Episode #2 - Michael Yang, Senior Managing Partner at OMERS Ventures

Written By Omar Mousa

Listen On

 

Description

Concept to Care speaks to Michael Yang. Michael is the Senior Managing Partner for OMERS Ventures, a $1.5B assets under management venture capital fund that invests in early stage B2B software and early growth tech-enabled services businesses.  He is a long time investor in health tech and some of his prior investments include Healthline (acquired by Summit Partners), Talix (acquired by Edifecs), BodyMedia (acquired by Jawbone), PeerWell (acquired by Bardavon) and Accolade (ACCD).  He currently sits on the board of Caraway Health, a healthcare provider for GenZ.  Prior to OMERS Ventures, Michael was a Managing Director at Comcast Ventures and previously a VP/GM of Yahoo! Health.

This episode was recorded in November of 2023.

In our conversation, we discuss:

  • A VC’s perspective on the evolution of product and how Michael seen the role of product change over time

  • Attributes of a product led organization, examples of that in health tech, and the structures of management teams to enable it

  • Defining Product in Tech-Enabled Healthcare Services

  • Then vs. Now: The Venture Capital Ecosystem

  • Consolidation of healthcare solutions in this macro economic environment

  • Previous and current M&A activity in health tech — best possible outcomes with these transactions

  • Health tech pivots in today’s economy

  • Exits in health tech, common denominators, and who are the buyers

  • Starting a venture backed health tech business today

  • Types of talent entering the health tech markets and who is best positioned to win

  • The next big bet categories in health tech

www.concepttocare.com

Show Notes

Where to find Michael Yang:

—

Where to find Angela and Omar:

—

Referenced:

Check out our website: https://www.concepttocare.com

Subscribe to our newsletter: https://concepttocare.substack.com/p/episode-2-michael-yang-senior-managing

Transcript

[00:00:00] Omar: Today, we are talking to Michael Yang. Michael is a senior managing partner for OMERS's Ventures, a 1. 5 billion assets under management venture capital fund that invests in early stage B2B software and early growth tech enabled services businesses. He's a long time investor in health tech, and some of his prior investments include Healthline, which was acquired by Summit Partners. Talix, which was acquired by ed effects, body media, which is acquired by Jawbone Purewell, which is acquired by Bardivon and accolade, which went public. He currently sits on the board of care way health, a healthcare provider for Gen Z's prior to Omer's ventures. Michael was a managing director of Comcast ventures and previously the VP and GM of Yahoo health. 

[00:00:42] Angela: Hi, Michael. Welcome to concept to care.

[00:00:45] Michael: Hi, Angela. Hi, Omar. Thanks for having me.

[00:00:48] Angela: great to have you. So let's dive right in. you've been an investor in health tech for a long time. Can you tell us a little bit about the evolution of product and how you've seen the role of product change over time?

[00:01:02] Michael: So I love talking about products. I came up the ranks functionally as a BD biz dev guy. And then eventually kind of segued over into product marketing. I was never good enough to be a true product manager, but I love pretending and talking about it. But, My, my context in my history is, goes like this.

[00:01:20] Michael: I came of age in like digital online media, right? When WebMD was actually a legitimate healthcare player out there. And back then it was all about online content and health information. So the original product managers and those types of businesses were really producers. So that, that's not a term or a job class that you really hear in health tech anymore, but the, the OG PMs kind of, if you go way back into the, into the nineties, which clearly dates myself is, is a producer.

[00:01:53] Michael: And then, you know, the, the next phase I saw was really, the beginnings, a lot of, the healthcare it. Companies and the vendors that spawned from that that were really traditional enterprise software companies. Maybe they came from a client server environment before they kind of moved, to kind of application service providing and kind of cloud based solutions.

[00:02:13] Michael: But, you know, that's when you actually had product managers and product marketing managers, right? So P. M. S. And P. M. M. S. Were kind of the, the norm back then. and then if you fast forward to kind of the Yeah. 2000s and the 2010s. I think the rise of product designers became a real big thing. And I think a lot of that was look at leaders such as Brian Chesky at Airbnb, where the designer was really the key architect of everything.

[00:02:43] Michael: And UX really kind of stepped to the forefront on that side. So, There were designers and their product designers. And we can have a debate about like, what's the difference between that. And I think concurrent to, to that whole trend was also growth. because growth and people that really brought product orientation plus marketing orientation, really also became kind of a, a function.

[00:03:07] Michael: So I've seen many organizations that have had producers, product managers, product, marketing managers, product designers. Growth like all conflate, kind of what product as a function or discipline actually is over the years. And I'm always kind of, eager to hear what's what's next and where this kind of function or this category goes.

[00:03:28] Angela: Yeah, absolutely. You know, I think I get it less and less being in product for last, you know, decade plus, but before it was like, Oh, you're in product. You must be like help desk or Healthcare it and now you are seeing the rise of organizations that are really product led and that product led growth at organizations.

[00:03:48] Angela: So I do think it's pretty exciting to see that.

[00:03:51] Omar: you mentioned health care I. T. And we're talking a little bit about product like strategy. What does a product led organization look like? how have you seen it, take place and what does the management team look like?

[00:04:04] Michael: Yeah, I, I'll start with a broader technology lens and then kind of move it into more of a health tech digital health kind of lens. I think in a traditional software centric organization, you know, your functional heads of state are really key. Yeah. what I look to on an org chart, it's, it's kind of one of the first things I flip to in a pitch deck or a conversation Q and a with, with a founder CEO, it's just like, Hey, walk me through your direct reports.

[00:04:29] Michael: And then it's very clear to me whether or not product or product management is a functional kind of. first party state that reports directly into the CEO or if it's subservient to another function, right? sometimes it is, sometimes it's not. If it's not, then I don't really truly consider it a product led organization.

