Why VCs Aren’t Interested in Point Solutions

Why VCs Aren’t Interested in Point Solutions Marissa Plescia

From left to right: Hubert Zajicek, MD, CEO, co-founder & partner, Health Wildcatters; Kristen Torres Mowat, partner, Health Velocity Capital; Harsh Vathsangam, CEO, Movn Health; Kerry Rupp, general partner, True Wealth Ventures; Gwen Watanabe, managing director, H.I.G. Capital

The rise in digital health brought with it endless point solutions targeting very niche populations. But today, these specific point solutions aren’t of interest to venture capital firms.

That’s according to a panel discussion at the MedCity News INVEST Digital Health conference held in Dallas on Thursday. The panel was sponsored by Lyda Hill Philanthropies.

Kerry Rupp, general partner of True Wealth Ventures and a panelist, used the example of mental health, an area of healthcare that has especially seen an increase in point solutions due to a rise in the need for mental health support. She mentioned seeing a startup that focuses on mental health support for Black men and another that focuses on Asian youth. While receiving culturally competent care from a provider who understands the patient is vital, it’s difficult for the payer or employer to contract with several different point solutions targeting different populations, she said.

“From a patient point of view, that makes total sense,” Rupp said. “From an economic point of view, it can’t. I would just love to see some sort of roll-up of a platform that could really look at how to find the right culturally competent provider for the right patient that isn’t very specific to that one patient population. It’s unlikely that an employer has a single demographic in their group.”

Instead, Rupp said she’s more interested in companies with a broader breadth of services. One company True Wealth Ventures has invested in is Partum Health, which is a maternal health startup that offers access to OBGYNs, doulas, lactation support, mental health support and physical therapy. In addition, the company provides care in person and via telemedicine.

“There are individual companies doing lactation support and maybe doing it slightly better because they’re totally focused on it,” Rupp said. “There are companies doing physical therapy for the mom to repair her after delivery. Unfortunately, the model to us is, ‘We need it all in one platform.’”

Rupp added that there is a place for these more niche point solutions to get funding, such as through grant funding. But a venture capital firm isn’t the right place as it has to look at how the startup can grow enough to make a big return, she said.

However, there may be an opportunity for a smaller point solution to get “tucked into” a larger platform that would “differentiate” that platform from others because of that “special service” the point solution offers, added Gwen Watanabe, managing director of H.I.G. Capital. Watanabe also stated that H.I.G. Capital is more interested in platform-based companies rather than point solutions.

Harsh Vathsangam, CEO of Movn Health, noted that from an entrepreneur perspective, it is sometimes better to start more niche and later expand once the company’s model has been proven to work. Movn Health is a telehealth provider of remote cardiac rehab and cardiovascular prevention programs.

“It’s much easier in the beginning to develop a strong evidence base for a smaller section of the population, showing that you do truly impact the population’s health and wellbeing and outcomes,” he said. “Then as you scale, the market itself sort of tells you how you can expand and the adjacencies that you can expand in.”

Vathsangam noted, however, that it’s important to articulate the company’s intention for expansion to investors early on. Entrepreneurs need to share their plans for building a business, not just the idea for a business.

While investors may not be super interested in point solutions, how do they feel about care coordination companies? These companies partner with different point solutions and direct the employees of their employer customers to the one they need. This way employers don’t need to contract with several individual point solutions. The question was posed by an audience member of the panel.

Kristen Torres Mowat, partner of Health Velocity Capital and a co-panelist, replied that the firm has invested in a care coordination platform called Health Joy and that there is “definitely a need and a place for a platform to coordinate and integrate point solutions.” However, there are some challenges with these types of companies as well.

“There is an opportunity and there are players out there,” Torres Mowat said. “But I do think that engagement and actually being able to steer a member then to a place before they’ve already had the high-cost event is really hard.”

Photo: MedCity News