Many healthcare systems are delving into venture capital investments, and Ballad Health is no exception. Based in Johnson City, Tennessee, the healthcare system maintains a sizeable venture arm and has invested in a variety of healthcare companies.
To learn more about Ballad Ventures’ strategy and VC investment in healthcare, Becker’s reached out to Bo Wilkes, President of Ballad Ventures.
Question: What is Ballad’s investment strategy for 2023?
Bo Wilkes: Like any other corporate venture capital, we seek to generate a financial return for the organization in the future. But when we think about our investment strategy, it starts with the workforce. The challenges going on within the industry are a big component. So how do we start solving some of the challenges that we have through a workforce component – that can be data and analytics, artificial intelligence, digital care – there’s just a bunch of different opportunities that open up there.
Elsewhere, we focus on the digital front door, particularly cybersecurity. We just made this investment in Censinet. We are always looking at the IoT space and are able to protect it. Then, from our point of view, we have strategic service lines and growth.
So some of the other areas of focus are to think about things like oncology, pharmacy, pediatrics and maternal health. We want to make sure that our investment strategy is very closely related to what we are trying to do strategically. As a rural provider in Appalachia, how do we support and grow the system and provide a thoughtful way to influence our patients and clinicians?
Q: How do you approach investments in artificial intelligence technologies?
BW: I think chatbots have been around for a while; Check out Hyro and some others in the market. We examine this strategy. We want to support that strategy, but it will also be a good investment and we just didn’t find the right opportunity there.
I think they have to be thoughtful and strategic, and what we’re doing, I think it’s only going to grow. One of our efforts earlier this year, myself and our managing partner, John Perez, have already begun to dig deeper to understand even more about the space and what will come out. I think ChatGPT is an evolution of chatbots. We just have to continue to be smarter and stay updated on how we’re going to support those metrics.
Q: How do you manage your investments during times of economic uncertainty?
BW: There have undoubtedly been challenges for the industry and for our healthcare system. We’re not unique here. That’s why we want to support and encourage what we do at Ballad Health very much. Fortunately, our board and management team remain very supportive of what we do. It tries to achieve a financial ROI, but also to achieve that operational ROI.
How can we be prudent with our investments to support our strategic initiatives? Because then you can dip almost twice. The other thing I want to say that we’re doing out of economic uncertainty is that we’re really trying to work closely with other corporate venture capital firms.
Check out our investment in TailorMed. University Hospital Ventures, OSF Ventures and Providence Ventures were already on the cap table.
Look at what we just did with Censinet when we were leading the charge there. I think if you look at this economic uncertainty, because we’ve invested along with other strategic partners, we can deleverage as much as we can. Although it is still venture capital, there is still a high degree of risk, but we can mitigate risk to some extent by investing with our peer institutions to ultimately try to transform and improve care.
Q: Are you trying to focus on seed and early stage investments?
BW: It covers the whole spectrum; We’re trying to balance our portfolio from launch to an early Series B. I would say we write checks for an average of $750,000 to $1 million. So if we understand where we sit, moving to the seed stage may bring us more of that financial benefit, but it also comes with risks. I think from the seed perspective you’re thinking about the first contract, maybe the first few contracts.
That’s where we can really lean in and be a co-developer or a strong partner to help them continue to refine and evolve. We want it to align with what our stakeholders are already working on. Thinking back to some of the things we do in pharmacy with TailorMed, we already had 14 full-time equivalents working on a massive medication support program. TailorMed now enables us to take this program to the next level. We support our investment, but we also receive strong operational endorsement and support.
Q: Are you concerned about the decline in digital health funding following the explosion of funding for digital health companies in the COVID-19 era?
BW: Absolutely. I think the multiples and everything through 2021 and early 2022 is out of control. We actually withdrew during that time simply because we couldn’t come up with our numbers in terms of investments. We really doubled our portfolio.
Now that things have been reset there’s a new landscape and I think strategic investors have a leg up to really get involved as capital is likely to dry up a bit in 2023. Yes, it worries me a bit, but I think we’re in good shape. For later Series A or early Series B companies, we were able to get in on favorable terms. That has been very good for us.
It’s about working with our CEOs to ensure reviews live up to expectations. That was a bit of a challenge, not only for us as board members and the portfolio companies we work with, but also for the founders. It’s a really interesting time. I think everything kind of comes back to the level set. We will start to push further normalization.
Q: Does being part of a rural healthcare system give you a different investment strategy?
BW: It’s definitely a different perspective. I think you can look at it either as a challenge or as an opportunity. As an opportunity, we want to become a leader in rural health innovation. That’s why we set up an innovation center and started building a lot of things with East Tennessee State University. Looking at Ventures we have to access different challenges.
We have different challenges for population health management, we have different challenges for specialized and sub-specialized services. So there’s an opportunity and I think it’s just a good thing to be able to jump into it and take advantage of this unique aspect. A model that works in your city or in Nashville or Chicago or wherever it may be will look very different than it does in Johnson City, Tennessee.
There is still a large part of rural America that is underserved. It is therefore extremely important to ensure that we have access to quality and affordable care. We believe we are well positioned to be a leader in this space.