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Becker Private Equity & Business Podcast
Backing Healthcare Innovators with Michael Greeley of Flare Capital Partners 7-21-25
00:18:15
In this episode Michael Greeley, Co‑Founder and General Partner at Flare Capital, shares how his firm partners with entrepreneurs to reinvent healthcare technology, the rise and fall of digital health and AI waves, and what it takes to build,
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- [00:00]
A
This is Scott Becker with a special combined episode of the Becker's Healthcare Podcast, the Becker Business and the Becker Private Equity Podcast. We're thrilled today to be joined by a brilliant leader in the venture capital space. We're joined today by Michael Greeley. Michael's a general partner at Flair Capital Partners. He's a Harvard Business School graduate, a really bright investor and thinker. Michael, can you take a moment and tell us a little bit about yourself and about Flare Capital and your background?
- [00:35]
B
Thanks, Scott. And I'm delighted to be included. So I've been in the venture business for more than 25 years, have started three firms, started Flare with a colleague of mine about a dozen years ago. We managed about a billion dollars, focused on, obsessively focused on early stage health care technology, have approximately 60 portfolio companies, grew up overseas in the Far east mostly and was an organic chemist prior to business school at Williams College. And so I've been really fascinated by the convergence of healthcare and technology. We live in Boston, firm's based in Boston and so really kind of at the vortex of that collision of those two big industries. So it's been a terrific, terrific run.
- [01:24]
A
And how did you get started? I know that early on in your career you worked at one of the most famous investment banks in the world, Wasserstein Perella, some of the brightest, most interesting people ever. How did you get started in the venture space?
- [01:37]
B
So I think it's been, it was a confluence of a number of observations. You're right, Wasserstein Perella. We had a, this is going back almost 30 years ago. We, we started the firm with a billion dollar buyout fund when that was a very large number. And as exciting as it was to, quote, do deals, I just felt always removed from really the front lines of innovation and found myself living in Boston, which is really probably one of the historic cradles of innovation, second to the Valley, and became really fascinated with partnering with entrepreneurs who were trying to reinvent whatever industry they were focused on. And so I successively went from kind of one end of the market to the other end of the market and thought being partners with entrepreneurs was the next best thing to actually being an entrepreneur myself. Now, having said that, I have started three firms. So I think to be innovative, as you know, Scott, in the services business, you typically have to set out and start a new firm. And I was on the board of the NVCA and observed this was maybe 14 years ago, that the entrepreneurs who were focused on the healthcare industry, which was, you know, plus or minus 20% of the economy were relatively underserved by the venture community and just thought there was white space there to build a firm that was really geared, sort of purpose built to work with those entrepreneurs. And our positioning is we're the invited guest, we're the partner of the entrepreneur. And it's been fascinating ups and downs watching this industry be rearchitected. And so I appreciate your comments about where I started. I feel like where I've ended is just as exciting, but for very different reasons.
- [03:32]
A
No, it sure is. And talk a little bit about sort of the ups and downs, it seems like in terms of technology and healthcare, digital health in healthcare. I don't know if you do any work in the bio space too.
- [03:47]
B
So we look at pharma tech, have some really exciting companies that are selling into that set of large pharma and biotech companies. We're not taking on drug discovery risk directly. I think for me there's been a series of waves. Not surprising. At the outset we thought there were a class of entrepreneurs that were focused on an important part of the economy that were relatively underserved, as I just said. And then as Covid became more of our reality, there was a dramatic acceleration to adopt technology to make the system go virtual, on demand, intelligent, predictive, always on. And that's now seemingly being eclipsed, as profound as that was, by what we're seeing around automation and some of these AI capabilities that are coming in the market. And so there are obviously industry headwinds. The big beautiful bill, it's quite uncertain where that lands from much of the healthcare industry. But directionally, I think it's going to put real constraints on a lot of the growth dynamics. But the offset is what we're seeing in automation is profoundly exciting and we're seeing that in, in the performance of our companies. First quarter, many of them were, you know, effectively on or ahead of plan. Second quarter, we'll, we'll start to see that data over the next several weeks. But it feels like directionally these businesses, these entrepreneurs are operating with such degrees of freedom. The, the dollars that they're focused on are so large, these categories are so large that it feels like we're at the golden age of, of maybe a couple decades of very interesting company creation.
