Behind The Scenes Of HealthTech VC: Michael Cardamone’s Perspective

Ayush: Hello, everyone welcome to HealthTech with Purpose Podcast. Our today’s guest is Michael Cardamone, and he is the Chief of Forum Ventures, CEO and managing partner. Hi, Mike, how are you today? Welcome to the podcast!

Michael: I’m good. Thank you. Thanks for having me. Doing well, how are you?

Ayush: Great. I’m doing perfectly great as well, and very excited about how things are going on in health. So it’s exciting day every day.

Michael: Yes.

Ayush: No regrets that way. So great, good to be connected, Mike, for this podcast and you know, we really wanted to know more on what’s going in the VC circles for health, currently. But before we get into that how about we do a quick introduction? So over to you to introduce yourself, and talk a bit more about Forum Ventures and what you guys are up to, and so on.

Michael: Yeah, sounds good. I appreciate it. Yeah, the quick background is, I’m in the New York area now. But I spent 9 years in San Francisco. Was early at Box and then was at another startup in the education tech space actually, we grew to about 24 million revenue. And then we just hit 10 years. So I started this in May of 2014 initially as a B2B focused accelerator and so, you know, we were kind of 1st check-in founding team very early with an initial fund in 2014 fast forward now 10 years. We’re 32 people full-time. We’ve got 3 parts to the business. We still run the accelerator. We invested about 80 to 85 companies a year through the accelerator.

We have a precede fund which does about half of the investments we do out of that fund are follow-on investments in our own accelerator companies and half are outside the accelerator. And then we also have a venture studio. So 11 of the 32 people are focused on just building companies from scratch and then pulling in kind of co-founder CEOs to help build those businesses with us.

And so those are the 3 parts of the business. And yeah, while we’re broadly focused on B2B, health tech is a is a pretty big vertical for us. My wife actually pre-COVID, went back to school to become a nurse, and so, in talking to her and learning more about the industry. I started leaning into it. And then, obviously, COVID changed a lot of things and created a lot of opportunities. And so it’s an area we’ve been like leaning into a lot more over the last 4 or 5 years and has become kind of a key vertical for us within our overall thesis and so we’ve done a you know, quite a bit of of health tech investing at the very early stages. Over the last 4 or 5 years.

Ayush: Great, great. So any interesting stories coming from these investments, if you want to name or talk about a few of the companies that you have been part of through investments?

Michael: Yeah, I mean, yeah, we’ve invested in 500 plus companies over the years just given the volume of companies through the accelerators. We’ve had a lot of early successes outside of health tech before it became kind of a key vertical and then within health tech more recently. Yeah, we’re in a bunch of you know, we’re in a company called Remo Health, which is kind of, you know building a lot of tech-enabled service around dementia care and is doing really well. We’re in a company called Finni Health, which is kind of helping practitioners build out their own private practices around ABA therapy, and they’re growing very quickly. General Catalyst is also an investor in that company. And so we’ve been in a bunch of companies around health tech but those are a couple of just the name of them.

Ayush: Great great. So like, can you tell us more about the size of the investment that you look at? Is it typically early stage, or you do late stages as well. And what is your investment, thesis? If you can share more about that.

Michael: Yeah. So like, I said, we have 3 ways we can work with and engage and invest in the founder. So the venture studio. We start the company from scratch. We’re coming up with ideas for bringing CEOs in, and then once we do a lot of validation and work in tandem with the CEO to iterate on the idea and validate the idea, and line up early customers. We then form the company and put 250k on the balance sheet initially, so that they can kind of hit the ground running with some capital on the balance sheet.

In the accelerator that’s where we do about 80 to 85 investments a year, and our standard accelerator terms are 100K for 7 and a half percent. So pretty typical kind of accelerator terms. Every company that comes in gets a 100K, it’s typically a founding team.

You know, some early version of a product. They may or may not have customers yet. But we’re typically the 1st check-in or very early capital-in. And then we work very hands on with them to help them with like, go-to-market and fundraising and making sure they’re going after the right ideal customer profile. And just like really in the weeds with them on tactical kind of go-to-market strategy especially. And then the Precinct fund we’re currently investing out of our second fund, and check sizes that range anywhere from 250k to 750k out of that fund.

