Flare Capital Partners has closed a second health tech investment fund totaling $255 million, a $55 million bump over its original target of $200 million due to interest from new strategic and financial investors, the venture capital firm announced today.
“The logic for the size of the fund was really important,” Michael Greeley, general partner at Flare Capital Partners, told MobiHealthNews. “We want to be a life cycle investor. We want to be the partner of choice all the way through their journey, but you don’t want to be so large that you over-invest. So being constrained is important, but so is being large enough to be life cycle. We really do like the size of the fund, and we think that drives the best in performance.”
According to the firm, the Flare Capital Partners II fund will generally follow in the footsteps of its predecessor, raised in April 2015, in terms of its focus on technology that either drives value-based healthcare, incorporates mobile, leverages big data analytics or promotes secure infrastructure.
“Most investors don’t like strategy drift. So, the fund size is slightly larger but the strategy is unchanged — my guess is a company in the last fund could easily be in the new fund, and vice versa,” Greeley said. “Around us the market has become more compelling, and so we just feel like there’s continued validation of the strategy, the approach and the importance of the sector.”
WHY IT MATTERS
Flare Capital Partners has been a prolific digital health investor over the past few years, having participated in funding rounds for Bright Health, Welltok, Aetion, higi and 13 others. A new fund from the firm will work over the next few years to support a new regiment of health tech startups looking to get off the ground, with Greeley teasing a kickoff investment announcement coming before the week’s end.
What’s more, the announcement also serves as another indication that investors are not quite buying the idea of a health tech investment bubble. For Greeley, the interest comes from two primary sources: the gargantuan size of the healthcare industry and the increasing maturity of digital health’s leading players.
“The last 15, 20 years we’ve seen other industries get reinvented — advertising, commerce, fintech. Advertising in the U.S. is $200 billion [and] healthcare is 15 times larger,” Greeley said. “So while I think it’s wise to wonder if there’s a capital absorption issue … we need to hold that up to the size of the sector and the amount spend. I don’t worry that there’s an absorption issue — clearly, there will be companies that aren’t successful — but I think what we’re seeing now with the companies that are going public is that they were created five, six, seven years ago, but now there’s enough evidence of these solutions [regarding] cost, revenue and outcomes.”
THE LARGER TREND
Greeley’s assessment is backed by the latest year-over-year digital health funding increases reported by MobiHealthNews, Rock Health (supported by Flare Capital Partners) and Mercom Capital Group, as well as a slate of new IPOs from high-profile health tech startups. However, half a year earlier some industry observers were a bit worried that a lack of new exits might lead to a dip in new growth.
“With the surge in funding, and absence of an equally robust exit market, there is more scrutiny on digital health than ever before, begging the question: will value creation track with recent investment trends?” Rock Health wrote at the time. “With today’s high but as-yet-unrealized expectations, we aren’t surprised to see the b-word increasingly pop up in conversations.”
In the months since, many investors have pushed back against the notion that digital health’s potential is being overblown.
"I don’t think it’s going to be a bubble in the same way you saw the dot-com bubble,” Wainwright Fishburn, Jr., founding partner of Cooley LLP’s San Diego office and global chair of the firm’s digital health group, said at BIO in Philadelphia last month. “We’ve [seen] a lot of money go in, we’ve seen a lot of exits, and there’s a lot of duplication in sectors, but I think it’s just a natural tapering off. … This is a sector that is still very hungry for solutions and there’s so much money flowing through.”
ON THE RECORD
“We are delighted to continue to partner with the firm as it further scales and successfully invests in a number of innovative healthcare companies,” Phil Rotner, chief investment officer at Boston Children’s Hospital, said in a statement. “We are at an incredibly interesting and profound inflection point in healthcare and value Flare Capital’s dedicated approach to backing world-class healthcare technology entrepreneurs. It is clear to us that such an approach should add significant value.”