[00:04:48] Michael: If it's tucked into engineering, if it's tucked under a CTO, if it sits in another kind of, functional area that that's kind of like where I, I draw my, my conclusions and inferences to.

[00:04:59] Omar: And it's funny because it's like, you see that more often in which categories, right? Like, we often see in the, I, I wonder if like tech enabled services, you see that situation where product is more servient versus being very vision driven and reporting directly into the CEO. which categories do you see that more often, in your

[00:05:19] Michael: Well, are you brought up tech enabled healthcare services? And I think that's a big dividing line because there you often get into a, A star contrast, which is is product technology product or software product or is product clinical product. Right and where I'm going with this is the service offering is traditionally centered around the delivery of care.

[00:05:41] Michael: Let's, let's use an example. You know, the, the rise of all these telemedicine virtual care kind of organizations. The product manifestation is the delivery of care. So some of your product leaders. Really aren't in the business of actually writing software, specking software, shipping software software. Is it enabler for what they fundamentally do?

[00:06:03] Michael: And the product offering itself is actually the provisioning of of care, right? Delivery care or some other kind of service. So there, I think, it's really interesting and to see how they describe it. And a lot of times I will have to clarify we talking about. Yeah. Software product. Are we talking about clinical product?

[00:06:21] Angela: Yeah, and I've run into this a lot, you know, having worked in healthcare, delivery organizations where product is, you know, supporting the, the clinical product, right? And so I think that is an important call out in the context of health tech. Whereas in other, you know, types of, industries, you probably don't have that conflation as much.

[00:06:45] Angela: That's cool. can you, so you've, you're an investor, you know, right now we are sitting at this time where there is. High inflation, I'm sure that this is something that, you know, you think about a lot and you're seeing it. Impact, health tech fundraising, can you tell us a little bit about, you know, just.

[00:07:04] Angela: Fundraising now versus fundraising even a year and a half ago, you know, like, before it seemed like it was more about speed and agility. And now it's kind of about durability and being able to actually demonstrate outcomes. Could you talk a little bit about that?

[00:07:19] Michael: Sure. Angela, I think you're, you're spot on on this. And I think, as we go into 24, the question is, are we out of this whole doom and gloom kind of environment that not only befalls kind of health tech, but it's like broader technology overall. So, let's, let's wind the clock back a little bit and kind of understand how we got into this for much of the 2000 teens and heading into kind of the beginning of the pandemic.

[00:07:45] Michael: So, You know, the cost of capital, the cost of cash was, was nominal, right? Interest rates were at all time lows and, capital is an abundance and sloshing around whether you're in technology, whether you're in a, a subsector like health tech, just a lot of people wanting to kind of jump on the bandwagon fund, these great ideas.

[00:08:09] Michael: Be part of these great visions and missions. so there was more capital kind of being, deployed into these categories than ever before. And then what happened? The music stopped primarily because the Fed started, increasing interest rates. So, you know, we took, interest rates from, from near all time lows to probably Generational highs, and where, I mean, it's manifested in the prime rate and the mortgage rate and like, all all markets kind of stopped and any capital markets activity basically stopped because the cost of capital is so much more.

[00:08:41] Michael: and that fundamental switch cause investors. Up and down the food chain and therefore their founders and CEOs to have to kind of pivot and kind of react very differently. The old playbook was really growth at any cost. And that's actually any and all cause, frankly, because you, you could bet that you could fundraise and 18 to 24 months, as long as you were showing that that hyper growth, when that doesn't happen, then what is the new operational playbook?

[00:09:09] Michael: And again, you could do that in the past because there was always quote, unquote, a greater fool or another later stage investor that was willing to pay a higher price or higher valuation because. The ultimate exits for any of these startups had gone from unicorn status, which is really a billion, which in a bygone era was quite rare to like decacorn status, right?

[00:09:32] Michael: Like, Hey, screw a billion dollar exit. I want 10 billion, right? I want a hundred billion dollars and continuing on that whole escalator, but that that's not feasible. That's not possible. higher interest rates, cost of capital goes up. You know, the multiples on which companies are valued goes down. So we've had significant multiple contraction and, you know, the, the music has stopped.

[00:09:55] Michael: So as a founder, I have to now become capital efficient. I have to demonstrate a path to profitability. I need to show what my unique economics are that. Hey, me continuing to spend money. Actually leads to something that is value accretive and potentially profitable in the long run. And if I can't show that math, then no one's going to come along with me on the, on the journey.

[00:10:17] Michael: And also don't forget, we throw in a nice bank run in the middle of this whole process at the beginning of this year, which also changed a lot of dynamics. So equity markets were, were kind of dampened credit and debt markets for startups were also kind of, fundamentally changed and it's been a topsy turvy world.

[00:10:35] Angela: I completely agree with what you said about the growth at any and actually all costs. Right? So you saw a lot of product investment. I'm using air quotes, towards business development, because it was like, okay, if you get more lives, then you could sort of count on that, eventual ARR and we're going to count that versus, hey, let's invest in fundamentals.

[00:10:58] Angela: To get operations, right to get outcomes, right to get to that path to profitability that way. And so I've definitely seen that paradigm shift, you know, firsthand. And so, you know, I think that there's also. With this sort of trend of, capital is harder to get, you know, let's talk a little bit about, you know, consolidation, right?

[00:11:19] Angela: And so for a lot of organizations, it is, we're falling on hard times, right? And so. What are you seeing here? Can you talk a little bit more about this?

[00:11:28] Michael: Yeah, so we had a prediction at the beginning of this year that there would be a lot of consolidation, like, for sure, within health tech, but within many quadrants of technology, I think if you look at the tail of tape, we're actually quite stunned and shocked sitting here and in late November that not as many transactions have come to bear.