So in that fund we’re typically investing in like a 1 to 2 million dollar round. And we’re either the largest or second largest check in the round in most cases, and so those are often kind of pre-seed deals or small seed deals. They usually have some early traction but not always depends on kind of the market and the founder. But that’s at a high level, that kind of check sizes and strategies across all 3.

Ayush: Great. Okay? So a follow-up question you know, moving further is you know.

So, How is the environment of investment currently given that there are, there has already been lot of news. So are things picking up? Do you see any particular patterns that you can share especially in terms of investments? How do you see?

Michael: Yeah, yeah. So we’re we’re in a pretty unique position. Just given the volume of companies we have in through the accelerator to see early signals at least, the early stages, and even some of the later stages. I don’t have data on it yet. But it feels to me like things are starting to pick up. We have 10 years of data of like follow on funding rates out of the accelerator, and like how many meetings it takes to get around done, how long it takes to get around done. And that was, that data in 22 and 23 we’re kind of lower than historical averages, and we’re starting to trend back up to historical averages that we’ve seen over 10 years. So it feels a little bit like pre-seed and seed is starting to open up a bit. We’re obviously not anywhere near, nor should we be the craziness of 2020 and 2021. But I think we’re getting back to like a normal like 2018, 2019 timeframe in early stage.

I think Series A is starting to open up a bit, but the bar is certainly higher than it has been in the past, and then I think B, and later is still pretty challenging. Rounds are getting done but in a much smaller subset of companies, and then those rounds tend to be very big and competitive. But the bar and growth rate to get those like B rounds done is pretty high right now.

Ayush: Okay, so for VCs, you know, like, because most of the news that we read or come across is more from the point of view of a founder like you know, how is the environment for them? So for the VC. How is the environment like both on raising capital as well as you know, investment opportunities?

Michael: Yeah, it’s a, It was really hard to raise capital as a fund in 22 and 23 it feels like right now LPs is at least taking more meetings. I think you saw a number of different factors that led to kind of like a flight to safety from LPs, which meant like more capital in a smaller br subset of brand name funds because, that’s kind of viewed as safety. It’s like the old adage you don’t get fired, for you know, buying IBM like you don’t get fired for investing in Kleiner or Sequoia, or whatever. Right? So I think you saw you saw a pullback from emerging managers and smaller funds, and I think LPs are starting to lean back into that, but cautiously. So it’s still hard to raise capital, and I think you’ll see a lot of funds that popped up in 2021 and 2020, you know, struggle to raise second funds. But I do think it’s starting to open up a bit more, and LPs are starting to add new managers again in that like emerging manager, smaller fund category. It’s just not as frantic of a pace is anywhere near frantic of a pace as it wasn’t in 21.

Ayush: Only that was a outlier and spoiled us. Okay, so, Mike, there has been a lot of talk about AI and of course. It has been exciting for both hospital systems, you know, like a CIO as well as a VC, like the possibilities that exist. And you know, especially VC investment is all about, you know, counting on the future opportunities and future outlook. So you know. How do you see? In your opinion, the evolution of AI. And what are the real use cases or substantial progress that you are seeing around AI?

Michael: Yeah, yeah, I mean, so the obvious ones which we can skip over obviously, there’s a lot happening around diagnostics and treatment around AI, I think outside of those areas. Yeah, I think there’s 1 is like early detection. So I think we’re seeing a lot of people trying to leverage, like new modalities, to have early detection. So you know, just listening to like someone talking and trying to detect early signs of like, are they at risk of stroke? Or are there things you can do to do? Early detection around like potential cardiac issues down the road where you can then leverage AI to have much better preventative opportunities within healthcare as opposed to just waiting for there to be an issue, and then using AI to diagnose the issue. And so I’m excited about a lot of the like early detection stuff to see if there’s ways to like biomarkers or ways to detect
you know someone trending negatively from a health perspective early enough where you can catch it and do something about it before it becomes a major issue and then, I think, on the financial side of you know, health systems have been since Covid have struggled a bit financially. Margins have gotten tighter.

