MFV PARTNERS Interview Series: SteelSky Ventures

Kristine Harjes: It is Wednesday, March 10th, and we're talking healthcare. Industry Focus alum Kristine Harjes here, neglecting my regular duties with TMF's venture fund to guest host this interview with Maria Velissaris and Buffy Alegria of SteelSky Ventures, a venture capital firm that invests in the future of women's healthcare. Maria, Buffy, I am so glad to have you both here. How are you?

Maria Velissaris: We're great.

Buffy Alegria: Doing well. Thank you for having us.

Harjes: Awesome. If you could get us started, just tell us a little bit about yourselves and your backgrounds.

Velissaris: Sure. My name is Maria Velissaris. I'm the founding partner of SteelSky Ventures. We invest in companies that create better access, care, or outcomes in women's healthcare. My background starts as an entrepreneur. I started my first company out of college. It was a shipping and storage company with a friend from Duke. We combined forces and grew the company to be the largest college shipping and storage company in the nation. Subsequently, that company was bought by U-Haul, and they still run it 20 years later.

That was my first foray as an entrepreneur. Then, I spent the next 15 years of my career just picking up different pieces so that I could understand how to build and sustain great businesses. I worked at consulting at Booz Allen, worked at Kraft in brand management, worked at branding firms, and then landed at a VC backed healthcare company that really got me interested in healthcare. Then, I wanted to learn how to invest, and so I joined an angel networking group where I learned how to invest, and that's where Buffy joins my story. We started in 2017 investing in female led companies and then specifically more women's health companies, and then just last year, we decided to launch this one.

Alegria: Hi. My name is Buffy Alegria and I'm Managing Partner at SteelSky, Maria's partner. My background is in finance and healthcare. I spent a lot of years with a large banking institution, creating credit risk management and underwriting departments, as well as mergers and acquisitions and corporate banking. Then, I've also been very active in hospital boards over the last 10 years in my community and on the West Coast. I'm really passionate about using my background to combine my passion for science and help these companies innovate in the women's healthcare space. As a result of personal healthcare issues, as well as having three daughters, I'm excited to improve the care toward women's healthcare.

We are really excited to be investing in digital healthcare, because the COVID pandemic has really accelerated the need for new delivery models of care. Not only patients, but also healthcare providers and payers are really looking for new delivery models to create better care, to create better access to care, and also better health outcomes. Now that patients and providers have both experienced the need for new digital healthcare options, that demand is not going to go away. If you think about it, consumers are demanding their groceries, they're demanding takeout food, they're demanding movies on demand, and they're going to continue to want healthcare on demand as well and to have these healthcare delivery models meet them where they're at. We're really excited to be able to be at the forefront of this catalyst that COVID has created in the digital healthcare space.

Harjes: It's such interesting timing. Was that deliberate? Did you know that you'd be raising in the midst of the pandemic? Has that been beneficial or just a big challenge?

Velissaris: Well, we didn't know. [laughs] We actually launched in the second week of March. We were so excited. We'd planned our January, Buffy flew in, we had all these strategy sessions and were like, second week in March, that's our launch, we're super excited. Then the second week in March is when everything fell apart. We actually spent the next several months just creating the infrastructure of our company, getting our CRM systems in place, really understanding the inner workings of our company. Then we were able to jump back in the market in Q4, and then we were able to raise money and invest in six amazing different companies. We're really excited about that. Also, excited to have our first IPO out of the portfolio, which is an angel investment I made in 23andMe that we're rolling into the funds, so that our investors can take advantage of those gains.

It's interesting because Buffy and I had been investing in these types of care models since 2017. When we were investing in telemedicine, remote monitoring, digital health in 2017, we were investing in companies thinking they'll need probably about five, six years before people start catching on. We'll see if telemedicine ever becomes a thing post COVID, all of these companies accelerated and hit the ground. So, we're really excited about the trajectory of our portfolio and where digital healthcare is going in general. Over $14 billion was invested in digital health globally last year. $9 billion of that was in the U.S. specifically, so there's a lot of attention and a lot of money going into the space, so we're really excited about the growth and the trajectory of our companies.

Alegria: COVID has really just cemented our thesis. We had our thesis before, we saw the gaps in the marketplace pre-COVID, and those have been really elevated due to the COVID stay at home restrictions and trying to keep people out of the hospital and the doctor's office. Adoption was a risk before COVID from a provider perspective, and also from a patient perspective, because the reimbursement for digital health wasn't there. Now, Rock Health recently did a study that shows that consumer adoption of digital healthcare models has grown over 10%, and that includes live video, telemedicine wearables, and digital health tracking, remote monitoring solutions. It really has just cemented our thesis around these delivery models going forward.

