General Catalyst: An appetite for disruption

It has been a whirlwind last 18 months for US venture capital (VC) giant General Catalyst (GC). Having unleashed $2.3B-plus in capital through its Health Assurance Fund since last year – becoming the world’s top digital health investor in the process – it then announced, on 15 November 2022, partnerships with 15 major health system networks.

GC was typically forthright in announcing the development. It insists the new partners will offer a “cross-pollination of learnings that can be a powerful antidote to today’s broken and siloed system.”

This is a clear reference to current interoperability challenges and the march towards value-based care (VBC), especially in the US. Given the growth potential in these areas, allied with GC’s bold approach (and financial clout), the company is primed to be the healthcare disruptor, influencer and enabler-in-chief of our times.

The Signify view
GC launched the Health Assurance Fund in 2021. It was backed by an initial $1.7B funding, followed by a second, $675M injection in 2022. Combined, the funding commitments make GC a leading healthcare investor and, significantly, the world’s leading digital health investor over the last 18 months. GC tops Galen Growth’s respected Health Tech 50 platform, and has completed more investments (36 deals in the last 18 months) in early-stage companies than any other VC. Overall, GC has more than 90 healthcare companies in its stable today, plus several non-healthcare companies.

The 15 health systems that have partnered with the Health Assurance Fund lend greater momentum and gravitas to GC’s strategic ambitions to transform digital health. Chris Bischoff, GC’s managing director, recently spoke of ‘radical collaboration’ happening between technology investors and leading healthcare systems to drive this transformation. Given GC’s track record to date, it is hard to bet against this latest strategic initiative having the same, disruptive, influential and enabling impact.

Defined strategy
GC’s broad-brush healthcare investment strategy spanning more than 90 companies tees the company up well for future success. The VC firm has assembled an enviable, diversified portfolio of companies covering key digital health growth areas, including value-based care (VBC) IT, care management, RPM, mental health and research/drug discovery, as well as other healthcare segments. GC targets high impact, high return investee companies that can modernise healthcare.

The company cashed in on the $18.5B sale to Teladoc of Livongo, which gave it further resources to build the Health Assurance Fund. GC is also diversifying its geographical focus. In September this year, it announced a partnership with Guy’s and St Thomas NHS Foundation Trust, as its first health system partner outside the US. The tie-up will deploy existing or new digital tools from GC’s portfolio companies to improve hospital capacity, reduce wait times and address manpower shortage issues at the UK’s largest hospital system.
There can be little argument as of now that GC is firmly established as a healthcare heavyweight across the industry. And there is more to come.

Sharper focus
With its latest 15 health system partnerships, GC’s Health Assurance Fund is now sharpening its focus. It is no coincidence that several of the group of 15 are heavily focused on VBC. GC frequently talks publicly of the ‘critical work’ facing its partners: how to modernise healthcare, cut costs of healthcare provision and reduce administrative hurdles, and this fits in neatly with VBC principles.

Announcing news of the latest partnerships earlier this month, GC pointed out that the 15 health systems together serve around 10% of the entire US population. It is a formidable bloc with the potential to make a profound impact on the accessibility, quality and costs of care for millions of people.

Portfolio challenges
GC’s bold investment strategy is not without challenges. As is the model in VC, for every Livongo, there will inevitably be investments that fail to deliver. More pertinently, the sheer diversity of GC’s product range across 90-plus companies could present problems.

One the face of it, GC’s product strategy seems to be less clear than its overall investment strategy. Some of the product vendors it is invested in are point solutions designed to address specific healthcare needs. In many cases, there are product overlaps between different companies in the GC stable.

Under normal circumstances, this would not necessarily be a problem. However, many buyers in large hospital networks in the US and UK, GC’s focus geographies, are trying to reduce the number of vendors they are using to support their IT. This is obviously bad news for point solutions vendors, and better news for the big vendors offering more rounded VBC, EHR and healthcare IT solutions portfolios. The trend of hospital IT procurement consolidating around the likes of Epic and Cerner is a threat that GC must address.

EHR and VBC vendors could hold the key for GC and its partners here. Many of these vendors have so-called ‘marketplaces’ which seek to integrate third-party point solutions into their portfolios to fill gaps in their portfolio. Often, EHR vendors use the marketplace to provide insight for their own product roadmaps. When they see a successful marketplace product, they often mimic it with their own product or buy the marketplace vendor. This is both an opportunity and threat for GC’s companies.

For the healthcare provider, it is simply a case of selecting the best point solution available on their healthcare IT marketplace to address a specific need. For GC’s portfolio companies, it is a case of getting listed on the marketplace as a third-party provider. This is easier said than done, but being backed by a company of GC’s weight, it should not be an insurmountable problem.

A date with data
Clearly, VBC is firmly in GC’s crosshairs right now and, despite the challenges it faces around product mixes and point solutions, it is ideally placed to be the digital health disruptor it aims to be.

GC and its portfolio vendor partners will also be aware of the potential around the management of vendor data. We have written in a previous Insight how Oracle Cerner plans to establish a national EHR database (see Insight here). We questioned in that Insight whether the data being held in-house with EHR and VBC vendors like Oracle Cerner and Epic was, in fact, the big story here. We also questioned if the data would be better commercialised for pharma providers, lifescience companies and research organisations to support clinical trials, for example. In any case, we envisage a lot of investment coming into the data space.

The end game
It would be remiss not to consider GC’s sincere ambitions behind the Health Assurance Fund, and the realities that, as a VC fund, it must make a return on its investments. Its ultimate strategy is therefore to scale its portfolio companies with a view to either selling them to another, larger technology vendor, or for an IPO. For most, this will not happen imminently, but GC will certainly not cling onto its portfolio companies indefinitely.

Statement of intent
In just 18 months, GC has made an indelible mark on the wider healthcare industry. In digital health it is carving a reputation as a disruptor, influencer and enabler, and is well equipped to deal with challenges around point solutions. There is a sense that this is just the beginning of an exciting new chapter for GC’s Health Assurance Fund. In welcoming its initial 15 health system networks into the fold, GC makes another bold statement of intent. It will not be the last. Signify Research