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Disruptive Capital: Dr. Harry Jacobson's push for investment
could help make Nashville 'the Silicon Valley of Healthcare'
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Harry Jacobson, M.D.

HARRY JACOBSON, M.D., believes U.S. healthcare needs a dose of reality and that Nashville needs injections of growth capital before it can truly become the Silicon Valley of Healthcare.

Jacobson is a physician, a former researcher, an entrepreneur and now the linchpin in a family of funds he and his allies have created. He is also vice chancellor emeritus for health affairs of Vanderbilt University and former CEO of VU's Medical Center. He is chairman of San Antonio, Texas-based MedCare Investment Funds; and, co-founder of Nashville-based TriStar Technology Ventures (and its TNInvestco-certified TriStar Technology Fund). Medcare has 14 portfolio companies and 18-month-old TriStar has seven. All those funds and others newly emerging have their Nashville presence at 3401 West End.

The dose of reality: In the past, the healthcare business environment favored businesses that sought first to generate the best reimbursement and margins, typically within the high-end acute-care segment, Jacobson told VNC during a July 1 interview.

Now, healthcare providers must "transform themselves into much more value-delivering entities" using evidence-based medicine technology and techniques to ensure quality of care and patient outcomes get highest priority, he explained. That will often translate into investing more heavily in outpatient services, health-screening ventures and innovative technologies, he said. "If you do what's best and right for the patient you can be successful as a business," he added.

Asked about Nashville's aspiration to be the Silicon Valley of Healthcare, Jacobson did not dissent; rather, he pointed-out that Silicon Valley is largely a result of a combination of proliferating businesses and "a large financial investment community."

Jacobson said he has embraced "as sort of a personal challenge" the task of working with others in hope of remedying that Nashville capital gap. Asked about allies in that effort, Jacobson quickly listed a half-dozen individuals and groups, including Rock Morphis of Heritage Healthcare Innovation Fund and Joe Cook Jr. of Limestone Fund. In March, TriStar and Limestone announced joint investment to form the Device Innovation Group.

Vanderbilt ties are strategically important to TriStar, said Jacobson, pointing to the university's broad intellectual-property resources and new VU technology transfer and commercialization leadership in the person of Alan Bentley, whom VU recently recruited from the Cleveland Clinic's innovation arm. "We want to work with them; I'm looking forward to working with them," he said.

Those capital injections: Nashville and Tennessee have made progress on the investment front, but most of the funds based in the state remain "relatively small," resulting in meager growth capital and little or no buyout capital, Jacobson said. The state's TNInvestco capital-formation initiative deserves "real credit" for triggering increased investment. To that, he added a scientist's codicil, noting that the extent to which TNInvestco-linked activity is driven by the release of "pent-up" demand for capital, rather than a sustainable new flow of innovative energy and resources, is not yet clear.

Jacobson's group is active on several fronts: Their much-anticipated Health Innovation Partners private equity fund remains under wraps, said Jacobson, citing SEC regulations. The HIP fund is partly a response to the shortage of growth and buyout capital that is often needed to advance mature companies that have "great business models that they haven't maximally taken advantage of, and in which we can add value," Jacobson said.

Second, MedCare is raising money for another fund, which Jacobson said will develop "novel, disruptive healthcare service concepts" that will represent "a better model"; it will then identify and recruit the optimal management team for a given venture; next, it will provide initial financing for the building of healthcare service companies; and, it will then actively support the advancement of the venture. Texas online resources indicate MedCare's newest initiative is MedCare Investment Fund IV. MedCare has received some limited partners' commitments, said Jacobson.

Also, on June 21, according to Tennessee state records online, Jacobson and TriStar cofounders Christopher Rand and Brian Laden formed TriStar Technology Ventures GP, under which a new non-TNInvestco Tristar II fund will operate alongside the original Tristar TNInvestco fund, which was formed in 2009.

TriStar II will be free to consider investments anywhere, rather than being restricted by TNInvestco rules to funding Tennessee-based companies, Jacobson noted. "Deal flow from outside of Tennessee is pretty robust," largely due to his team's track record and collective professional and personal networks, he said. TriStar II provides a vehicle for investing in innovative companies that will not relocate to Tennessee; in addition, working with co-investors in other states often leads to getting attractive out-of-state deals in front of Tennessee investors, he said.

Deals are coming toward his funds from all directions, Jacobson said. Fortunately, he and his colleagues are "very good at triage," he added. "We're not going to be perfect," but his team isn't likely to miss major opportunities that hit its radar, he said.

Plans call for adding one executive dedicated to Tristar II; asked whether that person has been identified, Jacobson said his group is "talking to really, really good people who are interested" in the job.

"Disruptive" and "novel" are among the descriptors Jacobson used to describe the startups and later-stage businesses that he believes will stand-out from the universe of "me, too" ventures. Most startups are "just playing in the existing delivery space... What you're not seeing is disruptive concepts that are novel" in the ways they address healthcare cost and quality, he said.

Jacobson's team will ask entrepreneurs regarding their offerings, "Is it real?" Jacobson said, adding that investors are too often presented "a whole lot of stuff that to the average person sounds 'really nifty', but doesn't have..major commercial potential, at the present time."

Jacobson said that in addition to working with others to improve the Nashville venture environment, he is motivated partly by the opportunity to put to use the knowledge he's gained in medicine, science, investing and business to improve healthcare delivery and to mentor other executives.

Far from reining-in, Jacobson, 64, is also exploring international opportunities for Medcare. One focus is India, where infrastructure and management are much in demand, he said. Jacobson is also scouting the Middle East, and recently returned from a visit to Dubai, United Arab Emirates.

Asked about the demands of his latest self-made job, Jacobson made clear he considers his current work consistent with his decades of entrepreneurial interests, and altogether less demanding than his previous VU vice chancellor duties. Jacobson assumed Emeritus status at Vanderbilt two years ago. Other related stories here. VNC

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Tags: Alan Bentley, commercialization, Harry Jacobson, healthcare, Heritage Healthcare Innovation Fund, Joe Cook Jr, Limestone Fund, MedCare, private equity, Rock Morphis, technology transfer, TNInvestco, TriStar Technology Ventures, Vanderbilt University, Vanderbilt University Medical Center, venture capital

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