Psilos CEO Steve Krupa gets some well deserved time in the spotlight after hosting half a year’s worth of podcasts. In this interview we ask Steve why he agreed to host the podcast, how he become a VC, and how companies might pitch ideas to Psilos.
Tom Salemi: Hi, everybody, welcome to the Breaking Health Podcast. This is Tom Salemi here with Steve Krupa, our host, CEO of the Psilos Group. Hey, Steve.
Steve Krupa: Hey, Tom, how are you doing?
TS: I’m doing great. I’ve got a fascinating guest today. His name – I don’t know if you know him, but his name is Steve Krupa.
SK: Tough to get him on the show.
TS: It was, it was. And we’re so happy to have you be here to have this conversation. So it’s a milestone for us because when I first talked you into this, and we tried to figure out how exactly that happened, you wanted to know sort of how many we wanted to do one a year. And I said, Well, ideally 52, one a week. And you said, OK, let’s give that a try. And last week’s was number 26, so happy half-birthday.
SK: Thank you. I’m pretty sure I was drinking at the time I agreed to do one a week, but that’s OK. It’s working out OK, right?
TS: I think it’s turned out great. You’re getting a steady following and I think we’ve had some great stories on here. And we can go over just a high level conversation as to the different guests. But what has this been like for you? I imagine you haven’t really hosted any kind of show before, have you?
SK: No. No, I may have pretended to do it when I was a child, or something like that. Pretended to be Johnny Carson or Rupert Pupkin or something. But I never thought I would be doing something like this. I think it’s been great. I love the companies that we are finding to talk to. I think they’re hitting on some of the important ideas and concepts for business around this intersection of computing and health care. So I have been enjoying the conversations very much.
TS: Well, I want to get your thoughts on healthcare, but I’m kind of curious as to the process. Is this – are we sort of witnessing the kind of conversation you would have with a prospective portfolio company, or someone in the industry? Or is that conversation much different than these conversations you have on the Podcast?
SK: Yeah. I think I am trying to duplicate those types of conversations. I think what I’m probably leaving out of those conversations is sort of probing more detailed into the performance of the business because I feel like from a public point of view, that’s sort of a private company portion. But in terms of getting to know the entrepreneur, that’s absolutely critical. You know, this business is about really – I mean to boil it down to market, product and team, if you really want to be simplistic about it, do you like the market, do you like the product, do you like the team. So in the Podcast I think we’re addressing those 3 issues. And I try to leave it up to the imagination of the listener as to whether or not they like the answers to those 3 issues as we talk through the business. And hopefully, we’re getting to know these entrepreneurs a little bit, not too personally, but we get some good insight into their motivation and their thoughts about how to run businesses. So that’s the goal.
TS: Yeah. And I kind of took an excerpt from last week’s Podcast with Gupta of Quartet, and used it for the Newsletter because you had asked him why are you doing healthcare, why not do something else? And I thought his answer was representative of what we’re hearing from a lot of folks, which is they really do want to do something that matters. They obviously want to create important companies, but they want those companies to have a function that helps people one way or the other.
SK: Yeah. Look, I think you can look at technology and I would make the argument, and I think other people would as well, that the computing landscape has been used to do some interesting things, but in some ways a lot of trite things, right? I mean when I think about the power of computing, the first thing, honestly, that came to my mind wouldn’t be Facebook, right? It’s a great site, people love it, it’s part of the fabric of society today. But it really isn’t like sending someone to the moon, for example, or creating a great new medicine or inventing electric cars and things like that. So I think that people that are into computing, and they say, Well, I want to do something really special with my time, look at the problems in our society, and healthcare probably stands out as being one of the great issues in our society from an access point of, you know, equal access from a cost point of view, from an efficiency point of view, from a waste point of view. And if you think about technology as simply being able to do more with less, healthcare is a great place to apply those skills if you’re interested in potentially doing something very important.
TS: In the digital heath, technology seems a lot more benign, or at least – I cover medtech as well, and I love medtech.
TS: For some weird reason – we talked about this at our Medtech Conference last week – it has had an image problem. That’s getting better. But there are technologies that are designed to make better than they are, to heal people.
SK: that’s right.
