What is the Innovation Fund?
The CHCF Innovation Fund aims to improve access and to ensure high-value care for all Californians by partnering with emerging companies to bring the best innovations and technology to providers, health systems, payers, and patients. We invest in early- through growth-stage companies, providing critical investment capital and network-building support to mission-aligned entrepreneurs. Our team brings deep knowledge in policy, delivery system partners, and reimbursement within Medicaid and California, which gives us a unique ability to help our portfolio companies navigate California’s complicated Medicaid ecosystem.
What types of companies or organizations does the Innovation Fund invest in?
We invest in early- through growth-stage companies, providing both capital and network-building support to entrepreneurs working to grow their reach in California’s Medicaid ecosystem.
We believe that technology solutions should be developed by the people in the communities they serve because no one has more insight into the challenges than the people who wrestle with them. Right now, we are actively working to grow our portfolio of companies we support founded by Black and Latinx people, other people of color, and women. These founders are critical partners because they are often able to tap their lived experiences to champion solutions that align with our mission of improving health care delivery to all Californians.
What value does CHCF add as an investor in emerging health care tech companies? How do you support the companies you serve?
The Innovation Fund brings deep knowledge in policy, delivery system partners, and reimbursement within Medicaid and California, which gives us a unique ability to help our portfolio companies navigate California’s complicated Medicaid ecosystem.
We support companies by staying actively involved after investing, including through our position on the company board and relationship with the executive team, and our hands-on work and network-building support to help companies get traction in Medi-Cal.
When surveyed, 100% of CEOs in our portfolio say their relationship with the fund is valuable. Ninety-three percent would recommend that other start-ups work with the fund to grow their business in California.
What does CHCF look for in companies it invests in?
There are three main components we look for in a company.
The first component is screening for fit with CHCF’s mission: If a company does not align with CHCF’s mission to improve access or value of care for people living on low incomes in California, it will not be considered for investment. To determine fit, we collaborate with CHCF program staff, grantees, Leadership Fellows, and expert networks to explore whether there is demand for the product or service, if it can be implemented, and whether experts believe in its potential impact. The Innovation Fund identifies the payers and providers interested in piloting and ultimately paying for the solution as a marker of its fit with CHCF’s mission.
Second, we look for whether CHCF can add value to the company. For example, we know that CHCF’s value as a partner is our understanding of the health care delivery and reimbursement systems and our relationships with health plans, provider organizations, regulatory agencies, and policymakers across California. We are not experts on US Food and Drug Administration (FDA) approval processes, reimbursement, or distribution channels related to drugs and medical devices. Therefore, we focus on health care services and IT companies where CHCF’s networks and knowledge provide significant value.
The third component is business, financial, and legal due diligence. The Innovation Fund investigates whether potential investees have a strong assessment of the market, a credible business plan, operational track record, experienced team, and well-articulated financial model. To do so, we work closely with the company’s current and potential financial investors to investigate the company’s business and financial position.
What impact has the Innovation Fund had on health care delivery?
In 2021, the fund’s portfolio of companies served over five million Medi-Cal enrollees at over 250 hospitals and 100 clinics in California.
For example, we supported Rubicon, which offers electronic consult capabilities to primary care providers. With our support, they now serve 40 plan and provider organizations in California, delivering more than 30,000 eConsults a month, and proof of eConsult’s value as CHCF works to secure reimbursement in Medi-Cal.
How to Partner and the Portfolio
How much money can a company be awarded? What are the terms? Can a company qualify for a grant rather than an investment?
We will make investments of up to $3,000,000 over the life of a company, with the original investment likely between $50,000 and $250,000 for companies at the seed stage and up to $1,000,000 for growth stage.
For growth-stage companies, we also provide up to $400,000 of grant funding to help accelerate impact in California. While these grants do not go to the companies directly, we can offer grant support to delivery system partners, such as providers and payers, to support with adoption, scale, and evaluation of the technology.
As a private foundation, we can be flexible with our investment terms. We can offer both debt with warrant coverage or participate in equity funding rounds.
How do I get in touch about an investment or partnership?
We encourage companies to get in touch with by emailing InnovationFund@chcf.org. We review submissions on a rolling basis.
Does the fund invest in companies that are based in or operate outside of California?
Companies must be incorporated in the US, but can be based outside the state. We look for companies that have active clients or strong prospective partners in California, or desire to build these partnerships.
Is the fund limited to companies that are already working to improve access or care for Californians living on low incomes?
Not exclusively. We seek companies that have a strong commitment to CHCF’s mission, and whose products or services have the potential to significantly improve quality of care, lower the total cost of care, or improve access to care for Californians with low incomes. In these cases, we help companies understand how to navigate the systems that provide care for people living on low incomes, and can provide feedback, answers, and expertise on broadening the reach of these solutions. Ultimately, for us to invest we need to see both mission alignment and a path to a promising commercial relationship.
What is your track record with investing in Black-led and Latinx-founded companies?
The Innovation Fund’s portfolio is more diverse than industry averages, and we are committed to doing better. We believe that technology solutions should be developed by the people in the communities they serve, because no one has more insight into the challenges than the people who wrestle with them. We are actively working to grow our portfolio of companies we support founded by Black and Latinx people, other people of color, and women. These founders are critical partners because they are often able to tap their lived experiences to champion solutions that align with our mission of improving health care delivery to all Californians.
Mission Investing and the Innovation Fund Approach
What are “mission investing” and “program-related investment”?