[00:11:47] Michael: Right? So it's kind of been kicked into probably 2024 or even beyond. So why do we think that is? I think it's because there was more capital that was given to the startups before the music turned. And then the founders and the management team have been better at making that that cash run longer, right?

[00:12:09] Michael: More riffs, more cost reduction, exercises, just a lot of optimizations and kind of operational rigor. And then I think the other thing that sometimes is disclosed, sometimes is unsaid is their existing investors will continue to fund. You know, meeting prop up the business, provide insider led financing, to, to keep it going.

[00:12:30] Michael: And, and, you know, as we went originally into the, into the bad times, it was like, Hey, get to 2022. Then it was like, get to 2023. Now it's like, get to 2024. So that kicking of the can has been going and therefore we have not seen as dire of a need for, for consolidation by certain players. I think the flip side is the potential acquirers.

[00:12:51] Michael: Those who actually have balance sheet strength or business strengths, maybe they're publicly traded companies or otherwise they have not been as voluminous and their transaction activity as we would have all forecasted. I think getting a deal done as a publicly traded company where you report to a board and say, Hey, I'm going to go buy this company or when I go buy that company, even the board is.

[00:13:15] Michael: Is anxious and nervous in this environment because there's still a lot of people who speculate that we are headed into a recession, or maybe we're in a reception recession, or maybe we're soft landing like nobody really knows. Right? So is now the time to be on the front foot going out and rolling up or acquiring a bunch of health tech companies or assets.

[00:13:35] Michael: Right? and that's just between probably bigger companies and little companies. And then the smaller companies. Private to private, you know, kind of maybe it's an aqua hire type of situation. I think, you know, there's a lot of management team founders and boards of those types of companies. They're just like.

[00:13:53] Michael: Hey, I don't want to catch a falling knife, right? Shame on me. If, if I don't kind of really make sure what I'm doing here is, is the right decision. And if I just give it another quarter, learn more information or why buy it if in, you know, three quarters, this business is going to be out of business anyways.

[00:14:10] Michael: And I can either hire the people or I can roll the patients over, or I can pick up the provider network or, or something else like that.

[00:14:18] Omar: Hey, Michael, with these public companies that are hoping to make some of these acquisitions, or they have the MNA arm that are looking into some of these companies, I imagine with a lot of these tech startups, they're building a lot of custom software. To solve for the unique use case that they're trying to solve.

[00:14:34] Omar: are these, are these public companies, are they buying or consolidating these tech startups for customers or do they hope to even, you know, achieve or obtain anything with the technology assets that they're buying? Like, what is the best outcome you think

[00:14:49] Michael: Yeah. So I think you've just asked the gazillion dollar question, which is. What are the underlying bones of a health tech startup? Especially if it's a tech enabled service, right? what is true intellectual property? What is true asset value? What is true moat that can, that can port from the startup to the acquirer, right?

[00:15:12] Michael: And, and therefore there's, there's really value being here. It's probably not revenue. Right. is it software code? Maybe. Right. Is it a set of contractual relationships? Maybe. is it a network of, of providers or is it the employees on staff? Maybe, you know, so these are the questions fundamentally that you have to ask, like, are Are Are people in a position where they're looking to buy, a patient panel, right?

[00:15:42] Michael: Like, how sticky is that? Is that panel going to be, you know, do they want access to, a network of providers in a certain geography or certain specialty? I don't know, like how, how much is that really worth and then, you know, Hey, you've got a better, contract with the pair than, than I do. you've got better case rates than I do.

[00:16:01] Michael: You've got better PPM contracts than I do. Like, you know, is that the calculus? It's, it's hard to say. Right. And then we get back to the fundamental kind of, you know. Idiosyncratic kind of tendencies of health care, which is very hard to get big fast in this business, right? So it's not like a lot of, acquisitions need to be predicated on like land grabs.

[00:16:25] Michael: And I got to move fast to kind of sweep this share or that share because the other person is going to do it. You just know that it's a really long time constant ground game, frankly. So I don't know what the sense of urgency oftentimes, Is and and that's hard to manufacture if if you're on the, um, the sell side,

[00:16:43] Omar: yeah, that makes sense. I'm going to dial back to a question we already asked you, but we were talking about the inflation. You mentioned the interest rates. You mentioned something there that about the downstream effect. So music stops, you know, the, we're telling, you know, founders are being told like you need to pivot.

[00:17:02] Omar: What are those pivots? 

[00:17:03] Michael: In many technology enabled services business, you will have boards who ask. Hey. We've had this software team, product team that's been building this proprietary EMR proprietary, this proprietary, that is that stuff good enough that you could sell it on a standalone basis, right? Both of you guys are smirking right now, because, you know, you've probably heard of these, these debates, right?

[00:17:30] Michael: you, you've had the discussion, which is again, in the services context. Are we better off continuing to build kind of roll your own, philosophy or should we vend and look for a kind of best in class, you know, commercial off the shelf software from, from other vendors to kind of do that, right? same thing on the clinical provisioning of care, right?

[00:17:51] Michael: Do our providers need to be W 2? Can they be 1099, can they be contracted with other provider groups and stuff like that? So you end up kind of rethinking the entire PNL Omar. maybe it's a pivot, but oftentimes it's just reexamining where all the resource utilization is going and there, whether or not there's lighter weight ways to kind of still deliver that resource.

[00:18:18] Michael: and therefore you're not as capital intensive, but it's rarely like, Hey, if you're an MSK company or an MSK company, you're not going to all of a sudden be like, Hey, I'm moving into the kidney care. It's a, as a pivot or something like that, right? That's hard.

[00:18:30] Omar: Yeah, no, that makes sense. Those are the, some of the levers that I was, thinking about. And I think you're right. If you're an MSK company, you're not going to go into something else.

