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Creating the next generation: our investment in Initiate Studios

Initiate creates companies that scale healthcare.

Initiate Studios is a company creation studio that incubates companies that democratize healthcare. They recognize that the building blocks of next-generation companies are: 1) smart data collection and analysis, 2) personalized and accessible treatments, and 3) consumerization.

Initiate Studios: a Healthy Ventures extender

Initiate Studios will act as an “extender” for Healthy Ventures. Over the past few years, we’ve recognized many spaces where winning companies ought to exist, but don’t. A studio model works with heavy investment in shared infrastructure across companies and a slower targeted cadence for company creation. HV is better served by keeping a broader aperture to scour best-in-class candidates across a wider universe of players. Investing in Initiate allows us to secure initial ownership of several companies in select, overlapping focus areas with an inside-track optionality to lead the additional financing of these companies.

Most Initiate companies will also follow Healthy Ventures’s playbook:

  • Targets businesses that have excess profits to pay for products at high margins, e.g., life-sciences 
  • Focuses on B2B software leveraging programmatic inside sales processes, so can be capital-efficient from the beginning
  • Initial product business collects data & penetrates the market, enabling them to obtain an unfair advantage in building out other second-order business opportunities.
  • Positive unit economics

We invested $1 million to secure 4% ownership in Initiate Studios and are one of only 3 investors with pro-rata rights in the companies' future financings. We expect that Initiate will spin-out 10-12 companies over the next 5 years.

Companies created by these founders have historically both gone public and exited via M&A. Given that Healthy Ventures will directly receive stock in the companies created (versus having a stake indirectly via ownership of Initiate itself), we will have the flexibility to wait until a traditional exit or to exit the companies via a secondary offering if the companies pursue a long-term IPO path.

Initiate is led by a team who has done this before.

Healthy Ventures has a long history with the principals of Initiate. They are a triad of: a visionary, a zero-to-one company builder, and a veteran healthcare investor and operator.

One of the principals, Iana Dimkova – the veteran healthcare owner and operator – has been a venture partner with Healthy Ventures since January 2020. Anya has known Randy Scott – the visionary principal – since 2010 when she was the sole institutional investor in his (now public) company, Invitae. Rowan Chapman – the veteran company builder – has created many companies that Healthy Ventures have evaluated for investment.

Prior to Initiate, Rowan and Iana have worked together for 5 years at GE Ventures in a very similar company creation model where they created and spun-out companies like Evidation Health (real-world clinical trials) and Vineti (specialty distribution for gene- and cell-based therapeutics).

Between them, the Initiate team has created 10 companies resulting in 6 IPOs and 4 acquisitions and created more than $30B in market capitalization.

Initiate’s innovative model will spin out 2-3 companies per year.

Initiate Studios is designed to create 2-3 companies each year. After recruiting a management team getting initial market traction, the companies will be spun out in conjunction with an externally-led Seed round. In addition to directly receiving founders stock in each company, Healthy Ventures will have pro-rata investment rights in the companies’ future financings. We also expect Healthy Ventures will want to lead the Seed rounds of several of Initiate’s companies.

 

Companies created by these founders have historically both gone public and exited via M&A. Given that Healthy Ventures will directly receive stock in the companies created (versus having a stake indirectly via ownership in Initiate itself), we will be able to exit the companies via a secondary offering if the companies pursue a long-term IPO path.

 

Initiate is already working on several concepts for new companies and we think the first two companies will be:

1. Digital twin for clinical trials

One of the spaces Healthy Ventures has spent a lot of time over the past few years is in the clinical trial space. We have basically been investing against 2 themes: 1) trial activities will move to be more remote (vs in-person at the trial site), and 2) the most problematic component of clinical trials is how long they take to enroll because it’s the largest factor in how long a trial takes to complete, and the cost of drug development.

Initiate’s first company addresses both of these challenges. Most new drug “approvals” each year are actually the FDA approving additional disease states that can be treated by existing therapeutics; rather than completely new therapeutics. But, to be approved for a new indication, biopharma companies still need to complete clinical trials. These trials run an average of 6mo behind schedule because of difficulty finding patients to enroll in the trial and difficulty collecting data.

Initiate’s first company recognizes that the data necessary for the clinical trial actually already exists in the world. Physicians already prescribe some drugs “off-label” (meaning the FDA has not approved the drug for that indication). In addition, the control arm data – patients who have not received the drug being studied – is also available.

As a result, the company will generate real world evidence to support indication expansion and repositioning, as well as create fully synthetic trial arms, with virtual (look-alike) subjects in order to extrapolate from one population to another. The customers are biopharmaceutical companies.

2. Genetic insurance

The growth of portfolio companies SolveBio (human genomics) and OneCodex (microbial genomics) has proven that genomic analysis is here to say. Data show that lifestyle factors can greatly influence the severity of genetic conditions and that most patients are terrible at following disease prevention guidelines. Furthermore, health insurance only kicks in when patients “fall off the cliff” medically (exceed out-of-pocket max) and does not incentivize preventative behavior. On the other side, life insurance companies make more money if customers live longer (and keep paying their premiums) but they have no way of driving behavior.

 

This company creates a bridge between health insurance life insurance by creating a new category of genome insurance that will incorporate monetary incentives for preventative actions.

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