One on One with a Venture Capital Partner – Investing in Healthcare


Asset Management’s leadership team is comprised of former operators and tech savvy investors with expertise in scientific, engineering and medical fields.

We caught up with Skip Fleshman at the Connected Health Symposium in San Diego where he was featured as a panelist on Investment Trends in Consumer Health.  Skip is a partner in Asset Management Ventures, a Silicon Valley based venture capital firm founded by Franklin “Pitch” Johnson in the mid-60s.

Asset Management invests in companies that have pushed innovation to new levels for nearly half a century. Some of those early investments included Amgen, Idec, and Boole & Babbage, one of the first software companies servicing large enterprises; Tandem Computer, the world’s first fault tolerant computers; and Coherent Laser, one of the first laser applications in health care.

Over the last 30 years, Asset Management continued its diversified approach to venture capital investing by deploying capital in both IT and health care markets.  These investments include hardware, software, medical devices and therapeutics companies. Asset Management’s leadership team is comprised of former operators and tech savvy investors with expertise in scientific, engineering and medical fields.

Skip’s bio includes over 11 years at Asset Management Ventures, a 14 year Air Force and Air National Guard career including piloting an F16 and 7 years as the COO at BGI LLC, a software and analysis services company.

Here is our Q&A for Skip:


The valuable investment is solving problems where an app or device is actually part of the solution…

Innov8Med: Can you give us an overview of venture capital involvement in healthcare from your background and experience?

Skip Fleshman 600x399

Skip Fleshman

Our firm, founded in 1965, traditionally invested in software, hardware, medical devices, therapeutics and diagnostics.  We have a long history of having a diversified portfolio.

Since 2008, we have seen significant drivers that make the digital health arena ripe for investment. While it was a bit early, we saw two main things:  One was the adoption of applications and the use of iPhones and iPads by physicians and providers in general. This enabled the use of Software as a Solution (SaaS) such as practice fusion or other cloud based technologies by smaller practices.

The other was the shift in healthcare from fee for service to pay for performance.  This was before ACA (the Affordable Care Act), but ACA has accelerated the shift.  We invest in things that are ACA related – like employers migrating employees to exchanges, engagement platforms and hardcore medical evaluation tools.

Targeting consumers has its drawbacks. A lot of consumers flirt with mobile health apps, especially fitness and weight loss. They flirt, they won’t pay a lot, and the engagement is low.  To get consumers to pay is really tough.  Long-term, the direct to consumer platform may be a total flop as a direct investment.  That doesn’t mean that we ignore the consumer as a patient.

The valuable investment is solving problems where an app or device is actually part of the solution; not the total solution.   The app or device will engage; supporting a provider solution.  This may involve caregivers and a supporting parent or child of a parent.  This facilitates a whole network of users that need to interact.  It is not just a one shot solution. The relationship between the primary care physician or specialist and the patient is the most important link.

Technologies need to be validated, show ROI (Return on Investment) and efficacy. Someone is going to have to pay for investments, since consumers are reluctant to pay.   The current shift in payments is toward higher co-pays and deductibles to solve funding innovations. Consumers will be more involved in some decisions but I think it is going be hard to get consumers to pay directly.

Innov8Med: You are located in Silicon Valley, known around the world for being on the forefront of technology development.  Are you active in other geographic areas that are advancing the ecosystem?

Most of our investments are in Silicon Valley.  We tend to view venture capital as a local business; having the team there, the investors there, the ecosystem there.  Silicon Valley has very unique technical ability and a very good user experience, but a lot of successful healthcare systems and successful companies are not in Silicon Valley.   They are in Boston, Minnesota, Nashville, New York and others.


While most of our companies are from Silicon Valley, we look at opportunities everywhere.

I am on the board of two companies in Boston.  Boston has come from the traditional therapy and device arena and they have great data analytics. Both of these are enterprise sales environments. A therapeutic gets approved by the FDA and you market it.  A device or an analytic database that gets implemented then gets marketed.

The population density and the number of providers that you can pilot with in New York is interesting too. North Shore, Long Island and Mt Sinai are amazing.  Across the river, pharma companies in New Jersey add to their ecosystem.

The way healthcare payers and providers interact varies by state.  The way that Pittsburgh interacts with Pennsylvania laws may be different than Manhattan and New York.  Kentucky is different than Arizona. It is important to recognize the differences in state regulations and ecosystems.  While most of our companies are from Silicon Valley, we look at opportunities everywhere.


