Meet Cathryn Chen, General Partner at Radiate Ventures
MarketX recently launched Radiate Ventures to invest in fintech, deep tech, and vertical SaaSRead more...
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.
Naimish Patel is Chief Growth Officer at Red Cell Partners.
Prior to joining the firm, Patel was the Senior Vice President of Revenue at Hero Health, a Red Cell portfolio company, where he led the enterprise and direct-to-consumer growth business divisions.
Before Hero Health, he was the General Manager of Enterprise Solutions at Optum, a division of UnitedHealth Group. Mr. Patel was a founding member of the team at Rally Health which was acquired by UnitedHealth in 2017. At Rally, Mr. Patel held numerous leadership roles in the organization as it scaled in headcount to over $1B in revenue. He is an experienced entrepreneur and leader of high performing growth organizations in the enterprise healthcare space.
Patel has a Bachelor’s degree in Economics from the University of Florida.
VatorNews: Tell me about Red Cell Partners and where you fit in the venture ecosystem.
Naimish Patel: The overarching theme of Red Cell is that we've really been created to solve our country's most pressing problems. So, today we focus on both healthcare and defense; I’ll be talking about healthcare since I lead the healthcare part of the business. The similarities there are that both are industries that, basically, we have to spend on: they both consume significant portions of GDP, they both have a set number of very large acquirers and, generally, they both involve a deep knowledge and understanding of what the government is doing at a higher level.
Where Red Cell fits into the larger ecosystem, there's a few interesting points: the first is that we're not just a venture capital firm, in that we don't just make external investments, we also focus on incubations as well. To date, we're actually focusing more on incubations than the external investments, but we do both. Our general process here is that we tend to do a lot of research and thinking on both macro trends and where we think there are opportunities and then, within those opportunities, we decide if we want to invest in a business, if we want to build a new company, if we want to find some value added partnerships for existing investments to capitalize on those trends. We're flexible in terms of how we approach businesses, it doesn't have to be a ground up build, we could buy an existing business if we wanted to, we can invest in something that we think is just the best out there, and, to date, we've done all three of those things at different stages. So, we're really flexible in that way. To us, it's really making sure that we have novel technology, everything that we do is technology based, all of our businesses have some form of technology-based moat built into what they do, and we have a set of operating metrics that are generally just really important to us. I would imagine that they're very similar to what you'd hear from anyone else but our view is that the true total cost of care improvement is really hard to find and that's what we primarily will focus on is really looking for those nuggets of gold out there where we think there really is meaningful financial impact.
VN: Obviously, a lot of a lot of things changed during the pandemic, especially the rise of digital health, virtual care, and telehealth, which has come down but it's still higher than where it was in 2019. So, where do you see the emerging technologies now? What do you see happening at the moment that you're excited about?
NP: There's a core set of themes that we're pretty bullish on that were accelerated by the changes we've seen during COVID. So, the first is that we have a core belief here that, generally speaking, demographics are destiny. The way to think about this is we have a very large aging population, the demand of our healthcare system to service that aging population is going to be something that is quickly going to outstrip supply, and we need to find meaningful solutions to that. That is everything from preventative care to specialty care to housing to benefits. So, that's a large trend that we're betting on. We have a business we're incubating in the long term care space that we're very bullish on. That's something that we've all known was happening for the last ten or so years as the baby boomers retire and what we're starting to see is that now that first cut of baby boomers are starting to hit 75 or 80 years old, where a lot of these kinds of higher levels of services are required. This is going to be a multi-decade long process to develop new solutions that allow our system to scale and meet these needs. There's a large set of general themes tied to this: you have an aging population, you have 50% of seniors who have nothing saved for retirement, so they have Social Security alone, you have ever expanding Medicare Advantage coverage, and you now have all the different risk models that are out there. So, this creates a very interesting model and an interesting time to start new businesses especially focused in the senior market.
