General Catalyst Doubles Down On Healthcare With $600 Million New Fund
With the pandemic thrusting healthcare technology companies into the forefront over the past year, one of venture capital’s largest firms is launching a large fund to invest even more in innovation in the red-hot sector.
General Catalyst has raised $600 million for a new Health Assurance Fund, the firm says, its first vertical-focused vehicle and one that looks to build on recent success like Livongo, the diabetes monitoring company that was acquired by Teladoc in a $18.5 billion deal that closed last October.
Led by Hemant Taneja, now the firm’s sole managing partner, the new health-focused fund will invest in early-stage and growth-stage healthcare businesses while providing upside to hospital systems and healthcare providers who have joined as limited partners in the fund. (General Catalyst declined to name those investors, but one hospital system with which it’s previously partnered is Philadelphia-based Jefferson Health.)
In an interview, Taneja told Forbes that the momentum of health tech companies over the past year accelerated a thesis his firm first started to put together in the summer of 2019 to spend more time in the category. “What we thought was going to happen in 10 years was going to get pulled in even faster,” Taneja said. Meanwhile, the healthcare institutions with which Taneja and his collaborators were partnering on new companies started expressing interest in seeing some of the VC firm’s upside for themselves. “These health systems started to say, ‘hey, we love the radical collaboration between us, but we’d love to also make sure we participate in that upside that we’re creating together,’” he added.
The new fund comes as part of a busy few months of expansion for General Catalyst, the firm founded in 2000 that has more than $8 billion in assets and raised $2.3 billion in funds as recently as last year. General Catalyst has also worked on three special purpose acquisition companies, or SPACs, recently, including a $500 million healthcare SPAC and a $500 million one focused on the intersection of pharmaceuticals and digital health. And Taneja recently teamed up with Glen Tullman, the former CEO of Livongo, on a new employer-sponsored care startup, Transcarent, that launched with $40 million in funding in March.
Taneja, who ranked No. 31 on the Midas List of top venture capitalists last year, says he’s spending about half his time in healthcare, the other half still involved with consumer and fintech companies, where he’s a past investor in social media app Snap and a board director at $95 billion-valued Stripe. Joining Taneja in the healthcare fund is Chris Bischoff, a healthcare investor based in London who joined General Catalyst from Kinnevik AB in February. (Bischoff had co-invested with General Catalyst before, in Livongo and primary care business Cityblock, which recently raised $192 million.)
General Catalyst’s goal, Taneja says, is flexibility — both incubated companies and early-stage ones, as well as growth-stage investments like Cityblock. The firm plans to stay grounded — and avoid over-extending itself — by working closely with healthcare professionals and partners in its ventures, he adds, such as Tullman at Transcarent, or Arch Venture Partners managing director Robert Nelsen, another Midas Lister and pharmaceuticals expert, with whom the firm partnered on its second SPAC. The firm also announced its first three members of a partner-in-residence program to help with those efforts, tapping three women leaders in the field: Margo Georgiadis, formerly CEO of Ancestry; Jennifer Schneider, formerly president of Livongo; and Robin Washington, formerly CFO of Gilead.
Given a broader recent craze for SPACs and the bumper crop of billion-dollar funds looking to deploy money into private-market companies, it would be easy to see General Catalyst’s expansion as one as much driven by easy access to capital — essentially an argument of, why not? But Taneja insists that unlike nosebleed valuations among enterprise software companies today, commerce apps or certain voice-based chat apps, healthcare can sustain a larger influx of dollars long-term.
“I think healthcare is in this three, four or five year period of massive transformation, for 20% of the GDP,” Taneja says. “That is very different from what’s happening where a software company recently with less than $100 million in revenue and growing 50% raises capital at a $5 billion valuation. That’s just investors predicting it keeps growing to at some point create a return.”
The new healthcare fund will co-invest with General Catalyst’s flagship funds in appropriate opportunities, the firm says, meaning limited partners in those funds won’t necessarily be shut out of deals in the sector, which made up 20% of commitments from its last fund.
Taneja insists that the fund neatly fits his firm’s broader societal goals: “It’s very consistent with the firm’s focus on trying to do great work at the intersection of impact and returns, creating great companies that are fundamentally in the long-term interests of society,” he says. “What better sector to go do that than healthcare?”
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