There are many apps succeeding in adherence, engagement, diabetes management and telemedicine.

Innov8Med: Where is Capital being directed these days? 

A couple of things are happening.  The biotech market has been flaming hot.  Gilead is probably up 3X over the past three years, Amgen is probably up 3x in the last three years.  The number of IPOs last year was at an all time high.

The venture capital industry in healthcare suffered in the late 2000s. A lot of firms went out of business and dollars went into other areas.   Money is coming back in now.  We have an interesting layer of micro VCs and angels are getting involved with a lot of projects and programs early.  Not so much in the therapeutic space, but definitely in the wearable health sector.  Big funds that are managing a billion dollars or more can now take companies to the next level.

Many of the companies that are successful raise money in the 1 to 10 million dollar round.  There are many apps succeeding in adherence, engagement, diabetes management and telemedicine. For example,  Doctor on Demand just raised $21 million. That is going to give them a leg up.  HealthTap just raised $30 million. The ones that can attract the dollars do very well.

Innov8Med: When someone raises some significant money; does that create a greater demand?  Does it make more investors interested in the market?


They would rather do business with a company that raised $25 million because that company is more likely to be around.

In many sectors including healthcare, it may be a deterrent.  It is harder for other startups to raise capital if another competitor takes the lead.  However, Proteus is clearly the dominant platform for digital adherence, but Mango health just raised $6 million from Kleiner Perkins.  There are  other companies doing some interesting innovations including PillPack because adherence is a big market.

There is room for multiple solutions in adherence.  So we may see more startups but typically, large financings tend to make the venture community skeptical about backing another company in the same sector.  Take Aetna, Pfizer and Kaiser.  They are semi-risk adverse organizations in an industry that is risk adverse.  They are not interested in a company that raised $1 million.  They would rather do business with a company that raised $25 million because that company is more likely to be around. The value of raising that much capital helps mitigate their risk in the long term. 

Innov8med: How would you describe the relationship between venture and other firms that are providing investments to startups?

The term we use is “coop-atition.” Sometimes we are competing, sometimes we are cooperating. Mostly, it is collaborative and collegial. But there are many instances where multiple firms want to invest in the same company and they have competing term sheets – competing deal offers.  But because we are at an earlier stage, we don’t have as much competition as those investing in the later stages.

Box-Gradient_100x100PROVIDER NETWORKS

We are seeing consolidation of the providers as a natural evolution of the ecosystem.

Innov8Med: Is consolidation and expansion in provider networks, such as UPMC (University of Pittsburgh Medical Center) and St Joseph’s/Hoag a model that is growing?

Yes, there is consolidation in the provider networks.  We are in the early stages of the health exchanges and we are considering how this going to play out.  We are seeing consolidation of the providers as a natural evolution of the eco-system. When the insurance company’s relationship to the provider’s changes; the providers have to change.

Accountable Care Organizations (ACO’s) are forming. In PA for example, the insurance company Highmark is acquiring physician practices and hospitals while groups like UPMC are taking on risk. There is a convergence and organizations are becoming more vertically integrated.

Innov8Med: How are branded providers or provider networks driving health care innovation and managing the risks involved?


…have excellent cash flow and are a lot more innovative and can review innovations and adopt them…

Not a lot of providers have the money for innovation nor it is on top of their minds.  Large organizations are focused on EMR (Electronic Magnetic Record) implementation or ICM updates. Branded institutions, Mayo, the Cleveland Clinic, have excellent cash flow and are a lot more innovative and can review innovations and adopt them.

I am skeptical in general of selling into provider networks. The issue with the smaller provider networks is cash flow.   It is a tough sell into these groups and they want to see ROI right off the bat.

Now there’s the shift to an ACO (Accountable Care Organization).  As provider networks assume more of the risk; they get more money per patient from an insurance company.  They get more money for a population that they need to manage, like the Kaiser model, vertically integrated healthcare systems .

Innov8Med: In that light, don’t entrepreneurs have to focus on selling their solutions to  larger provider networks and hospital sytems?

Companies that are doing very well are selling solutions to large provider networks.  In this area there are a lot of opportunities for connected device solutions that help manage home health care and outpatient care.

Hospitals are getting docked for readmitting patients within a 30 day window.   Patients don’t want to stay in a managed facility.  They want to stay at home. Providers would love to get people out of the hospital earlier if it was safe to do so. New mobile health technologies can track many activities, events and health measurements. There are a lot of things that can be monitored at home.  Startup companies that are targeting this area can get established and gain traction.