The other belief that we have is that we're in an affordability crisis. What I mean by that is healthcare is unaffordable for everybody, so it's not that if you have insurance, healthcare is affordable, but healthcare is unaffordable across the board. 40% of people can't even afford their high deductible health plan, so you have insurance but then you have a $5,000 or $6,000 deductible, and you probably don't have the money to pay that. 60% of all bankruptcies are still healthcare derived or driven and so that creates a very interesting tax on society. Generally speaking, the only way to solve for affordability is to find the total cost of care improvement. Where can we find more efficiency? Where can we do things better, faster, cheaper? What technologies enable care delivery to lower that unit cost, increase that access, and close some of those gaps? And so, that's a whole other category that we're very much focused on. The third is probably no surprise: we believe that healthcare will continue to be value seeking. A lot of the value-based care stuff is new, but maturing; most of the investments you've seen have been largely primary care driven but we think there's a lot of things to do on the margins there. So, we'll be making lots of investments and thinking about value based care, and in all kinds of ways. Almost all of the businesses that we have all have technology based moats, but they all have some way that they will be able to support the industry in a more value-based world.
The last piece to talk about here is that digitization has finally come to healthcare. Adoption in healthcare has been slow but we're finally at the point now where you have broad adoption of EMRs, you have broad adoption of virtual care, you also have a willingness for consumers to use these alternative modalities for treatment, to use home diagnostics, to do a lot of these things that, even though they've been around for a while, maybe they weren't willing to do pre-COVID, or even five years ago. That's going to create lots of interesting opportunities, so a big part of all kinds of healthcare and healthcare delivery is, ultimately, it has to be a positive experience for the patient, it has to be something that patients actually want to do and want to use; if you have that, and it saves money, that generally will win. That's how we think about our model and the adoption of these new technologies, both by providers and patients, has made it so now there's a lot more options than there were a few years ago. A few years ago it was, "can we get MPs to do more work?" and now it's, "well, we can do things digitally, we can send you a home diagnostic, we can do monitoring in the home, we can do a lot of other things that we couldn't do five years ago that now will enable us to develop entirely new kinds of businesses," so that's super interesting to us.
VN: It sounds like you're investing in both B2B and B2C, is that correct?
NP: We do B2B, primarily, although we do have businesses that will have some B2C components. So, one example is one of the companies we're incubating right now that will be launched called TARA Mind. We're actually betting on the psychedelic assisted therapy space, so we think that psychedelics, as a new modality for behavioral health treatment, have a ton of efficacy. We think that this can be done in a way that dramatically lowers the unit cost of treating people who have treatment resistant depression, people who have very complex comorbidities, and our view of that is there are two ways to access that market: we can build a core product that is accessible by consumers today, and they can pay cash for it, although the end goal is ultimately to be the infrastructure that employers and health plans will be able to use to provide these therapies to their beneficiaries in a safe, effective, and an outcomes driven way.
VN: That's definitely an emerging space but, while there's regulation in everything with healthcare, obviously, I feel like psychedelics is still probably a really heavy, very heavily regulated market and one that is somewhat controversial, probably, still for a lot of people. So, how do you get around that aspect of it?
NP: I don't think the regulations are really the issue; ketamine is now legal, there's a path to legalization for a number of other new substances. Over $2 billion of venture capital has gone into the psychedelic space in some form, whether that be developing clinics, building retreats, creating new drugs, enablement platforms, and a lot of those haven’t really been successful. Our thesis is that the reason they haven't been successful is that many of these companies and a lot of the founders early on were treating psychedelics a lot more like marijuana, or a lot of these other things that are more casual in their usage, more recreational. We're looking at this purely from a therapeutic and healthcare lens, so we're building utilization management into everything that we do, we're very focused on the highest cost folks who have no other treatment options, and really starting to build a body of evidence. A core part of our thesis here is we're developing the body of real world evidence that will enable all other psychedelic businesses to be more successful over time. So, the general viewpoint is you can't just go and do the medications, it really is an enhancement to your therapy and so you've got to enable all these things together and it's got to be coordinated. That's, ultimately, what we've built in our technology is the ability to screen, to coordinate that care, to track and measure those outcomes, and then to report on those outcomes back to the plan sponsor.
