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.
Chris Bischoff, managing director at venture capital firm General Catalyst, is no stranger to investing in an economic downturn.
The Great Recession occurred when he was managing director of technology and media investments at Goldman Sachs in the 2000s. With the current economic climate, Bischoff said the companies that prepare and hunker down will come out of it better and stronger. It’s his job as an investor and a board member for five different companies (Overjet, Aidoc, SWORD Health, Cityblock Health and VillageMD) to help them get there.
“This is the time where investors can really show their mettle,” Bischoff said. “And this is a time where I think you look around the table as an entrepreneur and say, ‘The people who I’ve got here will help me get through this.’ We hope to live up to that.”
Bischoff spoke with Digital Health Business & Technology about closing a new $670 million fund focused on health assurance, the no. 1 question founders should be prepared to answer when pitching General Catalyst and more. The interview has been edited for length and clarity.
While some venture capital firms are peeling back on investments, General Catalyst just closed a new $670 million fund dedicated to health assurance. Why?
At a high level, we still feel like we have a lot to do. With health assurance, we want to build a more resilient system that is value orientated and enhances quality, access, equity and affordability. We're not there yet. We want to set our sights for 2030 and architect our vision toward that goal. There have been great strides since we started with this vision in 2020, but there's a lot to do.
What did you learn from the first health assurance fund?
We learned that our unique go-to-market model, based on strategic partnerships with leading health systems and payers, allowed us to radically collaborate on digital transformation. We learned that there was an increasing desire coming out of COVID for change in the system. And we learned some lessons from the wave of digital innovation that we saw in 2020 and 2021. For us, this wave accentuated the need to think more intentionally around building an integrated healthcare system and move away from some of the point solutions that we saw previously.
What’s the no. 1 question founders and entrepreneurs should be prepared to answer if they’re pitching you these days?
First, they must be aligned with our healthcare vision. Secondly, we need to believe that they have a product that has the potential to be highly differentiated. Thirdly, we need to believe that the company’s economics will be attractive as the business scales. And they will need to be intentional about that from the start. I think there was less of that thinking in 2020 and 2021. Lastly, we believe in responsible innovation. We need to be convinced that they're going about building in a responsible way and building a sustainable company. That's important across all industries but we believe that is even more important in healthcare.
With a digital health market in the downturn, what opportunities do you see as an investor?
The market has changed. I think VCs are more cautious about deploying capital. On the demand side, I think a lot of companies aren't seeking funding to go-to market given the cost of capital has changed, and therefore the funding terms have changed. Naturally, the market is going to slow. I think all investors and entrepreneurs are going to be thinking about that balance between growth and profitability. Are we really thinking hard about what is the company that we want to be? And how much capital is it going to take to get us there? Those conversations probably weren’t as hard when capital was more freely available.
Some of the funds are investing less, but I think what you'll see is healthcare-focused funds will continue to deploy capital, while the funds that dip their toe into healthcare may retreat. I think it'd be disappointing after the boom period of 2020 and 2021 if we fall into a slump of healthcare funding. There is so much more to do and, of course, there'll be bumps on the road, but I think we have to keep our eyes firmly on what we want to achieve over the long term.
What have you been telling portfolio companies during this downturn?
I would imagine every company is having a discussion at the board level around their growth-to-burn ratio. You have to play the market in front of you and the market has changed. What may have been the right strategy nine months ago may not be the right strategy today. Boards need to be aware and help entrepreneurs understand that we live in a different world today and we all need to cut our cloth accordingly.
It's also important to remember a lot of these younger companies are taking venture investments to scale very rapidly. When they reach a certain scale, they become profitable and have significant market share. So the imperative to grow remains but boards need to evaluate the right balance between growth and profitability. You need to shore up balance sheets when possible, so companies can make substantial progress before the next round of fundraising.