"If we don't see a way for patients to benefit from it over the medium to long term, we probably won't be interested," said Andrew Farquharson, managing director and co-founder of San Jose, Calif.-based investment firm VentureHealth, which debuted last month. "We will post far fewer deals than any other equity cross-funding portal," he added.
Farquharson called it cross-funding because the founders see the concept as a hybrid of traditional venture capitalism and crowd-funding. VentureHealth's principals are professional venture investors, but they are willing to allow qualified individual investors through the company's portal. (One of the other two co-founders and managing directors, Mir Imran, has a long history in life sciences and holds more than 200 patents, according to VentureHealth.)
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It also operates a bit like a mutual fund in that participants will pool risk across multiple companies, which opens up opportunities for smaller investors. "Plan to invest in a portfolio of companies. Be prepared to invest in future rounds, and understand that biomedical breakthroughs can take many years before generating returns," reads an advisory on the VentureHealth website.
"On the healthcare IT side, there are so many companies trying to solve bits and pieces of the healthcare delivery system," Farquharson noted. "It's very difficult to pick a winner."
VentureHealth will be looking to promote and back innovations in health IT, mobile health, biotech, and medical technology that meet the firm's standards. "We really have a passion for really trying to improve patient outcomes," said Farquharson, a longtime entrepreneur who talked of having a "personal fascination" with the life sciences.
"To really help clinical outcomes, you need to get involved in the biggest biomedical breakthroughs," Farquharson told InformationWeek Healthcare. One way to do this, according to Farquharson, is to work to change clinician behavior. However, he conceded, "These kinds of problems are some of the hardest to solve."
The unique economics of healthcare, with insurance companies or other third parties picking up most of the cost, have doomed more than a few venture-backed startups over the years. "Payers have to be willing to pay for it," Farquharson said. "The only way to really make the argument [for payers to reimburse providers for a new technology] is to have clinical data showing gains in outcomes."
Investors must be accredited according to U.S. Securities and Exchange Commission regulations. "But for us, we also want to find smart investors who also understand clinical innovation," Farquharson said. Practicing clinicians likely would be good candidates, he suggested, particularly in health IT, which Farquharson admitted is "something that's not a sweet spot for us."