I would agree that that is something that some would find controversial, but we have employers who will start to purchase the TARA Mind benefit later this year and we have early adopter employers who are starting to add this, so we'll be surprised five years from now how common of a benefit this becomes. If you think about the speed at which fertility benefits have been adopted, the speed at which benefits for children with autism have been adopted, these are things that, once the evidence starts to prove itself, everyone agrees it's the right thing to do and then it starts to become more and more common and something that we all will start to use more. We agree that it's early, but that's also part of the uniqueness of Red Cell: we can make those more aggressive bets, we don't have to be the company that has to wait for 15 companies to start a psychedelic business, we can wait for the right moment, we can bet early, and we can really put the right pieces together in our incubation model. That's what allows us to be different, we can think about whether we want to build it? Do we want to invest? Do we want to acquire something? What are the right ways to go after these different kinds of markets? But where we believe the really large returns are, it's where you can get in early, where you can really build the champion of a category, and TARA Mind is an example of that for us.
VN: You have the incubation model, but I'm assuming you're also investing out of a fund. So, what is the size of that fund and how many investments do you make?
NP: The way to think about this is we have a percentage that is allocated to incubations and a percentage that’s allocated to external investments; we are generally lower in volume and what I mean by that is, we're not writing 40 or 50 checks a year, we're probably more in the four to five range. What we really focus on are making really meaningful bets in businesses we believe in and backing vendors we really believe in. Our view here is, within the platform of Red Cell, we've got a number of really top tier people across all the different platform services, as well as our board of advisors, and those of us who are principals in the firm, and we really get behind every business that we're a part of. We view it as, if we're making an investment, it's going to be the same amount of support as if we were building a business; we're still willing to make the same calls to our contacts in the market, we're still willing to support these founders in recruiting and fundraising and everything else that they would need, so we have the same bar for everything. Our view is that it's really hard to do things at a high level of quality if you're doing things in very large volume and so that's where we tend to take a more strategic look. If we're making external investment, where is the novel IP? Where is the leap that someone has made in their business or their product that would be very hard for others to achieve? Has someone really developed something that we believe is a category owner? When those things are true, we're certainly willing to make an external investment and so we always just have our eyes out for that. But, we have our general themes that we're investing in across healthcare, and we'll do deep research across all of those and we’ll buy, build, partner, or invest across all those different segments.
VN: Can you talk about check size? Or is that also something you're not able to disclose?
NP: I can talk about check size on the incubation side; on the venture side, it really depends on the business, it depends on the opportunity, the stage, all of that. It could be anywhere from a much smaller check, like tens of thousands, to millions of dollars; we are very flexible in the bets we can make and how we make them, so it's not like we have to write a certain minimum amount for us, it's all about the total return to the fund and just the uniqueness of each business. We treat everything as its own category.
Now, when we incubate businesses, we are spending millions of dollars on the incubation side, so we're typically backing our founders with a pre-seeds between $250,000 up to $3 million when we get started, and our goal out of that is to really test our hypotheses, get these businesses stood up, and start the process to raise external capital at some point. Generally, Red Cell will seed an incubation with a founding team; sometimes we're building that business externally, sometimes we've recruited a founder externally to work with us, other times we've acquired a business and we're building something new on top of it, so there's a lot of flexibility in what we'll do, it all depends on each opportunity as it comes to us. We'll spend that money and that will be between a six to 24 month window, after which point, if we feel the business can be successful and really scale, we will look to raise external capital for those companies, and we start to bring on additional capital partners and let those companies spin out and be their own independent entities.
VN: I would assume that for a company that you’re incubating, it would be so early for them that there wouldn't be any traction or numbers, for the most part. For an external investment, I guess that would also probably depend on that stage you're investing. Maybe it's a tough question to answer, because it is such a spectrum, but are there numbers that you actually want to see in any of those different points from those companies?
NP: Yeah, absolutely. So, when we incubate a business, we generally are looking to get some signal of that traction in our 12 to 24 month incubation window. That may not be significant revenue early on, because it is very early for a lot of those businesses; to get a healthcare business from start to some level of maturity in healthcare is a seven to 10 year process and we're really taking the risk for the first one or two years of that. So, for our follow-on capital partners, we're technically de-risking these businesses a lot just because we are putting a lot more into these businesses to get them going but all of our businesses have some amount of traction. They have early customers, there's enough buying signal in the market. No business that we're raising external capital for that we've incubated would be pre-product, they would all have a product.
