UPDATE: SoCal Health Fund Remains Open to Investors; Invested in Two Startups to Date
A company that supports parents of newborn babies that need intensive medical attention. A company that provides healthcare systems with remote care for their most challenging patients. These are the first two startups that a SoCal healthcare fund has invested in. The $25 million fund, from Wavemaker Three-Sixty Health, remains open to investors.
The venture fund, with HQ in Pasadena, proactively looks for companies in OC and LA, It will also invest in early-stage healthcare companies from around the country, if they meet its investment criteria, which focuses on the healthcare industry’s transition from fee-for-service to value-based health. The fund primarily invests in early-stage companies – with a pre-money valuation of under $10 million – that need help with a pilot project or getting their first few customers.
The fund’s formula is to invest a certain amount upfront, and reserve four times that amount for a follow-on investment.
The fund is a joint venture between two prominent Southern California firms and is supported by the Draper Venture Network. Wavemaker Partners is a venture capital firm, with dual HQ in Los Angeles and Singapore. As of the end of last year, it had invested in more than 260 companies globally, with approximately 60% in the U.S., (mainly in the L.A. area), and 40% in Southeast Asia. Wavemaker Partners has raised more than $200 million across five funds that have consistently delivered top-tier returns over the last 15 years.
Wavemaker Partners expressed interest in joining with Three-Sixty Advisory Group, a healthcare consultancy and early-stage healthcare accelerator in Pasadena launched in 2007. It was founded by John Nackel, the former head of E&Y’s global healthcare practice and its venture fund. Jay Goss, a former C-level exec at early stage companies such as RxVantage and Mogreet, came on board later.
Wavemaker represents Southern California and Southeast Asia within the Draper Venture Network, which is reportedly the world’s largest venture collective with 12 funds across four continents and more than $1.2 billion under management.
Wavemaker’s limited partners wanted more exposure to the healthcare economy, which represents a large percentage of the U.S. GDP. So, it essentially became the largest limited partner and is the only institutional investor. The rest of the fund is comprised of 35 individuals, including hospital CEO’s.
The fund differentiates itself from other healthcare funds based on its high level of expertise and extensive network of the two main partners and roster of limited partners, including experience with a variety of physician groups, hospitals and healthcare systems.
“Almost all of us…those that work for the fund and our limited partners, are super-seasoned, super high-level healthcare executives,” Goss said.
Nackel started the boutique healthcare consulting firm more than a decade ago to work with, and sometimes invest in, early-stage healthcare companies. There was no fund, just individual investors.
Eight years in, he decided to raise a fund, to make it easier to invest. Fundraising started about 1.5 years ago, said Goss, who became Nackel’s business partner in late 2016.
The fund proactively seeks out companies in the region bordered by Santa Barbara to the north and San Diego to the south, but opportunistically looks at companies all over the U.S. and globally as well.
It mostly does seed and small Series A investments, on a case-by-case basis. But it will also get involved in bigger Series A and Series B rounds if the partners believe they can bring their expertise and network to bear, so it’s not just about the money, Goss said.
“Leveraging our collective healthcare chops, we’ll work with that company in a much more strategic way than a typical financial investor would,” he said.
Startups Invested In So Far
The fund formally launched in early May and has already made two investments.
One is Nicolette, with HQ in Long Beach. This startup helps support parents of newborn babies that need intensive medical attention due to being born prematurely or other complications. Its iPad application, NicoBoard, is a bedside dashboard that gives parents tools like visualized health data; curated education and research; and care participation tools. Hospitals pay a monthly subscription fee to offer this service to parents dealing with the neonatal intensive care units at their hospital.
Nicolette recently gained admission to the Cedars-Sinai Accelerator, which provides a host of benefits during its three-month program, including an investment of $120,000; training from Cedars-Sinai physicians and executives; and exposure to a global entrepreneurial network through Techstars, a group of seed accelerators with HQ in Boulder and outposts in NYC and LA.
Wavemaker Three-Sixty Health invested $100,000 in Nicolette, with $400,000 earmarked for the future, Goss told OC Startups Now. Prior to that, the pre-revenue company raised a pre-seed round. Nicolette CEO Phil Martie declined to disclose the amount raised in that pre-seed round.
Wavemaker’s investment is part of a larger equity seed round, the amount of which Martie also declined to disclose.
Nicolette is using the funds from Wavemaker’s investment to install and operate its first few hospital clients – which he declined to disclose. It’s also using the funds as leverage for an upcoming Series A round.
The second company Wavemaker invested in is Precise Telehealth, with offices in Santa Barbara, Houston, Baltimore and Covington, KY.
This B2B company provides a remote team of medical and behavioral care staff to help healthcare companies identify and monitor patients with multiple chronic conditions. These patients are typically the most costly.
Precise Telehealth’s services are reimbursable via Medicare, Medicaid and private payers. The company touts its service as being a money saver, whether that’s through fee-for-service or shared-risk contracts.
The founders, including CEO Michael Kerouac, have launched four prior tele-medicine companies and one non-profit foundation over the last 27 years. The three companies, including md/tv and Genesys, were acquired.
Eighty-percent of all medical costs are concentrated in 15% of the population that has chronic illnesses, Kerouac said. These patients typically do not benefit from traditional care or disease management programs, he added.
Wavemaker Three-Sixty Health invested $300,000 on a $5 million valuation, and reserved an additional $1.5 million for a follow-on investment, Goss said. The funding was a form of debt financing — convertible notes that ultimately will be transferred to equity.
Precise Telehealth recently raised north of $1 million in its seed round, primarily from physician investors. It’s in the process of a second $1 million bridge round, led by Wavemaker 360 and the state of Maryland. $850,000 of that has been committed, Kerouac said.
The company will use the funds from Wavemaker to increase its medical, behavioral and nursing employees to expand throughout California, Maryland and Texas.
Precise Telehealth entered into revenue last year and expects to reach profitability by the end of this year, Kerouac said.
Clients include the Riverside San Bernardino Tribal Health Network, serving seven nations in Central California; Jai Medical, with HQ in Maryland; and SW Nephrology Associates, serving dialysis patients in Houston, and a beta site for kidney disease-based accountable care organizations through Medicare