Define Ventures has raised $460 million across two funds to invest in early-stage digital health startups. The move comes as the venture capital industry has been grappling with the fallout from the Silicon Valley Bank collapse, inflation and an overall retrenchment in deal volume and size. “We always believe that in difficult times like these, this is when great companies continue to be born,” says Lynne Chou O’Keefe, founder and managing partner at Define Ventures. “Especially in healthcare, the fundamentals have not changed.”
The United States spends more than $4 trillion on healthcare each year and that number is only expected to grow. This funding, which brings Define’s total assets under management to around $800 million, will be deployed in two ways: Fund III will focus on early-stage investments from incubation through Series B in new companies and an Opportunities Fund will focus on growth investments in existing portfolio companies.
Since the firm’s founding in 2018, Define has operated on the notion that the “house of healthcare is being rebuilt,” says Chou O’Keefe. The key is to bring “the best of Silicon Valley,” meaning user experience and engagement technology, and apply it to healthcare.“We're really interested in where enterprise models converge with consumer learnings,” she says.
Sometimes this takes the form of investments in companies that start as direct-to-consumer plays filling unmet healthcare needs for specific patient populations, such as women’s health startup Tia and LGBTQ health startup Folx Health. Over time, these companies take what they’ve learned about providing a better patient experience and shift to enterprise models selling into employers or partnering with health systems in order to scale.
Other investments, such as Unite Us, have always operated on an enterprise model of selling software into hospitals and health insurers, but the overarching goal is to reduce friction for patients. In the case of Unite Us, the software ultimately helps people on Medicaid, the government-funded health insurance program for low-income Americans get better access to health and other social services. “That is absolutely the art and the science of digital health — understanding the go-to-market approach, both in enterprise and consumer,” says Chou O’Keefe.
She says Define started talking with its limited partners about raising a new fund in the second quarter of 2022, which was around the time venture deal values started to drop off. Digital health venture investment hit a peak of $15.6 billion across nearly 450 deals in 2021, according to PitchBook data. That was an outlier compared to the $7 billion in deal activity in both 2020 and 2022. Chou O’Keefe says she believes it’s a reversion to “normal fundamentals,” as the heady days of $40 million Series A raises will get back down to the $10 to $15 million range.
Still, as the PitchBook data suggests, exit activity remains significantly down. In 2022, there was $200 million in exit value compared to $11 billion in 2021. Chou O’Keefe says the IPO markets will open back up and she’s optimistic about the healthcare mergers and acquisitions activity from the technology players, such as Microsoft, Amazon and Google, and retailers, such as CVS, Walmart and Best Buy, since it signals they’re focusing on the healthcare industry for growth. Despite the market tumult, O’Keefe is excited about what the future holds: “We have a very differentiated view and bold vision of the healthcare system and how it will evolve.”
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