Amount vs. velocity

I had the pleasure yesterday to meet Jerry Engel, an investor and business school professor from San Francisco. He gave an informal speech to some investors here in Barcelona.

Two things that really surprised me...

First one, everybody complains about the lack of money for early stage initiatives... well, he reckoned more money is always better than less money, but he said as well that at the end of the day, money's velocity is even more important than the amount of it to foster innovation and entrepreneurship. The administration should really take note of this.

Second, when asked about the "anticyclical" nature of venture capital (we know crisis will hit hard at some point), he saw VCs more off-cycle than anti-cycle, and he admitted the new postcrisis environment will call for a change in the rules of the game. He recommended specialization in interesting sectors (healthcare being one of his favourite picks), and investing with high global standards while keeping a local focus, as the keys for future success.

Amazing comments.

A new generation of healthcare services is on its way

The full-service, general hospital is evolving to a new conception. The growing clinical complexity, the need of performance transparency to evaluate quality, the rising costs and the increasing competition are questioning the old paradigm that any hospital could excel across a broad spectrum of clinical service lines.

Most private hospitals have nowadays shrinking profit margins, and they are focusing on analyzing cost-accounting data to determine the profitability of patients and the different procedures they offer. This analysis is uncovering very profitable margins in certain activities, while pointing at other activities that are a clear loss to the center.

This is why new healthcare services, including specialty hospitals and outpatient centers with low-cost structures, limited complexity, and focused, high-quality service are emerging. Competitors like these are raising the performance bar for general acute-care hospitals.

Well, the old paradigm says “all volume is good volume”… and this is clearly nonsense from an economical point of view. When a hospital understands where its true profitability and expertise lies, it can be focused to generate value while cross-selling other hospital services to current patients.

Of course, there will always be procedures that are necessary while being not profitable, so, some procedures should continue operating at some level to help hospitals meet basic community needs and cover fixed costs. But my point is, in the private space we will see more and more specialization to achieve better efficiency. A new generation of healthcare services is on its way.

Philantropy and VC

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Philantropy plays an increasingly important role in promoting innovation in healthcare. Every year larger quantities of money are invested in philantropic projects around healthcare, usually in projets needing large amounts of cash.

These philantropic contributions generate as a byproduct numerous innovations and smaller projects, that finally end up generating spin-offs and new start-ups. Venture capital invests in some of them and they eventually become large companies operating in the healthcare space.

So, the value chain is clear, but there's still one extra step that could "close" the circle... can philantropy become an investor in VC funds?

I've always said that social entrepreneurship should not generate causes, but real businesses, because that's precisely the way to help society, by generating value and growing while having a "doing good" mindset deeply engrained into the start-up values.

We will see more going on in this space.

94%

Just a very quick thought today...

94% of life sciences companies (biotech, diagnostics, medical devices) start in hospitals or academia... So, no "garages" in healthcare entrepreneurship.

When will hospital managers realise the immense potential they have inside their institutions?