TS: Yet there’s a negative sort of it’s too expensive, or the payers don’t want it. There seems to be some kind of pall over the sector. Digital health, I think we’re still very much in the honeymoon stage where everyone thinks Oh, it’s great, I’ll have an app on my phone and I’ll lose weight or I won’t be depressed anymore, or fill in benefit here. It definitely is in a honeymoon period.
SK: Yeah. I think that’s right. The medtech problem is a problem of overuse of new technologies and overpricing of new technologies, and maybe a capital equipment problem. It’s expensive to invest in if you’re a hospital or a provider. And I would make the case that if you view digital health as being an all-out effort to solve cost inefficiency and waste problems in healthcare, and it succeeds, which it better, then that will open up the door to a fresh new look at medical technologies because we’ll have sort of a governor in place with a more efficient system that looks at costs and efficacy. And if you’re building medical technologies that fit into that, that need base, the demand and the recognition for them will be there. In the past, people have built things that were sort of on the margin, gotten a lot of reimbursement for them, got a lot of overuse for them, and in some ways there’s been a backlash against that both from the FDA and from insurance companies and Medicare.
TS: That’s very true. Well, let me turn the question on you, the one that you’ve asked other people. You’re obviously an excellent salesman. You’ve been offered a job several times.
TS: And you used to do that, and I know you worked on Wall Street for a time, too. How did you find your way into venture capital and specifically into healthcare venture capital?
SK: Well, I came to Wall Street in 1994. I was an engineer before business school, and when people would ask me why are you going to business school, I’d say, well, I’m going to go be a venture capitalist. This was in 1992.
SK: Very much a cottage industry, right?
SK: Back then. And then when I was in business school and I tried to sort of hammer away to get into the industry, I realized that unless you had like an uncle or a brother in the industry, you didn’t have a shot, really. It was just so small and in a sense so clubby. So I said OK, let’s go to Wall Street. And I wasn’t really dying to be in healthcare or dying to be in media or telecom or anything like that. I was interested in all of those things, and I ended up – well, I ended up at Kidder Peabody for a few months, but that ended up getting sold to Paine Webber, and I walked into the door in Wasserstein Perella, and was put on the Aetna account. And I spent 2 years going through a strategic review with Aetna, and they transformed themselves during that period of time from a multi-line insurance company to a healthcare company. And I got to do those deals with them, M&A deals for a couple of years. During that period time, I met a guy named Al Waxman, who was running a KKR portfolio company and advised him. And after he sold his company, he came in and said, Come on, let’s go do this venture thing together.
SK: And I said OK, and that was 18 years ago. My Linked In has been very active, not only because of these Podcasts, but because I’ve got an 18 year anniversary this month, so a lot of people are stepping up and saying Hey, how did you do that for that long. But yeah, that’s how I ended up here. And I find the industry to be extremely interesting. I find everything about healthcare to be interesting: the science, the technology, the structure of the industry. There’s lots of problems to solve, there’s lots of specialized knowledge. It’s an exciting place as a fan of business and someone that loves to look at companies and try to make them better. It’s a very interesting place to spend your time.
TS: I agree. I started writing about it in 98 when all my friends were working at PC Week or this.com and that.com. And I couldn’t be happier. I’ve never been bored writing about this industry. I’m always fascinated, not only by the technologies, but by the people, putting them together. Just some of the most interesting and I think good people, and well intentioned people. Not all of them, of course, but the majority have the best intentions.
TS: So had you given up on sort of the VC path at that point and the universe just sort of provided?
SK: You know, I thought honestly my long term plan was to sort of build a reputation on Wall Street and maybe have the capability someday to make a move on my own. And I was very young in terms of career age when Al suggested I do that with him. I was 34. And I couldn’t turn it down. I just was like – I said yes so fast I can’t even really remember what the conversation was about. And it wasn’t because I didn’t like Wasserstein Perella. I loved it there. I loved what I was doing there as well. But to me, this was sort of where I wanted to be.
TS: And the 18 years, you’ve been at Psilos or at this effort?
SK: Yeah, 18 years at Psilos.
TS: And things have changed considerably over that time. I think we’re probably around the same track. What have you – I guess what have been sort of your highlights over those 18 years? What are 2 or 3 things you could point to?
SK: Well, we’re proud of getting a lot of things right along the way. We certainly haven’t gotten everything right by any means, but we invested in Lonnie Riesman, Active Health Management, which really ushered in population health. It was really the first real population health company. We sold that to Aetna. We had a chance to talk to Lonnie about his new company a couple months ago.
