Six lessons on building a $100M healthtech company

What I learned over time — and a lot of companies have learned this — is that you can make the sale to a self-insured employer or to Cigna, and it can feel great. Oh my god, we just sold the $5 million ACV contract, three years, $15 million TCV. But then you've got to get the end user to use your product, which is super challenging in healthcare, because you've got to work with Cigna or the self-insured employer to get the employee roll or the member roll — and do the numbers even match up?

Then once you're in touch with the members, can you activate them? Can you actually get them on the phone, or get them to reply to a mailer and sign up for the service? Then you've got to have them use the service — and frankly, keep using it — in order to get paid. That's where end user delight really matters. Look at Hinge, one of our portfolio companies that recently went public and one of the best-in-class virtual care companies: its activation rate, member engagement rate, and retention rate, even when it was private, were always exceptionally high compared to peers in the virtual care space. I think that's because they designed an easy-to-use, intuitive, dare I say delightful, product.

That activation piece is being solved because product has gotten better in healthcare — more of our product is starting to look like consumer-grade, tech-grade product. It wasn't the case when we wrote this a couple of years ago, and we still have a long way to go: even the best-in-class companies are at maybe 10% engagement, which is pretty low, and long-term engagement obviously falls off with churn. But I feel better about that problem. The problem all these virtual care companies have now, for what it's worth, is once you get patients engaged, how do you match that patient-side demand with the clinical supply? That's been the big challenge recently for a lot of these companies — maybe we'll have to write something about that in our next set of laws.

Previously, if you were using an RCM software, the question was: did it actually improve your life as the user in a health system, or make it harder? Based on the feedback on EMRs, it clearly made it harder. Who loves their EMR? But now, with agentic properties, or even co-pilot properties, the software is actually helping you do your job — and do it better and quicker. That starts to make healthcare feel like software in other industries, where it becomes more delightful. Wow, this is actually helping me. It's not causing me more friction, it's not making me spend more time on tasks and be less productive. That's my thesis.

I'll give you the canonical example in our space. I have mad respect for Epic — it's a crazy successful company, and Judy is probably one of the best American entrepreneurs that the fewest people know about. But the software is not loved. And by the way, that software was basically paid for by the United States government, so it was pretty easy to adopt — at least to buy — because it was free. How many of your doctor friends, my doctor friends, say "oh, I hate Epic, hate Epic"? I don't know what the NPS on Epic was, but it's not good.

Along comes Abridge and other scribing companies. What was done before was literally just entering data into Epic for clinical and coding purposes — and all of a sudden it becomes magical, because truthfully, a lot of that data was based on conversations and language, and now companies like Abridge — and others, and now we know Epic too — are automating it. All the friction that made the software so unpleasant to use has gone away. And one thing we know is doctors actually have a say. They're not the ultimate check-writers, unless they own their own practice, but they still have a say, and the CMIO and the CMO have a seat at the table about adopting software. That disgust with software is going away because it's actually making their lives easier. And if it's making their lives easier and they're using it, we know the software is designed to deliver value — I'm confident about that. More usage means more value capture, better ROI for the end user, better ROI for the end buyer. And better ROI, as a business person, means: shit, I should probably spend more money on this stuff.

So I think that's the answer — but I'm also an optimist. It's a promising trend. Healthcare is starting to catch up with consumer and actually give a shit about its end users.

One of our investments, a company called SmarterDx — we had the founders on for a post-mortem of Bessemer's successful investment in their company and all the things they did to grow it. The founders, Mike Gao and Josh Geleris, broke the world up so that Mike was the external-facing founder and Josh was the internal-facing founder. Mike did all the commercial go-to-market stuff early on. And — I know a lot of your listeners are thinking about starting companies or are early in their journey — founder-driven sales is so important, because you learn so much from each of the signals you get. The signal might be: we're not looking, we're going to keep our own solution, or we're going to do it internally, or actually we're not ready, call us back in six months.

The founder gets that feedback from each of those conversations, and Josh said Mike did a really good job of asking questions. Mike just never took a no. He was like, okay, tell me more, tell me more — because that insight is going to help us improve our product offering, our positioning, or how we do the go-to-market.

So founder-driven sales, and the slow sales cycle of healthcare — which has generally been 18, 24 months plus, and AI is changing that a little bit — I think it's really important for early, young founders to do that, and not hire a commercial leader too early. That's what I mean by prepare for the slower sales cycle. The mistake I've seen is: oh, we've got a couple of customers — and it's just noise, not signal. They could all look very different, and they hire a commercial person, and the thing's not tuned yet.

