Your Hospital, the Entrepreneur
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Stead concedes there are a limited number of medical center teams that understand entrepreneurial people well enough to know how to lead them. "Harry Jacobson [MD, vice chancellor for health affairs at Vanderbilt University] has been a very successful entrepreneur himself and does know how to nurture that kind of endeavor. If you look at academic tech transfer, you'll discover that there have been very few big successes, like Gatorade [developed at the University of Florida in the 1960s]." In most cases, Stead says, such successes often result from the sheer popularity of the product, not the organization's effectiveness in managing the program. "At Vandy, to get the kind of acceleration and breakthroughs in workable healthcare, we have to fundamentally change the relationship between academia and industry that makes each component inside the other rather than silos. We're struggling through that with key partners."
As for Vanderbilt's experiment with the venture fund, "there have been discussions about creating more than a one-shot deal," Stead says. "But I'm not aware of any commitment to do more of that."
Bull's-Eye for Private Equity
Targets for healthcare private equity investing are early, middle and late-stage companies engaged in providing services or products that will have a positive impact on hospital or health system operations, cost structures and quality of care. Targets will exhibit the following characteristics:
- A breakthrough product or service; a marketplace innovation
- Sustainable, differentiating advantage of the service or product over competitors
- A significant gap between value delivered by existing products and services and the needs of targeted users
- Addressable market of substantial size (hundreds of millions of dollars in potential sales, if not $1 billion or more)
- Compelling benefit sufficient to influence hospitals (especially the investing hospital or some of its facilities) to adopt
- Potential for important purchase or operating relationship with the hospital or health system investor
- Suitable for hospital or health system to be a beta test site
- Management team depth, experience and capability to achieve success
- Foreseeable liquidity or exit event in three to five years with a three times or greater return
Source: Strategies in Capital Finance. Next Generation Solutions: The Case for Strategic Health Care Investing.
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