PE Hub’s ongoing series of private equity firms investing in healthcare continues with insights from Steve LeSieur and Jeff Haywood, managing directors at Spectrum Equity. LeSieur joined the firm in 2005 and focuses on internet-enabled software and information services serving vertical end markets such as healthcare, education and travel and hospitality. Prior to joining Spectrum, he worked at Trident Capital, Thomas Weisel Partners and The Beacon Group. Haywood joined the firm in 2007 and his areas of investment focus include internet-enabled healthcare IT, software and information services. Prior to joining Spectrum, he worked at Thoma Cressey Equity Partners and Goldman Sachs. They outlined the firm’s approach to healthcare investing.
“Our approach to healthcare follows the general theme of the firm very closely, where we invest in businesses that leverage information and data in a unique way. Information businesses underpin all of our investments at Spectrum, and that is very much the case in healthcare,” Haywood told PE Hub.
He noted that both Definitive Healthcare and GoodRx are examples of companies the firm invested in early on with revenue of single-digit millions of dollars or low-double-digit millions that have evolved into multibillion dollar public companies.
“They are vastly different companies but both use data and information to drive transparency and better decision making by constituents across healthcare. A number of other companies within our portfolio, such as PayerCompass, address the ongoing challenge of cost containment and price transparency in healthcare,” he said.
Haywood added that the firm uses a mix of a bottom-up and top-down approach.
“Obviously, there are big trends and then there are investable themes for us, but we really get to know companies that are operating in different areas of healthcare and understand what business models are working, which products are resonating and what approaches to different problems are working, and then we try to find and back the winners.”
Investing in healthcare
“We leverage our broad horizontal experience, with themes that have worked and business models that have worked out in other industries that are probably further along in terms of their adoption of technology than healthcare and draw on those types of experiences to inform our views in healthcare and differentiate ourselves in terms of what we bring to those investments and to those companies as investors,” Haywood said. “Spectrum Equity is a broader horizontal firm focused on technology software and internet businesses. Healthcare is one of the verticals that we are deep in, and we try to draw on that broad experience whenever we can.”
He also added that there are “a lot” of constituents in healthcare.
“You have payers, providers, consumers, life sciences, pharma, and they all have different priorities and different things that they care about. When you can find businesses that can bridge a couple of those gaps or work within a couple of those constituents, those are really powerful businesses.
LeSieur said that the firm uses a very data-centric lens to focus on everything it does.
“In healthcare, we view data, information, analytics, and software as fundamentally improving access to care,” he said. “Better information and technology in the hands of the right stakeholders at the right time in healthcare should vastly improve access to care.
How covid changed healthcare
“Covid made healthcare harder for everyone but particularly consumers and patients. We saw things emerge and evolve like telehealth, teletherapy and virtual/remote diagnostics,” LeSieur said. “In our portfolio we have business like Headspace Health, which not only provides a mobile app focused on mindfulness and meditation, but through its merger with Ginger, provides a platform combining behavioral health content and tools with actual employer-led access to behavioral health resources through teletherapy.”
He added that even a company like GoodRx has a telehealth platform (GoodRx Care).
“PWN Health was the foundation of a meaningful portion of the covid testing that happened during the pandemic via their national ‘virtual’ clinician network. Coming into the pandemic, we had these high-level views about access. Ultimately, a lot of those things got accelerated and structurally changed by covid. Most of our companies were net beneficiaries.”
The firm has also had success partnering with entrepreneurs that were not career healthcare people, like Jason Krantz, who built and drove Definitive Healthcare, for example.
“Krantz is a phenomenal entrepreneur who had previously built an information services and data business that was not focused on healthcare but had built this expertise and said, ‘Look, healthcare is a big, complicated market I want to go after.’ Similarly, Trevor Bezdek and Doug Hirsch, the co-CEOs of GoodRx were not healthcare guys. They experienced the broken nature of our healthcare system as consumers fist,” said LeSieur, who described how Hirsch’s “a-ha” moment happened when he went to pay for the same prescription at two different pharmacies and was charged two wildly different prices with literally no explanation as to why.
“He thought, ‘This is broken. I want to fix this,’ and in both cases, these were very thoughtful entrepreneurs who were focused on building self-sustaining, capital efficient businesses from the beginning addressing critical deficiencies in the marketplace. They were looking for investors who could help them not only navigate healthcare, but really build compelling product-first businesses addressing the challenges of health care. That is an important point.”
