Venture Capital

NEW TECH IN THE MEDICAL FIELD

FOUNDER INTERVIEW WITH MICHELE COLUCCI.

DigitalDx Ventures is a Silicon Valley Venture firm uniquely positioned to find, 
support, mentor and grow the outliers in digital healthcare. 
DDX invests in early stage companies who effectively and efficiently harness the power
of artificial intelligence and big data to profoundly impact outcomes in both diagnostics
and therapeutics.

Please tell us more about the enormous Med-tech market that is projected to reach $478 billion by 2020 (According to Deloitte 2017 Global Life Sciences Outlook). 

The Med-Tech market explosion is really driven by innovation and need.  With the invention of technologies like CRISPR where we can actually edit our genetic makeup, the creation of neural networks, and explosion of data, the opportunities to diagnose, treat, prevent and fix illnesses have exploded. As the world becomes smaller and more integrated, (think: lower cost travel, language fluency via online programs, more geographic job fluidity), we will all be exposed to illnesses our immune systems were not developed to handle. So an increase in sensitivity and vulnerability to a wide variety of potential illnesses necessitating more identification and treatment, coupled with an explosion in data and what we can learn with technology to address these illnesses at every stage is driving both the need and the opportunity for growth in this vertical through the roof.     

 What are some of the most exciting innovations that you see in diagnostics and digital health? 

I am honestly so amazed at the companies I see every single day with non-invasive diagnostics utilizing urine, saliva, breath, eye scans, skin, fecal matter, and visual capture and audio capture. These non-invasive diagnostics used in concert with companion diagnostics can be used to personalize treatment options based on one’s genetics, epigenetics, microbiome, and epibiome alongside a greater understanding of methylation.  As medicine, a big data field, becomes molecular and more personalized, we are seeing far more creativity in approaches and solutions. I have invested in the most exciting ones! Some of those investments include an eye scan identifying Alzheimer’s up to 10 years prior to dementia/brain damage with a 1-2 second eye scan, a urine test for kidney health and transplant rejection with the highest accuracy I’ve seen, a saliva test for breast cancer screening that also works for dense breasts, a longitudinal platform with complex comorbidity algorithms to better and more accurately diagnose mental health for teens, and an external remote cardiac health monitor using radio waves to measure fluid buildup in the lungs. At DigitalDX Ventures, we are also considering another 2-4 investments right now. I believe we are truly at an inflection point in the history of medicine and we are about to catapult into a whole new chapter in medicine— light years ahead of anything we’ve seen in the past.     

How has the practice of Medicine changed and evolved in the past twenty years?

First, as my co-founder always said, in the past doctors did not have enough data for patients.  Now they have way too much. Doctors need technology to make sense of all the data and to help them make better decisions.  I do feel as if doctors are more humbled by the enormity of what they are facing. For decades medicine has taken a “one-size-fits-all” approach to treating patients— resulting in the standard practice of trial and error, and a focus on treating the effects of illness not the cause. I’ve seen a very big shift away from this. recently. Today, we are witnessing a more thoughtful approach where prevention, early detection, personalized treatment and patient outcomes, short and long, are new key drivers. Further, these drivers are finally becoming more closely connected to reimbursement from Medicare, which generates much of the revenue in the healthcare industry. I see regulatory time lags under fire and an effort to streamline processes and create a better and more efficient system of categorization. Though I still see some resistance to integrate new technologies and ideas into the hospital or doctors’ offices, I also see patients whose voices are no longer silent or simply ignored. There are patient advocates during hospitalization or follow up quality surveys checking if patients were satisfied with the quality of their care. I see massive legal settlements forcing hospitals to take a closer look at their bottom line, impacted by the quality of care they, and their doctors, provide.  I see a greater move towards accountability across the care chain. And I see doctors getting smarter about the ways in which they diagnose illness.  The practice of medicine, today, looks very little like it did 20 years ago and anyone not willing to keep up with the changes should simply not be practicing.    

What are some of the main problems that doctors need help with? How is DigitalDX Ventures aiming to solve them?

The biggest problem we are helping doctors to solve is how to make sense of the enormity of data now available for each patient. We want to fund companies that give doctors important insights into better, earlier, and more accurate diagnosing of illness and targeted treatment (what’s going to work for you) in their own office or in the patient’s home.  We also want to deliver that help in a way that benefits everyone who needs it—not just a select few. Our focus on artificial intelligence, data, neural networks, and other technologies improves what a doctor, in his or her limited capacity as a human, can do to help their patient. Our goal is to make doctors smarter and do their job with greater precision and accuracy resulting in better outcomes for patients.  We also empower doctors to give their patients answers faster by enabling in-office diagnostics were patients can actually leave a doctor’s office knowing what is wrong with them, be treated, and find relief from the agonizing waiting and worrying that, in and of itself, can make you sick!         

