Lisa Suennen is the managing member and co-founder of Psilos Group (Corte Madera, CA), a healthcare-based venture capital firm that has nearly $600 million under management. When asked what her job description is, Suennen offers a simple summary: “take smart investors’ money and give them back more while leaving great companies in our wake.”
Suennen became a venture capitalist in the healthcare space after holding a number of senior executive roles at Merit Behavioral Care. Before that, she worked in the technology industry, which she notes was unfulfilling for her. “Maybe it was the sector I was in, but technology for technology’s sake was not interesting in terms of thinking about what I am going to leave behind. I wanted to work for a company that also makes a difference in people’s lives,” she says. “While gaming, mobile phones, and things like that are important, they are not what you are going to think about on your deathbed,” she says. “By contrast, healthcare is very tangible to me. Everybody deals with their health every day.” And working with healthcare companies gives her “an opportunity to do well by doing good.”
“Healthcare is very tangible to me. Everybody deals with their health every day.”
In her current position, Suennen has the opportunity to work directly with entrepreneurs and executives in the medical device, health information technology, and healthcare services industries. Suennen also serves on the board of directors for a number of those companies, including AngioScore, PatientSafe Solutions, OmniGuide, and VeraLight. Each of these companies has launched products that have proven it is possible to improve care while reducing costs and improving patient safety to the healthcare system across a multiplicity of medical sectors from cardiology to gynecology to diabetes, as well in the delivery of safer hospital-based care.
Suennen, whose nom de blog is “Venture Valkyrie,” regularly writes about healthcare investing for a number of sites including her own (www.venturevalkyrie.com), The Health Care Blog, and CNN Money. She also regularly speaks at conferences on the topic of healthcare investing.
MD+DI: How did you get started investing in healthcare companies?
Suennen: Career-wise, I started in high tech, which I found to be profoundly unfulfilling. My dad was a healthcare entrepreneur and the inventor of real-time ultrasound. He and I were talking and he said, “you know, I think that healthcare would really give you more of that fulfillment that you are looking for.” So I ended up joining a start-up company, which was a managed behavioral healthcare company known as Merit Behavior Care. And that start-up became an $800-million per year company. Along the way, my dad ended up becoming the CEO, which was sort of a weird but great outcome.
When we sold the company, he and our investment banker and I created Psilos. Our original focus was on healthcare services and healthcare IT. But my dad had a background in medical devices and I had done some work in that area back in my first career with public relations and I personally had a very strong interest in that sector of healthcare. When we started the fund we decided we were going to specialize in the concept of technologies and services that reduce the cost of healthcare, improve quality, and align the incentives among patients, payers, and providers. We felt that this thesis applied broadly across healthcare IT, healthcare services, medical devices, and diagnostics and thus we diversified into those latter sectors as well. That is the genesis of my current career. I’ve been now working 14 years in the healthcare venture capital area and it is great.
MD+DI: What are the main challenges you see working in venture capital investment in healthcare?
Suennen: Healthcare is definitely the poor stepchild in venture capital. For reasons I don’t understand, it is not as sexy as social networking, digital media, or clouds. It is definitely not the number one thing people want to invest in. And yet is literally our biggest economic challenge for this country and one of the few things every human has in common to worry about. I have a hard time reconciling that disconnect. But companies are perceived to be harder to build in healthcare than in other sectors because of the regulatory, reimbursement, economic, and human issues.
“[Healthcare] is literally our biggest economic challenge for this country and one of the few things every human has in common to worry about.”
In healthcare, economic incentives are so misaligned. Consider the triangle of the patient, provider, and payer. A new product that helps one of those players, most of the time, disadvantages one of the others. And the disadvantaged players don’t like that. So you have to think very hard about aligning the incentives; when they are not aligned the enterprise has a very hard time prospering in the current environment.
Let me give you an example of how the incentives can affect each other: Let’s say you are introducing a new medical device that moves surgeries from the hospital to an outpatient setting. Some hospitals would lose money as a result of that shift. Insurers might like it because, on the one hand, it might be a less expensive procedure with no hospital stay. But they might also be worried that there will be a lot more of them because they are easier to do. So, in the end, it may cost the payer more. At the same time, the patient may like the fact that the procedure is less invasive or and no hospital stay is needed. But on the other hand, if their favorite provider doesn’t perform that procedure in an outpatient setting or isn’t adept at the minimally invasive surgical approach, they can’t take advantage of that procedure unless they pay for it out of pocket or without more significant clinical risk.
So in healthcare, things that may appear intrinsically good aren’t always either good or welcomed. And that fundamental misalignment of financial and clinical incentives is endemic to healthcare and to no other industry except maybe higher education. There is also a disconnect in that the person receiving the services (the patient) usually has no idea what is best for them, no way of judging that and also no information whatsoever about the cost benefit of alternative interventions. And that is why our investment strategy is about finding things that align financial incentives because those are the types of things that succeed.
MD+DI: What advice would you give to people looking to get into this field?
Suennen: My advice for someone who wants to be a VC in the healthcare space is two fold: first, bring a focus on healthcare economics. The healthcare system is not currently rewarding science and technology innovations that add cost to the system or are just incremental improvements. Second, bring a lot of intestinal fortitude; despite the burning market need for innovation in healthcare, it is not currently a favored sector. Even when it works, companies take a very long time to mature to full value. This is not a job for wimps, that's for sure.
MD+DI: Are there barriers to women entering the healthcare investing? How can they be overcome?
“We need to encourage women entrepreneurs to come forward and build great businesses to enhance the flow of women into healthcare investing.”
Suennen: The biggest barrier right now is that this is an industry that is downsizing. This makes it harder for both women and men to break in. Women are actually leaving the field in greater numbers because they generally have less seniority, so it is a real challenge. The best way for women to enter the healthcare venture capital field is through garnering great senior level operating experience and delivering returns to their own investors while networking with the people already in the field—male and female.
MD+DI: How can we get more women involved in healthcare investing?
Suennen: We need to encourage women entrepreneurs to come forward and build great businesses to enhance the flow of women into healthcare investing. That is the usual career path: successful company executive to VC. Women also have to get better at advancing their own careers by packaging and marketing themselves actively to the male incumbents. Too often women downplay their accomplishments and this isn’t a field that values modesty.
Brian Buntz is the editor-at-large at UBM Canon's medical group. Follow him on Twitter at @brian_buntz.