Iora Health – Bird in Flight

Yesterday Iora Health announced the close of a $100 million growth financing. We are thrilled to be an investor in what is emerging to be the leading company in the value-based primary care space. Iora is focused on Medicare patients over 65 years of age, managing over two dozen practices nationally. The care model is incredibly compelling as it focuses on an array of both clinical and social relationships with the members. Typical care teams are comprised of a primary care provider, health coaches, behavioral health specialists, nurses, clinical team managers and operations assistants, all collaborating to care for the whole person. Iora Health’s patients experience a 40% decrease in hospitalizations and a 20% decrease in ER visits.

Arguably the US healthcare system is at a point of inflection. Yup. We have heard that many times before. But wait – this now feels different. CVS buying Aetna, Cigna combining with Express Scripts, Amazon/Berkshire/JP Morgan “alliance” (is that the right word?), Roche’s $2 billion acquisition of Flatiron Health, Humana’s acquisitions of Kindred and Curo, Apple getting back into healthcare, etc. Domestically, more is spent on healthcare than in all other countries, and despite that, Americans are experiencing consistently worse outcomes. More innovation is needed and yet it is impossible to get away from the fact that great healthcare is still very much a human-to-human interaction.

Interestingly, with each substantive change to the regulatory landscape, the venture capital industry responded. Once the ACA was introduced at the beginning of this decade, VCs invested between $1 – $2 billion in the healthcare technology sector. With Obama’s re-election and the Supreme Court rulings reaffirming the status of the ACA in 2014, there was a step-function increase in the amount of capital invested annually to between $4 – $5 billion. With greater clarity now (after a turbulent 2017), the VC industry appears to be on a $6 – $7 billion annual pace.

Inflection Point JPEG.jpg

One must always be careful not to generalize, but hallmarks of robust financings in the healthcare technology sector tend to include a company’s ability to lower costs in the near-term as well as generating meaningful clinical impact on outcomes in the medium-term. Driving revenues is always welcomed but great financing success stories need to without ambiguity and with full attribution knock down the first two elements: lower costs, improve health. Iora does both – without debate.

Impact can be realized along two broad dimensions: clinical and social. Some healthcare technology companies offer significant social impact with uncertain and/or unproven clinical impact (many of the B2C healthcare apps). Other companies have significant clinical impact with limited social impact (biotech and therapeutic companies). Iora is focused on both. When evaluating companies, this is an important framework against which to map opportunities. Obviously, high impact on both the clinical and social dimensions is the aspirational quadrant to be in.

There are a handful of other elements to the Iora financing which proved helpful.

  • Team: While somewhat obligatory (of course, all VCs try to back great teams), the team Rushika Fernandopulle (Co-Founder and CEO) has assembled is world-class, has worked together for years, is mission-driven and clearly can scale the company. And has not been afraid to iterate the model.
  • Role of Strategic Partners: Such a collaborative care model relies on the strength and engagement of strategic partners; in this case, the company’s insurance partners have been particularly powerful. Healthcare is a complex beast and demands a level of collaboration unseen in other industries. Assembling aligned partners is critical, and in this case, has been very differentiated in the market. In this environment, client – vendor models don’t work as well as collaborative aligned models.
  • Compelling Economic Model: Management developed an ever-improving member acquisition model, underscoring the attractive member and practice economics. The cost of the clinical care model is well understood.
  • Syndicate Strength: All investors participated in subsequent rounds, underscoring the value of having knowledgeable and well-heeled investors even in early rounds, who can support the later stage financings.
  • Broader Context: In addition to the inflection point in healthcare discussed above, there are also other emerging contextual themes which strengthened the Iora narrative. Consumerization of healthcare and the convergence of health and wealth management are all part of the broader storyline that the team was able to tell, suggesting an even larger market opportunity.
  • Cool Company Name: Ioras are a small family of four passerine bird species found in Southeast Asia, notable for their beautiful plumage and the fact that three of their toes point forward, one points backward. More interestingly perhaps, ioras have unusually thin and proportionally longer bills. Hmmm. While having nothing to do with healthcare, it always made for an interesting conversation starter.

And while I am not yet a Medicare member, I do get my care from Iora…sort of like Sy Sperling’s Hair Club for Men moment – “I am not only on the Iora board, but I am also a client…”

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