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McKesson Ventures is the strategic venture arm of healthcare company McKesson Corporation
Venture capital used to be a cottage industry, with very few investing in tomorrow's products and services. Oh, how times have changed!
While there are more startups than ever, there's also more money chasing them. In this series, we look at the new (or relatively new) VCs in the early stages: seed and Series A.
But just who are these funds and venture capitalists that run them? What kinds of investments do they like making, and how do they see themselves in the VC landscape?
We're highlighting key members of the community to find out.
Michelle Snyder is a partner at McKesson Ventures.
Snyder brings over 25 years healthcare industry experience in marketing, business development, strategic planning and general management and is recognized as a leader in the digital health space. Prior to joining McKesson Ventures, she was Chief Marketing Officer at Welltok, a leading consumer health activation company.
She was also one of the early executives at Epocrates and worked for over a decade to build the company into one of the most recognized brands among clinicians. Snyder has also served as an Executive-in-Residence at InterWest Partners, investing in digital health companies and advising portfolio companies. In addition, she has held consulting and policy positions at The Wilkerson Group, the Lewin Group and the Georgetown Center for Health Policy Studies.
Snyder earned her M.B.A. at the Kellogg School of Management at Northwestern University and her B.A. from Carleton College. Though she’s been in the Bay Area for over 20 years, she still dons green and gold and wears her Cheesehead proudly on Sundays.
VatorNews: What is your investment philosophy or methodology?
Michelle Synder: We're a strategic investment firm and we veer more towards a financially minded strategic on the spectrum of investors. We think about generating positive returns as well as gaining insights into key markets that we play in and looking for synergistic opportunities within McKesson and making introductions where it makes sense. Unlike some other strategics, we will never promise that we can get you a deal with McKesson, but I can promise the entrepreneur that I will get them to the right person within McKesson and try to connect them where I think there could be mutually beneficial opportunities.
VN: What's the funding relationship between the fund and McKesson? How much independence do you have?
MS: We're now at the point where we're an evergreen fund, we’re funded off the balance sheet. We've done 36 investments to date, and we're about seven years in now with the fund. We're obviously, on one hand, looking for companies that fit with some of the strategic priorities of McKesson, and we focus around oncology, biopharma clinical and commercial services, and the transformation of pharmacy. So, we're always looking for companies in those areas. But, as part of our mission, we're also looking for where the industry is going. Where do we need to be thinking about the future of healthcare heading from a returns standpoint? We want to be in those companies that are on the leading edge. Then we’re also thinking about how the industry is changing and we're investing in companies that are leading that change. That may or may not affect the McKessen’s business positively or negatively in the future.
VN: What’s exciting about those categories you mentioned? What’s the opportunity in spaces like pharma and oncology?
MS: Let's start with biopharma clinical and commercial services: several years back I felt like pharma was kind of lagging in the digital health space versus some of the other players. Now I really feel like, in the last couple years, there's been this resurgence. Now we're seeing a lot more comfort and interest in pharma as a buyer to be partnering and working with many of these digital health companies.
When I talk about biopharma clinical and commercial services, there's a couple of areas: one is around data and insights. How does pharma use data, analytics, information to better predict which patient populations might be targets for their medications and which patients are likely to have better outcomes? There’s a lot of focus, especially after COVID and this move to more virtual care that many of us experienced, on thinking more about things like decentralized trials, which benefits pharma by getting more patients into their trials more quickly. It also benefits the healthcare system and patients because there are a lot of patients who haven't been able to enroll in trials because they don't live near an academic medical center. Also, getting different types of patients into trials goes along with a lot of the themes we've been seeing during COVID around health equity and health equality, so we're very interested there. Over the last couple of years, we've made several bets in the real world evidence and real world data space and so you're seeing pharma paying a lot more attention to that space. So, they're thinking about how to get data outside of where they’ve traditionally gotten it, through the traditional clinical trial process, and then integrating that data into both their clinical and commercial work.