[00:18:39] Michael: Yeah. I mean, the other quote unquote pivot. I don't like to use that word, but like refocusing is often on go to market, right? Like, Hey, yeah. We were really going and, and we started off as direct to consumer, right? We saw many businesses that start off direct to consumer. And then it was like, okay, this is getting super expensive.

[00:18:57] Michael: The only people that are really winning are Facebook and Google and, and others. Let's try B2B place, playbook. and then it's like, Pick your pick your B, which 1 do you want to go after? Right? Health systems, payers, employers, other constituencies in the ecosystem. I can and how's that going? Right? so,

[00:19:16] Omar: or focusing on like you have five different channels that you're currently trying to attack and then focusing on a single one. So, yeah, definitely. I think Angela and I both can speak. We've definitely seen that. I'm sure you've seen that 10 X what we've seen. So. Yeah, I really appreciate that perspective.

[00:19:32] Angela: I was laughing when you were saying like proprietary technology, because I can't count how many times I've said that. I think that Omar and I have jobs because health tech. We love to build our own things. We don't think that buying off the shelf is ever good enough.

[00:19:46] Angela: and so it, it's interesting to be in this day and age and to have to really examine like, you know, what value is the product delivering, as a standalone, right?

[00:19:57] Omar: so transitioning here, kind of dose of reality time as people in health tech, we have a tendency to be optimists. And I, you know, in our conversation before this week, we talked about this a little bit, but. What are you seeing in health care, in terms of exits?

[00:20:12] Omar: there are a few successful ones right now and not much happening for other companies who have raised capital. And then, right now with capital being expensive, we already talked about, but what do you say to someone who is looking to potentially start a company in health tech, uh, so that there's a two parter for you.

[00:20:29] Michael: Okay. let's, let's, let's take them kind of maybe backwards and just remind me if I don't get to the actual question. So, I, I would say, Okay. If, if you're up for the risk and you want to join an early stage startup, joining something in health tech that was formed kind of middle of 23 onwards is actually a good bet, right?

[00:20:51] Michael: Because the, the context and the baseline is. More in line with the market, right? Meaning you get it, you signed up for this. It's tough times. Capital is expensive. You have to be efficient. You got to get the product market fit on very skimpy budgets and so on and so forth. You're not walking into a situation with a lot of largess and like funds kind of sloshing around and you're focused on like, Hey, can I go hire a 50 person team to go tackle this little skunk works project?

[00:21:21] Michael: It's just not going to happen. Right. So I think you're good on that front. I think for companies that were kind of. Created beforehand, then you just got to see, like, where are they on that, that journey to true realization? Like, have they gotten religion and they're operating in this kind of new environment?

[00:21:38] Michael: And then I would probably pick an employer or click a company. Not only because you obviously the usual, you believe in the mission and the vision and what they're trying to solve for, but I would really spend time looking at. What department, what function, what BU am I joining and who are those people?

[00:21:56] Michael: Because you look at that organization, which is probably more or like more or less going to be a mid to later stage company. Who am I building a network with? Who am I going to meet in the engineering? Who am I going to meet and clean ops? Who am I going to meet and product marketing? Because it's a two step tango is what I would say.

[00:22:14] Michael: Go to that place, spend some time. Ship some product, you know, you know, whatever other MBOs and OKRs you're trying to hit and then propel yourself out, but you will be a better person because you learned a lot and then you kind of work with good people that are probably also going to go on to, to other startups or other companies, the big thing we have observed over the last Couple years is is 2 things talent liquidity and then also information liquidity.

[00:22:45] Michael: Okay. What I mean by that is this as as. Great performers who were at maybe health tech unicorns or other, you know, really high, high, highly visible companies in the space realize, like, hey, the end of the rainbow might either not happen or not get. We can't get there in the timeframe that I thought or the way I thought.

[00:23:08] Michael: And I want to go, I want to bounce. I'm going to do something else. I'm X years vested. Like, why am I still here? Right. So that is getting smarter and smarter and people are moving around a lot more. Like we have seen, Oh, wow. You're part of the management team at this company. Now you're showing up over here.

[00:23:23] Michael: Oh, you were in an IC at this company. Now you're part of the management team at that. And that's actually goodness because the market needs to breathe and people need to move from companies that, you know, Either aren't going to make it or shouldn't make it like, you know, it's creative destruction, you know, at some point it needs to get and get recycled.

[00:23:42] Michael: And we like seeing that. The other thing on information liquidity is I am so impressed in the last couple of years versus 10 years ago versus 15 years ago, how smart founders and management teams are because. Every operational playbook, whether it's technology related, whether it's, like, healthcare coding related, whether it's, you know, clinical delivery and and outcomes related, like, People are sharing a lot more and it's very hard to actually have a competitive moat based off of a operational hack or, or, or some other kind of, attribute.

[00:24:20] Michael: I just feel like there's perfect information and, you know, when you see a category and there's like 6 companies competing in that same space, like within 6 months. The 6 leaders of the 6 companies are all doing the exact same thing because maybe you would have figured it out first and you have like a 3 month advantage.

[00:24:36] Michael: But then the copycats or the mimicking kind of quickly gets out there and everyone's doing the same thing. So it's a bit scary on the investor side because you worry about lowest common denominator race to the bottom and some of these other kind of competitive kind of, you know, downstream effects.

[00:24:53] Michael: But, I think that's the state of how sophisticated health tech has become.

[00:24:59] Angela: you seen a company that has a really good moat and you're like, wow, this moat is really effective. Mm.

[00:25:05] Michael: No, I mean, I've, I've learned of many tactics. Like, you know, for monetization for reimbursement, right? I've learned of many tactics for data acquisition, you know, or, and, and I'm stunned when 2 weeks later, I talked to an adjacent company or competitive company or a month later, right? They're kind of saying the same thing.

