New fund incorporates tools to help startups
After founding several startups and realizing how hard it is to get products to market, Essam Abadir is hoping to spare others from the same growing pains.
Abadir and his colleagues at Aspire Ventures in Lancaster are working with Penn Medicine Lancaster General Health to create what they hope will be a $300 million investment fund aimed at advancing precision medicine, which pledges to tailor treatment to each patient.
The two organizations are committing not just money, but also resources to help entrepreneurs address some of the hurdles facing new products in the health care market.
There are three main barriers, said Abadir, CEO and founder of Aspire Ventures, a venture capital firm.
The first barrier is doctors.
“Doctors don’t want to do anything that’s going to take them more time,” Abadir said. “They’re already overwhelmed.”
Second, even if doctors want to use a product, they can’t if it doesn’t integrate into the electronic health records system they are using.
Third, even if the product does integrate with the health records system, doctors can’t use it if insurers won’t pay for it.
For small startups that lack resources, finding a way to overcome all three obstacles can be arduous. That’s one reason why Aspire, LG Health, Clio Health and Capital BlueCross are creating a smart health innovation lab that will operate as something of an accelerator. Accelerators aim to help early-stage companies develop viable products.
The lab will connect startups backed by the new investment fund with resources such as doctors, health care systems and insurance companies.
In general, venture capital is one of the riskiest segments of investing.
Accelerators like the innovation lab help mitigate the risk: Linking startups to the right resources and experts to develop their technologies, marketing strategies and business models helps boost the odds of success.
The venture capital industry wasn’t always good at that, though, particularly during the tech bubble in the late 1990s, said Nicholas Boyer, chief investment strategist for RKL Wealth Management LLC, which has offices in Manheim Township and Wyomissing.
“There were ideas flying all around and people were just throwing money at founders and inventors and entrepreneurs and not helping them,” he explained.
And then those companies disappeared, Boyer said.
Many were never really viable to begin with, Boyer said. But some failed because they didn’t have the appropriate guidance, the right business model or strategic insight, Boyer said.
Since then the industry has started operating in a more disciplined way, Boyer said. That discipline includes accelerator programs like one pioneered by Y Combinator, a venture capital firm founded in 2005 in Massachusetts. Having invested in thousands of startups — including Dropbox, Airbnb, Reddit and Twitch — it has become one of the most successful venture firms ever.
More venture firms are now taking a more hands-on approach to developing the startups in which they’ve invested — including Aspire Ventures and its partner, LG Health.
Aspire and LG Health are general partners in the precision health fund, formally known as the Aspire Ventures Precision Medicine Fund, and have each kicked in $15 million in both cash and in-kind investments. They are trying to raise another $270 million from investors within two years, according to Aspire spokesman Drew Smith.
The capital campaign will target pension funds, strategic investors, other health systems, insurers, foundations and possibly large strategic corporate investors with an interest in health care, like Amazon, JP Morgan Chase and Berkshire Hathaway, Abadir said. In January the three companies announced plans to form a new venture to address health care for their U.S. employees.
The precision health fund will invest in devices and therapies that use technology to deliver solutions that take into account each individual’s DNA, biochemistry, lifestyle and microbiome, which typically refers to bacteria in the gut.
Among the first companies being backed are: MedStatix, a health care IT company; Connexion Health, a company developing health care assessment technology using artificial intelligence; and Tempo Health, a chronic disease management company developing diabetes management solutions also using artificial intelligence, Smith said. All three firms are already in Aspire’s portfolio of companies.
Companies outside of the portfolio will be backed as well. Abadir said he already has applicants from all over the world, including Israel and Canada.
The innovation lab is expected to put eight startups per year through a 12-week process designed to help them bring products to market as quickly as possible.
Slated to open in June, the lab will be located on the 2nd floor of Aspire’s headquarters at 100 N. Queen St. in Lancaster, Smith said.
The fund will invest in approximately 10 companies per year over the next five to seven years, Abadir said.
“The vast majority of the fund’s investments will be new things that we haven’t seen yet, and out of that entire universe, some will go through the lab and some won’t,” Abadir said.
Products going through the innovation lab must have approval from the U.S. Food and Drug Administration.
With the help of Capital BlueCross, Lancaster General Health, Aspire and Clio Health, the lab will help startups navigate the barriers facing new health care products. Clio Health is a high-tech hospital Aspire is building in Lancaster.
“We’re going to commit money and the time of specialists, whether it’s an IT specialist or doctor’s time or billing specialist from the insurers, to overcome all the hurdles,” Abadir said. “And we’re going to put everybody in the same big room, so to speak, and work it all out.”