Harjes: That's great. We're as excited as you all are about the opportunity. Molecule Ventures is an investor in SteelSky, so we're right there along for the ride. Curious, as you were out raising the fund, what was it that made your pitch compelling? It's really difficult for VCs to raise money from LPs. It's a side of the equation that a lot of people don't really think about. You think about how hard it is for start-ups to raise from venture capital funds, but venture capital funds also need to go out and raise themselves. So, as you were going through that journey, what do you think it was that made your pitch stand out?

Velissaris: Well, we're one of the only dedicated women's health funds in the world. A lot of these larger VC funds are dabbling in women's healthcare, they'll do a deal here or there. There's only about four that are actually dedicating their entire funds to progressing the sector. That's really what set us apart. What sets us apart even further is we're one of the only returns first women's health funds. Some are investing for social good, some are investing out of philanthropies, but we really believe that you can invest in women's health and also create outsized returns. That's really what sets us apart. Not only that, our amazing team that we've brought together, investment professionals, medical professionals, operators, and entrepreneurs like ourselves, we're really able to help guide these companies as they continue to grow.

We have a network of over 150 medical professionals that help us with diligence and understand the different medical challenges that each of these different types of companies are solving. I think what also sets us apart is our passion. We wake up every day knowing that even though we're going to have 10 fundraising meetings and be rejected probably eight of those times, the times that we get those checks from aligned investors like Motley Fool, is a dollar that we can put into changing and bettering women's lives. We're investing in things that are going to create solutions for menopause, solutions for incontinence, things that women have been struggling with for years, endometriosis, pelvic floor prolapse. These are things that other VCs aren't talking about. But what makes it really interesting and was something that I wasn't expecting, is that other VCs understand the opportunity. We'll go and talk to a male VC and they'll say, "Wow, you're onto something, you're going to win the deal and not me." Because then you look like them, you talk like them, you understand, and they're much rather going to be one to take a check from you and work with you than a bunch of sixty year old guys who don't understand their solutions. We've actually got a lot of investments from other GPs and other venture capital funds.

Alegria: We live this ourselves being women as well. We've gone through most of the health journeys that a woman will go through, and so we can understand from that perspective, and that's really compelling. But we also use our resources to understand what are the healthcare providers, what are the payers, the insurance reimbursement payers, looking for gaps in their portfolio so that we can align the gaps that we see as patients with the gaps that they're also seeing as healthcare providers and payers.

Harjes: What does it mean to be focused on women's health? Can you describe what would fall into your sweet spot and maybe something that would miss but just by a hair? I think about a company like one of our portfolio companies, Roundtrip, they do medical transportation. That benefits women in healthcare, but it also benefits men just as much. Would that count or do your companies need to be specifically catering only to a female audience?

Alegria: We don't exclude male health indications. For example, women's heart health, we've looked at many companies that are focused on heart health, that obviously affects men and women alike. But heart issues are the No. 1 killer of women. So, when we look at these companies who are innovating in heart health, for example, we would look to companies that have a specific focus in improving the outcomes in women's heart health. They can also be focusing on men's issues, but if they don't have a specific focus on improving the care for women, then that would fall outside of our thesis. But we aren't exclusively focused on women's health issues.

Velissaris: And to Buffy's point, we're also investing in access, access to care. That might not necessarily seem like it's just targeted toward women, but women are bound by their lack of access, some women don't have access to cars. Some of them can't get off work to go to their appointment. Something like a round trip would create better access for women to be able to go to their treatment, and so that would fit into our thesis. Our thesis is broader, because there's a whole subsection of things that go into providing better healthcare for women: it could be rides, it could be accessibility to insurance, it could be babysitting, it could be other social determinants of health like mental healthcare as well. So, those are all very important things. That's the outlook that we have on the impact to women's health.

Harjes: That makes a lot of sense. Let's cement it a little bit more with some examples, do you want to talk about some highlights from your portfolio?

Velissaris: Sure one of our favorite portfolio companies right now is Lark Health, and so if anybody is familiar with a small little company called Livongo, they just [laughs] had an IPO last year of $3.4 billion and then recently they were acquired for $18.5 billion by Teladoc. We are really excited about where that space is going, and Lark is what we like to think of Livongo 2.0. They are a platform for chronic diseases. A company like Livongo would use live nurses and a company like Lark uses AI technology, so they are infinitely scalable. We think of them as Livongo 2.0. There definitely have been talks in the IPO market. It would definitely be approached by several SPACs to have them participate as well. We're really excited about that company and what they can do, and especially there's going to be a frenzy, a buying frenzy right now in digital health, and they're one that's on the shortlist. We're really excited to see where that company goes, also homed by a female founder, so that is always an icing on the cake as well.