[00:25:26] Michael: I was just like, wow, I thought those 1st. Folks were really, really smart for doing that, but it's like, okay, what's, what's the next act? It's like, you've got to continue to kind of up, up level your game, right? Same on product. It's like, okay, we're using this infrastructure or using this kind of open source thing, or relying on this kind of, you know, new Digital health stack infrastructure player.

[00:25:48] Michael: And then it's like, everyone's using the same player. I'm like, okay, well, that doesn't like, that's just table stakes all of a sudden now. Right. You didn't buy anything, you know, in terms of advantaging yourself on that front. I

[00:25:59] Omar: you mentioned like, if you're in, if you're in a company, that's like in the economic landscape that we're in now, post 2023, you're kind of like, you're working with the right constraints. Things are realistic. there still have been some exits, of like much the companies that are very large now, or at least for health health techs perspective.

[00:26:18] Omar: Like, what, what do you think the, the secret sauce of the common denominator among? Is it, is it like the leadership? Is it. They just, you know, right place, right time. There have been a couple that probably really notable that, like, there might be something there worth mentioning.

[00:26:34] Michael: think, timing is always probably the, the dominant driver. So I'll give you a case in point, right? Cause people have always mentioned, well, Hey, there were some spectacular transactions in health tech this year. Amazon One Medical, right? Walgreens, Village MD, CVS, Oak Street. Okay, so that's all in and around a primary care thesis, you know, for maybe different kind of markets or, or books, but in and around that kind of stuff.

[00:27:02] Michael: Did it trickle to a bunch of other things? Not necessarily. And then do we generally believe Amazon's going to go and buy a bunch of other things? Okay. So they picked up pill pack a little bit ago, but like, it's not like they've got a, a bicycle on a ton of companies. Same thing with, with Walgreens. And then they have a change in leadership, which calls into question the whole strategy overall.

[00:27:26] Michael: Right. And then. CVS, on unclear where they go after their most recent moves, they're doing a lot of great strategic investing and maybe that's the answer. I think you're really waiting for like United and Optum, like where, what are they planning to do? And maybe they're the smartest guys in the room where they're just waiting more for valuations to fall for companies to suffer, and then they can pick up whatever they want to pick up, or they're using this as a test to see Omar.

[00:27:53] Michael: Who are the most durable companies? Like who really stands above everybody else? Like, okay, that's the leader we want to go get. Right. So you can have many different, different strategies, but it's. It's, it's tough, right? How many MSK companies do we have? How many kidney companies do we have? How many home health companies do we have?

[00:28:10] Michael: Like, You know, even as a buyer, you're confused because there's so many things to kind of go pick and then when you talk to them all, they all sound relatively similar. They all potentially get to the same place. and maybe the, the, the difference maker is the dispersion in valuations or capital or, or some other kind of things.

[00:28:30] Michael: I don't know.

[00:28:31] Omar: I'm going to bring you back to the second part of that question, and sorry, I delivered it in two parts. But, um, so now, now that you're saying, like, if I'm someone with ideas. I have some sort of vision. We're in today's market.

[00:28:45] Omar: What would you say to that person? They came to you, Michael. I think I got this cool idea, man. I want to start it. What do you think? Should I go out and do it? What do you say to that person? just generally. Okay. It's

[00:28:56] Michael: So because I'm a venture capitalist, I'm an institutional venture capitalist. I will answer it in this way, which is I would say to the founder, get as far as you can by hook or by crook on your like other, your money or customer's money or something else before you take venture capital, because once you take venture capital, the clock begins, the meter begins, the.

[00:29:22] Michael: The game basically begins like VCs are not altruistic vehicles, right? We manage money on behalf of like significant institutional limited partners who expect a rate of return. That rate of return expectation has increased, right? Because interest rates are X, right? If you can give your money to the government, which is basically guaranteed and get a certain percentage interest rate, that means.

[00:29:49] Michael: To give your money to a venture capitalist, you expect far more than that. So like our expectations are a lot higher and we have to work that that much harder. So if you're unsure of your idea, you know, if you haven't been to that whole venture backed rodeo before, you just want to give it some thought.

[00:30:07] Michael: I know it was very, very fashionable in the last many, many years to be like. I want to be a health tech founder. I want to go raise funding. I want to go do this. I think it was just more like, that's the thing you do without really thinking about what are the implications, the obligations I'm stepping myself.

[00:30:22] Angela: going back to before when we were talking about, okay, if I'm. You know, at a healthcare startup, look, maybe I'm looking to raise another round, right? Because I'm running out of cash. And if I, you know, if consolidation is not at pace with what we had expected. And, you know, they can't raise money.

[00:30:42] Angela: Like, what are you seeing? Are there creative. Strategies, like, you know, splitting the company. Do our companies quietly going out? Like what? What are you saying there?

[00:30:54] Michael: I think that that's a question you should ask in the first half of next year, because I think a lot more of the population of startups is going to be in that phase where we're, we're trying to figure it out again. I'm surprised there's not as many private to private. Kind of transactions, mergers, acquisitions, aqua hires, what, what have you, I'm surprised not as many businesses have shut down, you know, at this point in time, I think a lot of people are limping over the line into 2024 and hoping that the markets kind of come back and they get a reprieve and, and someone will kind of, you know, and inject a new lifeline with, with new capital.

[00:31:30] Michael: Right. But, Yeah.it's tough. I don't have that, that forecast, or that crystal ball right now.

[00:31:36] Angela: Mm hmm. Can you talk a little bit? I know that we had talked about health line And the strategy there. Can you talk a little bit about what happened there?

