Healthcare’s corporate investors are like backup quarterbacks (proceed with caution)

Everyone loves the backup quarterback because they’ve never played a down. But once those backups play, the sports analogy goes, and they are almost always worse than the starter. Are digital health VCs the backup quarterbacks of healthcare investing? Rightfully, there’s a lot of excitement about corporate venture’s increasing prominence in healthcare. But don’t get […]

Everyone loves the backup quarterback because they’ve never played a down. But once those backups play, the sports analogy goes, and they are almost always worse than the starter.

Are digital health VCs the backup quarterbacks of healthcare investing? Rightfully, there’s a lot of excitement about corporate venture’s increasing prominence in healthcare. But don’t get overexcited.

Go back and look at the recent survey of digital health corporate venture capitalists Lake Whillans commissioned from MedCity News. Now look specifically at those trust rankings.

  • The overall rating of trustworthiness (on our four-point scale) is 1.97.
  • For those who know corporate VCs by reputation alone, the average score is 2.06.
  • For respondents with firsthand experience, the average score is 1.82.

Let that sink in. People who have worked with corporate VCs give them a 12 percent lower trust rating than those who know them by reputation alone.

Why the trust gap (and, for that matter, why the relatively low 2-out-of-4 average on trust overall)?

Let’s be charitable. After all, venture funds will reject more startups than they accept. So perhaps some companies have hard feelings over their experiences?

But I think it’s also important to point out that corporate venture in digital health is even younger than digital health itself. Top-tier funds like GE Ventures are less than five years old. Many funds – like athenahealth’s More Disruption Please initiative – are almost brand new.

Unlike life science corporates, which have long track records with early-stage companies, the digital health investors are unknown and blazing a new trail. There’s likely more hope and hype from a sector of healthcare eager for alliances.

It’s not just the entrepreneurs, either. Many corporates are probably still figuring it out.

But this is also a good lesson: hope is not the basis for a good royalty deal, investment or long-term partnership.

A lack of trust is a good thing. Make the backups work for it.

                                                                                                                                                     

This post is sponsored by Lake Whillans, a distressed venture capital and litigation finance firm that helps companies facing litigation or arbitration. For more information, visit lakewhillans.com or follow the firm on Twitter and LinkedIn.

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