Venture capital firm AlleyCorp is aiming to reshape the digital health landscape by giving it a New York state of mind.
It has incubated or invested in 33 healthcare-focused startups, including women’s health company Maven, physician enablement company Pearl Health and digital staffing company Nomad Health. Most of its portfolio companies are based in New York City and some work in AlleyCorp’s Flatiron offices.
AlleyCorp’s push into healthcare after spending 14 years largely focused on consumer and tech investments represents a larger effort in the industry where stakeholders are looking build digital health hubs outside of Silicon Valley. While many of the efforts are led by hospitals and economic development leaders, investors like AlleyCorp are looking to create an ecosystem of digital health companies from the ground up in New York City.
AlleyCorp was founded in 2007 by Kevin Ryan, a serial entrepreneur behind the creation of online shopping platform Gilt Groupe, database company MongoDB and business publication Business Insider. He also led online advertising company DoubleClick before it was acquired by a private equity firm for $1.1 billion in 2005. In September 2021, he launched a $100 million healthcare venture fund to invest in and build New York City-based digital health startups.
Ryan recruited Dr. Brenton Fargnoli, AlleyCorp general partner, and Dr. Jeffrey De Flavio, entrepreneur-in-residence, to oversee the firm’s healthcare investments. De Flavio previously launched Groups, a provider of value-based opiate addiction treatment that was backed by Kaiser Permanente Ventures.
Fargnoli was the senior medical director at cancer care company Flatiron Health. He said when he came to New York, there were only a few digital health companies such as Flatiron, insurtech Oscar Health and online scheduling company ZocDoc. The digital scene in New York City has since blossomed.
“I think part of it is the growth of that ecosystem through the Oscars, the Flatirons and others that have spawned talent,” Fargnoli said. “But the other part is just folks are coming into healthcare from other industries now. Before you had to be in healthcare to play in healthcare. New York has a diversified talent pool where you can pull in people from outside healthcare.”
AlleyCorp’s ambitions come during a challenging time for digital health startups, prompting some general tech investors to bail from the industry. Investors interested in digital health during the early months of the Covid-19 pandemic are exiting as telehealth adoption rates have dropped.
Earlier this month, AlleyCorp announced the launch of a $250 million fund, this one including outside investors, to invest in digital health well as tech sectors in different industries. Most of the earlier funding came out of Ryan’s personal wealth, which he accumulated after DoubleClick’s sale.
AlleyCorp’s portfolio startups have raised more than $1 billion. Of the 33 healthcare companies, eight were incubated within the company and given a initial investment of $1 million to $4 million. Alleycorp owns equity in the companies so it benefits from the exits.
The healthcare team develops a concept for a company and then finds the best CEO to lead it, Fargnoli said. The process then shifts to helping the CEO develop the product and find the first health system, health insurer or employer customer.
“In healthcare, reputation, credibility and relationships matter. The people on our team have those direct relationships [with providers and payers],” Fargnoli said.
Other times, AlleyCorp will connect with an entrepreneur working on a similar idea. Michael Kopko, CEO of physician enablement company Pearl Health, had an idea to help physicians be more proactive with high-need patients. AlleyCorp was working on something similar, Kopko said.
Kopko worked to develop the concept with Ryan and De Flavio, who is a co-founder and executive chairman of Pearl Health.
“Everyone thinks to start a company, you have to leave your job, survive on ramen for two years and then hope to get funded,” Kopko said. “That’s fine. It’s a very noble path but that’s not the only path anymore and I think this type of solution offers entrepreneurship and scale to people that don’t want to fit into one path.”
Pearl raised $75 million in a round led by venture capital firm Andreessen Horowitz in January 2023 and inked a partnership with Walgreens in September. Nomad Health scored a $105 million funding round in June 2022 led by venture capital firm Adams Street Partners.
Fargnoli said fewer than 10 of the companies AlleyCorp has invested in have failed.
While the CEOs it brings on board aren’t always former clinicians, it helps to have people with experience. Dr. Dave Chokshi, former health commissioner of New York City, is a board member at AlleyCorp portfolio company Yuvo Heath, which provides technical administrative support to community health centers.
Chokshi has seen the emergence of physician entrepreneurs in New York City and credits Fargnoli and AlleyCorp for leading that effort. He said the company understands the rare traits needed to succeed in digital health entrepreneurship.
“The people I’ve seen succeed can have this fierce conviction that things should be different but also a deep understanding of the system as it exists today,” Chokshi said. “What I’ve seen is there are a lot of people who have the former, but not as many who have the latter, and even fewer who are able to pair them both together.”
This article originally appeared in Modern Healthcare.
Gabriel Perna, Modern Healthcare , 2024-05-02 02:52:41
Source link
