How far can technology help alleviate the staffing crisis in the US healthcare system? This is the question that Ensemble Innovation Ventures, the investment arm of dental insurance group Delta Dental, is trying to work out as it invests in startups making software for both the back office and the patient-facing side of medicine.
There aren’t many dental companies with corporate venturing arms, but Delta Dental, whose member companies provide cover for an estimated 85 million people in the US, is on the sharp end of seeing the shortfall in medical professionals.
“This shortage in physicians in the United States isn’t going anywhere anytime soon. We’re seeing a similar shortage in physician assistants and nurse practitioners,” says Brian Armstrong, executive director of Ensemble Innovation Ventures. “What are we going to do to solve that?”
A number of factors are contributing to the problem. An ageing population is retiring from the profession – with the Association of American Medical Colleges estimating some 20% of clinical physicians being 65 or older – as well as high rates of burnout at every level of the healthcare system, not enough residency slots, climbing costs of medical school are just some of the reasons that the supply of doctors is being choked.
This matters for health insurers like Delta Dental. Margins are tightening in the healthcare market year by year, as labour and supply costs have both shot up.
“From a macro perspective, we’re seeing thinner margins in health systems. During Covid, margins went up, and post-Covid, margins have really come down. There are very few health systems that are immune to this reality,” says Armstrong.
So Ensemble Innovation Ventures is investing in a number of software companies that could help the healthcare sector do more with less.
“We know that health systems are going to have to deliver better care with smaller resourcing realities in the future,” says Armstrong.
“We’ve got to come up with solutions that directly address this challenge. So as venture investors, we’re looking at solutions on the back-office side that really do acknowledge this reality and enable health systems to do more with less.”
Some of the startups the Ensemble team have backed have solutions that make back-office duties easier. For example Denver-based Credo, which the team invested in in 2022, simplifies the process of medical record retrieval, while Luminate Health, a San Francisco-based startup, gives patients better access to their lab results. Basil Systems, an investment Ensemble made a couple of years ago, helps medical companies commercialise technology through advanced data analysis.
At the same time, on the other end, the investment team is looking for startups with ways to close gaps in patient care. Videa Health, for example, is a portfolio company that improves the diagnostic accuracy of X-rays, while Aila Health – part of the unit’s first batch of investments two years ago – uses data analytics to make better health decisions.
A bigger role for smaller funds
Ensemble Innovation Ventures is a relatively small fund. While it’s exact size is undisclosed, it writes cheques of roughly $1m per investment. In many ways, says Armstrong, small and medium-sized are an indispensable part of the ecosystem. That may not be enough for single-handedly reforming the US healthcare system, but, says Armstrong, small funds can still be a important part of the startup ecosystem.
“I’m so thrilled to see over the last 15 years – maybe even more specifically, the last 10 years – the growth rates in medium-sized corporate venture funds,” he says. In fact, according to GCV’s 2024 Keystone survey, most CVC funds are small and medium-sized, with less than $100m in capital.
These smaller investment vehicles can do things that larger funds may struggle to.
“Our sized corporate fund does a couple of things that are unique,” says Armstrong “When we come in as a small or corporate fund, we immediately are able to disarm both founders and other investor from the false perception that we might be really investing only to acquire.”
While acquisitions aren’t necessarily a bad outcome, he explains, highly acquisitive investors do make other stakeholders perceive conflicts of interest.
The structure of smaller funds also tends to give them more flexibility to start earlier than the bigger ones, bringing corporate backing to younger startups which could benefit from the value-add. In the face of the challenges the healthcare system is facing, he says, it is critical to innovation to have an ecosystem of smaller funds willing and able to take more commercialisation risk.
“By the time an early-stage company has really shown that their solution is commercialised, some of that innovation risk has diminished and so a lot of larger funds, by virtue of their structure, that’s when they come in.”
Also, smaller funds are like smaller companies – they can move quicker and easier through their space.
“All else equal, our teams and processes are probably more streamlined, both on a calendar basis and in terms of the number of interfaces we have to move through just to get to a decision,” says Armstrong.
“We can be a little bit faster, a little bit more nimble.”