So I'd encourage founders to really do that early couple-year sales journey — maybe the first year, until you get to a million or so, until you've got multiple customers on the same product, same use case, not multiple customers with multiple use cases — until you really figure out the dogs are eating the dog food, proverbially. Then hire someone to lead your commercial effort. Because SmarterDx, for instance, raised their Series A and sold the company for a billion plus in two years — but as Josh and Mike will remind us, by the time we invested, they'd been working at it for four years. They'd started the company, gotten some interest, then COVID hit, and they had to go back and work as doctors to support their families — unfortunately there was plenty of demand for doctors in New York at the time. Then they came back and did the founder-led period for another year and a half, and then we invested. So it was two years from the first large institutional check to exit, but for them it was a six-year journey. Even though it feels like an overnight success story, SmarterDx was a six-year journey for those guys, and a lot of it was slow.

One lesson I've learned from dealing with a lot of companies at the Series A stage and then watching them grow is that underinvestment happens in customer success. Because we've got to build the product, we've got to hire the people, we've got to go sell the thing — that's all hard, we've got to prove the value, all the stuff we've been talking about — and then it's like, oh shoot, we've got to actually make sure the customer's happy. I've seen underinvestment in that, so I'd encourage founders to think about it early.

And here's why — I've seen this time and time again, and it's probably true in other industries too, but I only do healthcare: a happy customer leaves their job and goes to a similar or higher role at another health system or another payer, and all of a sudden they're in our pipeline. Even though healthcare has a lot of stakeholders, and buyers have to bring a lot of people to the table to make a decision, if you can get that champion to look successful at one customer — their career is a long career, they're probably going to stay in healthcare, they're going to go to another organization. So that'd be my one piece of advice: invest in that function early, because it yields dividends.

I think it's fair to say you don't need to be apologetic for having bad gross margins early on — maybe even negative. By the way, I'm pretty sure I've invested in a negative gross margin business in the past. But you damn well better have a plan for how you're going to improve it, whatever that may be. If you're a tech-enabled service business, the best might be 60% now — Hinge, you can look at their public statements, they have better margins than that, they're one of the leaders in virtual care — but in general, if you look at our benchmarking work, you'd better start to get there. In year one, or maybe year one and a half, once you figure out what you're doing, you should have a path for how you're going to improve the margins. Don't be apologetic, but have a path.

At the end of the day, this is what our industry is all about — and frankly it's what every industry is about. If you're buying something as a business, you should probably get a return on investment. Even if you're buying really expensive capex hardware, you probably have a plan — or your CFO does — for how that's going to yield lower cost over time, amortized. But in our business, I think you need to show three-to-one ROI, at least, and that's probably over the annualized contract — maybe over the lifetime of the contract, depending on how long it takes your product or service to yield the outcomes you're seeking. Without that, you're dead in the water.

It's funny — it's a large TAM industry, you can reference four or five trillion, whatever the number is today, but I wouldn't describe it as a rich industry. Look at the unit economics of the buyers you're selling to: insurers are getting hammered, providers are in a tough place coming out of COVID, labor shortages, Medicaid being cut — it's bad. These buyers get shat on all the time in the political world. Maybe pharma companies are the best-looking businesses, arguably, but they're not very rich businesses either. So if they're spending a dollar of their money, which is pretty precious — and a lot of them are non-profits held to public scrutiny — you've got to produce for them.

At the end of the day it's financial, because these are all businesses and you've got to get them an ROI — and then clinical. For the most part, if you're a clinically focused business, the financial returns will ultimately be based on the clinical outcomes you achieve, whether that's reducing hospitalizations or readmissions, or improving the comorbidity of your patient panel, or whatever it may be. That's how you get to the financial ROI.

This matters especially if you're a startup entrepreneur. It matters in getting the first couple of people to sign up to be your counterparts in building the company — employees one through ten, then ten through fifty. We talked about storytelling up to employees at two thousand. People are drawn to healthcare — I see this all the time, successful tech entrepreneurs saying, I just made some money, I did this great thing, and now I want to come work in healthcare. There's a reason for that: it's fulfilling. There's real power in telling the narrative, as a founder, of why you're doing what you're doing, and how you're proving that it matters.

Then it matters in selling to customers too. Put yourself in the customer's position — they're in this industry because they care about making a difference. So if you can capture patient stories, it can move people. I'll give you an example: a company in my portfolio called Groups Recover Together, which I invested in at the Series A about seven or eight years ago. It's now a very sizable company — a tech-enabled, value-based care service for helping people who suffer from opioid addiction actually overcome it, or at least not use opiates or heroin anymore.

