Startups, Health IT

Refactor Capital cofounder highlights seed stage fund strategy

So far Refactor has invested in 20 software companies, half of them supporting healthcare and life sciences.

Money Growth

One year ago, a partner from Andreessen Horowitz and a managing partner from SV Angel began raising what would become a $50 million fund to invest in seed stage startups across heavily regulated industries that have been slow to adopt innovative software. One year later, Refactor Capital Cofounder and Managing Partner Zal Bilimoria spoke with MedCity News about the firm’s investment strategy and some of the 20 companies in which it has invested.

The challenge of investing at the seed stage is companies tend to have relatively little data to show how they can significantly improve or transform the way in which a challenge in any one industry is confronted. It’s hard to pick a winner at this stage, Bilimoria acknowledged.

About half of digital health investments were at the seed or Series A stage last year, according to data from Rock Health.

Bilimoria started Refactor Capital with David Lee, also a managing partner, who previously worked as a managing partner of SV Angel where he invested in Flatiron Health and Oscar. As a partner with Andreessen Horowitz, Bilimoria co-led investments in Omada Health and Honor, among other businesses.

“I wanted to focus on which companies will solve significant problems for their industries,” Bilimoria said. “At Andreessen Horowitz, I saw what a successful Series A stage company needs to look like.”

Asked what those kinds of companies look like, Bilimoria called attention to a couple of examples of that criteria. For one, they tend to have a management team with insights into a particular industry because they used to work in that sector,  such as physicians or nurses. Another is what Bilimoria refers to as “repeatable paper” a contract for a product that can be sold over and over again without needing to substantially changed. He contrasts these with businesses that develop appealing products but that have a more limited customer base.

So far Refactor has invested in 20 software companies, half of them supporting healthcare and life sciences. Other areas represented in its portfolio are agriculture, financial and legal services. Bilimoria predicts the firm will invest in 40 to 50 companies through 2018 but it plans to reserve some of its capital for follow-on investments in portfolio companies. It plans to start raising a second fund next year. 

One of the company’s most recent investments is Renew. Here’s a description of the business geared to retirees to help them navigate from employer-sponsored benefits to consumer-driven benefits, based on their needs from TechCrunch:

Once the employer agrees to use the site as a resource, is the retiree signs up on the site and then the employer sends a lot of the retiring employee’s info to Renew. Renew then curates a list of recommended benefits to suit the retirees’ particular needs. The retiree then chooses the package they think works best for them and Renew walks them through the process to get set up.

Some other examples of healthcare startups it has backed include Call9, which connects nursing home residents to emergency physicians through video visits with an eye to avoiding unnecessary hospitalization. PathAI makes use of artificial intelligence to support cancer diagnoses.

TrueBridge Capital counted 134 seed stage funds in 2016, 72 percent more than 2010. Graphiq counted 289 healthcare seed stage funds worldwide.

Photo: Topp_Yimgrimm, Getty Images