[00:31:46] Michael: Yeah, so, so this might go to that, that conversation we had earlier about, you know, what are the underlying assets and intellectual property of what you have built? Right? So, you know, Healthline is a prior generation type of business. a lot of people know it as a WebMD competitor is more in healthcare information services, and just have a rich catalog of online healthcare content.

[00:32:13] Michael: The business model was, advertising. Hey, we haven't talked about advertising as a, as a support financial model in this space and how many years now, right? Well, how novel, but before my life science has kind of flocked to it. But the delivery of content and media was really on top of the, the core IP, which is a really interesting taxonomy of all things healthcare.

[00:32:39] Michael: Right? And it was a very strong natural language processing kind of engine. they just happened to deploy it in a media delivery and ad sponsored kind of model. and over the years, we struggle with how to ultimately manage it. Monetize that that asset, like, how are you going to get true, venture scale returns off of what we've built here, which is really interesting technology under the hood.

[00:33:04] Michael: but what what you saw on the surface just kind of looked like. WebMD, you know, so at one point in time, the, the, the board after many decisions of, are we committed to this? You know, do some people want liquidity? How do we affect that? and it was almost like a, a business of, of Jekyll and Hyde.

[00:33:24] Michael: Half the company looked and talked one way, half the company looked and talked the other way, right? and we, we just had the, the good fortune of a, of a good debate to say, You know what, it's actually time to split the business. So we'll take a instance of the stack and all of the, the content and the PD and the people in the media ad supported business, they're going to stay as Healthline and we sold that business off to private equity that was sold to Summit Partners and then Summit Partners ultimately, sold that into Red Ventures and then Red Ventures rolled into United.

[00:34:03] Michael: Healthcare group, right? And, and this is kind of like that thing. So that is, you know, like a lot of things that a PE player like summit could do with a media business on top of a really interesting chassis. Now, the core chassis ended up becoming talix and talix was in the coding and risk adjustment space because of that, that really awesome.

[00:34:29] Michael: Grandly or taxonomy and kind of ever, expanding universe of, of information that they could kind of play with on, on that front, that business ultimately traded and sold to ed effects, a couple of years ago. Right. So as the original investors, he ultimately got two bites at the Apple and two transactions.

[00:34:47] Michael: But if he had kept them as one, it probably would have been suboptimal, but by kind of separating them into two, you probably got a little bit more bang, bang for your buck. Really, really hard to affect really, really fortuitous from a timing and outcomes perspective. And sometimes it's better to be lucky than to be prescient and good.

[00:35:06] Michael: But I'm always thinking of this when I look at tech enabled services, which is like. What is it here under the hood that we really have? Right? And again, if it's like, okay, you've built a little scheduling system. You've got a clinical notation system. You've got a little bit of a data integration layer to kind of pull in other patient information.

[00:35:26] Michael: Like, yeah, but like. How compelling is, is that that's probably not deep enough to, to be honest, maybe it was fun, Angela, to your point to kind of build it because you want it to build it your way, make a purpose built for kind of your clinical users or something. But is it, is it really shoppable kind of in the end state?

[00:35:45] Michael: and then the flip side is like, you know, how many patients do you have? Like, you know, how are you monetizing those patients? Right? That that's a different type of business calculus for, for, Deriving terminal value.

[00:35:58] Omar: that's a great story. Honestly, like chalk it up to my own ignorance. I didn't even know that was a lever that you could pull where you could just split the business up. I wanted to hit the theme of talent here. who's coming into healthcare, who's leaving healthcare, you know, what are the pockets? Is it us?

[00:36:16] Omar: Is it international markets? Our people, where, where, where, what are the, what are you looking out for these days when you're evaluating new companies or existing ones,

[00:36:25] Michael: Yeah, I, I still think it's a, it's a pool of talent that is ever increasing and more people coming from elsewhere in. So that, that really, excites us. and, you know, what we always look for is companies that have a combination of technology people who may or may not have Come from healthcare and then healthcare people, right?

[00:36:50] Michael: And then increasing. There's a 3rd population, which is like multi time or really experience health tech people who've done it like a few times. Right? And I think you can almost take those 3 populations and just You decide how you want to titrate the mix between the 3 to kind of create, create the company.

[00:37:09] Michael: I'm still wary of tech only folks trying to apply and attack health care for the 1st time. And I'm still very worried about traditional health care people trying to do technology. 1st things, you know. Historically on a pattern recognition basis, those don't lead to kind of good outcomes. And, and I think maybe the, the, the best might be, you know, folks like yourselves who've just kind of like, you got on the horse, maybe it worked, maybe it didn't.

[00:37:35] Michael: Then you got on the next horse. You just kept going and kept going. And with all those reps, you just have learned and seen so many different things. And, and you are the true talent unicorns that appreciate the nuance between the two different worlds, because it is a, it is a juxtaposition, you know,

[00:37:52] Angela: That's a very kind way to describe us I use I typically say that I'm a glutton for punishment Yeah That's interesting to hear you say that there's more and more people coming into health care, because I think that sometimes you hear about people leaving health care, and I don't know if that's more, you know, clinicians that you hear about, the doctors, the nurses versus the people that are working in health tech.

[00:38:14] Michael: yeah, that, that, that's, that's fair. I mean, we haven't even gone to provider burnout and all that kind of stuff. I'm really talking about more core technology people who I see are, are really still, we're still net importing them into, into the ecosystem. I think the health tech people. Largely stay, but maybe after the 3rd or 4th try, if it hasn't kind of worked out, maybe they then do bounce out.

[00:38:37] Michael: So I'm going to do a fintech thing or do a crypto thing or do whatever. Like, I get that. and then, on the health care, traditional health care folks, I think more at the business and higher level clinical executives. I think they continue to stay in the business, but I could see, hey, your average coverage.

