The future of healthcare-focused fintechs with Distributed Ventures
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What
Distributed Ventures is an early-stage fund focusing on fintech, insurtech, and digital health and benefits. Born out of NFP Ventures, Distributed Ventures is led by Shawn Ellis and Adam Blumencranz; the team offers deep operational expertise to portfolio companies, aligning their success and goals with those of strategic and institutional investors.
Why
According to Shawn Ellis, Managing Partner at Distributed Ventures, the marriage of fintech and healthcare can fundamentally alter how the medical sector operates and how patients navigate the healthcare space. Ellis argues that importing fintech’s principles into healthcare can “pull back that veil” that currently justifies the medical field being more old-school and esoteric than other industries. Transparency and accessibility can improve how consumers encounter healthcare services and how providers deliver them.
In addition, healthcare-focused fintech products can help lower the financial burden that is shouldered by individuals in healthcare contexts, Ellis asserts.
“When you start thinking about a $500 healthcare bill and the financial susceptibility of the average individual in the US, and the fact that that can really knocked them off-kilter financially, that's where it's so remarkable that it still feels we're in the early innings of educating folks and empowering them to spend more effectively,” he said.
In addition, the Covid-19 pandemic has accelerated medical networks’ openness to new care delivery models for healthcare providers and for health plans. This makes investing in healthcare-focused fintech particularly fruitful, as providers are open to adopting and scaling modern solutions.
How
Ellis identified several trends that can change how HR and operations teams approach healthcare benefits for their employees. Wingspan, a portfolio company of Distributed Ventures’, is geared for contract workers; the platform helps these workers receive reimbursement for their work and also gives them access to benefits that workers traditionally receive as full-time employees.
Ellis is less optimistic about HSAs as a standalone product. Although HSA platforms are a popular tax-efficient healthcare product, they require consumers to choose a high-deductible compliant plan when purchasing their healthcare—and plan selection is not nearly as rational or intuitive a process as something like picking out a credit card. “You’re having to do a lot of calculus in a category that doesn’t have a lot of cost transparency or normal consumption patterns,” Ellis said. As a result, Distributed VC has looked into decision support tools for open enrollment, which can help consumers gain perspective when selecting benefits and plans.
Ellis also anticipates greater demand from HR teams for aggregators, given fatigue related to point solutions. This will affect how healthcare-focused fintechs execute their partnership-focused ops. “There's been this awareness that corporations, benefits consultants, and brokers are really important decision makers that dictate massive amounts of spend, and can introduce innovations that bring efficiency,” he said. “Folks are thinking really critically about point solutions and whether there’s appetite for a standalone [product] versus a Transparent or an Accolade or Quantum, and partnering with them as the best way to access the broadest audience of employers.”
Finally, Ellis suggested later-stage healthcare-focused fintechs may struggle to retain talent or secure venture funding given their compensation structures and their desire to hang on to previous valuations. “It's easier to go to the next compelling company that doesn't have some of that scar tissue on its cap table versus trying to make the shoe fit,” he said.
That reality offers scrappier competitors the opportunity to shake up the playing field, potentially altering the power dynamics between healthcare providers, vendors, and patients.