And so I think a lot of them are looking at solutions that can help drive costs down or incremental new revenue. But in a lot of cases drive costs down on the operating side and back office side. So things around like, how do you handle claims and pre-authorization? And all that kind of stuff, and like minimizing a lot of the back and forth and the need for call centers and billing. And you’re trying to like streamline and automate a lot of that stuff. And then even operationally within the health system like, are there things you can do around like all detection or input of data automatically, versus, like having the nurses have to input it every time to save them time. So I think there’s a lot of areas within the operations of health systems that AI can have a pretty big impact on driving costs down over time.

Ayush: Great. So but is it a crowded market like, do you see that this is like a substantial wave already? Or do you see that this is like that early wave that may you know, go through a Gartner Hype cycle kind of thing? So go low back, and then, you know, few winners would emerge like how do you see it as a VC.

Michael: Yeah, I mean, I think we’re the obvious opportunities are becoming crowded quickly. But it’s unclear who the winners are gonna be still, ’cause I think a lot of them are still early enough, that and like sales cycles are long with, especially if you’re selling into health systems that it’s yeah, I think it’s it doesn’t have the dynamic of like winner take all I think you know, once you get into a health system. It’s gonna be really sticky. It takes a while to get into them. And so I think there will be multiple winners across a lot of these categories.

And it’s a big enough you know market that it can certainly, you know, support multiple big outcomes, venture scale outcomes in a lot of these areas. So I think you know, I think it’s like starting to become crowded, but still plenty of opportunity to kind of find and invest in winners.

Ayush: Great. So, Mike, another interesting thing that is always on any health founders’ mind, is, you know, how do they become fundable or successful, of course. So you know, like, since to the various programs that you’ve done like from accelerator to venture studio to VC, you know. What are those common themes? If you have any that you can share like a checklist, or like things to do for a health founder if you were, if they were to start today.

Michael: Yeah, I mean, this is maybe obvious. But I think, having deep understanding of the market and problem you’re trying to solve, and the nuances within that is like
really important in almost anything you’re building but healthcare, I think especially. And so that could be like, you’ve spent a lot of time in healthcare and in healthtech companies, or at health systems. And you have, like a deep understanding firsthand from working there. It could be first-hand experience. Personally, you went through a health crisis or someone in your family did, and you like had to navigate it on the personal front, or you’re just absolutely relentless about customer discovery. And you talk to tons of people. And like really, deeply understand the problem space you’re going after before you go after it.

So that’s 1 is like, how much knowledge and unique insights do the founders have around the problem they’re going after and how did they earn that knowledge? I think is one thing we look for, and then on the other side of it is more around like.
You know, what are the early signs of pull from the market? So you know, selling into health systems is not the only way to sell in the healthcare, obviously there’s a lot of models. But is there a strong pull? Even if the sales cycles are really long, are you? Are you know. Are you getting health systems interested in being design partners? Are they interested in investing? Are they trying to like figure out how to get involved even at that really early stage. And even though it may take 6 – 12 months to actually get to like a full annual contract.

You can start to sense like how serious they are about the problem space and about this team and and what you’re building and how you’re building it. And so that’s one way, if you’re selling like in Finney Health’s example, that was more of a working with like
spinning up private practices with practitioners. And there was like clear early poll and a mismatch and supply and demand so like, there are a lot of market dynamics that were in their favor. Remote health has a lot of like market tailwinds around it, obviously with, like the baby boomers growing older and dementia being such a big problem, and most of the caretakers for people with dementia are not professionals. They’re just family members that are caretakers and so helping them and empowering them to provide better care, provide more transparency back to the health systems was, we felt like was like a really important piece of dementia care.

We thought there was a big opportunity there. So yeah, I think a lot of it is just like understanding the market dynamics, understanding like regulatory shifts that might create an opportunity, or new codes that come out that may create an opportunity. And then figuring out like, is there good kind of pails in the market, and good pull from the market from customers.

You know early, which is always hard to tell early, and I think health systems like notoriously engage with a lot of early-stage companies. And then it’s actually like pretty hard to get to that annual contract and so like, really digging into like.
You know, how important is this? What does the engagement look like with the people who are testing it in the Beta phase? And you know, just trying to kind of figure that out. It’s hard at the early stages, though.

Ayush: Right? Right? In fact, I always say that you know. Building a health startup is, you know, 10 times more tougher than building, say, an e-commerce startup, or any other.

Michael: Yeah. Yeah, every industry has its challenges, but healthcare is certainly one of the hardest.

