Five Questions: Caduceus Capital Partners’ Scott Kolesar

In this new series, Digital Health Business & Technology will interview a range of digital health investors, from those who work at venture capital firms and at health system and health insurance venture funds, to individual and angel investors. If you’re interested in participating in this series, email us here. 

Scott Kolesar, co-founder and managing director at venture capital firm Caduceus Capital Partners, has worked in healthcare for more than three decades. In September 2020, he and a partner started a new venture firm with a narrow focus on digital health. 

“We’re looking at companies that are not trying to boil the ocean with one big, platform solution but rather have solutions that can be immediately deployed with near-term value and can fully integrate,” Kolesar said. “A good 30% of the companies we look at are a hammer looking for a nail, and, you know, we have very short conversations with those companies.” 

Kolesar remains bullish because healthcare spends continue to climb as a proportion of gross domestic product. While investments have begun to slow, Kolesar said the market is cyclical and is confident digital health is here to stay. He spoke with Digital Health Business & Technology about Caduceus Capital’s plan to navigate a broader market correction. The company is in the midst of raising $100 million funding focused on early-stage digital health. The interview has been edited for length and clarity. 

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Fundamentally has COVID-19, recent corrections, or broader economic factors changed digital health?

There is an art to selling to healthcare providers and payers. There's usually not one buyer, it's usually a collective of influencers before you get the ultimate decision. A lot of the buying is a lot of consensuses. I think if you understand that process, and we do, you understand how to sell to hospital systems. I would say the market hasn't really changed. What hospitals want may change over time, they're always looking for a solution. It's gotten a little bit more complex because the organizations have gotten bigger. But other than that, no, I don’t. Entrepreneurs entering the market think they can really make a difference because health care is broken. If they haven't sold to health systems, they're going to find it very confounding. 

What makes you bullish about this market? 

It would be trite for me to say that this isn't unusual because it is. I mean, COVID and the subsequent downturn is different. But in 35 years, I've been through six or seven of these kinds of downturns where hospitals are facing a decision to shut down, consolidate, cut costs or expand. There's a reason why I've been doing healthcare for 35 years, it’s constantly growing. The percentage of GDP has never shrunk in the 35 years I’ve been here. So, so my bullishness is really just by the nature of healthcare in the United States. I don't see anywhere in the future, where our situation is going to change dramatically. In fact, within the past three or four years, as far as digital health is concerned, I'm even more bullish because of the new competition that's coming into the field of play. Retail healthcare is here after talking about it for 20 years. Virtual health is finally here. It's all in its infancy. There’s so much more to do. All the old players are going to have to catch up and stay and keep pace. When I say the word bullish, I really mean it. 

Whether its founders, your peers or other people in digital health, what are we not talking about that you wish we would?

The one thing that really bothers me is that we're not collectively working on solutions for the benefit of the community. We still have markets, in which we typically see a group of providers offering similar services, competing for physicians, competing for patients and members and not coming together to focus on the betterment of the health of the community. While there are a number of technologies that could help facilitate this, no one's talking about it because it's so damn hard to do.  

Is there anything you’ve learned over the past 18 months that can be applied to navigating the market correction? 

This is a little bit contrarian because I've heard plenty of other VCs and even health systems say the complete opposite. The feedback that we get, and we've talked to a lot of health systems, is they already have their platform in place, whether it’s Cerner, Meditech, Epic or whatever. They’re looking for solutions that create an ecosystem to enhance their current platform. Progressive hospitals are looking for those solutions because they know there is no one silver bullet that is going to fix everything.  

What types of solutions does the market desire? 

Solutions where we can increase efficiency across the board. So that's why we invest in revenue cycle AI, clinical workflow products, hand hygiene compliance software—so nurses don't have to do visual observation—and little things like that. As long a company has a strong value proposition that's been measured and there's proof in the pudding that there is cost and time to be saved, or there's revenue to be increased, we feel like it'd be a good investment.