In 2012, General Catalyst’s Hemant Taneja persuaded Glen Tullman to not retire and instead build a company that would embody the culture of healthcare and technology.
“That’s what led us down the path to building Livongo,” said Taneja, referring to the diabetes-focused digital health company that ended up getting sold to Teladoc for $18.5 billion. Taneja, the managing director of General Catalyst, added, “And one decade later, that’s led us to all the companies we’ve invested in and the work that we do.”
General Catalyst is one of the industry’s most active digital health venture capital firms. According to Digital Health & Business Technology’s quarterly funding and M&A data, General Catalyst had an industry leading nine investment deals in Q1 2022 and 37 overall in 2021, which was 17 more than the second-most active firm.
But it’s not just the quantity of deals, it’s quality. Notable former and current General Catalyst portfolio companies include Livongo, Oscar, Devoted Health, Ro, Olive and CityBlock Health. The company has also created strategic partnerships with health systems such as Jefferson Health and Intermountain Health.
Taneja’s most recent efforts focus on health assurance, including the formation of a $600 million fund to invest in companies making a societal impact. Digital Health Business & Technology spoke with him about health assurance, a potential downturn in the digital health investment market and more. The interview was edited for clarity and length.
You’ve said the era of “move fast and break things is over” and you’ve talked about the VC industry moving from maximizing growth to maximizing societal good. What makes you believe now is the time to make this leap and do you think your brethren in the VC world feel the same way?
The time has been right for a few years now. The (businesses) we invest in today, they cannot compound and deliver if they’re not good for the world. And when it comes to health care, education and so on, you've got to be on the right side of history. I have a deep belief that the best returns are going to come from responsible innovation. I am not trying to be an impact investor, I'm a capitalist. I just believe that by building companies that do good, we will see amazing returns for our investors. More and more people in [Silicon] Valley are starting to think this way, but there's a lot of people that still think technology is a free market. There’s a healthy tension and we must tread carefully as the builders of new innovative companies.
How come you brought on former Merck CEO Ken Frazier to lead your assurance fund?
It's a privilege to have him. One of our core pillars is radical collaboration. We've done partnerships with health systems simply because we think that rather than focusing on having a disruptive mindset, we want to [bring] the word disruption to those health systems. If we’re going to reduce the GDP and achieve the principles of health assurance, we can't do this unless we bring technology, healthcare, and pharma together. All these stakeholders have to come together to achieve this health assurance vision. And there's no better leader in the pharma industry to help guide us on how to think about that than Ken Frazier. And there's also no better leader who thinks about health equity like him.
What is your view of the digital health market and investment trends? It seems we might be hitting a little bit of a downturn.
Healthcare is a recession proof industry in some ways, right? I mean these problems aren't going away. We must solve them. I think the good news of this market correction is the industry is starting to recognize that healthcare services businesses are not software businesses. To capitalize, value and grow these companies, we have to do it the right way. I expect there to be more discipline in how we build companies in this space. But I'm very bullish on the work that we’ve started and accelerated in the last couple of years around healthcare services. Better capitalism leads to more resilient and efficient companies. We are starting to see that.
Do you see digital health consolidation coming?
I do think that's going to happen. Because the entire system was shut down during the pandemic, we saw all these ideas pop up. For example, I'm guessing there's more than 1000 companies in mental health, right? If we wanted to dream up the perfect mental health system in our country, we’d probably say that some of these companies need to come together and create experiences that are comprehensive and impactful. I'm actually optimistic that founders are going to think about that and choose their mission over individual objectives and embrace some of that consolidation we’ve already seen. I do think strategically harvesting all this innovation toward good deals is absolutely going to happen the next several years.
What areas of digital health are underfunded?
We are very focused on workforce transformation. I think that's an area where all the health systems in our country need help. Because of the pandemic, people want to work differently. And as system moves toward health assurance and we move care to the edges, like hospital at home, there's a lot of rescaling that needs to happen in the space to align it with where the system is going.
How do you see responsible innovation evolving?
My belief is that there should be no Amazon of healthcare. There should be no trillion-dollar company. Venture capitalists in healthcare should build a trillion-dollar ecosystem. I would like to see an ecosystem of companies that collectively view health assurance as something that they strive for and collaborate toward because each of their respective missions is bigger than their individual success. If we create that ecosystem, I think it will achieve the principles of health assurance. Responsible innovation in healthcare is the principle of health insurance. That’s really what we're trying to create. Seeing companies come together to achieve that is my dream.