Another company we're super excited about is Zipline. When you talk about what's in and out of balance, people may not understand why a company like Zipline, which is a drone delivery prescription platform, would fit into our thesis, but again, we want to create access to women in rural communities. Zipline has spent the last six years in Africa delivering medical treatment and blood to rural communities and rural hospitals in Africa. They saved over 15,000 women who would have bled out during childbirth, so when Keller and Keenan came to us and were like, we really want to have you invest in our company because we're dedicated to this women's health initiatives as well. We really got onboard with them and we're excited about where they're going. They just closed a series year round and they are in partnership with Walmart to start delivering prescriptions in the United States. We're really excited about the trajectory of that, and also when we are thinking about delivering medicine to women or stigmatized prescription services to women who may be in Kansas or other remote places where they have to drive two hours to get prescriptions, and so they don't get them. Companies like Zipline can help create better access so that women can receive these prescriptions.

Alegria: Yeah, I think one of our other portfolio companies that plays into that same delivery model is Twentyeight Health, which is targeting the underserved Medicaid population as well as the commercially serve in delivering prescription contraception and other women's medication to women in rural areas across the United States, and so they have digital health visits for these women to access these prescriptions and get them delivered to their door, rather than them having to go to a doctor, go to the pharmacy and receive these prescriptions. Many of these women have not had access to contraception prescriptives in the past, and so this really elevates their access to care and improves their outcomes and health.

Harjes: That's awesome, we talk a lot about at The Motley Fool about purposes and profit, and we have such a strong conviction that you can have both. It sounds like all of these companies that you're investing in have that same alignment mentality. One that you mentioned earlier that I want to double-click on is 23andMe, this is one that many people on our audience have probably heard of. It's grown pretty considerably over the last several years. I am curious how you originally found the deal and then what was that original investment thesis?

Velissaris: I found the deal a few years ago, and I was really just reading the paper and I saw that 23andMe had announced a partnership with GlaxoSmithKline, and the bell started going on. They were going to be the first company to be able to use a diverse data set, gender and ethnicity diverse data set to inform drugs, treatments and cures. This is novel in the world. I don't know how familiar your audience is with clinical trials, but most clinical trials are done on white men of average size, so all of the dosages are made for that type of population. Of the 10 FDA drugs on the market that got recalled in between 1997 and 2000, eight of them were because the dosing in women was so severe because it's not made for us, and there's a lot of that you can see even beyond healthcare. For instance seat belts, they aren't made for us. We die at a 78% higher rate, mannequin dummies aren't made for us. Women are dying because people aren't comfortable giving women CPR because they only practice on male dummies. All of these things are pervasive and that's why I really thought it was an interesting use of the DNA and ancestry data that 23andMe was able to gather to be able to use this diverse data set to make better and more customized treatments and drugs for diverse communities. That's what really got me interested, even though I was investing at a little bit of a later stage, this seemed to be the very start of this new company, which was going to be basically a drug platform.

Harjes: They have such a cool and interesting story. What has surprised you the most about it? As VCs, we like to look into our crystal balls and say that we can tell everything about the future, but really we're looking for these great mission driven companies that we think can beat the odds but there always surprises and challenges along the way.

Alegria: I think that what's been a little bit surprising to us, and has refined our mission even a little bit more, is the amount of people in underserved populations and Medicaid, Medicare population that really have been untapped in many of these endeavors in digital health and in healthcare in general, and yet, the population in Medicaid alone is doubled out of the commercial insured. So, it's a very opportunistic population in terms of innovation and delivering better care and access to care. That's been one surprise I think, that we've been happy to focus on actually, because it doesn't seem to be enough of that in the market, and we really feel like it has great potential for outsized returns and also for impact.

Harjes: Now, as the company nears an exit, can you provide us a little bit of details around that?

Velissaris: Well, we're probably not ready to talk about that right now. We're excited they're joining Richard Branson's stock and looking forward to an IPO in the future, and we're really excited to see how the market receives them and how it grows. We hope the general market will be as excited as we are about really the future of this company and change the thinking from thinking about them as an ancestry company and a DNA collection company to really thinking about them as the next huge pharmaceutical company that can create customized treatments and medicines that can better inform drugs and healthcare going forward.

Harjes: SPACs have become all the rage lately, particularly in our world. But for our listeners who might not be familiar, can you tell us a little bit about what that even is?

Velissaris: SPACs are a company where it's kind of a vehicle where you have the money and then you add the company. Right now, we're actually working on a really interesting SPAC opportunity around women's healthcare because what we found in the market for women's healthcare is that it's very fragmented. A lot of companies are adjusting to very specific niche disease states and they might not be big and venture backable on their own. But if we put them together and merge them together in a SPAC platform, we're creating a mini-company of several companies that can create large venture capital returns. That's one of the things you may be finding in these SPACs, also there's a lot of SPACs that are very focused on a certain theme, a digital health theme, we're doing women's health theme, we're doing even a pelvic floor women's health theme. I think it's a really interesting way for companies to come to the broader market who may not be able to have success in fundraising on their own because they won't be billion dollar companies. But when you combine them with other companies that are in adjacent categories, then you have an opportunity for outsize returns.

