Chicago-based early-stage venture capital firm Distributed Ventures, born out of NFP Ventures, announced it closed $100 million in total commitments last month, which it plans to use to invest in insurtech, fintech and digital health.
Shawn Ellis, managing partner at Distributed Ventures, joined MobiHealthNews to discuss how the company is uniquely positioned to cultivate growth in the digital health space through investment.
MobiHealthNews: How will you use the funds to help the digital health community?
Shawn Ellis: We’re a fund that is focused on what we call the future of risk. That encompasses a few different sorts of subverticals. And our view of the market and opportunities within the market is really shaped by some of our strategic LPs [limited partners] that represent commercial insurance perspectives, spanning a couple of different contexts–employer benefits, consulting, life insurance distribution, and then some financial services that overlap with kind of the financial health dimension of digital health that’s really come in vogue over the last couple of years.
So our fund will look at anything in digital health or distributable benefits in an enterprise channel, insurtech and fintech. And often, those opportunities span multiple verticals. So we’re looking at things at the intersection of any cost curve, risk curve, healthcare navigation, disease management and opportunity that can positively affect cost, patient or health consumer experience, or ultimately alleviate some of the burden for the risk-bearing entity in any of those contexts. We play quite early. So we’re a seed and Series A-focused fund.
MHN: What do you have to offer digital health companies that other venture funds can’t deliver them?
Ellis: It’s a special combination of number one, having direct connectivity to that subject matter expertise that’s really representing the frontline view from the market. So we can help, first of all, identify opportunities that are sort of prime for disruption in the market. Often in early-stage ventures, there’s a question of market timing. It might be a great solution, but you may be a few years out before the markets are really ready to absorb that type of innovation.
Then number two, we work super closely with our LP base in our portfolio companies to catalyze the commercial momentum early days of these companies. So often, our diligence process encompasses not only evaluating the merit of the product, the market opportunity, the founders, but then also really thinking through how can we help materially accelerate the momentum of these companies, day one after the check goes in. And so that support is really strong and ongoing to the degree where we have kind of like an LP forum that these companies can plug into so they have kind of one exchange where they can find all kinds of opportunities that they can plug their early stage solutions into. So that’s commercial momentum, that’s feedback on pricing, that’s thinking about how you can bundle some of these solutions with insurance products.
A big part of our DNA as a capital partner is having an operating perspective in an early-stage, venture-backed context. My partner, Adam Blumencranz, who sits in New York, comes from a multigenerational insurance brokerage business that he was a part of and had been in his family for, he was the fourth generation. So he’s got deep operational chops and knows the insurance markets incredibly well.
MHN: Digital health funding this year and late last year has lessened. What is it about the digital health sector that makes you excited?
Ellis: You have these moments in time that have really been step changes in kind of the market receptivity to these types of innovations. So you had regulatory evolution around EMR technology, and the most recent, I think, is still kind of the COVID catalyst for change, which has really catapulted the appetite for digital or hybrid solutions in the broader digital health sphere, whether you’re talking about working with providers, working with payers, working with individual consumers. So, I think there’s a great opportunity where the market is sort of more receptive to these types of solutions than they had been in 2018/2019, kind of proceeding COVID.
I think the market, over the last year and a half, I would say, really since the beginning of 2022 when the market slowed down a lot from the fundraising vantage point, it’s just created an opportunity where I think founders and investors are now able to be more constructive in the way they’re working together to build companies. I think that period from 2018, say, to 2021, was a very frothy market. The access to capital was high. I think it was a hard conversation a lot of times for founders and their capital partners to think about, how much are we trying to grab share in the market versus really focusing on unit economics and thinking about how we build the foundation for really scalable, durable business in the long term. And so I think the last 18 months have been a lot harder for early-stage founders to raise capital, but I think you’re going to see a class of companies coming out of this period that are incredibly resilient and have a huge impact on the market. So those are the things that really excite us about this moment in time in digital health.