He also brought up another meaningful shift in healthcare: how the consumer is shouldering an increasing portion of the annual healthcare spend outside of employer-subsidized insurance.
“This forces more rational consumption of health care goods and services,” LeSieur said. “This shift is driving the demand for better product experiences, higher service levels, and real transparency of what I, as a healthcare consumer, am really getting, and what I am paying for. This trend is overhauling and putting pressure across the healthcare ecosystem. This is a trend that is not going to slow down as costs have become untenable for employers. While costs are still too high, these shifts are driving improvements. You see things like the FIHR data standards that are finally forcing real interoperability between payers and providers. The walled gardens are starting to come down. It is going to be a long process. But all of this, again, plays back into our central thesis of more data, more transparency, and better decision making by all constituencies across the system will lead to more access and better outcomes. These are really powerful trends.”
“The rate of inflation for healthcare costs has far exceeded any sort of broader inflation rate on an annual and longer-term basis in this country for years,” said LeSieur. In healthcare, Spectrum has always been focused on improving access, lowering costs, and improving outcomes. We are investing in software and data businesses. The more acute issue facing healthcare today is the acute labor crisis going on across our system – and this is having an adverse impact on costs. Hospitals and providers of all types are facing the lasting impact of covid.”
He also noted the challenges facing the healthcare workers when its comes to burnout and fatigue – and very low job satisfaction rates.
“We are looking at a range of opportunities to help address these issues and how we can leverage technology to help hospitals and providers manage through this – for lack of a better term,” he said. “Healthcare is a remarkably durable category; it is 25 percent of US gross domestic product plus or minus. It is also somewhat insulated from broader economic conditions. Healthcare demand is not tightly correlated to any macroeconomic index. So, I do not think there is anything in our calculus that has or will really change if interest rates go up or down or we enter a recession. We tend to be much more focused on the specific problems industry participants face – like a skilled worker / provider shortage – and try to invest in businesses solving those problems.”
Founded in 1994 and based in Boston, Spectrum is a growth equity firm that provides capital and strategic support to innovative companies in the information economy. The firm has invested in over 165 companies and is investing its ninth fund and overage program (a vehicle to facilitate larger investments) with $1.7 billion in capital.
Spectrum invested in PresenceLearning in January 2022 under its K-12 special education and mental health therapy vertical; invested in Membersy in September 2021 under its dental membership plans vertical; invested in Ease in March 2021 under its benefits enrollment vertical; invested in RxVantage in February 2021 under its sales-enablement for life sciences vertical. (See the sidebar, below, for more details.)
Spectrum has had two recent initial public offerings within their healthcare portfolio with Definitive Healthcare (NASDAQ: DH, $3.9 billion market cap) going public in September 2021 and GoodRx (NASDAQ: GDRX, $7.9 billion market cap) going public in September 2020. Spectrum was the first institutional investor in Definitive in February 2015 when the business was less than $10 million in total revenue. Spectrum partnered with Francisco Partners in October 2015 to recapitalize GoodRx when the business was less than $30 million in total revenue. In addition, Spectrum recently realized a partial exit in PWN Health when it was acquired by EverlyWell in March 2021 for a mix of cash and stock and excited Verisys in July 2021.
Spectrum’s healthcare portfolio highlights
(Dates refer to initial investments.)
Definitive Healthcare: A provider of healthcare commercial market intelligence data and analytics. (2015)
Ease: A cloud-based employee benefits enrollment system for SMBs, insurance brokers and insurance carriers. (2021)
GoodRx: An online platform to access, compare and transact on discounted prescription drug prices. (2015)
Headspace: Headspace Health is an accessible and comprehensive digital mental health and wellbeing platform. It is the product of the Headspace and Ginger merger. (2017)
Membersy: A subscription management and plan design platform for dental membership plans. (2021)
PayerCompass: Provides healthcare reimbursement technology and price transparency solutions. (2019)
PresenceLearning: Provides teletherapy and software for special education and mental health providers in K-12 schools. (2022)
PWNHealth/Everlywell: Provides healthcare diagnostic testing enablement solutions for consumers, employers and health plans. (2020; Acquired by Everlywell in 2021)
RxVantage: A cloud-based software and data platform that allows high value healthcare providers to access and engage with leading life sciences professionals and brands. (2021)