[00:38:54] Michael: Nurse, maybe maybe I'm out your average primary care physician. Maybe I'm out and whatever. I'm going to pursue something else in life. Yeah. It's been tough.

[00:39:04] Angela: And right now, because there have been a lot of rifts, you know, from top companies, you see a really rich talent pool. And so do you have any advice for folks? You know, that are looking to really be able to stand out in this environment.

[00:39:20] Michael: Yeah, I,

[00:39:21] Omar: in mind, Michael, I'm, I'm hiring folks right now. So name some good ones

[00:39:25] Michael: there, there, there you go. I mean, I, I actually think the community is stronger than ever before and facilitating this. I think it's, it's almost entirely word of mouth because like, Hey, we all worked on in this team or we're on this pod at this and, and just kind of folks kind of recirculate very quickly.

[00:39:45] Michael: Yeah. Again, I'm thinking of like core health tech people who've been at the intersection of both. So to be, to be honest, I'm not hearing a lot of folks languishing, kind of lamenting like, Hey, I can't find my, my next act. I think, again, that just shows like for every company that either makes it, doesn't make it, or you vote where your feet and like, I don't believe I want out there's net new supply of, of startups coming into the system, kind of giving it a go.

[00:40:10] Michael: so right now it's still feels relatively. Productive.

[00:40:17] Omar: Michael, one last or a couple, maybe, maybe a few more, and now we can start to maybe just riff and kind of get outside the. Programming. So like, we'll edit whatever out if it does make sense. But, you're sitting on top, your teams are doing diligence. You're sitting on top of a lot of interesting ideas.

[00:40:34] Omar: Like what's, what's, you know, AI is also like a big buzzword these days or, you know, actually very interesting with the technology. What are the categories or the tech or the things that are coming at you as of late that got you get you and your team really excited or yeah.

[00:40:52] Michael: I'm not sure you're going to like this answer. I, I'm looking for inspiration, for the first time in many, many years. I usually try to do this process in Q4 with my colleagues, Chrissy Farr and Marissa Moore, which is like, okay, it's okay. What's our outlook, where do we want to attack and where do we want to study and where do we want to submarine and get like really, deep on next year and we're, we're, we're really hard pressed to kind of identify what those things are.

[00:41:19] Michael: Right. And I've been doing this Angela's as you embarrassed me many, many years at this point. And like, I feel like every year I can like, okay, here's the next 3, 4 categories that we want to go into and, and. If you've noticed, we've been quiet, like, in terms of articulating what that is, because we're really, really having a hard time, you know, saying it.

[00:41:36] Michael: We used to have a bunch of conditions, you know, that we wanted to kind of go one at a time and so on and so forth. And then it was different parts of the technology realm, you know, like this portion of the stack or that portion of the stack. Right. But I think going into 24, I'm, I'm, Not, I'm genuinely not sure.

[00:41:53] Michael: And if anything, that leads us to probably have more conversations and more meetings to just kind of get that ground truth of like, what is the market telling us from a supply side or a founder side? And, I, you know, I, I, I sometimes look and listen to my peers in the business who try to say it's this or it's this, or it's this, I'm like.

[00:42:16] Michael: Is it like, you know, you could, you could debate it 9 ways to Sunday. So, for sure. Omar, we're getting a lot of AI centric kind of deal flow, but that's not only in health tech, that's like in every industry and every kind of walk of life and sure that that's the hot, fanciful thing now, and we'll study up on it, we'll stay abreast of it and have our, our, have our points of view, whether or not it's investable in its current state, I think we're also looking as a, as a investment strategy.

[00:42:43] Michael: We've kind of bifurcated into, into two parts. This part I can kind of say for next year, we're still very interested in, in early stage software businesses and like, you know, healthcare IT or whatever you want to call it, you know, and if anything, what has shown more durability or better metrics as a business, are.

[00:43:06] Michael: Software meets the supply chain software meets procurement software meets kind of different back office functions, not front office, clinical functions, but back office functions in terms of standing up providers or. Health systems or payers and all that kind of stuff. So there's a little bit of that here now.

[00:43:25] Michael: the 2nd part is we are willing to go probably more mid and later stage on tech enabled services than we ever have before. A couple of reasons. Some are starting to get to a point of scale that you have confidence they're going to make it. Second, some have raised at just valuations and structures that don't make any sense, but they're willing to negotiate.

[00:43:51] Michael: They're willing to revisit how much they raised, what the valuation is, and, and founders are just a lot more sophisticated to say, okay, That mark that we took at the end of 21 or that market we took at the beginning of 22 is probably 2, 3 times higher than it should have been. We still believe we still want.

[00:44:10] Michael: We have a 10 year horizon. We'll do the right thing. Take our medicine down, take it down and then kind of recalibrate reset thereafter. Right? So those are conversations that, If you've been in the business long enough, you know how to do these types of transactions because they're super messy and it's not for everybody, but we're happy to entertain those conversations as well.

[00:44:29] Michael: So I'd say early stage software and then kind of early growth ish, kind of tech enabled services. but the same thing on tech enabled services and even on the software, we, we really hate situations where once we start looking, we're like, okay, There's eight companies, there's eight logos, there's eight vendors doing the exact same thing.

[00:44:49] Michael: And I can look at the management team of, we'll call it like six out of eight have like one or two spectacular smart people that are probably going to figure out the exact same thing as everybody else. So what is the outcome of this category from a venture investor's perspective in five years time, 10 years time?

[00:45:03] Michael: Right. And, and what we're going to try to do is avoid stepping into those situations because. You know, what wins you have more capital than me. You have like, I don't know. Right. So that's, that's not a, a great, game to walk into.

[00:45:20] Angela: Thanks for your candor. I think it's super helpful to hear your perspective because in the past, I don't know, five to 10 years, every year I've always thought, Oh my gosh, there's so much happening. There's so many problems to solve. And then lately it has been sort of like, what, what else is, you know, what's going on, right?

