Five Questions: Wavemaker 360’s Jay Goss

In this series, Digital Health Business & Technology interviews 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, email us here. 

Jay Goss started fundraising for Wavemaker 360’s first fund in 2017 when there were not many venture capital firms dedicated to digital health, particularly at the earlier stages of investment.

“There was plenty of venture capital for life sciences and drug discovery companies, particularly in Boston, San Diego and Northern California,” said Goss, who is Wavemaker 360's general partner. “But when it came to telehealth, digital health, health tech and medical devices, there were way fewer venture funds focused on those four areas.” 

The Los Angeles-based company built itself in a nontraditional way, Goss said. It didn’t seek funds from large endowments, pension funds and family office investors, but rather from healthcare executives and companies. Most of the company’s 300 investors across its two funds come from the healthcare industry, Goss said. The investors have led executives to companies like virtual breastfeeding telehealth provider Nest Collaborative and at-home physical therapy company Luna. 

Goss spoke about why more venture firms in healthcare don’t share Wavemaker 360’s approach to fundraising, how the Los Angeles startup scene compares to San Francisco and more. The interview has been edited for length and clarity. 
 

You have 300 investors who largely come from the healthcare industry. Why is that approach rare in digital health venture capital investing?

There are two good reasons why more funds don’t take this approach. The first good reason is most funds are generalist. If you go back 10 years, almost all funds were generalist and they invested in startups across 10 or 12 industries. They were a jack of no trades…and just got pulled in whatever direction they got pulled in. That’s changing and we’re seeing more industry specific funds, like in financial technology or real estate, but there are still a lot of generalist funds.

The second reason is that it's a lot harder. If you had asked me the same question in 2017, I might have been out of breath because I was out bringing on smallish investor after smallish investor. If you go the other route, you knock on the door of a few pension funds, a few endowments and a few big family offices, and you raise $100 million in 10 meetings. For our second fund, we raised it during the pandemic and did 1,000 Zoom calls to bring on a little over 200 investors. You’ve got to be built in a different way to have that many conversations with mostly six-figure and some seven-figure investors. I have no eight-figure investors.  

What areas of investment are you bullish on?

The category of healthcare that we were most proactive with in 2022, and we will be again in 2023, is mental health. It’s really on the radar screen of the U.S. healthcare industry. It got plenty of attention before the pandemic, it got hyper attention during the pandemic, and it still gets attention. Everywhere you look we're uncovering more depressing data about how the U.S. mental healthcare system is not optimal. We're very much on the keeping our eye out on companies that really can make a difference in this category. 

What are you telling your portfolio companies about selling to health systems during financially challenging times?

If you ask every health system CEO in America to spin around in their chair and look at the dry erase board, the lack of success in their financial operation is the number one or two priority area. The other priority area is staffing their business. The way we look at this, and this is an evolution in our own venture fund’s thinking, is that everything comes down to staffing in healthcare because it is a service-based business. 

Since you can't likely increase your supply of workers, the only thing that you can do if you're in the C-suite of a hospital or health system is to make your existing human resources more productive. The healthcare industry has been bad at adopting technology to make their human resources more productive. Over the last 25 years, every other industry has done 10 times better in adopting technology for the sake of making the workforce more productive. There's a lot a lot of low hanging fruit in healthcare. This is an industry that still uses clipboards, fax machines and pagers. Any technology that's helping a hospital do more with that same [small] labor pool is something that's going to get attention. 

What do you need hear from entrepreneurs when you get pitched?

We look at their team. That's a big part of it. We invest after the angels but before the bigger funds. Team always matters, but it arguably matters even more in these early months and years when a company's just getting out of the garage. Does a founder have what it takes to deploy its seed capital, improve their story, know how they're going to improve the story and then go up to the bigger venture funds to scale their business. My capital is used to really prove product market fit. The next venture fund’s capital is used to go from a few million dollars of revenue to tens of millions of dollars. Not every company is fundable at the next level. A lot of companies could do some damage with our capital but if I think they’re going to strike out at the next level, I am better off not putting money into them now. They've got to raise that Series A round to really become a venture grade business. Most companies need a Series A round and a Series B. 

How does the Los Angeles startup scene compare with San Francisco?

It’s the second most vibrant startup community but it's really spread out over Southern California from Orange County up to Magic Mountain in Valencia and from the Pacific Ocean out to Palm Springs. It's a huge region. It’s all of that, but it’s not on one street like it is in the Silicon Valley. It’s distributed.

San Francisco has the University of San Francisco at Califonia, University of California at Berkeley and Stanford University. We have the University of California at Los Angeles, University of Southern California and the California Institute of Technology. But even if I’m a  little off on that analogy, the next tier of universities in Los Angeles offsets it. Our second-tier schools, such as Pepperdine University, Loyola Marymount University, and University of California at Irvine, the other regions don't have that depth. They might have two or three famous universities. All of these places have great healthcare programs and most of them have medical centers on their campus. You can't be a vibrant, entrepreneurial ecosystem in any industry if you don't have access to talent.