Each year hundreds of healthcare startups are founded globally—but roughly 90% of them eventually fail.
Given the deluge, you may wonder how investors wade through the waters to find the gems.
Julie Yoo, a general partner who joined the Andreessen Horowitz (a16z) bio and health fund team in 2019, walked Healthcare Brew through her process for vetting and working with healthcare startups. A16z is one of the largest venture capital (VC) firms in the world and manages $45 billion.
The health and bio team focuses on early-stage companies and typically invests in seed or Series A rounds, Yoo said, adding that checks range from $1 million to $50 million.
This interview has been edited and condensed for clarity.
What does your startup vetting process look like from the first meeting to investment?
When we partner with companies at the seed stage, the vast majority of what we index on is the founder. We always seek to meet founders as early as possible in their journey.
Some things we evaluate are: How deeply has this individual really dug into all the things that could go right and all the things that could go wrong about building a business in this space? If they have super high conviction and highly opinionated answers for why previous companies who tried this failed, they’re going to have a competitive advantage relative to incumbents.
What’s your approach to working with portfolio companies?
We always say that we invest in such exceptional entrepreneurs that they’re likely to be successful whether or not we’re involved. That said, one of the very unique aspects of our firm is that we do have this platform that enables our companies to have a competitive advantage post-investment in the market. The thesis is, how do we grant these typically first-time entrepreneurs access to networks and expertise that would otherwise take them years to build on their own from day one, so they have that edge in the market?
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What are your portfolio companies working on right now?
A lot of our companies are taking somewhat provocative approaches to AI.
We have companies in the administrative automation space, applying AI to the rote tasks that are below the pay grade of the humans doing them. We have companies like Akasa that are using generative AI for revenue cycle automation, and we’ve got Turquoise Health that’s using AI for price transparency and contract management.
And then we have companies that are using AI for clinical applications, where doctors are treating patients and using these tools in real-time patient care settings, like Ambience Healthcare, an AI scribe product that ensures the patient/provider encounter is properly documented.
We’re also seeing a ton of innovation around the consumer as a primary user of these novel AI products. An example is Hippocratic AI, which has deployed what they call a “super staffing platform” of AI nurses that are able to engage individuals 24/7 for long conversations. They have had explosive growth in the course of the last few months.
I genuinely believe that healthcare is the industry that will benefit the most from this wave of generative AI, and I believe these are some of the early examples of us seeing that play out.