Box-Gradient_100x100GETTING FUNDING

A lot of the physicians in private practice are pretty savvy business people, but…

Innov8Med: What about the physician that is leaving their practice and wants to do something else.  The one that says “I’ve got this great idea.” How would they get from where they are to where you would look at what they have to offer?

A lot of the physicians in private practice are pretty savvy business people, but the ones that succeed are typically people that know the healthcare ecosystem and work with people that are really good at technology and design.

Design teams such as those coming from UX Design or the Design school at Stanford, know how to develop an application that is engaging, looks good and works well. These teams are paired well with technology groups from Silicon Valley or Boston.  That is a great combination to work with.

Venture capital validation usually starts with an accelerator.  Have they gone through a StartX Med? A Rock Health? Have they done Blueprint? Helpful accelerators can get them moving and give them exposure to the ecosystem and venture capital.

The challenge to overcome is to show ROI or efficacy. To show efficacy, you may need a pilot.  Getting a pilot to UPMC, Scripps, or any of the organizations or networks is not too terribly hard to do.  To get a pilot and start to show interesting data is the challenge.

Efficacy is not like having an app on the app store and using downloads to prove interest.  You actually have to show data affecting outcomes to get funds.  Most of us that have been investing in this sector want to see proof of efficacy, which inherently takes a while.

Innov8Med: What advice do you have for people and companies looking to fund their ideas in this ecosystem?

Funding usually comes from friends and family, colleagues or partners they have in the ecosystem, like someone that retired from Pfizer or AETNA that understands the insurance business. They are usually wealthy and can put in $100k or $500k. That is usually a good validator and introduction to a higher level of funding.  This is starting small and expanding your network until you can get the angel capital that is needed.

Then to get to a venture capitalist when the time is right, connections and contacts play a key role.  It’s working or maybe joining an accelerator or an incubator that gives you exposure.  LinkedIn is a very powerful tool that I would use.  Do your homework.  Find out which firms are investing.  Then try to find connecting points to venture capitalists online. Look at LinkedIn to see how many connections you are away from people and connect the dots.

Very rarely do we invest in something that just comes in cold.

Bootstrapped companies actually happen fairly often… If we are talking about affecting medical outcomes, you have to prove yourself…

Innov8Med: How do you find the companies that you may invest in?  How do you source your deal flow?

This has been an evolution because we started looking at digital health in 2008.  We were pro-active because there weren’t many companies to choose from.  For example, I looked at web-based medicine. WebMD and Mayo were there, but I didn’t really like the solutions until I found a company called HealthTap.  It had an interesting solution to a problem that wasn’t being addressed.

Now we see a lot of inbound opportunities.  At conferences like this, we meet a lot of people.  But the investment opportunities that I take most seriously are the ones that have been pre-vetted. There are a couple of great resources for this.

Startx Med is good.  And, quite frankly Rock Health is amazing.  I think it is the best accelerator around.  So something pre-vetted from Rock Health gets my attention.  Blueprint is helpful as well.  Or a reference from another firm.  If VenRock says a company looks interesting but is too early or if Kleiner Perkins says a company looks interesting but is too small then we take a close look.  We get a lot of those referrals.

Innov8Med: If a company gets involved with a venture capital firm, do they lose total control of their company?  Or, do they build a company, take it to a venture capitalist and “run away from it?”  What is the reality?

Very rarely for both.  Most venture capital companies will say up front if they think the management team needs to be restructured.  Or, they will give the management team the ability to run with it to see how it goes.  Lose control? That is natural.  Anytime you take anyone’s money, it is a different ball game.  Now you are responsible to your shareholders and the SEC regulates it.

Typically, in the first round you don’t lose percentage control, you are just limited or report to a board of directors.  There will be a board structure and you will have board meetings.  You will go down a strategic path.  Terms that a venture capitalist will insist on will limit what a founding team can do, but control what the entrepreneur can do less.  It is more of a limit.  For example, you can’t fundamentally change your business without prior approval.  You can’t take on debt without prior approval.  You can’t issue additional shares with prior approval.  You can’t sell without approval.  It is more of a restriction than “you have to this or that.”  They are called protective provisions to protect the shareholder from some major changes a founder might make.  In reality, as you raise more capital, you lose more control to the point where you are a public company.  But CEOs are still very powerful.

To answer the second question.  We force them to stay, via financial incentives, if we want them.


By Dan Charobee

Other One On One Interviews:

One on One with a Designer – Designing Brain-Sensing Technology – Ariel Garten

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