On the investment side, if we're making an external investment, we're typically going to want that business to be further along and have more demonstrated traction. Our understanding of that would be, basically, if we're going to invest in someone externally then they should have more traction than a business that we would have incubated because, otherwise, why wouldn't we go do something ourselves, why wouldn’t we go to try to acquire something? So, really, the bar for an external investment for us is quite high, as it should be, but it really starts to help us think about whether we want meaningful revenue growth in external investments and we're not limited by the stage in the business in which we can invest. We could invest in a seed, we could invest in an A, a B, each business is very much its own one off analysis, it very much depends on the business, the category, what the product is, who they sell to, all of those things really factor into how we make some of those decisions.
VN: How do you diligence the market? If you're betting so early in these incubated companies, like in the psychedelic space, for example, how have you determined that this will be a market in the seven to 10 years when this company matures? How do you know there’s going to be a place for this company at that point?
NP: A few ways. We have one company called Zephyr, which is doing AI and ML for drug discovery label expansion. They specifically focused on oncology, and oncology is just a very hot space; it's a space that has a lot of interest, a lot of investment, and we've pressure tested our models and what we're able to do before even going out and raising external capital. We have a general sense for what the product does, what it achieves, we've tested this with a number of pharma companies that would be partners of ours, and we're actually doing pilots. We're testing that today to know what that ramp will look like over time. In the case of TARA Mind, that product is one where we can take customers directly to consumers, so people can come and use our platform, and we'll have that open on a more public basis pretty soon. So, that allows us to show that the product works, the efficacy is there, the price point works.
The second piece of this is, before we even incubated the business, we went out and did a pretty deep actuarial analysis of behavioral health costs, specifically in treatment resistant depression and PTSD. The founder of that business started a nonprofit that has treated more people with psychedelics than really any other organization, primarily treating veterans with really amazing results, so we have a deep body of knowledge and understanding that the efficacy is there. Generally, what we're looking for in anything that's care delivery oriented, is that the outcomes really are there, we can show those outcomes, and we know how to scale those outcomes. And that's truly what the first year and a half of TARA has been about: can we build a program and a process that can really scale? The challenge on something like psychedelics is that you can have one amazing provider in a certain market but that one amazing provider doesn't really scale because you can't then solve for employees all over the country, and what we're solving for is creating that uniformity of care and also creating a standard of care that can be utilized nationwide, and that's what is going to deliver outcomes at scale and long term financial rewards for our partners.
A lot of us within the Red Cell team have a ton of experience either in pharma, with health plans, with employers, all the core buying constituents, and we're able to pressure test a lot of this stuff. So, before we start any business, we're going to our network of former customers from past companies we founded and really diligencing this and saying, “what does the market really bear for something like this? Yes, it's early, but what has to be true for this company to be successful?” Then our incubation process is really about making sure that we have enough conviction that we can make the market requirements true over that period of time.
VN: What about the team and the founder? How do you diligence them? What are you looking for from that founder in terms of not only just experience, but the intangibles of that person to make you want to invest in them?
NP: Healthcare is a very large and nebulous category of things but, within that larger, nebulous category, you have these very specific domains. Psychedelics as a category is a very deep domain and you need very deep domain expertise to somehow take psychedelics as it is today and bring it into the benefits world. The founder at TARA, Marcus Capone, is a former Navy SEAL who used psychedelics to heal himself, then started a nonprofit to heal a lot of other people and he has that very deep domain expertise and a deep knowledge of what works, what doesn't, and how this product should be built. We're able to combine Marcus with some other folks that we had on our network who are experts on the healthcare side, with health plans, employers and things like that and we have built a very unique team there.
