While investments in digital health hit their highest mark ever last year, barriers persisted for entrepreneurs who weren’t white or male.
Investors who are willing to uproot this trend say there is money to be made.
“Quite frankly, I think all of the existing healthcare venture funds really should look at their track record and look at their portfolio and ask themselves whether they've missed out on opportunities,” said Marcus Whitney, founder and managing partner of Jumpstart Nova, a venture fund that exclusively invests in Black founded and led companies.
Data from a 2020 Rock Health survey found 63% of digital health company leaders were white. While founder demographics were more representative, more disparities were found when comparing the relative size of deals. Black female founders were more likely to bootstrap their companies while white men were more likely to receive venture capital funding.
Experts say any disparity exacerbates inequity. “It's unlikely that you're going to get the best outcomes,” Whitney said. Vanessa Guzman, CEO of SmartRise Health, a healthcare consultancy, said representation matters in investments.
“Communities or people [who] don't see themselves reflected in the health system, or their doctors, [are] less likely to engage in health care,” Guzman said.
Recent investments could signal a shift in investor thinking.
Earlier this month, Boston-based Seae Ventures launched a $107 million fund that will invest in digital health companies led by women, Black, and Indigenous People of Color entrepreneurs. Seae’s co-founder and managing partner, Pete Sally, said there is a growing consensus that investing in companies with diverse leadership has led to larger financial payouts.
“A lot of venture capital has been pattern recognition,” Sally said. “These are the right business decisions, period.”
Whitney said he started Jumpstart Nova earlier this year because the investment can be immediately transformational, rather than waiting five years to diversify a board of directors. “We definitely are seeing a new era, a new kind of fund, like Seaea Ventures, like Jumpstart Nova that that are purpose built,” he said.
The evidence has been present outside of the healthcare investment sector. After analyzing thousands of venture capitalists and their deals, Harvard Economist Paul Gompers found in a 2018 analysis that diversity had financial benefits on profitable investments at the individual portfolio-company level and overall fund returns
Investors like Whitney and Sally are trying to bring that mentality to healthcare while giving opportunities to Black and women founders. “Founders coming from these areas, or these schools, or these backgrounds can be very successful,” Sally said. “Not only from the strategy that they're executing against in delivering a social good, but they're also a good investment decision.”