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Investing in health care: Strategic venture capital increases odds of success

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Presented by Providence Ventures

Fourth in the series, “Strategic VC as a Secret Weapon in Healthcare.”


Financing for innovative healthcare technology start-ups has reached unprecedented levels. However, for venture investors, it can be daunting to sort through myriad “not ready for prime time” opportunities in order to find scalable innovations that can potentially transform the healthcare system by solving important “needle-moving” problems.

One way for investors to cut to the chase is to syndicate with a strategic venture firm that works deeply within the healthcare ecosystem, and has fundamental expertise, as well as an important stake, in driving the success of its portfolio companies.

Previously, we shared insights about Providence Ventures’ healthcare-focused investment model. We also discussed the areas of healthcare most in need of innovative solutions, and provided examples of how we work with a few of our portfolio companies that are addressing these challenges. Now we turn to Providence Ventures’ process, and how our operational partnerships with business leaders and clinicians within PV’s parent organization, Providence St. Joseph Health (PSJH), and our clear understanding of its strategic priorities, are keys to guiding successful investments.

The process

To identify valuable potential partners and investment opportunities for PSJH, Providence Ventures has developed strong relationships with clinical and operational leaders throughout PSJH in order to clearly define and target key problem and opportunity areas.

We first determine we don’t have a solution to the problem within PSJH’s existing technology partnerships. We then scan the landscape for companies that address these most pressing strategic needs, and our clinical and operational leaders help us “pressure test” a company’s solution and value proposition.

The decision-making process then bifurcates. Our commercial decisions and the investment decisions are made separately. Ultimately, Providence Ventures considers a successful engagement with a company a commercial agreement that will solve a problem for PSJH even if we don’t make an investment. Sometimes, the investment timing doesn’t make sense for the company, the investment terms may not be attractive to Providence Ventures, etc.

Finally, if an investment is made, Providence Ventures works closely with company management and PSJH leaders to successfully deploy and scale the solution, ultimately serving as a key reference customer in the company’s efforts to sell to the broader healthcare market.

In partnership with PSJH’s Digital & Innovation Team, we have identified and mapped six critical “journeys” for our organization over the next 5-7 years. The core premise underlying all of these journeys is that healthcare systems will have to do more with less, transform themselves to true healthcare companies versus sick care companies, and deliver new growth opportunities around keeping people healthy. Accordingly, one of these journeys, “Create New Revenue Streams,” will identify innovative tech-enabled healthcare services that create new revenue opportunities that augment our financial sustainability while also improving care delivery.

To illustrate our approach of working with portfolio companies we can discuss a recent Providence Ventures investment that fits within the PSJH “Create New Revenue Streams” journey: Intelligent Retinal Imaging Systems, Inc., or IRIS. Founded in 2011 by leading retina surgeon Dr. Sunil Gupta, IRIS develops and deploys reliable, easy-to-use diabetic retinopathy screening services in the primary care setting. The company markets the only FDA 510(k)-approved platform in this segment.

The problem / opportunity area

More than 30 million people in the U.S. have diabetes. That’s more than nine percent of the population. People with diabetes are vulnerable to a host of complications, including eye disease. According to the National Eye Institute (NEI), diabetic retinopathy is the most common diabetic eye disease and a leading cause of preventable blindness in American adults. The NEI estimates that up to 45 percent of Americans with diabetes will develop diabetic retinopathy and that 24,000 people go blind each year.

Current guidelines from the American Diabetes Association and other organizations call for each person with diabetes to receive a retinal exam each year. However, it is estimated that 60 percent of people with diabetes in the U.S., or 18 million people, do not receive this simple, noninvasive exam. Socioeconomic factors and limited ophthalmology access contribute to this care gap.

Providence Ventures and our PSJH colleagues believe that primary care-based exams can dramatically improve screening rates by improving patient access to important preventative services.

The solution

IRIS’s software overlays most existing digital eye exam hardware. The software captures and enhances retinal images in the primary care setting, then ports them to the cloud, at which point, remote ophthalmologists read the exams. IRIS employs a software-as-a-service business model. Its proprietary image algorithms dramatically expand access to diabetic retinopathy exams in lower-cost care settings. This, in turn, can increase quality ratings, improve patient outcomes, and generate new revenue opportunities for health systems in the primary care setting.

We believe that IRIS has the potential to significantly increase the rate of diabetic retinopathy screening and diagnosis, as well as establish the company’s platform as a new standard of care in primary care chronic disease management. Additionally, and importantly, IRIS offers a material new revenue opportunity to the primary care segment.

Implementation and scale

Earlier this year, Providence Ventures invested in IRIS and has helped the company launch one significant regional pilot project, with several others in the planning stages. These pilots have been designed and are being implemented in close partnership with our PSJH clinical colleagues. We expect to see four types of synergies as we deepen our relationship with IRIS. Each of our main stakeholders stands to benefit:

  • Our patients – IRIS is positioned to help PSJH treat diabetic patients at risk for eyesight loss using a more readily available diagnostic exam. Ideally, IRIS will increase access, close avoidable care gaps, and help prevent blindness, all at a much lower cost to the healthcare system.
  • Our clinicians – Primary care systems nationwide have faced financial pressures due to declining reimbursement. The IRIS exam is revenue and margin-positive for the primary care practice setting. Moving diabetic retinopathy exams into primary care will also relieve some scheduling bottlenecks that occur when patients must see an ophthalmologist. Additionally, diabetic retinopathy screening utilization is a quality metric valued by payers. Increasing the number of patients with diabetes who are screened annually will position PSJH to recoup improved reimbursement based on this metric.
  • Our partnership – Providence Ventures’ investment, and PSJH’s commercial engagement, offer IRIS the opportunity to substantially expand its footprint via one of the largest health systems in the U.S. The relationship is expected to generate significant organic growth to the company’s top line.
  • Our parent organization – PSJH will accrue any financial benefits that are realized as a result of Providence Ventures’ partnership with IRIS. Our expectation is that the IRIS exam will achieve impressive market penetration. We expect to achieve a great ROI on our invested capital.

Every partnership Providence Ventures creates varies in its details, of course. But our process is consistent because it reflects two of our most important points of differentiation in the competitive venture marketplace: a focus on our system-wide strategic priorities and our access to top-quality internal clinical and operational leaders.


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