Dramatic Capital Inflows Continue in 2Q17…Trouble Ahead?

In an environment of microscopic interest rates, it is particularly interesting to read the Preqin 2Q17 Quarterly Update which exhaustively tracks all things private equity and venture capital. At the end of June 2017 there were 1,998 funds in market raising a total of $676 billion – a staggering sum – indicative of global investors desperately looking for alpha. Admittedly, Softbank’s $100 billion Vision Fund skews the data somewhat but at the beginning of 2017, there were 1,834 managers raising $525 billion which were already all-time highs. In 2Q17 private equity funds raised nearly $121 billion across 206 funds; buyout funds accounted for $88 billion of the totals, which coincidentally was approximately how much was invested ($83 billion) in 1,001 buyout deals. This investment pace comfortably returns the private equity industry to levels not seen since the Great Recession nearly eight years ago. Amidst of all the distractions swirling around the Russia Probe
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Circulation and “On Demand” Healthcare…

This morning Circulation, one of our portfolio companies, announced a very exciting Series A financing of $10.5 million to scale one of the emerging leaders in the “on demand” healthcare economy. Circulation is the second of our Flare Ignite seed companies and with this financing, both companies have now successfully converted to be significant core holdings of the fund (Bright Health was the other). There are several elements to this story which are quite instructive. First and foremost, it is very rewarding to work closely with world-class entrepreneurs (Robin Heffernan and John Brownstein) who are also great friends of mine. Robin and I have worked together for nearly a decade over three companies – she was an investor at my prior venture firm, we backed her when she helped start one of our other portfolio companies, and now at Circulation. In parallel, I have been collaborating with
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Circulation and “On Demand” Healthcare…

This morning Circulation, one of our portfolio companies, announced a very exciting Series A financing of $10.5 million to scale one of the emerging leaders in the “on demand” healthcare economy. Circulation is the second of our Flare Ignite seed companies and with this financing, both companies have now successfully converted to be significant core holdings of the fund (Bright Health was the other).

There are several elements to this story which are quite instructive. First and foremost, it is very rewarding to work closely with world-class entrepreneurs (Robin Heffernan and John Brownstein) who are also great friends of mine. Robin and I have worked together for nearly a decade over three companies – she was an investor at my prior venture firm, we backed her when she helped start one of our other portfolio companies, and now at Circulation. In parallel, I have been collaborating with

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Crazy Crypto Times…

Several years ago, chatter started to emerge about Bitcoin and blockchain technologies. Given that one of our core healthcare investment themes at Flare Capital is broadly labelled “Payment Reform,” we have been getting smarter about the implications to the “business of healthcare” as these technologies became more robust, more established. Little did I know what this search would uncover. Analysts are already now talking about Digital Currency 2.0. How did I miss 1.0? Regularly there are spectacular stories of wild Bitcoin trading activity or some instance of fraud or a “flash crash” as what occurred two weeks ago, when the digital currency, Ether, collapsed from $300 to $0.10 in minutes. Undoubtedly, while these cryptocurrencies are still somewhat under construction, there is something profound emerging that may have far reaching impacts – maybe in healthcare but certainly on my industry, venture capital. crypto currency for blog The graphic above from the Digital
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Related Events?

As a partnership, we will make a few dozen investment decisions across any given fund and as a group we will make hundreds of other decisions together in simply running the firm day in, day out. When it comes to expanding the team though, that is a very different matter. Venture firms add very few people so each addition is a big deal. And as such, we are very excited that Vic Lanio has joined Flare Capital as a Senior Associate. What initially struck all of us about Vic was his passion for the “business of healthcare” and how he was thinking about the implications of the transformation we are all now witnessing. Vic’s depth of understanding of the emerging new business models and novel technologies that are coming to market is exceptional. The fact that he has worked for a handful of successful healthcare technology companies was critical. When
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“Service-enabled” Tech Models…

Around venture capital water coolers everyone brags about the latest “tech-enabled” service business model but in healthcare maybe these conversations need to be turned on their heads to focus on “service-enabled” tech models with the emphasis squarely on services. As the business of healthcare is transformed, many of the companies that appear to be scaling are fundamentally services businesses. Most healthcare SaaS businesses have always had a large services component, underscoring the balance (or tension) between services and product revenue. In fact, a review of recent funding data suggests that there are significantly fewer pure-play technology companies, raising less capital. Thanks to one of our star Flare Scholars, Carlos Rodriguez (recently of Harvard Business School), who looked at the aggregate of both Rock Health and MobiHealthNews 2016 funding data (340 transactions and $4.4 billion of invested capital), what is quite evident is that the more labor intensive sub-sectors of healthcare
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Really a Ho Hum Quarter?

Now that most of the investment data are in for 1Q17, analysts are using words like “disciplined” and “normalized” to describe the activity of the first 90 days of 2017 – obviously not how we would characterize the current political climate. As always, the headlines belie what might be seen as more turbulent private capital markets under the surface, as quite clearly there is a continued and pronounced rotation away from the earliest stages of investment. Modest but encouraging exit activity has continued to generate strong limited partner interest as 58 new funds raised $7.9 billion, according to NVCA and PitchBook data. Nearly $16.5 billion was invested in 1,797 companies in 1Q17, which was the fewest number of companies in the last 22 quarters. Much of this decline was in the Angel/Seed stage which over the past handful of years has accounted for roughly 55% of overall deal
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