Healthcare is currently the third-most-popular sector for private equity and venture capital – behind tech, media and telecom (TMT); and financial services. PE and VC investments in the sector totaled $10.83 billion, according to S&P Global Market Intelligence. Today, PE Hub is launching a new series focused on private equity firms investing in healthcare and featuring conversations with investors in the sector. We’re kicking off the series with insights from Jeff Crisan, co-founder and managing partner of Silversmith Capital Partners.

Opportunities

“Healthcare is a massive market and fundamentally inefficient on many fronts, which leads to a lot of opportunities,” Crisan explained. “It’s a massive sector in the trillions of dollars. If you can fix a problem area in the sector, it might save you 10 basis points, but if you multiply 10 BPs by a trillion dollars, then you have made a huge impact and built a big and important business.”

Crisan identified three areas driving change in the sector and creating opportunities for PE firms to create value: the shift toward value-based care and away from the old model of fee-for-service; the impact of value-based care on revenues and billing cycles; and the rising need to access and share patient data.

“Provider groups are now being held accountable to outcomes, so we look to invest in interesting physician groups that we think are well-positioned to take risk,” Crisan said. “Revenue cycles were designed to be transactional, which works until you look at outcomes, and outcomes in healthcare are not black and white,” he said. “How you reimburse for a value-based care contract is different, so that is creating a whole host of IT solutions that is changing out how the revenue cycle is done.”

Other tailwinds

Demographic trends make the healthcare sector attractive for the long term. “We have a growing population that is increasingly aging with high healthcare needs. As baby boomers become seniors, there’s a need to serve those people efficiently,” he said.

Challenges

The biggest issue holding back the healthcare industry is “the immaturity of its use of technology,” according to Crisan. “Healthcare is 20 years behind where the financial services sector is, for example. I think of how painful banking was in the 1980s and 1990s and how tech has transformed and makes things smoother, and healthcare has not changed a whole lot. There’s no reason it has to be that way.”

Approach

“I start off with looking at real problems that can be solved, then I move to how can I apply innovation and technology to help solve that problem and then focus on how to build a business around the innovation and technology, and those things tend to require capital,” Crisan said.

A lot of the problems in and around the healthcare world, can be fixed with scale, capital, technology and innovation, and that is where PE comes in. “If it all works out, then it will not only generate good returns for investors, but people will have a better experience when it comes to their health and the care they receive.”

Firm facts

Founded in 2015 and based in Boston, Silversmith is a growth equity firm investing in technology and healthcare companies. The firm currently holds 13 healthcare companies in its portfolio. Prior to starting Silversmith, Crisan was a managing director at Bain Capital Ventures for 16 years.

Recent investments

Silversmith invested in USHP in September 2021. USHP is an organization partnering with specialty care physicians in the cardiology space to provide capital, expertise and access to a national network. Silversmith invested in Market Access Transformation in November 2020. MAT is an information technology exchange platform for pharma and life sciences companies to secure expert insights from a global network of payers.

Recent exits

Silversmith had a partial exit with Iodine Software, a healthcare AI company, in December 2021, after a partial realization with Advent International coming in as a significant stake holder and getting a valuation greater than $1 billion. Silversmith had another partial exit with LifeStance, a provider of outpatient behavioral health services, through recapitalization with TPG for $1.2 billion in May 2020. In 2017, Silversmith partnered with the LifeStance management team to co-found a behavioral health company providing mental health treatment services in an outpatient setting. LifeStance Health went public on June 10, 2021.

Silversmith’s healthcare portfolio highlights:

(Dates refer to when the investments were made.)

Centauri Health Solutions: Tech-enabled risk adjustment and eligibility solutions for health plans and providers (May 2016)

Iodine Software: Artificial intelligence-based software solutions for health systems that reduce errors and omissions in clinical documentation (November 2018)

LifeStance Health: Outpatient psychiatric and behavioral health services (February 2017)

Market Access Transformation: Information technology exchange platform for pharma and life sciences companies to secure expert insights from a global network of payers (November 2020)

MediQuant: Enterprise active archiving and interoperability software for healthcare providers (April 2018)

Net Health: SaaS-based Electronic Health Record (EHR) and Practice Management (PM) solutions for specialized outpatient care and post-acute providers (November 2019)

Nordic: IT services to healthcare organizations related to their use of electronic health record systems (October 2016)

Panalgo: Real-world evidence analytics software platform used by life science and research organizations (May 2019)

Partners Surgical: Multi-specialty ambulatory surgery center management company (September 2016)

Sound Physicians: Provider of hospital medicine services (July 2018)

Upperline Health: Outpatient podiatry and lower extremity wound care services (April 2018)

USHP: Organization partnering with specialty care physicians in the cardiology space to provide capital, expertise and access to a national network (September 2021)

Within3: Collaboration and communication platform designed for multi stakeholder engagement for global pharmaceutical and life sciences organizations (September 2020)