The other aspect, beyond domain expertise, the big intangibles to us, generally, are going to be the ability for someone to make the complicated things simple, those folks who are able just to very quickly and efficiently move a business forward. You can see that in lots of things; I don't have a template of a founder that I'm looking to go out and get. Generally, my view of this is every business has its own project and every business requires its own type of CEO. The styles of one person can be very different than the style of the other but the ultimate metrics where this really starts to show is in that domain expertise, is in knowing and being able to make the specific calls related to the product and the service and the market opportunity, and the ability for that person to really manage and get things done in the constraints that we have. We have financial and time constraints in incubating businesses and those are the big things; if you're the founder who can come up with the idea and really navigate that zero to one then you typically, with our support, can get from one to 10 and we can help scale. At a certain point it’s about filling gaps because no one has everything in their toolbox; the hardest part is getting started and the hardest part is getting that first market traction and I'm looking for those folks who have that capability.
VN: Let's talk about the current market. Obviously, digital health was really riding high during the pandemic; 2021 was basically an outlier in terms of the incredible amount of money that was put into that space. It’s since come down, in 2022 every single quarter was lower than the previous one in terms of the amount of money going into space. So, where do you see things now? Do you see them as leveling out? Where are valuations? And what does that mean for the companies in the space, especially the ones that that raised during that period of inflated valuations?
NP: Let me start with the macro view of this, which is we had this very big spike in funding and interest, and now that is wearing away, and we're seeing this across everything in venture capital, it's not just healthcare. It's more pronounced in healthcare just because healthcare really accelerated its investment in a very short window of time. A lot of us who were early at Red Cell and building this business came from a company called Rally Health, which we built and sold to Optum. We started that company in 2008 or 2009 and we started raising our first external money in 2010, and I remember back then no one was really interested in digital health, digital health incubators weren't really a thing, no mainstream VC was really making any meaningful investments in the space, and pretty much all of our investors were family offices and strategics. Now, you have this growth and healthcare is a category that every major VC that has a really large balance sheet is looking at and that number has been ticking up on a very consistent basis over time, while 2020 and 2021 were outliers. And so, yes, things are coming down but they're coming down to what is more of a trendline. That does create difficulty for a lot of companies that are raising new capital now, it's really hard to cut through that noise within your business but, if I take a step back and I really think about what the market looks like, let's just take virtual care startups that are selling to employers: realistically, yes, there are millions of employers across the country but most of the money is going to be made typically on the 2,000 largest employers that are in the market. How many companies doing the virtual care of whatever can really exist in that market? If you look at any more established, longer run category of things, there’s usually one or two dominant players, there's usually a number three that's the cheaper option that the mid market goes for, and then there's this the long tail of everyone else. We see that in a lot of different categories when you look at who sells to employers or payers; did the healthcare industry need the fifteenth company connecting a glucometer to telehealth visits to do diabetes management? Probably not. There's room for two or three who do a really good job, there's not room for 15. To do well in health care, you really have to think about the emerging category and the first mover advantage gives you a lot of benefits. We saw that when we built Rally and the way that we built that, and we're going to see that with TARA Mind and how we think about psychedelics. You'd have to have the conviction to bet early because there really is room for three successful businesses in every category, because you have a defined set of buyers and you have a defined set of buying criteria.
As for where we are today, the funding is coming down and if you think about the companies that went out and raised money at really high valuations, so we're talking like 25 times or 40 times revenue, a lot of those companies are really going to struggle. That's a situation where it's going to be almost impossible to have a growth rate that is going to fit into that. In a world where you're being told to tighten your belt as a founder, run the business lean and mean, to then still achieve some astronomical growth rate is really unlikely. And so, there are going to be a lot of down rounds, there are going to be some companies that go out of business, there's going to be a lot of stuff to get recapped, and it's just going to be a messy two or three years. With that, though, it creates opportunities for your 2023 vintage and onward, especially in our space.
