Intermountain Ventures bridges the gap between the high-risk, fast-paced world of venture funding and the lower-risk environment of a clinical care organization.
"Innovation is the product of thinking differently and aspiring to be transformational," George Hamilton once wrote when he served as vice president for business development at Intermountain Healthcare. That philosophy is now reflected in the structure of Intermountain Ventures, which spun out of the innovation arm of the Salt Lake City–based health system in January.
The wholly owned LLC operates independently of the health system, yet seeks strategic investment opportunities to further Intermountain's mission and vision. By breaking outside of the traditional infrastructure and processes related to health system innovation investment funding, Hamilton says Intermountain Ventures hopes to accelerate innovation. The intention, he says, is to bridge the gap between the high-risk, fast-paced world of venture funding and the purposeful clinical care organization, which has a lower risk tolerance.
Hamilton is one of three managing directors and partners of Intermountain Ventures, which employs about a dozen people and is located in an Intermountain facility. The company controls a multimillion dollar fund that receives an allocation of capital from Intermountain Healthcare in an evergreen fund structure. The health system has made a seven-year commitment to the fund, something Hamilton says positions the company as a solid player in the investment community.
HealthLeaders spoke to Hamilton recently as part of our ongoing series about how different organizations and leaders approach innovation. This article is the first of a two-part series. This week, Hamilton talks about the unique structure of Intermountain Ventures and the advantages this provides. In the second part of this series, he shares what other health systems can learn from Intermountain's experience. Hamilton's comments have been lightly edited for brevity and clarity.
George Hamilton: I would characterize us as looking around corners that it's hard for the larger organization to look around. As a venture group, we interact very closely with the clinical programs and the leadership of Intermountain to identify what problems and challenges we have now and that we foresee. We then go out to the venture market and look for solutions to those [challenges].
Since we're in the venture landscape and we're highly connected with venture capital firms and private equity firms—the financial sector—we have a purview and a perspective that generally wouldn't be readily accessible to Intermountain as a clinical organization. We're exposed to an environment that's different from what a clinical provider organization would normally be a party to.
HL: What is your investment process?
Hamilton: We have a three-pronged approach:
- Evaluation. First, is the evaluation function where we identify a product or solution and bring it into Intermountain via a pilot to assess it on the ground in production and see if it produces value for Intermountain.
- Investment. Then we'll move into the investment phase where we follow the traditional venture model. We work very closely with other investment partners who may be considering investing in the current financing round. That process ends with a check being written to support [the company].
- Implementation. The implementation team then steps in and says, 'What can Intermountain [Ventures] bring to this company to help it realize its potential faster or in a less risky way?' These strategic support deliverables are ways that we could interact non-financially with these organizations to help them accelerate their growth.
These three functions—evaluation, investments, and implementation—are the secret sauce of our ventures program. It extends beyond what a traditional venture fund would do in that it continues to provide strategic support to help these organizations grow and thrive using the larger Intermountain system as the support vehicle to help generate this return.
HL: How is your approach different from what other health systems are doing?
Hamilton: There are a lot of health systems that are doing some form of corporate venturing. In a lot of cases they may have set aside some funds, but it's just the finance team looking at these [opportunities]. An interesting nuance that sets us apart structurally, is the fact that we've carved out a separate organization, structured it with its own legal entity, and developed a formal approach to investing. We're given a lot of flexibility and latitude to invest without going through some of the traditional corporate bureaucracy that is inherent in a health system. It makes us a little different. You don't see that much inside healthcare.
HL: Are other investors involved in the Intermountain Venture fund?
Hamilton: No, not right now. It's been completely capitalized by Intermountain and that serves a couple of purposes. One, it allows us to focus on Intermountain's problems and not be subjected to someone else's. It helps us maintain the purity of the mandate. Secondly, it helps us be more long-term–oriented. The typical venture model has a three- to six-year horizon before looking for a liquidity event. We're able to be more patient than the typical investor. We're in the long game here and recognize that given our model—where we like to try before we buy, which requires a pilot process—is more protracted. Years from now, however this model plays out, we may find that it changes, and we may look for partners, but for now the model is all Intermountain's money.
HL: Are there any other factors that distinguish your approach?
Hamilton: Intermountain as an organization, along with the board, and others have agreed to support this model for at least seven years with the capital that it would require to move forward. There's a reason for that. We don't want the market to think that a healthcare system is dabbling in this and if things get tough or if the market recedes or something, we'll just pull out. We're very committed to this and want to make a clear statement that this will be fully funded regardless of what else happens around the organization for at least the next seven years.
HL: While there are no other parties participating in the Intermountain Venture fund, you are not the sole investor in any of the companies in your recent portfolio. How are these investment syndicates developed?
[Editor's Note: Hamilton points out that in previous investments before Intermountain Ventures was formed, Intermountain Healthcare spun-off some companies in which it was the majority or sole investor.]
Hamilton: We're generally not the ones generating the syndicate. It tends to be the company [we're vetting] that's working on an investment round. At this point, we don't feel comfortable leading a round and being the sole investor in an opportunity. We like to work closely with other investment partners who may have more experience in the investment landscape. We'll be part of the overall syndicate that is forming the round of investing. … We partner with them so we can leverage their due diligence, perspective, and experience given how young we are. It helps us de-risk the investment. We vet [the other investors] as well to make sure we're all comfortable being partners on the cap table for the company. We [may also] talk to our friends at … other funds [to inform them about the opportunity], which helps generate buzz.
On the other side of this, these investment firms don't have clinical expertise. They may say, "If Intermountain is in, then we're in." It's kind of a serendipitous process to generate these teams that invest in any round.
HL: Do you ever invest in a company along with other health systems?
Hamilton: Before we formalized [Intermountain Ventures], we were involved in a couple of deals with Ascension Ventures. We've also looked at an opportunity where Dignity Health was a partner, and Providence Ventures has been as well.
HL: What are the advantages of partnering with other health systems on these investments?
Hamilton: If we collectively like something that's solving a problem that we share, and we each adopt it, it helps the company and the solution scale much more quickly. [If multiple health systems] adopt the company's technology, you've made the market for that opportunity, and you've created a great solution for healthcare. Another advantage is that our problems are very similar. We [can learn from each other and ask], "How are you implementing this in your shop? What are you learning from the relationship with this portfolio company that we can maybe capitalize on in our own shop?"
HL: What investments has Intermountain Ventures made this year?
Hamilton: I think we've screened over 500 opportunities this year and have pulled the trigger on just a handful. It's a very active investment pipeline. The investments we have completed in 2019 include:
“We're given a lot of flexibility and latitude to invest without going through some of the traditional corporate bureaucracy that is inherent in a health system.”
George Hamilton, managing director and partner, Intermountain Ventures
Mandy Roth is the innovations editor at HealthLeaders.
Intermountain Ventures is set up as a separate legal entity from Intermountain Healthcare, yet it supports the health system's mission and vision.
The company has a longer-term view than typical venture capital firms, but is never the sole investor in an opportunity.
Solutions developed by investment targets must be first piloted at Intermountain.
Intermountain Healthcare has made a seven-year commitment to the multimillion-dollar fund.