The company opens every single board meeting with a patient story — this is just one example, not that you have to, whether it's your VCs or board members or ultimate stakeholders. And it's just... I cry, honestly. These are people whose lives have been disrupted — they might have separated from their children or their spouse, lost their job — and they talk about how Groups has changed their lives. They started doing this several years back; the founder has always been very tied to the mission. And I was just like, we should do that every board meeting, because it's a reminder to us and to the employees of what we do here.

By the way, they partner with large payers, and one of the largest payers in our country actually took some of those stories — the ones they'd used for employees and board meetings — and put them in a national commercial. They cobbled together these stories because they were so impactful about how Groups had changed these patients' lives. It was only a handful of patients being profiled, but it was a real reminder. Groups does it in a value-based, humane way — very different from some of the pill mills you hear about that don't care for opiate patients very well. That narrative and storytelling captured the difference between how Groups operates and how some of their competitors operate in the space. It's paid dividends — making it humane with employees; with investors, it made me tear up and proud to be a supporter and continue investing in the company; and with huge national payers who've used it in a national ad. So that's one example of how to tell the story well.

For all those ones I'm lucky to be part of — and we could name a bunch of companies that have turned out well — I have missed a lot of spaces too. There are companies where I'm like, oh shoot, that was so obvious, I should have done that. That exists in our business a lot. But yes, I do feel like I've gone early to things, and I think that's where all the alpha is created in venture. I've been in this for 20 years, and even when I started it wasn't a cottage industry — but now it's grown into a huge industry. Once anything gets any sniff of signal or growth, prices go through the roof, because there's more capital, and there's more demand for good companies than there are good companies.

I'm just not the world's greatest growth investor — there are some amazing momentum growth investors, and Bessemer does growth, but that's not me. I think the way you get true alpha is to get to spaces early, when they're not consensus. That's what I've tried to do, and I've grown more comfortable doing it.

How do I do that? I read a lot. I talk to a lot of people — entrepreneurs, academics, health system leaders, people I respect, people who are really forward-thinking, avant-garde — and I really push them: when I hear something weird, tell me more about that. I try to think about what the world's going to look like in 10 years, or 5 years — with AI, things are changing so fast — but I try not to be constrained by what is today, because there are lots of reasons it's really easy to say no in venture. I want to make sure that if we say no, we're not being limited by the current constraints of how the world works, but thinking about how it might be able to work. My biggest misses are the ones where I didn't look beyond the current state.

One thing I don't do — and please don't take this as me shitting on venture capitalists, because some of my best relationships in our industry are fellow VCs and I have amazing friendships there — is look to other VCs for what I should be thinking about. I read Primack and Term Sheet, or whatever — Pro Rata now — but it's not like, oh shoot, I missed that deal that a million other VCs looked at. You can get lucky and do it that way, but that's just not the game I play. I also probably go to fewer conferences as a result nowadays. I used to feel like I had to be there — FOMO — and I'll still go if there's an interesting topic, but I'd rather go to more weird conferences, honestly, like random RCM-focused conferences back in the day. I like industry-specific conferences a lot — they're not at the fancy places, they tend to be at, like, the Westin ballroom — because that's where you get subject matter expertise.

Never making rash decisions, and taking the time to process. Some VCs just have a faster clock speed, I think. I have a decent clock speed, but they can regurgitate an amazing answer in real time that's cogent and thoughtful and data-supported. That's not me — often I'm verbose. If I want to make a big decision, I want to really think about it. Maybe it has to do with the journalism, or putting stuff down on paper — often I'll write out the pros and cons. Taking my time to make a decision has really benefited me. That's investments, that's feedback, a bunch of things we've talked about — but I like to take my time. I'm not a great momentum investor, so I'm going to do my work, and I'm going to do it thoroughly.

And by the way, in this job — as with entrepreneurs, there's no clear answer, no right answer at the early stage — I want to do the work to make sure I'm being thoughtful about what we're doing. So if I feel rushed, I'll generally say, okay, timing didn't work out for us on this one. I'd love to work with you, I'm super compelled by you as an entrepreneur, but I want to feel comfortable — because it's a long marriage. You want to start on comfortable footing. There are lots of ups and downs along the way, but that to me is important.

And I want to feel like, listen, you and I can be different as partners — hopefully we are, by the way, because that's how one plus one equals three — but I want to feel like we respect each other, and that we're going to have fun working together. I'm not talking about yuck-yuck-haha, belly laughs — but we're going to have fun working together, because hopefully we're going to have a lot of success in many different dimensions. I only invest in one or two companies a year, so I want to have fun with the people I work with. That can mean a lot of different things — lots of different personalities I've worked with — but I don't want to not have fun along the way.