SK: I’m proud of an investment thesis where when Al and I would talk about what we think was necessary to really make healthcare a better industry, we thought consumerism was critical. We invested very early in consumer driven healthcare with a company called Affinity Health, and then later a company called Extend Health, which was a digital health insurance exchange. And it’s a theme that is part of our portfolio today, and it continues to resonate for us. And now there’s a huge industry around healthcare consumerism. But back then it was sort of the beginning of an idea that tried to combine some sort of financial incentives with awareness of health conditions and trying to engage people in their health, which is really the only way the industry is going to get any better, right? And if they’re just relying on other people paying their bills. We’re proud of that trend. We think we were a big part of that trend and a lot of our best yields revolve around that. So the other piece of that would be the belief that we had to create more computer oriented infrastructure in healthcare. So if I think about population health, automation infrastructure, consumerism, these are a lot of ideas that we’ve explored over the last 18 years in their Kitty Hawk phase, if you will, in their early phase. And they’re emerging today to be major themes in the digital health expansion that we’re seeing.
TS: Interesting. Is it easier being a VC now when you’ve got so much interest in this space? You’ve got the Googles and other folks investing in these companies.
TS: And so many companies coming around. Or is it more difficult? Because there is so much – I don’t want to say noise. But there’s so much activity going on. Was it easier to find the better deals when you were like third or fourth on the pecking order when it comes to healthcare venture capital? Healthcare IT and services were way below biopharma and medtech for a long, long time.
SK: Yeah. So I would say a couple of things. I think today a couple of the key questions are easy to answer. One, the engineering question is usually pretty easy to answer. You can build most of what you want to build, for the most part. I mean there’s issues with getting data. You can attract really good people today, so that’s exciting. The engineering is there; the people are there. The tougher question is sort of what is the secret, OK? So Active Health was easy. Our secret was we were the first people to think about analyzing a population of claims data and finding medical errors, and alerting people of the error. Right? That was the idea. And if you were the first one to think about that and do it, you had your secret; you had your competitive positioning. As we’re learning, I think, from the Podcasts, we see a lot of ideas that start to overlap, right? I’ll just take an example. I think you could say that TeleDoc and Zipnosis and Pager have sort of an overlapping essence to them. And so of those 3 companies, maybe each of them will find their own “secret sauce” or secret. But what they’re doing is they’re already competitive and they’re a startup. Right? So I think it’s easier from a standpoint of there’s a lot of activity, there’s a lot of deals. I think it’s harder from the standpoint of finding that uniqueness that makes a startup superb.
TS: Is there a difference on companies that you mentioned those 3, and those will all have some sort of –
SK: By the way, Tom, three companies that are very interesting to anybody. None of that was intended to sort of criticize any of the three, but just pointing out that they sort of overlap in their own markets.
TS: Oh, absolutely. We would not have uninteresting companies on this – no, they’re all very impressive, and they all are coming at it with different perspectives. And there’s probably room for many players in this space. I mean there’s not going to be just one. Especially, I guess with those companies, they’re all touching the patients, AKA the consumers. Is it – can you still invest in sort of a back office sort of company that doesn’t touch the patient consumers these days? Or is healthcare becoming so flat that whatever company you invest in has to have some components that touch payers, providers, patients, everybody?
SK: No, I think there is a desperate need for great digital infrastructure, and that infrastructure has to be an enabler for a lot of the services and applications that we think about. But it doesn’t necessarily have to directly touch the patients or the payers or the providers. Well, it has to touch at least one of them. And that infrastructure enabling communication or enabling the automation of claims, for example, the automation of electronic health records, more productivity for certain portions of the healthcare infrastructure and more digitization of that activity is only going to really make some of these ideas work better. I think a lot of these companies, the first problem they have to solve is how do I get the information I need to deliver the service that I want to deliver, right? And unlike, I think, a lot of other industries, the most substantial, I would say, is media. There’s a lot of digital information out there in sort of the TV/movie/music business, right? So you can create all kinds of services around that information. If you think that’s available in healthcare, it’s not. It’s not anywhere near available. So the infrastructure companies are important. And I’d like to see better, more innovative infrastructure companies come our way, too. Very much so.
TS: Any deals that you turned down in your career that you regret?
SK: Yeah. There’s a saying in this business that you never look back; you only look forward.