The benefit that I feel that I get today, as someone who's been on founding teams, someone who's built new businesses, and now doing what I'm doing today, is I can look at the bets that everyone else has made, I can see what's working, I can see what hasn't worked, and say, “Well, if I still have conviction in a category, I can see who's going to survive and who's not," and now I have the benefit of being able to look at the market in a specific category and say, “I'm able to learn from a lot of other people's investments before I go and make my own.” You have this interesting period of time where there's a ton of learning if you're willing to look around. TARA is an example of that, the work that we're doing in long term care is an example of that, where we have the benefit of seeing who raised too much money, who was out there where their revenue growth is not going to meet where they need to get to, and then, what are the things that we would do differently if we were entering the market in today's funding climate? What that really means for us, and a lot of the ways that we coach our companies, is what does it take to get started and prove that this is a good business that generates the right amount of value for its customers? Can you show that you can get customers with the right unit economics? And then, are we able to forecast what that first $1, $10, $20 million of revenue would look like and what it takes for a company to get there? At what point do you see that cash flow break even? We're not going to incubate or even make investments in businesses that don't have a credible view on what cash flow break even could look like. It doesn't mean that we're forcing them to get there, it just means that we need to know that we're betting on founding teams that understand how to pivot between a market where you can get lots of funding and a market where you can't write. Belts are going to be tight for a few years, but I don't think they're going to be tight forever and the companies that really achieve meaningful total cost of care improvement, that meaningfully help patients, that really get that provider or payer adoption, are really going to shine through and they will always get funded. In a way, for those of us who are building new businesses, yes, it's harder to get the money, but it's also easier to get the sales now because there's just a lot less noise out there. There's not 50 people calling the head of HR of whatever company for a behavioral health solution, or at least there won't be in 24 to 48 months, and that really changes the market and it allows the real stars to shine through, which is very positive.
VN: Let's talk about your differentiation as a firm, first for LPs, because there's a lot of firms out there, especially early stages. And then, like you said, there weren’t many healthcare focused firms a few years ago, now there are a bunch of firms that focus specifically on digital health. So, when you go to these LPs, what's your pitch to say, “I'm different from these other firms and here’s why I should deploy your capital”?
NP: The first thing is we're not a typical incubator that's getting a bunch of first time founders who are writing business plans for a $250,000 check. We are investing much more meaningful capital and, generally, most of the businesses that we're building are with pretty seasoned operators. This is not large volumes of business plans coming to us that we're then sorting through, so that's the first differentiation. So, this is very different from a typical incubator where we have so many slots we want to fill every year, we don't have a mandate in terms of having to do five companies at a time. We're going to do the right companies when it makes sense.
The second piece for our LP is because we're doing a fewer number of businesses that we believe with a higher level of quality and what that means for LPs is we're different a lot of other venture investments, where you invest in a firm and then that firm will deploy your capital across 50 or 100 different names and the math usually works out so there’s five that win and ten that push and everything else fails, that’s probably the rough math, for most of these. What we're looking at here is one, maybe two, businesses a year because businesses have a ton of meaningful support from every single person, even our LPs are involved in supporting us, so we're very strategic and in who we're bringing on and how we're working with everyone, so that is a big difference. Yes, it's still early stage, and, yes, incubation is where you have all kinds of early rights in a business, but you're able to do that with some level of quality as opposed to investing in something where it's $100,000 or $250,000 checks. This is a fewer number of checks, there's a single millions of dollars going into incubation, there's another set of millions of dollars going in at the first external round of funding, in addition to the funding that will help these founder secure. In general, what we're setting up for these LPs is that we're taking a lot of this downside risk at the early stage out of the equation, so we are market testing a lot of these businesses before we're deploying them, we have a general pathway to what it takes to get to revenue, we have a ton of product and engineering expertise, a lot of our businesses don't have to staff or finance HR and a lot of those GNA things because our platform team handles it. So, we can really have new businesses that really only invest in product and growth. Our philosophy is the only things that matter at the early stage is product quality, product value, and being able to show and drive growth, those are the only things that we really want our founders to focus on and spend money on. We want the larger Red Cell platform to handle everything else, to a degree that it's possible.
VN: What about for entrepreneurs? What's your differentiation from them?