Alegria: We also find that that offers the opportunity to really expand the continuum of care in those areas, so as Maria mentioned, we're looking at maternal health and pelvic floor and exploring the possibility of maybe creating a SPAC in those categories. By combining a whole bunch of little companies that are operating in a niche, it really expands the opportunity to offer services around the full continuum of care in that care line.

Velissaris: We thought it would take a couple of years for these companies to grow. All these little companies, we're like, OK, our first fund, we'll invest in them and to see, and our second fund will raise a bigger fund and we'll help them scale. Then, our third fund will be a buyout fund, where we buy them all together. What SPACs have enabled us to do is accelerate that timeline and get these companies together and bring them to market more quickly.

Harjes: Interesting. Then, once they are public, do you think that these companies are investable for your average retail investor?

Velissaris: Yes, they are. It's definitely what we found in the market, investors want to invest in things that are interesting to them. There's already so many fintech companies or crypto, but healthcare is something that affects us all, especially women are really incentivized to help. They want to find cures for menopause, they want to find cures for incontinence, endometriosis, so I really think that this gives the average retail investor the opportunity to invest in companies that you care about and the companies that actually affect and impact you and your daily life. We're really excited to get these private companies that would have stayed private for the next 10 years to the market earlier.

Alegria: We always like to say, COVID can stop many things, but it can't stop menstruation, it can't stop motherhood, it can't stop menopause and it also can't stop all of the healthcare issues that everyone experiences, even the consumer and the investor. Healthcare is really, I think, a defensive position as an investor because there's always going to be new solutions needed, new healthcare delivery models to address ongoing health concerns.

Harjes: As an investor in this space, it's clear that the problem is huge, but particularly when you're looking at real estate companies, they're really risky, many of them fail. In general, as a private investor or somebody investing strictly in the public markets, when you're looking at a company that can potentially capitalize on a thesis that you have around healthcare and women's health, what signs do you look for that it will be successful?

Velissaris: No. 1, we look for the market size. Is this something that's a need in the market? We like to address pain points in the market, and not necessarily nice to have. When people come to us with an idea, we'll say "You know, that's really nice to have. I think that will be a great add-on or addition." But we're really trying to solve huge pain points in the market, because people pay for things that are huge pain points. For instance, some women's health companies come to us, we invested in the first at-home incontinence too . That company did almost $1 million of sales in a couple of months because that's what a pain point is for people. We feel like if we're investing in companies that sell really unique and challenging needs in the marketplace when there's no solutions there, that we'll be able to drive customer adoption and sustainable adoption going forward.

No. 2, we like to look for good entrepreneurs. At the end of the day, we're working with these companies through the next 10 years, so we have to invest in people that we like, that we trust, that we believe in, and that are coachable. A lot of founders come and they're super confident, but we love the founders that come and that are humble. They understand what they know, they understand what their gaps are, and they understand how we can help them fill those gaps. We look at our relationships with these founders as a partnership. Just writing a check is only our first line of getting in the relationship. We write the check, we shake hands, and then our relationship begins. Other investors may think, "Okay, we get to know you for two years, and then we finally write you a check," but we really put our money where our mouth is and we have a whole team dedicated to helping them with post-deal support, so we bring them in. I'm a former consultant, so I love looking at companies, finding gaps, and being able to find resources to help them scale and grow. We take that approach, we use my consulting approach in how we engage with our portfolio companies and how we help them throughout the lifecycle of their careers.

Harjes: Great. Last question that I have for you before we wrap up, where can our listeners go to learn more about SteelSky and investing in women's health?

Velissaris: They are more than welcome to visit our website at www.steelskyventures.com and we're also accessible on Linkedin. You can see us in many conferences, women's health conferences as well. We have a couple of coming up on panels that are featured. We're about to have a documentary featured on Himss TV as well, so if you check the SteelSky website and you check our Linkedin, you'll be able to access and see us in the various different types of media channels.

Harjes: Awesome. Well, thank you so much for joining me.

Velissaris: Thank you.

Alegria: Thanks for having us.

Harjes: Listeners that's going to do it for this episode of Industry Focus. You can find out more about Motley Fool Ventures at Foolventures.com and you can always say "Hey" and reach out to us at invest@Foolventures.com. As always, people on the program may own companies discussed on the show and The Motley Fool may have formal recommendations for or against stocks mentioned, so don't buy or sell anything based solely on what you hear. Thanks to Tim Sparks for his work behind the glass today and thank you for listening. Until next time, Fool on!