plenty of capital is flowing these days to tech and Internet startups, Schiess said that much of the capital at the seed-stage in digital health remains “passive.”
“A lot of the companies are just a couple of founders and maybe an employee or two, and what they really need beyond capital is extra help, a management extension,” Schiess said.
Since many of the entrepreneurs venturing into digital health arena come out of the IT industry, Schiess said Healthy Ventures will assist in providing the proper “healthcare context” and introductions.
“At the seed stage, it is all about the product-market fit, so to the extent that we can help them get trials and pilot studies, we can provide much more value-add capital, than just capital,” said Schiess, noting that there is a pretty big funding in digital health between the incubation stage and series A deals.
Kendall — an angel investor who moved to Seattle from San Francisco four years ago — and Schiess — a Bay Area resident — say they will invest $500,000 to $1 million across the lifespan of the digital health startups. Their goal: Invest in about 20 companies over the next few years in four key ares: infrastructure; marketing automation; care coordination and genomics services. They declined to say how much they’ve raised for their new fund.
In the health and life sciences field, $1 million can get eaten up rather quickly.
But the venture capitalists think they can fill a big gap in the financing landscape — a big opportunity since estimates indicate that the overall digital health market is expected to nearly quadruple in size to $233 billion by 2020.
Schiess admits that seed-stage funds in traditional biotechnology and life sciences do not work, unless it is an arm of a larger fund. Sometimes it takes $30 million or $40 million just to prove a concept, a tough pill for investors to stomach.
But in digital health, the jury is still out.
“The intersection right now of tech and healthcare, no one knows what that is going to look like,” said Scheiss. “We believe it to be true that digital health will look more like tech in terms of its returns, and playing at that early-stage.”
Kendall said that they plan to bring more of a consumer tech approach to digital health, focusing on products that have “human-centric design” and “respect for the patient as a consumer.”
“When you look traditionally at health care products, they don’t necessarily do that,” said Kendall, who is working out of the Cambia Grove co-working space in Seattle.
Schiess added that most of the thinking behind healthcare products did not start with the patient in mind.
Healthy Ventures just made two early-stage bets, backing Akido Labs — which helps health app developers more easily get health data from hospitals — and One Codex — a maker of tools for microbial genomics data.