You’ve Got to Pick a Pocket or Two: WV’s Assessment of Healthcare Customers

Just as it was proclaimed in Oliver Twist, healthcare entrepreneurs have learned that “Large Amounts [of Momey] Don’t Grow on Trees”

The Four Pockets

As mentioned before, we see the connected health landscape as being comprised of four major pockets, or buyer groups:

  • Providers: This is perhaps the most obvious group of players in the healthcare ecosystem. Providers, simply put, provide care. They can be individuals (such as your family doctor), groups (such as your local hospital), ancillary service providers (such as your dentist, physical therapist, or nutritionist) or tech-enabled players (such as Nurx or Teladoc).
  • Payors: These are the folks that pick up the bill for care. The largest group in this category are health insurance companies, which can further be divided into commercial insurance and government-sponsored medicaid and medicare. As in the provider bucket, there are ancillary-focused players in the payor category as well such as dental insurers, life insurers, and pharmacy benefits managers. There’s also a large number of employers who self-insure in the U.S. For the purposes of this exercise, we’ll look at all these groups collectively as payors.
  • Patients: These are the individuals receiving the care. Upon first glance it may seem like patients don’t pay for healthcare directly (unless they’re uninsured), but in many instances they do. This can range from wellness services (e.g. physical therapist visits) and elective treatments (e.g. fertility, cosmetic) that are not covered by health plans to co-pays that patients need to cover for physician visits. Over the past few years, patients have become an increasingly large healthcare buying group in the U.S. as high deductible health plans have risen in popularity among employers.
  • Pharma: These are the innovators in healthcare working on new technologies and treatments. The players that immediately come to mind here are big pharmaceutical companies (e.g. Pfizer or Roche) and biotechnology businesses (e.g. Moderna or Alexion). In addition, there are many other types of life sciences organizations such as medical device manufacturers (e.g. Medtronic or Abbott), and services companies that help bring new innovations to market through regulatory approvals (e.g. IQVIA or PPD).

Comparing the Pockets

To begin comparing these four pockets, we took a look at all the different businesses models we’ve mapped out in healthcare and classified them into the “bucket” they aligned closest with. Any bucket that consisted of a type of healthcare provider (e.g. telehealth) or a product that primarily serves healthcare providers (e.g. electronic health records) was classified as provider. The same philosophy held true when categorizing the pharma and payors buckets. Companies building products that are typically direct to patient (e.g. Zocdoc, 23andMe, Noom) were classified as patient.

So, What Does that Mean for Us as Investors?

While we weren’t surprised to see these categories stack up in this way, this exercise was helpful in pinpointing why we are excited about startups that target pharma and payors as customers. These startups are particularly well-positioned to get their products to market quickly, have favorable selling economics, and benefit from outsized growth. That being said, we’re active investors in companies that address each of the four Ps of healthcare and are big believers that with the right product and go-to-market strategy, you can build massive businesses in all of these “pockets”.

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Wittington Ventures

Wittington Ventures

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Venture capital firm in search of disruptive innovations in food, commerce, and healthcare