On the oncology side, unfortunately that market keeps continuing to grow; we have more people getting cancer and the cost of cancer is increasing. We're really looking for technology enabled services companies that have tools or technologies that can help improve patient care, help reduce costs, and improve outcomes. In regards to improving patient care, it really all goes to the patient experience and we're finally starting to see some interesting companies in digital health that are really thinking about how we can make this better for the patient. How do we collect information in a way that will actually better support their care? How do we possibly move care to less acute settings so that it's actually more convenient for the patient? And how do we make it so the patient doesn't have to fill out so many different forms and have the administrative burden fall on them by helping them gather their information easier and be able to share it?
VN: That’s really interesting what you said about pharma sort of lagging behind and now catching up. Was that happening before COVID or was COVID really the catalyst for that?
MS: I think it was happening before COVID but, especially around areas like decentralized trials, COVID accelerated that thinking. The fact that it will be beneficial to them to be moving to different sites of care as they saw during COVID.
VN: There's a lot happening there now. I feel like get at least one funding story about a decentralized trial company every week now.
MS: There's a lot more attention on that space. I mean, we were invested in that space before COVID because we felt like that's where the market was going, but it's good. The more attention that there is on a space, all the companies won't be successful, but it will help us move towards a future state that many of us believe is better than the way trials have been done today, necessarily.
VN: What's the big macro trend you're betting on?
MS: One of the big macro trends that obviously was helped by COVID was around virtual care and alternative sites of care, and moving to more hybrid models. That's where I believe the industry will settle out; there's a lot of focus on virtual care and I think that there's a time and place for virtual care. In reality, though, these new primary care and specialty care models are realizing you need a mix of both and being a hybrid by having that virtual option but then also recognizing that, for certain patients or certain treatments, there needs to be a hands-on approach.
The exciting thing is that the in-person approach doesn't necessarily have to be what it's been; there are some new approaches that are very innovative where it's about going to the patient. Maybe it's with mobile vans or setting up clinics in lower income neighborhoods or in shopping malls where it's more convenient for the patient. Ultimately, you'll see better outcomes.
VN: You definitely have companies that are setting up their own clinics, but making them more technologically innovative, like Cityblock and Carbon Health, for example.
MS: Yeah, exactly. Everybody talks about virtual care but a lot of what happened during COVID was just taking a virtual care or telehealth platform and putting it on top of our current fee for service system, versus what some of these newer models are doing. Galileo is one company that I invested in that I'm really excited about; they're saying, “Let's think differently about this. Let's start with the virtual first approach. What is the technology we need to build? Who are the ecosystem partners we need to have? And then we can fill in with how we also serve as patients that need that in-person or touch from a clinician.”
VN: How much do you invest in companies, both in initial checks and over the life of the company?
MS: It varies by company, though we typically invest $20 to $25 million in total.
One thing that's very important to us is making sure that whoever the entrepreneur is getting as an investor is someone who understands the difficulties and challenges that they will face building a healthcare company. That it takes a long time and it takes money and we want to be in it for the long haul as an investor. So, we try to reserve enough money as we believe the company will need so we can be there through all the ups and downs that tend to happen with healthcare startups.
VN: I think that's especially true in biopharma and medtech; those spaces are long term bets. This is not like a chat app where you're just going to push this out to the market and people are just going to start using it; these companies have to go through FDA trials all that stuff so it can take a number of years.
MS: In general, we don't invest in diagnostics or devices or things that require FDA approval. The interesting part of your comment is I actually think that's a myth that some people have, and I know that from building one of the first digital health companies; I helped build Epocrates and it took us 11 years from product launch until our IPO. One thing people don't realize is that if you look at many of the players that have gone public over the last couple years, like One Medical and Teladoc and Iora, they didn't go public but they had a nice exit, it generally takes about 10 years even with these digital health companies that don't require FDA approval to build a business. Doximity, which recently went public, had a very successful IPO; it was 10 plus years for that company too.