[00:45:40] Angela: There are a lot of. Areas where I think that there is a lot of saturation, like, when you think about, you know, mental health, like, some of these more point type of solutions 1 of the areas that I'm curious to hear your take on is, the aging population, right? So, aging at home, you know, more urgent care services at home.

[00:46:00] Angela: You know, you know, what you were saying about, software sort of supporting, you know, standing up back office functions. I think that, like, I'm, I'm curious to know what like nursing home data looks like. Do you know what I mean? So, curious to hear your thoughts about that whole area.

[00:46:16] Michael: Yeah, I, I, it's a, it's a fascinating, area. You know, we have a business in Europe called birdie that provides, you know, software for, for agencies, you know, in that home care kind of space, I think aging in place, the silver tsunami, all these things, come on, we've, we've been talking about it for, for years.

[00:46:34] Michael: It's great to see. Founders starting to attack it. I think a lot of the founder stories as to why are, are very. Empathetic, right? Their personal journeys. You love those kinds of, origin stories, but then you still got to figure out what the business is, right? Like why, why am I doing these visits? Why am I providing services?

[00:46:53] Michael: How am I going to get paid? You know, am I going to get paid enough that it's, it's margin accretive? Like, if you can't really figure that out. It's tough. And then, then we always like to ask a question of a founders, which is okay. If he actually. Do you get this mouth trap to work and it starts to scale and it starts to scale fabulously meaning like if you have to 1000 X yourself and a year or 2, are you even alive or you've completely broken yourself because it's just not scalable what you do, right?

[00:47:23] Michael: So that's that's where the whole tech enabled services thing. Let's just be honest. A lot of times that's a veneer. It's actually not tech enabled. It's just like more and more people and bodies, frankly. You know,

[00:47:37] Michael: I read all of 

[00:47:39] Omar: Marissa's, the green room. Yeah. Is that Omer's or that's just entirely,

[00:47:43] Michael: So I'm happy to talk about that. So, you know, shameless plug for my, my 2 lovely colleagues,

[00:47:48] Omar: please.

[00:47:49] Michael: Chrissy Farr, she, she's been with us for, for several years now, leads the line. and, and obviously everybody knows her from our CNBC days and, and, and beyond, but, you know, she writes, a sub stack called 2nd opinion where we, we all kind of sit together and, Just kind of debate what what's topical, what should the community kind of know?

[00:48:09] Michael: And then she kind of goes out and and and does her thing. she put out a piece. I think it was earlier this week. Yeah. Monday. that is is really like, hey, 2024 is really not going to Be much better. And, you know, here, here are things that are likely to happen for founders in various situations. Marissa Moore, who joined us two years ago from CB insights, those of you guys who love those digital health kind of market maps, she was the architect of, of that for a couple of years.

[00:48:36] Michael: she, has a great forum, especially for. first time founders or, or founders who are still finding their feet, which is called the green room. And that is a closed door private session where she and several other health tech investors that she, she curates and brings along invite a founder to come in and kind of.

[00:49:02] Michael: Really, really talk Frank, you know, like let's, let's get super vulnerable. Let's, go through your pitch deck ostensibly, cause you're going to need to fundraise at some point and we're going to give you real feedback because let's be honest, what VCs do not like to do, is when they say no to investment, like really give the reasons why, and there are often very specific reasons, and I know for the founders listening that have tried raising venture and gotten a pass.

[00:49:30] Michael: You're just left kind of hanging, like, why I thought it was going so well. Like we had chemistry and rapport, you were digging it. I loved your vision or, wow, you did all this diligence. Then what happened? And it just kind of grinded to a halt or you ghosted me up to the first meeting. Like, yeah, there's a lot of bad behavior and venture.

[00:49:47] Michael: I apologize for that. But, you know, if, if, if you have the good fortune to participate in their inner green room as a founder, I think. what I have just seen, secondhand testimonials, just immense value because that is a private forum where nothing is, is really truly further disclosed from there, you know?

[00:50:05] Omar: Yeah, I saw the post about the value based care one and I was, I think I commented on Mervis's post. I was like, man, I really wish to just be a fly on the wall in that room because it's a good idea. Honestly, good on y'all for figuring that one out. Um, have a guest centered question. It's it's, we scoured the internet to find something interesting and fun to ask you.

[00:50:24] Omar: And the one that we came upon was. We noticed that you like, well, you follow a couple sports or a bunch of sports and then you like a bunch of different teams all living in all belonging to different cities. So what's the deal? Michael tell our guests. Like, why? Why do you have no allegiance to 1

[00:50:43] Michael: Yeah, and you probably notice, even though I've been in the Bay Area for, for decades, I don't, I don't fly the fly for any barrier teams. I, it's just a function of growing up. I am the son of a chemical engineer in the oil and gas business and anywhere there's been a refinery. I've probably lived there for some portion of time and we, and we had a lot of different tours of duty.

[00:51:04] Michael: So, That's how you get New Jersey, New York, you get, Pennsylvania, you get Texas, you get parts of Asia. and just kind of like where I fell in love with that particular sports. I, I do love sports. I try to play as much of it to, to keep me going and, and, and sane and all the, the madness that is the, the day job, you know?

[00:51:23] Michael: So that's the reason why.

[00:51:25] Angela: Awesome. I have so enjoyed this conversation. Thank you so much for your time.

[00:51:31] Michael: Thank you for having me.

[00:51:32] Omar: Thank you. Michael.

 

Recent Episodes

Omar Mousa
Previous

Episode #3 - Dhruv Vasishtha, Advisor and Former SVP of Product at firsthand
Next

Episode #1 - Ben Foster, Co-founder of Prodify and Former CPO of Whoop