Ayush: And even a MVP may not be just quickly say setting up a web page or something you still have to in most cases, you know, like integrate, or you know, manage PHI, or be compliant.

Michael: Yeah, there’s compliant, you know, extra compliance hurdles to be HIPAA compliant and depending on what you’re doing and then, even just. You know, we see a lot of things that are technology to augment care or improve care, improve outcomes. And part of it is like, okay, how long is it gonna take to prove the efficacy of what you’re doing and like, how clear will it be that your solution is the thing that improved it.
Because if you can’t prove that over some like reasonable amount of time, it’s gonna be really hard to convince health systems to pay for it? And so that’s that’s another big piece that health tech founders need to really think through is like, okay.

It sounds intuitively. It sounds like what you’re doing could improve care. But there are so many moving parts like, how do you actually prove that? How do you prove that you’re improving patient outcomes because it’s really hard.

Ayush: That’s right, that’s what. So it must be tough. I can imagine. Like as a VC also, you know, to be able to bet, you know, because there are so many unknowns that could possibly all fall in the right place hopefully. So my question as a follow-up would be like what kind of market validation you know, or a minimum market validation that you would look at for a health startup that you know to be again investable or to count upon as a winner in their early cycle?

Michael: Yeah. So, at the stage we’re investing in which is like very, very early stage. If you’re selling into health systems, I think we wanna see at least one health system like meaningfully engaged as like a design partner, where they’re like giving you some time from the clinicians, from like the head of whatever department you’re selling into, to give like meaningful feedback on the product and help you build a product that will
eventually become a 6-figure plus type contract with them. And so that’s another piece of it, too, is like if everything goes well, what do we think the contract size will be? And is that big enough relative to what we think the sales cycles will be? And so trying to validate like, okay, if all this works the way you think it’s gonna work and hope it’s gonna work, this talking to the health system that’s engaged. Then, like, what are you willing? What do you think the willingness to pay is gonna be? And what do you think this contract size can become over time? You know we see a lot of health tech companies that are selling the health systems.

And you know, maybe the end contract is only like 50K or 60K a year, and we just don’t think that’s big enough to justify how hard the sales cycles are with health systems to build a really big venture scale business. And so we would need to see a clear path to like 200-250k plus type contracts. Or just it’s gonna be hard to see it working at scale.

That’s a lot of what we do. If it’s on the health system side. If you’re selling into, you know employers cause as a benefit of self-insured employers. You know. Some of what we’ll want to see is just, do you have any employers on board, or any brokers who are willing to be distributors of this, because they think it’s additive for their customers. And then, have you had anyone beta-tested. And what is the engagemen, bandwidth employees? Because it, you know, again, is it actually like being utilized as a benefit? And then, are you realizing the benefit?

So like some early signals around engagement and like efficacy of the thing you’re trying to do to help that self-insured employer reduce their costs. And how hard will that be to prove over time? So yeah, again, like looking for some sort of meaningful engagement from either a broker who’s gonna distribute it, or a self-insured employer who thinks it could have a material impact. And then some early signs of that like engagement at the employee level those are. And then, you know, obviously, we look at stuff around. You know, you’re selling the payers. It’s similar to health system like they’re just not a, you know, not a ton of payers. And the contract sizes need to be big, and hopefully, you have at least one kind of engaged as a design partner. If it’s more the private practices, we wanna see that you did a ton of customer validation and talk to a lot of private practices. And then there’s, you know, clear kind of, you know, on fire problem that they want to solve. It can’t be like a nice to have and so, you know, making sure they’ve really fleshed that out through the customer discovery, and have, like a bit of a pipeline of private practices that they’ve talked to, that are interested in what they’re building.

Ayush: Right? Right? No. All well said, I think all great points so a follow-up to that Mike would be like again. Because you have. You are someone who is seeing like great companies on a daily basis. So any you know, to be able to solve this puzzle. Any smart moves or any smarter ways you have seen companies do, or any particular company is done, and you just felt oh, this was really a better way than what most people think. So any hacks or any smart moves that you have seen from companies to be, especially during that early existential period that you know a lot of things have to fall in place.