Mission investing is the use of debt and equity investments by foundations as tools to achieve their philanthropic goals. CHCF uses a specific kind of mission investing called “program-related investing” (PRI), whose primary goal is achieving a program objective rather than a financial return.
PRIs are like grants in that foundations use them to give money for charitable activities. But when foundations give PRIs, they expect to get the money back by a specified time so the funds can be recycled for other charitable purposes. PRIs are valuable as a means of leveraging philanthropic dollars.
Why does CHCF have a mission investment program?
CHCF believes that drawing on for-profit companies, which are organized to sustain, scale, and tap into larger-scale funding from the private equity capital markets, increases the odds that the innovations we support will have broad and sustained social impact. Also, that tapping into a range of innovators and investors expands the pool of talent and resources available to meet our social mission. The foundation aligns and integrates our impact investment strategies with CHCF’s comprehensive programmatic objectives so that PRIs and grant-funded initiatives complement and reinforce each other.
Does CHCF profit on its investments?
It is not our objective to make a return on these investments. If and when investees repay CHCF, or a company has a financial exit, that money is repurposed into additional mission-related activities. The goal of the Innovation Fund is to support and develop a handful of innovative companies that have a significant positive impact, directly or indirectly, for Californians living on low incomes and the providers and plans that serve them.
To accomplish this goal, the companies we support must have the potential to scale across California and sustain themselves financially. We therefore consider the financial and business aspects of potential investments and look for partners that are investable from a venture capital point of view.
Sometimes our program-related investments fail — the portfolio company can’t find new customers, attract additional capital, or repay CHCF’s loan. This strategic risk is inherent in the program, which is designed to take chances other financial investors and grantmakers cannot.
A typical CHCF PRI is a five-year low-interest loan with warrant coverage, which is an option to buy a specified number of the company’s shares at a set price in the future if the company’s value appreciates. Investment terms vary according to the needs of the investee, the risk of repayment, and consideration of how best to accomplish our program goals. We also can participate in a company’s equity fund raise.
Why do you invest in one company over another when the two are similar?
We look for companies with distinct competitive advantages for improving care for Californians living on low incomes.
In cases where there are multiple competing companies in our market, we may look to other strategies to help our partners in the delivery system, such as supporting a collaborative RFP process, publishing an innovation landscape, or piloting and evaluating a set of solutions to identify which innovations work best.
Making PRIs means picking companies, just like making grants means picking partners. PRIs help us to learn what is working and what is not working in terms of market-driven spread and scale of innovation that can improve access and care for people who live on low incomes. Regardless of how we invest, we use and share that know-how broadly to address challenges in health care, not to make any one company successful.
How do we affect a portfolio company’s direction and focus after we invest?
The Innovation Fund brings deep knowledge in policy, delivery system partners, and reimbursement within Medicaid and California, which give us a unique ability to help our portfolio companies navigate California’s complicated Medicaid ecosystem.
We support companies by staying actively involved after investing, including through our position on the company board and relationship with the executive team, and our hands-on work and network-building support companies to get traction. For example, we:
- Make introductions to partners that can facilitate scale and spread
- Help shape the product to meet the needs of Medicaid and other stakeholders providing health care to Californians who live on low incomes
- Provide education about evolving Medi-Cal policy
- Recommend candidates for leadership roles that understand Medicaid and the systems that provide health care to Californians who live on low incomes
- Support an independent evaluation that helps our partner understand the impact and value of the innovation and where there is room to improve
When surveyed, 100% of CEOs in our portfolio say their relationship with the fund is valuable. Ninety-three percent would recommend that other start-ups work with the fund to grow their business.
How do we source company partners?
We source company partners in several ways. We often start each year with a few hypotheses about problems we think are meaningful opportunities for technology to solve in the Medicaid ecosystem. We then scan the landscape, identify the universe of companies working in this area, and sort out which (if any) has a business model that can work in Medi-Cal, have or are close to having paying customers, and are actively fundraising, interested in our terms and approach, and likely to be able to pay us back.
Otherwise, we are opportunistic, taking suggestions for company partners from our health plan and provider partners, and investor and entrepreneur communities.
What are some examples of successful CHCF investments?
Collective Medical Technologies delivers real-time ED and inpatient alerts across California.
Collective grew from 70 to 147 hospitals in California since we invested in 2018, also adding 39 payers, representing more than 10 million patients, and 57 post-acute facilities. They now deliver approximately 500,000 alerts monthly in California.
The use of Collective’s technology in Washington State led to a demonstrated reduction in ED visits and hospitalizations for patients who are high need and high cost, as well as a decrease in opioid prescribing, and early evidence in California suggests the same impacts here.
Collective, recently acquired by PointClickCare, will now support the clinical and administrative care for more than 21,000 skilled nursing facilities, senior living communities, and home health agencies. The integration will significantly advance the health care system’s ability to share patient information across the continuum of care. The transaction provided a modest financial return to CHCF, which will be repurposed into future grantmaking.
iRhythm provides a novel ambulatory monitoring to diagnose cardiac problems.
iRhythm has grown from having a single pilot site at San Francisco General Hospital to having distribution in health systems across California that serve 25% of Medicaid patients. The company went public in 2017, generating a modest financial return for CHCF, and those funds were repurposed into new CHCF grants the same year.
An independent evaluation by UCSF funded by CHCF and conducted at San Franciso General demonstrated clinical equivalence to the gold standard (Holter monitoring), with an 85% reduction in time to results, accompanied by 94% reduction in technician hours per test at a public hospital.