Venture capital firm Echo Health Ventures’ recent move into Tennessee is closely related to the state’s centre as a healthcare hub as well as the addition of health insurer BlueCross BlueShield of Tennessee to its partners, the firm told Global Venturing.
The firm was formed in 2016 by health insurance provider Blue Cross and Blue Shield of North Carolina’s Mosaic Health Solutions subsidiary and healthcare provider Cambia Health, to invest in the early and growth-stage healthcare ecosystem.
The core partners were joined by BlueCross BlueShield of Arkansas’ USAble affiliate in early 2021, and by BlueCross BlueShield of Tennessee in February this year, growing the model into a more expansive engine called Echo Innovation Alliance.
Although they are not equity partners, the two new members have contributed capital and Echo now manages an amount in the high nine figures, CEO Rob Coppedge told Global Venturing. BlueCross BlueShield of Tennessee’s commitment spurred the launch of an office in Nashville, Tennessee and the hiring of Hayley Hovious, formerly president of the Nashville Health Care Council, to lead the firm’s activities there as its newest principal.
Although best known for its music and whiskey, Tennessee is a thriving hub for healthcare due to the establishment of health system HCA Healthcare in the late 1960’s and its subsequent spinoffs, Hovious said.
“The music industry that we are so known for is really about a $10bn economic impact on a yearly basis, whereas healthcare is actually a $67bn economic impact to the city,” she added.
“Tech enabled services have become larger and larger, and we are seeing more and more tech companies and platform companies, most of which really draw on that long history that Nashville has in terms of service delivery, and in patient care and outcome-based ways of looking at things. That is kind of where we are now.
“Nashville is home to about 18 publicly traded companies – that number changes all the time because companies go public and private – but what we are seeing more and more of are those startup companies that go on to sell. It is a huge number; I think the number is actually one in four jobs in this [metropolitan statistical area] that are supported by the healthcare industry.”
Coppedge added: “Even if we had not formed an alliance with the Tennessee Blue Cross Blue Shield plan, we would still be targeting Nashville.
“For us, it is a really important market to be in. Not only have we added to our alliance by bringing the Tennessee BlueCross BlueShield plan into our family, but also by deepening our investment sourcing activities and network in that state, and especially in that city.”
The entry of two more Blue Cross Blue Shield insurance providers into Echo Innovation Alliance brings more strategic heft, and Coppedge said over 80% of the firm’s portfolio companies are working with one of the partners. It is also an interesting contrast to Blue Venture Fund, the VC firm backed by 35 Blue Cross Blue Shield insurers, which is a key Echo ally, he added.
“They have built a really great business working across some 30 Blues plans,” Coppedge said. “And their model has insight from across the system, looking very broadly. We go very deep and that is why we are complementary. We do not aspire to have 30-something Blues plans, we are looking to work very deeply with a small handful of plans where we are basically a box on their org chart.
“That allows us, with the way our team is built, to embed resources back inside our Blues plan partners, both to get better signal on what is important to them and also to help our portfolio companies and those plans navigate the relationships that will actually bring that innovation to scale.
“It is very hard to do when you are an outside party. Even an affiliated fund like Blue Venture Fund is focused more on getting insight across the system versus the depth that we have. So, when we work together, it is very complementary.”
Recent fluctuations in valuations for tech companies have raised concerns, leading some to fear a potential recession or simply to reflect that the gains made during the coronavirus pandemic and its attendant lockdowns could be fragile or even illusory. Healthcare has experienced more growth than almost any other sector in the past two years, but Echo does not foresee it suffering that fate.
“There are so many new funds being raised and so much capital overhang now,” Coppedge said, adding that while capital markets are experiencing issues, the extensive capitalisation of the private markets and the need for healthcare technology means companies with quality technology or business models will still get a lot of interest from a wide range of investors.
“And I think valuations may not drop as perilously as we could have expected as we entered into this period a few months ago,” he added. “We have always been valuation-sensitive and watchful about this, we have always lived through multiple cycles in the healthcare space. We know this is hard work but we think our model holds up really well and perhaps advantages us greatly in a down market.”
“We are investing in companies that are relevant to the long-term strategies of these very important market makers in the Blues, those are focused on increasing access to care, decreasing cost and increasing quality. Those trends are going to be important no matter what happens. We are investing for the long haul – we know companies that do [those things] well, with good management teams, have big market opportunities that will continue to appreciate.”
Echo is actually expecting what Coppedge referred to as a busy execution year, particularly in the second half of 2022, but it has no current plans to add new partners to the group or to open more offices, partly because new modes of working make geographic expansion less urgent. It also plans to be vocal about the societal impact of its work and not just the financial returns.
“A model like this one is very intensive and very integrated,” he said. “We have been in business as Echo Health Ventures for five and a half years.
“Most of that time has been working with two plans, we have added these other two over the past year and a half. Our focus right now is on integrating these plans, standing up the strategic value that we know we can drive with their partnership, and navigating this interesting time in the market.”
Photos courtesy of Echo Health Ventures LLC.
