Why Digital Health?
Digital health is the convergence of technology and healthcare to increase the efficiency, precision, and personalization of care delivery. This sector of the industry is growing rapidly for a number of reasons, including:
- Macroeconomic Imperative in Healthcare: We spend more on healthcare than any other country in the world.
- Macro Demographic Changes: Millennials have overtaken Baby Boomers as the largest living generation. This group of digital pioneers embraces technology and doesn’t want to be slowed down by manual processes. As the Millennial generation becomes the driving force for voting and expectations of government, we expect dramatic changes in the healthcare system.
- Rise of The Tech Monopolists: Facebook, Amazon, Microsoft, Google, Apple and Walmart (the so-called “FAMGAW” companies) have dramatically disrupted almost every other industry and market, and are beginning to make their way into healthcare, the largest chunk of the U.S. economy yet to be disrupted. We believe that this will push the industry to innovate rapidly in the next decade.
- Health System Dissatisfaction: No one likes the U.S. healthcare system. There is a broad based distaste with the system on the part of every stakeholder, and ongoing political battles demonstrate systematic issues. The industry needs tech solutions that can make healthcare delivery more accessible, comprehensive, and affordable.
- Consumerism: Patients are becoming more educated and expect to be able to have autonomy over their healthcare choices as they do when interacting with every other industry. Digital health is the answer.
- COVID-19: The pandemic has expedited the adoption of digital health technologies like telehealth and remote patient monitoring, making them the new normal.
We’re currently experiencing a watershed moment for digital health, and there has never been a better time to invest in this market. But, it’s crowded, complex, and doesn’t follow typical rules of business. You need a navigator to lead you through this investment journey.
Caduceus Deal Flow
First, we follow a rigorous selection process to source the right companies for investment. Our deal flow is informed by decades of healthcare insight and proven performance in digital health investing.
Our core partner group and venture partners identify opportunities and conduct introductory meetings. We typically narrow the field from 900 to 300 prospects during this phase.
Our core partner group, venture partners, and select investors continue to evaluate companies, narrowing the field to 50 prospects.
We conduct reference checks, and our investment committee makes final investment decisions, targeting 25 investments in selected companies.
We hold bi-annual week-long events that allow up to 30 early-stage digital health companies to present their business plans and market solutions to the greater Caduceus partner group. During these two events, we are likely to select 3-5 companies to add to our portfolio of partner firms.
The Strategy: Grow and Exit
After we source and select digital health companies for our investment fund, we provide the resources to help them grow. By working in the trenches with each company, Caduceus enables early-stage digital health companies to supercharge their growth, drive big thinking, breakthrough innovation and rapid scaling – from product roadmap to fundraising to strategic partnerships to key hires and more.
We generally lead the investment round, starting with $1-2MM, or we co-invest with other venture capital funds.
We provide commercial support, board members, management, and operational advisory services to portfolio companies.
We offer portfolio companies network access to potential customers, channel partners, and strategic industry connections.
We reserve 50% of our committed capital to increase our investment with the best performing companies at a subsequent financing round, typically an additional $1-2MM.
We offer additional allocation (if available) to eligible investors. For those investors with $2MM or more in the fund, there is a free co-invest (zero management fee/zero carried interest) privilege reserved for them.
We discuss expectations and formulate a plan with our founder partners early in the investing process to, at the appropriate time, seek a 5X-100X return on the maximum total investment at the time of exit.
Disciplined Digital Health Investing
Throughout each phase of the early-stage digital health investing process, Caduceus Capital Partners maintains five success pillars that guide our approach.
Caduceus can only achieve its objectives in partnership with others. Our primary task is to serve management teams and provide them with operational expertise and growth opportunities that will support them in attaining our shared goals. It is through this unique approach that we are able to deliver strong returns to our investors.
Not all areas of healthcare are positioned for rapid growth. We target the digital health sectors that are best positioned to benefit from industry disruption, and then focus on the companies within those sectors with demonstrated growth potential.
Through 30+ years of industry experience, we have cultivated relationships with some of the most influential healthcare organizations and leaders. We tap into this network to provide our portfolio companies with growth opportunities in the form of new customers, strategic partnerships, and operational resources.
Customer and revenue growth – not financial engineering and market timing – are the primary drivers of investment returns, which is why we take a limited approach when using debt financing in our investments. This reduces risk and ensures focus on high-growth sectors.
COVID-19 has pushed the digital health sector to evolve rapidly and in a more dynamic way than we’ve seen before. We must act with a sense of urgency to help our portfolio companies advance new opportunities, maximize operational strength, and gain competitive advantages.