Michael: Yeah, so one of the things this is just going back to health systems, which I know is just like one customer segment within healthcare. But I’ve seen an increasing trend of health systems when they engage, take the risk of engaging with super early stage founders trying to get warrants or other things to like, get some upside for the risk they’re taking of engaging with that early stage company. And I, you know, I think that’s generally okay. But I, you know, I think some health tech founders have been able to navigate negotiating those warrants being not just tied to that customer or that, like getting data from that health system, but also saying like, Hey, can you also make
introductions to other health systems in order to earn the Warren, because, you know all these, all the innovation teams and department heads at all these health systems, like a lot of them, know each other. They meet at conferences. They talk about stuff.

And so I think if you can build trust with one, it reduces the friction and getting the next 5. And so I think, trying to figure out if you can negotiate. You know, when they, when a health system inevitably wants to come in and ask for warrants, or some equity, or some like future right to invest at some capped price, or whatever they’re asking for. It’s different, for every health system is trying to build in some distribution and introductions as part of that and make sure that’s like a clear ask, and that they’re willing to do that.

I think that’s been like a bit of a hack is the reality is like it’s just a grind to get your 1st like 2, 3, 4 health systems on it. It can snowball after that? Once you build trust with multiple. But like you need to do everything you can just to get those 1st few in and like, build, trust, and show that it works.

Yeah, I mean, it’s just yeah. It’s never easy. But it becomes easier the more you build like a little Mini brand and build trust within other health systems. But man, getting those 1st few health systems over the goal line is hard.

Ayush: So see, one thing we’ve seen historically is, you know, there’s a lot of technology disruption or more acceptance that I would say happening when there’s a push from legislation, or there’s something from CMS. Or you know, there is any big change happening at the top. So are there any you know, like such changes, or such rules or regulations that are viewers should be aware about that like through your research, we have seen that that’s 1 big trend that you know could be happening.

Michael: Yeah, I so you know I don’t know any right now I’m there are, I’m sure there are. There’s stuff all the time, so I’d have to go back and kind of look through it. I think there are depending on what happens with this presidential election. I think there’s like risk around the flexibility around telehealth. And some of you know, I think things could change a bit depending on who’s in office there. So I tend to think like there will be a lot of changes depending on what happens with the Presidential election. And so with, as you pointed out, like with any regulatory change, creates opportunity. And so I think we, you know, we’ll watch it closely and see. But I’m sure there will be a bunch of things that can create opportunities for startups.

Ayush: Great and one last question is, you know any company that is looking to, you know. Get themselves in front of you what would be the best channel.

Michael: Yeah, they can send an email. I’m just mike@forumvc.com. They can submit on our website just on the Pitch Us form those are probably the 2 easiest ways. The pitches form is probably, I get a lot of emails. But I try to respond to everyone from a founder. So yeah, those are probably the the easiest ways to get in touch with us.

Ayush: Great. Thank you, Mike. Super awesome. Thank you for all the great thoughts shared, and I believe that it would be super helpful for our viewers. And they can definitely take you know, few of these ideas. Apply them and build better health. Thank you so much.

Michael: Great. Yeah, thanks for having me. I really appreciate it.

In this episode of the HealthTech With Purpose podcast, we had a great discussion with Michael Cardamone, CEO & Managing Partner at Forum Ventures (formerly Acceleprise).

Michael shares insights into his background, including his time in San Francisco and his experience in the startup ecosystem. He discusses the structure of Forum Ventures, which includes an accelerator, a pre-seed fund, and a venture studio, focusing on early-stage investments, particularly in B2B and health tech sectors.

Michael highlights some of the companies they’ve invested in, such as Remo Health and Finni Health, and explains Forum Ventures’ investment strategy, which involves check sizes ranging from $100K to $750K, depending on the stage and engagement level. He notes a recent trend towards normalization in the venture capital landscape, with increasing activity in early-stage funding and a cautious but growing interest from LPs in emerging managers and smaller funds.

The conversation touches on the potential of AI in healthcare, particularly in early detection and operational efficiencies, and the challenges of navigating the healthcare market. Michael emphasizes the importance of deep market understanding, strong market validation, and early engagement with key stakeholders like health systems or self-insured employers.

He also shares insights into the complexities of selling into health systems and offers advice for health founders on how to become fundable, including the importance of regulatory knowledge and proving product efficacy. The discussion concludes with Michael providing contact information for those interested in reaching out to Forum Ventures.