How upstart VC firm Health Velocity Capital is looking differentiate themselves in a crowded field

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The increasingly packed world of digital health investing has another new entrant as the sheer amount of capital flowing into the space continues to reach record heights.

Newcomer venture capital firm Health Velocity Capital has closed its initial oversubscribed fund with $185 million in committed capital.

Health Velocity – which operates offices in San Francisco, California and Nashville, Tennessee – has limited partners including a range of institutional investors and major healthcare companies including UPMC and Cigna.

“One of the most exciting aspects of Health Velocity is its focus on harnessing innovation and transformative thinking through strategic partnerships – which is complementary with the mission of Cigna Ventures,” said Tom Richards, senior vice president and global lead, strategy and business development at Cigna said in a statement.

“We are committed to delivering differentiated value to improve the health, well-being and sense of security of the people we serve.  Collaborating with Health Velocity has been, and will continue to be, instrumental in helping us partner with companies that are unlocking new growth possibilities in healthcare and will bring improved quality, affordability and choice to our customers, clients and communities.”

Richards previously described the company’s early investing experiences through vehicles like Health Velocity as a precursor for the development of their own Cigna Venture VC arm.

One of the firm’s founding partners, veteran healthcare investor Marty Felsenthal, said the decision to start a new fund was to contribute to a foundational mission of supporting companies that “contribute to a more affordable, sustainable, consumer-friendly US healthcare system.”

To that end, the Health Velocity has developed what Felsenthal characterized as a process-driven methodology to leverage the company’s relationships with its limited partners to help portfolio companies utilize that ingrained expertise to help fill out management teams, facilitate product development and build value.

“We will only invest in businesses where we believe can tap into our existing to drive revenue,” Felsenthal said.

This takes the form of a strategic relationship where the Health Velocity collects and communicates deal flow, trends and industry perspectives in a formalization of the informal information sharing and networking that is needed to source and develop investment deals.

Felsenthal compared the approach to that of Advisory Board, a services company which collects best practices, provides research, consulting and data analytics to healthcare organizations. Last year the company’s healthcare business was sold to United Health’s Optum division for $1.3 billion.

Health Velocity is looking to produce quarterly reports on what industry partners are focusing on, areas of interest and disinterest for the firm and preview prospective investments and other high-potential startups and technology.

The idea is not just to tout the company’s portfolio companies, but to perform the necessary function of acting as a connector between healthcare innovation ecosystem and traditional healthcare stakeholders.

Companies also get to crack the door open with potential customers to help get new business or expand existing relationships.

When it comes to characteristics of the companies that Health Velocity is targeting, Felsenthal said they are looking for businesses that are post-commercialization instead of pre-revenue or early revenue, which are more prone to fall into reimbursement and long sales cycles traps that can ensnare healthcare startups.

That means annual revenues of 2 to 3 million to up 50 million where a path to profitability is clear.

Among the major business themes Health Velocity is betting heavily on are companies which are focusing on the patients driving the majority of healthcare costs such as those suffering from chronic disease or cancer, solutions playing into the larger trend of healthcare consumerization by improving the customer experience and low-hanging fruit problems that can be solved by shifting the largely paper-based industry to the cloud.

So far the company has invested in five startups and plans to invest in three or four companies a year to develop an eventual portfolio of 13 to 15 healthcare startups. Health Velocity’s current investments include at home healthcare provider Contessa Health, telehealth company MDLIVE and healthcare staff scheduling startup OnShift.

“The Health Velocity Capital team has a highly differentiated model,” OnShift CEO Mark Woodka said in a statement  “They have used their networks to help me build my executive team and drive tangible and significant revenue for us and have used their experience to help us manage our product, market, and financing strategies.”

As someone who has worked as a healthcare investor for more than 20 years, including the doldrums era of the 1990s, Felsenthal frames the recent influx of investors in the space as part of a cycle that ebbs and flows.

It does, however, pose a challenge for a newer investment firm like Health Velocity to separate the signal from the noise.

“The great, but unfortunate thing about healthcare investing right now is that we are in a very target rich environment,” Felsenthal said.

“The implication for us is that we’re highly selective, we think it’s very important to invest nationally where we can really take advantage of the value of our strategic investor base and our reputations for successfully leveraging those relationships.”

Photo: StockFinland, Getty Images



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