VN: So, it's no different than a consumer app in terms of the time frame that it takes?
MS: It takes a while to build a big company. If you're an investor coming into this space and you're expecting the company is going to have an exit in three or four years, I would say that would be the exception rather than the rule.
VN: What traction does a startup need for you to invest? Do you have any specific numbers?
MS: I think about it less as a stage, like A or B, and more about where the company is and their lifecycle. So, we typically look for companies that have some type of meaningful revenue, and by that we mean $3, $4 or $5 million in revenue, but they're really at a commercialization inflection point in their business. So, they've already found product market fit, and they have some customers, they're seeing some good results, and the company is ready to scale to the next level.
VN: Are those hard numbers? What other numbers do you want to see, like do they need to have a certain number of users?
MS: Sometimes it's hard getting asked those questions because it really varies on the company. I can say, in general, “this is where we invest,” but we make some exceptions based on the market that the company is in, the team, etc.
We'd like to see some traction, which goes to product market fit. Somebody is willing to buy what you're selling, and it's solving a problem. But, at the earlier stage, when you're investing in companies, a lot of the time it's about the team. It's about the people, the mix of experience on the team. It's funny, I've been in healthcare my entire career, 30 plus years, but I still actually like to see teams that have somewhat of a balance between people who understand healthcare but also people who come from other industries and bring different perspectives. Sometimes those of us who have been in healthcare for so many years can maybe get a little jaded, so the team is really important. I like more humble entrepreneurs; I want somebody that you can tell has grit and perseverance. Those are super important in building a digital health company. It's harder during COVID to get an understanding of the feeling of the team and the culture but that's really important.
Obviously market size and opportunity is really important. How big of a market is this? You never like to change out a team, and you don't necessarily want to pivot on your product, but those are things you can change; what you can't change is making a small market opportunity a big market opportunity. So, we obviously look at that. Then you obviously have to look at the product. Is it a good product? Is there something unique or innovative about it? Then, going along with product, one thing I really try to understand during due diligence is, is this a “nice to have” or a “need to have”? You can often understand that by talking to customers; a lot of times the companies will give you some customers to talk to you, so is this something that could easily get swapped out of the budget next year or is this something that is now fundamentally important to the business? Is it something that has the potential to even grow within other areas of the customer?
VN: You said that it's a little harder with COVID to get a feel for the team. Is that because they're all on Zoom and you don’t get to see them in person and see them together?
MS: Yeah. People may have different opinions on that and I think we've done pretty well; we’ve continued to invest during COVID. But it's just different versus when you go to the office, you meet the majority of the management team, you meet people beyond the management team. You just get a feel for the culture, how people interact with each other. Does it feel positive right or does it feel strained?
VN: I've talked to a few investors who say that now that they can do meetings over Zoom, they can invest in teams from multiple different locations. It doesn't have to be somebody just in San Francisco coming into their office; if it's somebody in the Midwest, they could just meet them over Zoom like they would meet anybody else. So, do you feel you had a broader array of people to invest in because of COVID and because of the rise of Zoom?
MS: I don't necessarily know if we looked at more companies than we would have because of Zoom but I definitely think there are positives and negatives; I agree with you, that's a great point in terms of having it being easier to have more people involved and connect with more people. And, actually, the funny thing is, in the past, you might still talk to those people, but it might be over the phone. Now with Zoom at least you're having a connection and seeing the person physically and so there is definitely that advantage.
VN: When COVID first hit, there was some fear that venture capital was going to slow down when things shut down, but what happened was venture capital had a record year in 2020, and it's almost certainly going to be another record year in 2021. So, what did those conditions do to valuations?