- [05:37]
A
And where are you? I don't know if it's by specific company or entrepreneurs that you're working with or area. When you think about Michael, what you're most excited about today, what are you most excited about? What sort of, you know, gets you going, where you think that Founder really has it or that solution or that area is really ripe for innovation. And do you think more in terms of. Let me ask you one more follow up question. Do you think more in terms of the right founder or the right idea or both? How do you think about that?
- [06:11]
B
I think first and foremost it's the people and we talk about it being found. There's a duality of the founding team. There's somebody who's deeply technical and very articulate about these new capabilities, married with somebody who really possesses voice of the customer. And that is typically somebody who's more experienced, candidly, who has worked inside the healthcare system and has seen all of the issues, limitations, frustrations and is now stepping away to build capabilities that will re architect either these revenue streams or provide tools to manage these new risks that are being introduced into the system. And Scott, as you know, and you're beautifully articulate about the move from fee for service to value, that has profound implications on the executives who are literally managing that transition. And they're grasping for tools to help them, you know re architect reinvent their business models. And so for us that is so fundamental that that shift is so profound. It'll come from the innovation economy that'll drive that. And so specifically, and it's not interesting to talk about a cocktail parties because everybody's talking about it. But automation around administrative workflows, we're seeing real unlocks in budget. So there's a whole automation theme that we're aggressively going after. We, like many venture firms in the height of COVID focused on a number of virtual care models. We probably have a dozen companies that are identifying very expensive, hard to manage subpopulations either in GI or oncology or behavioral health. We think they're really interesting new models to provide care more customized, more tailored to those smaller populations that the system has a hard time managing. Amongst the entire population with the ability to triage, activate, engage, inform these specific populations, we think those are continue to be very interesting businesses. The headwinds are funding cost of capital is now a real thing. It's hard to access. In many cases it's expensive. So you have to be convinced as we are that these businesses ultimately create enduring economic value. So the endpoints we try and solve for are cost reduction and attributable cost reduction within one budget cycle, sort of within one year, that there's a measurable hard ROI coupled with an outcome story. And that tends to take a few years to show outcomes. And that's where the capital cost of capital issue starts. To bite, which is can you get enough Runway? I do think Scott, the value creation in these models tend to be more asymptotic and maybe acutely asymptotic so that you, you kind of bump along through the series, the seed, the series A, the series B and then you start to see real lift as you can tell an outcome story, an impact story. And unlike a lot of other sectors where it's more of a 45 degree angle curve, these are more asymptotics, business models for when you map value creation over time. But we think there's something very enduring to these businesses.
- [09:39]
A
And as a seed fund, as a sort of a venture capital fund, you've got a billion under management now, which is an incredible amount. At what point do you exit a company or how do you look at that or think about that?
- [09:52]
B
You know, it's hard to force the sale of a company. Those tend to be more distressed situations. So it's nice to be acquired where somebody's out, you know, does outreach. We had a terrific May, we probably had our best month in the last 10 years. We were a seed investor in a company called Smarter DX which sold for 1.1 a little over a billion dollars. That was a terrific outcome over course of a three or four year journey. Mike Gao was a founder, amazing entrepreneur and he was unlocking some very important capabilities. Our documentation we had a financing for a company we helped start called Cohere Health in the prior auth space. Very exciting on a path to being a very, very significant company. We sold a company called Adon on the real world evidence. So we're starting to see enough proof points that if you're in early with people who have those attributes, voice of the customer and really deeply understand the technology and the capabilities they're building, the end markets are measured in tens of or hundreds of billions of dollars. So there's plenty of spend to create really big companies in. And so I think, you know, that's that tends to be some of the markers that we're looking for when we're going into something. We're very focused on initial ownership. We want to be on the board, want to be active, hopefully helpful. You mentioned we manage about a billion dollars, half of which roughly come from nearly three dozen of kind of the leading strategic entities in the sector. Hospitals, payers, device companies, lab companies. And so we think we have the ability to get early revenue proof points. And so we like coming in the seed series a stage and being significant partners.
- [11:35]
A
Thank you. And you mentioned this combination of Somebody that's great technically, sort of the engineering computer scientist. And then also somebody who's either got voice of customer or who could be almost like a front person with customers. How important is that combination? And then what else do you look at in building out a leadership team? And then one other question on that. Do you ever seed companies as an idea from flare versus finding a founder that that is looking to grow?