Please elaborate on your investment thesis and why you decided to specifically focus on Big Data and Artificial Intelligence of personalized medicine?

Our investment thesis focuses on diagnosing illness earlier, less invasively, less expensively and more accurately augmented by AI and Data. There are several reasons why this is one of the few low risk, high return strategies in venture capital (if you really understand the niche), and why AI and Data are so important for the strategy.  First, we have a recession and pandemic proof strategy because a) during these periods, everyone still gets sick; and b) investing in early stage companies is pre-market so companies still make tremendous progress during times of market volatility.  Second, diagnosing illness earlier not only saves lives but saves the healthcare system billions of dollars so reimbursements are more forthcoming. And, by extension, everyone who is subsidizing those costs in their medical premiums also benefits.  Third, non-invasive diagnostics limit the regulatory process focus to how well the test works— not to how it affects the patient, which adds infinitely more risk and takes a lot more time and money. Finally, less investment dollars are wasted proving a concept when you use AI and data to cut down the analysis and discovery time, and progress is more rapid and profoundly more impactful to the bottom line. If you couple this theory with the current climate that shows every major healthcare company is fearful that they may fall behind the digitalization of medicine, an appetite for acquisitions at much earlier stages is created. We believe our investment thesis not only produces great financial returns, but also has the potential to save a lot of lives.   

Please share with us about some of your top performing portfolio companies and successful exits. 

As we just started with our first close (of several) under a year ago, we have yet to see an exit. However, in the first 10 months, we have already had two companies increase in value. Our investment in Optina Diagnostics has increased about 4x and our investment in Nephrosant has gone up about 6x. We are also looking at two more companies raising new rounds over the coming months, so for a new fund that has not even through half of its capital raise, we are thankfully doing quite well! It’s interesting to note that the performance metrics of new, smaller funds with diverse managers routinely outperform other funds in many ways…yet many investors shy away from them. That’s one of the reasons we made early investments. We wanted investors to be able to kick the tires of what they are investing in, instead of the trust us black box approach. My personal goal  is to have more women LPs to create our own ecosystem of support from the top down so we’ve waived some minimum investment requirements to ensure our opportunity is available to more women not usually invited to invest in venture funds.     

How do you decide which companies to invest in?

We have a very rigorous approach that includes assessing key metrics in early stage diagnostic companies where the numbers often don’t exist, or if they do, just don’t tell the story. We first focus on really big problems affecting a large part of the population. We want to invest in solving problems that doctors see regularly because, if it’s a burning problem for a doctor, the insurance industry will figure out how to pay the company that provides the solution. We are serial entrepreneurs, so we look very carefully at the team to determine if there is diversity of thought, and we assess carefully the quality of the advisors.  We want to know, who is validating the science by putting their name and reputation on the line?  Henry Kissinger and George Shultz are brilliant and impressive men to have on an advisory board, but have little value validating and guiding the science.  We are also relentless when it comes to patents. Most of us have our own patents, so we review them internally and know who to ask for help if needed.  We look at how substantive the proof of concept really is and who else is out there trying to solve this same problem (and who’s built the better mousetrap!).  These are just a few of the 72+ data points we evaluate for each applicant. Needless to say, very few make it through to investment.            

Prior to making an investment, your fund DigitalDX Ventures takes into consideration specific impact metrics. Please tell us more about these metrics and about your Investment Tool for Expert Diagnostics (“iTED”).

We focus on ensuring companies have diversity of thought. As such, over half of our companies have women as CEOs or in the C-Suite. We make a big effort to bring women onto our Boards.  I’ve actually added requirements to have at least one woman on the board with best efforts for a second if I lead the round. Without women, the companies miss out on the variety of skill sets each person brings to the table from their own unique diverse life experiences which, for us, helps to de-risk the opportunity. Another aspect of our impact investing is that we focus on solutions which, collectively, impact over 2 billion people.  We like to solve the most widespread, impactful problems leading to a better quality of life for the individual and for their entire ecosystem, all of whom are affected when that one person gets sick. 

We developed our own AI modeling tool which we affectionately refer to as  iTed ©, or the Investment Tool for Expert Diagnostics.  I came up with the idea of creating iTed © when realizing all the time and effort that went into mentoring me to enable me to identify successful diagnostics companies needed to be replicated for my team. I also wanted some way of triaging the overwhelming number of companies that we review in this area every month. iTed ©  started out with the 72 data points of interest in our analysis and will no doubt learn on its own providing new insights of how to identify and back truly game changing solutions.       

I feel incredibly fortunate to be able to generate alpha for my investors by making incredible investments in game changing diagnostics with the added benefit of improving gender parity, more women in the C-Suite and Board Room, and impacting lives.   

Seriously, what more could one ask for!  

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