MS: We have been having this discussion more and more lately both among our team and with other investors. There’s no doubt about it, valuations are high. There is more money available and more competition for deals making it a much more entrepreneur friendly environment. In the past you’d typically think, “Okay, somebody just raised and maybe in 18-24 months they’ll be ready for another round” Now you're seeing pre-emptive offers and multiple rounds happening within a year – Rock Health recently reported on this trend. On one hand it can be positive as an investor for your portfolio companies, but on the other hand, it’s definitely more challenging to be a principled investor. If you typically invest in companies within a certain range of multiples or at certain milestones, you may be sitting on the sidelines in this environment. So with that said, I will say that though valuations are much higher and I do think a correction will be coming, the digital health market is fundamentally different than it was say 5 years ago. We’ve seen successful exits at high valuations and we have now seen proven business models. So while valuations are higher, I believe the upside in digital health is also greater than it was in the past.
On the flip side, the valuations may be higher than what we've seen in the past, but the exit potential is also higher than what we've seen in the past. If you look 10 years ago, most people weren't thinking that you'd see multiple digital health companies having $5, $6, $7, $10 billion valuations. And so, while you also may be paying a higher valuation to invest, I do feel like there's more upside in the market and that there still could be high returns for you.
VN: It sounds almost like it's harder for companies to start off, maybe, but then it's better for the companies that win.
MS: If you're an early stage company, it's always hard to raise money. You’ve got to get interest, especially if you're pre-revenue and you're pitching your story. But we'll see a few more winners than we did in the past and those winners will win bigger than the winners in the past have won. I’ll say that.
VN: Venture is a two-way street, where investors also have to pitch themselves. How do you differentiate your fund to entrepreneurs?
MS: Being a strategic investor is a little different because we bring in things that a financial investor may not bring. So, we bring McKesson as a business and our different business units and the insights that we've gained through our units. We bring the relationships that we have with providers, payers, pharmacies, pharmaceutical manufacturers, so basically our network.
Our track record is one thing entrepreneurs look at and we've had a pretty good run over the last couple years for being a seven year old fund. So, just the learnings we've had building companies that have been successful that we can impart to our future investments. Also, one thing I like about our team at McKesson is we have a nice mix of people who have significant investing experience but also operating experience and entrepreneurs really value that. People who have just been investing bring a lot of experience and have seen so many different things from the investment side, but I come from an operating world and being an investor with an operating background is very valuable to an entrepreneur too. Just from my experience at Epocrates, I've seen what it takes to go from working in a garage to going public and all the ups and downs and the challenges that you're inevitably going to face. And so, bringing that background and understanding to an entrepreneur is valuable as well.
VN: What are some of the investments you’ve made that you're super excited about? Why did you want to invest in those companies?
MS: I mentioned one of them, Galileo. I'm very bullish on this future model of care, these value-based, hybrid models of care, and thinking about how a multidisciplinary team, or a primary care clinician plus support, can actually take on more of the role of specialty care. That’s what's exciting about Galileo. How do you build from a virtual first approach, using technology to be able to take care of, not only employees and the commercial population, but complex populations with chronic conditions like Medicare or Medicaid, using a hybrid model?
One of the other companies I'm involved with that I'm excited about is Vineti. They're thinking about the challenge of bringing new cell and gene therapies to market and how do you get the right therapies to the right patients in a safe, efficient, scalable manner. They have created a platform to support a new supply chain for cell and gene therapies. The pharma pipeline for these new therapies is large and growing, which is exciting, but we need to make sure these therapies can get to the patients in a timely manner to really have an impact on patient’s lives.
Another company that I'm working with right now is Aspen RxHealth. That's really interesting: it's thinking about a new paradigm in the patient-pharmacist relationship. Pharmacists are often some of the unsung heroes in the healthcare world, and in a lot of the polls you see patients trust their pharmacist the most of their health care professionals. So, how do you think about using pharmacists in a different way, and maybe having them practice more at the top of their license? And also thinking about different models in terms of replicating what's been done in other areas of our world, like Uber and Lyft and the gig economy, and thinking about that in healthcare too. One thing that Aspen Rx is doing is thinking about creating this marketplace for pharmacists.
VN: Tell me about your background and how you came to be a VC.
