Contributor: Elizabeth Hodgson
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Healthcare is one of the industries most ripe for new technologies and innovation. It is also one of the most difficult industries in which to successfully launch a start-up.
To entrepreneurs and venture capitalists, the healthcare sector presents exciting opportunities from a business standpoint but can seem like a ball of yarn that needs to be untangled, given the layers of regulatory frameworks and industry practices that govern the space.
To those within the healthcare system, gaps and needs of patients, practitioners, and managers may be easily identifiable and lived first-hand, but the business side of pursuing solutions seems daunting and unattainable.
And to those with one foot in each camp, very few can simultaneously identify a gap or need in the healthcare sector, conceive of and develop technology, navigate the complex regulatory and legal landscape of start-up companies, raise capital, deploy appropriate business acumen, and commercialize products and services. To excel at any of these tasks would be impressive, but for one party to do all of them (let alone well) is seemingly impossible.
Would it not be great if we could find a way to capitalize on industry-insider expertise and the business sense of entrepreneurs and venture capitalists? Well, we can. Enter venture studios.
What is a venture studio?
In simplest terms, a venture studio is essentially a start-up company factory. Though it can be structured in a variety of ways, it typically takes ideas or intellectual property generated within an innovation center and develops them into mature and promising pieces of intellectual property (IP). This promising and matured IP is then transferred to its own start-up company (called a portfolio company) that then operates like a traditional venture-backed start-up company (including raising money from outside investors). Venture studios launch multiple start-up companies, each housing a different piece of IP.
The operations of a studio (including IP development) are funded by the studio’s own venture capital fund, typically through the fund paying the studio an operating fee. The hospital or healthcare system typically owns a significant stake in this fund and may also have a right of first refusal to subsequently invest directly in each portfolio company or to invest on preferred terms.
Besides overseeing IP development and the formation of each portfolio company, the team of people working at the venture studio remains involved in the entire lifecycle of a company (unlike incubators or accelerators whose roles are generally limited to very early stages). The team will actively grow the portfolio company through recruiting or serving as executives of a portfolio company, hiring employees and recruiting advisors, overseeing product development and prototyping, driving commercialization activities, and pursuing an exit. Members of a venture studio team are frequently compensated through the receipt of equity in each portfolio company to reflect their roles as de facto founders and to incentivize them accordingly.
What are the benefits venture studios could offer to hospital and healthcare systems?
Venture studios not only enable healthcare systems to hold an ownership stake in healthcare start-ups to benefit their bottom line — they also present an exciting opportunity to address and solve the gaps and needs of those within the system. Whether a novel treatment, therapeutic, or medical device that addresses a recurring and unaddressed need identified by a practitioner, to an information technology solution that streamlines data sharing and management conceived by a healthcare IT professional, to a more efficient prescription management developed by an in-house pharmacist, who better to identify novel technologies for the healthcare system than those within it?
Indeed, venture studios could transform healthcare systems from passive consumers of health technologies to a hybrid role of innovator-consumer through marrying the subject matter expertise within the healthcare system with the business acumen of the venture capital world. Venture studios create synergies between these two worlds that could catalyze the development and distribution of life-changing technology to patients, practitioners, and managers in the healthcare system and increase the revenue of healthcare systems so they could better serve their patients.
Conclusion
Healthcare professionals are well-suited for health tech innovation due to their innate problem-solving abilities, first-hand experience with the inner workings of the healthcare system, and consumption of healthcare technologies, and proximity to the needs of the patient and practitioner population. Venture capitalists and the venture-backed company structure are adept at nurturing a novel idea into a patentable piece of intellectual property, helping a start-up company further develop and commercialize that IP into products and services and providing the necessary capital and strategic relationships along the way. Venture studios are a powerful way to marry these two worlds and draw on their respective strengths for their mutual benefit.
Venture studios enable the healthcare systems to take both literal and metaphorical ownership in finding solutions for the needs of their patients while not having to worry about the business side of running a successful start-up company. Through allowing those within the healthcare industry to drive innovation and those within the venture capital world to drive the business side of a start-up company, venture studios can accelerate the advancement of life-changing technologies in the healthcare sector to improve patient care, practitioner abilities, system-wide efficiency, and the bottom line.
Contact Liz at: [email protected]
Disclaimer: This article has been prepared and published for informational purposes only and is not offered, nor should it be construed, as legal advice.