NP: Our differentiation with founders is that, typically, founders who would come to Red Cell, first of all, would be much more experienced than some of the others out there. So, generally, these are more experienced people who have very deep knowledge of whatever category they're coming in. So, no one at Red Cell is going to start a business in a category that they're new to, they're going to have spent many, many years in a certain segment of the market. We generally offer them a pretty substantial equity portion for the founders directly. Now, that's a sliding scale, it depends on the founder and depends on the business, depends on if they're bringing IP into the business, a lot of those things but, generally, what we've seen is that we have a pretty fair offer to the founder, and a very substantial amount of support that we're providing. We have internal engineering, we have a lot of things that allow that founder to test and learn and to validate hypotheses early and quickly, before they’re on the clock with that funding round. And so, we have this model where there's an experimentation phase, and a discovery phase, and a validation piece, and then there's where we decide what our target is and we're going to go shoot. That's a uniqueness in what we offer; it's not like you come here, you get a check and then, when that money runs out, you either have something or you don't. If we're building a business, we have a ton of conviction, and the odds that that business doesn't get off the starting blocks would be very, very low for us.
VN: Talk a bit about you and your career and your journey. You were in the digital health space on the startup side and then you made that transition to become a VC. What was behind that? What made you want to make that change and talk about what that change was like for you from going from one side of the table to the other?
NP: My background is I was the first employee at Rally Health. When Grant started Rally I was literally living in my grandparents’ basement, so I have done the startup thing from zero to hundreds of millions of dollars in revenue, so the whole cycle from start to acquisition, all of that. And so, my entire career has been in digital health, and has been largely spent on growth. So, I've led growth teams selling to payers, providers, employers, all these different market segments and that's been a lot of my experience. What attracted me to what I'm doing today is that I've been in the shoes of a lot of these founders, I've had to solve these problems before, I’ve had to go out and win the first sale for all kinds of products over the last like decade plus, so I know what it's like. Our philosophy at Red Cell is we're not the firm that's going to just give you a check and then yell at you, we're the firm that's going to give you a check and roll up our sleeves and like make this happen with you. That's also why we just don't like to build 50 companies at a time, this is why it's two three at a time, getting the meaningful traction because everyone in our firm is supporting these businesses to make sure we have the best product and make sure that we're driving the right amounts of growth and building the right value for our LPs and for our other capital partners.
VN: What's the part of the job that you really liked the most now that you're a VC, now that you're on the investing side? What really motivates you to do this when you go to work every day?
NP: The most exciting part of this is looking at that new idea, figuring those things out, putting those early pieces together, that's super exciting, the building part of it is really exciting. What makes this exciting is you get to do that all the time. So, you get to have that rush of building something new every six to 12 months, which is something that you don't usually get; usually you get a business going and then you're married to that business for a long time. And, yeah, we're married to all these businesses because we're substantial capital partners and we’re always going to support them but I also get to then switch context and go learn about something new. The biggest advantage of doing what I'm doing today is that I get to learn a ton about every new category that we explore and I get to, over time, become a semi expert in the categories that we're betting on. Typically, you only get that experience when you’ve worked in a business and you have to go work and to learn a lot of things. The big advantage here is that you just get to learn so much and the thing I love the most is being a part of the early team, working with the founders building the actual company. I'm a big fan of working with small teams that have elite people, they're just way more fun than working with big teams of okay people. And so, that's what makes Red Cell exciting. We've got a small team of elite people, I get to work with some of the best people in healthcare every single day and everyone is really top tier, and we're trying to produce what will be really market defining companies. We're brave enough to make those bets that many others might shy away from, but that's what it takes to produce market-beating returns, ultimately; you've got to have conviction, you've got to have capabilities, and that's what we really focus on here.
VN: Is there anything else that you want people to know about you or the firm or the space?
NP: We value technology based on its ability to drive an improvement in the total cost of care and that improvement of total cost of care is derived through some combination of improving CAC, generating better revenue per user, lowering operating expenses or, in some unique cases, all of those things. The big message I would have is, if you're building technology, if you're in healthcare, you must be able to show that your technology moves the needle in one of those four metrics in some meaningful way. And if it does, we certainly would want to talk to you. There's a lot of really interesting companies, but very few companies are able to do that and that's the difficulty of what we do here is finding where we think those things are possible, and making those bets. True total cost of care improvement is actually very hard to find; there are lots of things that are marginally better, but there's very few things that are substantially better and that's what we're always looking for here at Red Cell.
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