MS: As I mentioned before, I've been in healthcare my whole career. I started off in public policy and strategy consulting. This was in 1998, before we had a big market crash, and everybody I knew from business school was going to startups and so I thought, “What am I doing in consulting? I need to go work for a startup.” So, I went to this company that, at the time, was just an idea, called Epocrates. The idea was very simple: it was just to take medical information that a doctor would look at and put it in a PalmPilot, so the doctor could look up information at the point of care on the device. The idea was that we’d build this network of doctors, we’d get their eyeballs, and then we’d figure out how to monetize them later. So, I was in charge of building out the physician network; we got up to about 70% of doctors in the country, which was exciting, and we were able to monetize it through pharma and payers. I just got the bug of building a company; once you've built a company, it's hard to replicate that experience.
After that, I went into venture as an EIR at InterWest partners and that was my first foray into venture, and it was a great role. I spent about half my time looking for investments, but the other half of my time helping out in an operations role with the portfolio companies. After doing that I just missed that buzz of building a company again and so I went to Welltok, one of the companies InterWest invested as Chief Marketing Officer, and I spent six and a half years there. Welltok was building out a consumer health engagement platform, so a very different side of the healthcare industry that I had not been on. More of a B2B2C model, which is very interesting. I helped grow that company and then I realized I really liked venture and that's where I want to spend the next segment of my career.
For me, working at a venture firm where I feel like they're mission driven, they're making great investments, and it's a team of people that I want to spend a lot of time with, and that I trust and believe in, was really important to me and that's why I went to McKesson Ventures.
VN: What are some lessons you learned?
MS: One thing is focus, and from both sides. As a startup company, sometimes it's hard, I have to say, not to go to the next shiny object. “Here's our idea, this is where we're heading, this is where we're building the product. And, oh, but this company over here finds us very interesting and we can sign a $1 million deal with them.” But it shifts your priorities or it might not be the direction you need to be going to get where you want to as a company. I've been part of that, as an early stage company, where you get these distractions that take you off the path where you need to go. So, focus and not going after too many markets, not going after too many use cases, at least initially, and doing a couple of things really well. On the flip side, as an investor, that's one thing I really look for, especially if it's an early stage company. If a company is pitching me and they're selling to employers and pharma and health plans, including Medicare and Medicare Advantage and Medicaid, I start to worry a little bit about focus.
The advice I would give to entrepreneurs asking who you go with as an investor is that it's one of the most important decisions you can make. Your investors are going to be with you for a long time, as you are building your company. Are these people going to continue to fund you and be there financially for you? Are they going to be patient, knowing that you're probably going to be going through your ups and downs? Are they going to be willing to open their network to you and connect you to people that will be important for your business? That's really important. And then, on the flip side, as an investor, I like people who believe in themselves but I also like people that are a bit humble and know it's going to be a tough road, that it's hard to build a business. I want people who are going to be open to advice from the board, from outside, so that we can build this company together.
VN: What excites you the most about your position as VC?
MS: Being on the operational side, I just love meeting the entrepreneurs. I love meeting people that are passionate about changing healthcare and making it better because that's how I felt when I was an operator. Just meeting entrepreneurs, seeing the innovation that's going on today; people are building companies that weren't possible 10 years ago because of the technology that's now available. There are also concepts now that are based on the tailwinds of COVID, which have moved some markets ahead like 10 years. So, just seeing how quickly things are changing, the innovation that's happening, meeting the passionate entrepreneurs, and then feeling like I can have a small part in helping advance some of these technologies that can really improve patient care, physician happiness with their job, etc.
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McKesson Corporation, currently ranked 11th on the FORTUNE 500, is a healthcare services and information technology company dedicated to making the business of healthcare run better. We partner with payers, hospitals, physician offices, pharmacies, pharmaceutical companies and others across the spectrum of care to build healthier organizations that deliver better care to patients in every setting. McKesson helps its customers improve their financial, operational, and clinical performance with solutions that include pharmaceutical and medical-surgical supply management, healthcare information technology, and business and clinical services.
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