TS: So looking back would make you sad?
SK: Well, you know, it’s funny. Something that looks overpriced today, but then grows at 100% for 5 years isn’t so overpriced any more, right?
TS: That’s a great point.
SK: So it’s tricky. But I can’t think of anything that I’ve lost sleep over or really lament that significantly. I think we may have had a look – I remember looking at Athena Health when it was a very young company. And I’m not sure that we would have gotten into that deal if we wanted to, so I wouldn’t say we could have. But I remember seeing it and doing nothing about it. And I probably wish I would have, right? At least tried.
TS: I’m sure you’re not alone in that one. That’s got quite an interesting history.
TS: It’s taken a lot of different turns. So where is Psilos now? What are you up to?
SK: So we’re looking to invest in new companies. We’ve got a nice portfolio that we’re very active with, and we’re on the march looking for the best deals that we can find. Hopefully, we’ll start making some new investments here towards the end of the year.
TS: And I’ll ask the question we always ask at the conferences. How does someone get Psilos’ attention? What are the good things they can do, and what are some of the mistakes?
SK: Well, I think we’ll pay attention to anything interesting. So I think we’re good about responding to Linked In. I think we’re good about responding to emails and submissions. We may not always take the meeting because there’s just a lot of volume that comes through. You can certainly be on the Breaking Health Podcast. That’ll get everybody’s attention, for sure.
TS: For sure.
SK: I don’t think that you can make a mistake in trying to get us at least to pay attention to you, unless you did something illegal. We’re always interested in great ideas, very open minded and look forward to hearing people out.
TS: I’m sure that’s going to make you a popular person.
SK: Well, listen, –
TS: More popular.
SK: – you learn every time I meet an entrepreneur, and you know the numbers are big. I remember going into the – and I don’t remember the number, but he sort of had a poster up and said even Babe Ruth struck out some huge amount of times, right, greatest home run hitter in the world. And it’s very difficult as an entrepreneur to raise that money to get that VC to go forward with the deal. But what I would say is I learn something in every meeting when I meet an entrepreneur, and I have a belief system that I should try to give something back in that meeting. So even if I don’t invest in the company because it’s too early or it’s not quite what we’re interested in, I’m interested in learning what they’re doing, and I’m more than willing to provide feedback on where they’re headed as sort of part of that process. And hopefully people appreciate that. That’s – I raise money for a living, too, and hopefully that provides a nice sort of ecosystem where you’re at least learning through the process.
TS: And what have you learned from doing the Podcast? As we said, you’ve done 26. You’ve talked to a lot of different companies. Anything doing this that has surprised you or that you’re just glad you benefitted from?
SK: I think I’m going to tell you that I like to think that I’m imagining what these companies can be and the types of businesses that are out there. But I have to say we’ve had – Healthify stands out as a company that I just hadn’t thought of. And I explain it to people, and they tell me I should have thought about it already. So maybe I just had a brain lock in that particular area. I just love what that company is doing. I really want them to be successful. But they’re very early stage right now, but the whole idea of being able to sort of link healthcare to the poor and services for the poor to me didn’t occur to me. It makes total sense, but using the cloud to do it, I think, was pretty cool. And every now and then, you know, we have a company come on where I’m just like I hadn’t really thought of that. That’s a good idea. And that’s very rewarding when we find that.
TS: Yeah, that was one of my favorites as well. I think it really appeals to – again, writing about healthcare, you hope you’re doing some good. Those folks have the potential to do some real immediate, direct good to folks who absolutely need it. So that was the good one.
SK: Yeah. And you know, PARA Therapeutics, the idea of getting an FDA label for a digital game to help somebody get off their addiction problem or substance use problem, disorder, I think that’s awesome. It hadn’t occurred to me that you could do that. You know what I mean?
TS: Yep, for sure.
SK: And I’d like to see more of that because I mean so much of healthcare is behavior modification, behavior change modification. And if you can throw some data in front of people that says, Hey, if you do this, we’ve got a very good chance of curing you. And you don’t have to take a pill. It’s cool. That’s really special, those deals.
TS: Absolutely. What kind of feedback are you getting from folks about the Podcast?
