Lynne Chou O’Keefe, Founder and Managing Partner, Define Ventures.
Defining companies
DEfine Ventures raised $460 million through two funds to invest in early-stage digital health startups. The move comes as the venture capital industry grapples with the fallout from the collapse of Silicon Valley Bank, inflation and an overall reduction in deal volume and size. “We always believe that in tough times like these, that’s when great companies continue to be born,” says Lynne Chou O’Keefe, Founder and Managing Partner of Define Ventures. “Especially in healthcare, the fundamentals haven’t changed.”
The United States spends more than $4 trillion on health care every year and that number is only expected to grow. This funding, which brings Define’s total assets under management to approximately $800 million, will be deployed in two ways: Fund III will focus on seed investments, from incubation to Series B, in new ventures and an opportunities fund will focus on growth investments in portfolio companies.
Since the company was founded in 2018, Define has operated on the idea that “the house of healthcare is being rebuilt,” says Chou O’Keefe. The key is to bring “the best of Silicon Valley”, i.e. user experience and engagement technology, and apply it to healthcare. “We’re really interested in the convergence of business models with consumer learnings,” she says.
Sometimes that takes the form of investing in companies that start out as direct-to-consumer games addressing the unmet healthcare needs of specific patient populations, like women’s health startup Tia and LGBTQ health startup Folx. Health. Over time, these companies build on what they’ve learned to provide a better patient experience and transition to business models selling to employers or partnering with healthcare systems in order to grow.
Other investments, such as Unite Us, have always operated on a business model of selling software to hospitals and health insurers, but the overarching goal is to reduce friction for patients. In the case of Unite Us, the software ultimately helps people on Medicaid, the government-funded health insurance program for low-income Americans, gain better access to health and other social services. . “It’s absolutely the art and science of digital health – understanding the go-to-market approach, both in the business and the consumer,” says Chou O’Keefe.
She says Define began talking with its limited partners about raising a new fund in the second quarter of 2022, around the time that VC deal values began to decline. Investments in digital health companies peaked at $15.6 billion across nearly 450 deals in 2021, according to data from PitchBook. This was an outlier compared to the $7 billion transaction activity in 2020 and 2022. Range of $10-15 million.
Yet, as data from the PitchBook suggests, exit activity remains markedly down. In 2022, the exit value was $200 million, compared to $11 billion in 2021. Chou O’Keefe says IPO markets will reopen and she’s optimistic about M&A activity in the healthcare sector from technology players, such as Microsoft, Amazon and Google and retailers such as CVS, Walmart and Best Buy, as this indicates that they are focusing on the healthcare sector for growth. Despite the market turmoil, O’Keefe is excited about what the future holds: “We have a very differentiated view and a bold vision for the healthcare system and its evolution.
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