- [12:06]
B
Yeah, terrific questions. We've co created half a dozen companies with one of our strategics, strategic LPs where we'll partner, they'll contribute an asset. That's been quite an effective model. It's effectively the inverse of what most venture firms do where you back people, then they go build the product. This is, we start with the product and then we recruit the team around that. And we think that's a really provocative model, particularly at this part of the cycle where there are a lot of stranded, quote, stranded assets or programs in large companies that are not properly resourced or they don't have enough internal funding. So we actually quite like that co creation model and probably have half a dozen of those that we're working on right now. Just to give a sense of the amount of activity. It seems to be quite an active source of investment opportunities for us.
- [12:57]
A
Thank you. When your companies go to that next stage, are they selling to a venture capital fund, to a private equity fund? And does FLIR ever retain some equity in that as you go forward and how do you think about that?
- [13:12]
B
Yeah, so I think in a very real sense as early stage investors, when you get to series D or growth rounds, our job is kind of done. And so if there's an opportunity to sell for cash, obviously there's earnouts, as you know, you're a gifted lawyer, you have dealt with this a million times, undoubtedly. So there is usually a residual interest. But we're in a weird part of the cycle where a private to private earlier may actually lead to a much better outcome. You know the part, the negative of what happened in 22 is we created several hundred companies when the category probably could absorb a few hundred companies. So we smeared a talent, a finite talent pool across too many companies and we created a lot of lookalike businesses. And so we're quite amenable to combinations. If you can get to scale faster, that's not simply a cost reduction, that's adding more logos, more depth to the pipeline. And so we've done a handful of private to privates where the resulting combined company has a much higher likelihood of success. A new class of buyers which I think has not been adequately kind of reported on are the private equity portfolio platform companies. They've become very acquisitive and they're looking I think down market to earlier stage investment investors portfolios like ours and saying we have this billion dollar asset and it needs these types of capabilities to have a more complete solution to bring to market. And I've been really pleased with how active the private equity platform companies are. The strategics have been active all throughout. The payers are fairly acquisitive. The big tech companies have big healthcare books of business that they're trying to support. But the private equity buyers I think have become a real force in a part of the cycle that's you know, this year I think we'll do 12 to 14 billion of investment activity in health tech early stage off of a $30 billion high water mark in 22. So you know, roughly running, you know, half to a third of where we were. And we need more liquidity in the system that's full stop and I think we're starting to see some signs of that.
- [15:34]
A
But you said something that's fascinating in terms of what you talked about in 2022 and then it was the explosion of all kinds of telehealth companies, all kinds of other things. Now it's almost, you see this explosion of so many different AI, different points of service or companies and so forth in trying to figure out which of the several hundred that have been started or more will actually become real businesses and go deep and become, and you're, and you're already seeing some of the combination of those businesses too. But you look at any similarities there and what's happened with the explosion of AI companies compared to what happened in sort of the digital health tele a couple years ago.
- [16:09]
B
I have real anxieties because what we, we haven't tripled the number of customers over the last five years. The number of customers are largely the same. I think there is will be a painful, it may be more painful than what we saw in the virtual care models because the valuations were so inflated. There'll be a real painful reconciliation, a rationalization. I don't like what I'm about to say but I think raising large rounds has been such a powerful point of differentiation and what we say to our partners, our entrepreneurs is that it's not how much you raise, it's how much you own and just drive on efficiency. But we are in a, you know, this is a phenomenon where capital wins. If, if nothing else, capital allows you to live for another day. And so you're seeing these spectacularly large financings. The level of dilution on those financings is probably equivalent to smaller rounds and call it 20 or 30 or 40% dilution. And so the pre monies on some of those companies are, you know, very, very elevated and, you know, don't reflect the commercial risk that's ahead of the company still. So I think you'll see there's just a lot further to fall when these things, because the valuations are. So if these things don't scale quickly, but capital is clearly a weapon now in this market.
- [17:28]
A
It's a fascinating, fascinating question. I could talk to you, Michael, for hours. I have so many questions. I'll hold them for now and try and get you back on. But, but would love to bother you about growth rates and what you expect and what you see and when you see it's, you know, things are starting to plateau at a company. But so many more questions. But in the meantime, Michael Greeley, founder of Flair Capital, brilliant investor. You know, some of the people went to law school, went to Williams College, and I would not have known, coming to the Midwest, what a magnificently brilliant place that was but for the people I went to law school with who were from there. Michael, just a great pleasure to visit with you. Thank you for joining us today.
- [18:08]
B
You're doing terrific work. I love what you're doing.
- [18:11]
A
Thank you so much.