SK: You know, it’s interesting. When people talk to me about the Podcast, they think that we’re onto something. They think that we’re taking a nice approach with the conversations, and we’re getting in deep. They’re not too long, but they’re a little bit longer than maybe we had planned they would be when we started to get – started this. And they think they sort of come out of it with a greater understanding of what’s possible in healthcare if they’re not healthcare entrepreneurs or VCs, and if they’re healthcare entrepreneurs and VCs, I think they get a good sense for where these companies are going and why they might be interesting investments. So I’ve gotten positive feedback on all the programming we’ve put out there so far.
TS: That’s great. I’m always gratified when we’re reaching out to potential guests and we send them a link to the Podcast, they usually get right back to us and say, Sounds great; love to be on it. And should say right out here if anyone does want to be a guest on the Podcast, they can email me at Tom@healthegy.com, and that’s the word “health” followed by EGY. Just send me an email and we’ll begin the process to see if it’s a good fit. Any final words in terms of where we’d like to go next with the Podcast? I know you’re a busy man. You’re out raising money and looking at companies. But –
SK: Yeah. So I would say that we’re thinking about it as digital health being a transitional word or a transitional focus that in 5 or 6 years, we won’t be using the word digital health; we’ll be using the word health and the digital infrastructure and the digital systems will just be part of health, much in the same way they are in the banking and e-commerce and media industry today, right? We don’t really say digital banking that much, I don’t think. But we recognize we can perform all of our transactions in a digital way. And so in order to us to make that transition, I think about big data, pop health, connected health, consumer engagement, infrastructure and automation. We’ve explored those topics I think really nicely so far. And based on the list that I know we have put together of guests we’re trying to get on the show, we’ll continue to dig into those 4 big areas of digital health on shows to come.
TS: And this Podcast is affiliated with the company, Healthegy, that puts on the Digital Healthcare Innovation Summit in Boston. It’s coming up on November first. And we have considered a name change for that for the reason you stated. We haven’t come up with one yet, but you did come up with the name for Breaking Health for the Podcast, and I borrowed it for the Newsletter.
TS: So what was the inspiration of that and the meaning behind Breaking Health?
SK: Yeah. So I think what we think about this saying, you know, Break, build, repeat. Right? It’s sort of the venture capital slogan. My friends at First Round Capital, actually Howard Morgan gives out t-shirts with that slogan on it. And as I was trying to think of a name, I said, Well, Breaking Health. It says a lot, tells you what’s going on, it tells you what digital health is supposed to be doing as a starting point, which is sort of breaking something and rebuilding it back up and making it better. And the thought was that it would capture a lot of what we were trying to accomplish with this program.
TS: And that was probably our first and only fight because I didn’t like it at first, but I came around.
SK: I don’t think it was a fight.
SK: You didn’t have a better name. Like OK, Tom, you come up with something. I got that, that’s my idea.
TS: Well, it’s worked out great. I love it now. It’s a good name. And I’ve enjoyed working with you. This isn’t one of those fake show business relationships that we complain about each other off air. It’s been great to get to know you and to form a friendship. We’re going to have to hit a baseball game soon, either at Fenway or Yankee Stadium.
SK: Yeah. Well, I’m happy to do that. I’m happy to do it when the 2 teams are playing each other. And I will wear a Yankee hat in Boston.
TS: And I will wear a Boston hat in New York, I promise. I’ve done it before. You folks aren’t as bad as people make you out to be.
SK: It’s the Met fans that are trouble.
TS: That’s a fair point. We can agree on that. Steve, it’s a pleasure working with you on this, and I’m glad we had some chance to focus on this effort, because it is a lot of work. You’re putting a lot of work in this and I appreciate it very much. Can’t tell you how grateful I am to have someone who’s covered the industry for this long conduct these interviews, because I think you’re really drilling down and getting at the issues that need to be discussed in this kind of format.
SK: My pleasure. I’m enjoying it as well.
TS: Well, thanks again, Steve Krupa, not only for being our host of the Breaking Health Podcast, but also for being the guest today. Great hearing about your journey to VC and glad it led you here to help us out with this Podcast. Doing a fantastic job, and we are very grateful. I hope you all enjoyed this visit with Steve. And tune in next week for another tale of innovation. Also, as I mentioned in the Podcast, this Podcast is affiliated with the Digital Healthcare Innovation Summit, and that will be happening on November second in Boston. So circle that day in the calendar. Keep an eye out on Healthegy.com. That’s the word “health” followed by the letters EGY.com for details about that event. And we will look forward to seeing you in Boston.