The next healthcare horizon: improving maternal health through innovation and technology

By: Sophia Friedman and Gabrielle Bunney, MD 

Each year, Impact Engine selects key themes within Health Equity to focus on. These themes reflect areas with significant unmet need and high potential impact that are ripe for investment. We focus on solutions that strive to make access to healthcare more equitable to all, with a focus on populations that have historically struggled to receive equal access to care. One such area is women’s health. While women make up roughly 50% of the population, women often struggle to access healthcare services and face gender biases in healthcare settings, leading to poor health outcomes. This issue is especially acute within maternal health: maternal mortality is staggeringly high in the United States when compared to other developed countries. We wanted to better understand these trends, the systemic factors leading to inequalities in access to care, and how the private sector can play a role in addressing these challenges.

Maternal mortality, defined as deaths during pregnancy and up to 42 days postpartum, reached 23.8 per 100,000 pregnancies in the US in 2020. The US now ranks last overall among industrialized countries in terms of maternal health outcomes. While the topic of maternal mortality has often been overlooked in the US, the Supreme Court’s recent overturning of Roe v. Wade has brought more widespread attention to the issue. Some worry that the recent overturning of Roe v. Wade could worsen maternal health outcomes and exacerbate health inequalities in the US, making the need for innovation in this space all the more critical.  While the statistics are grim, women’s health, and maternal health specifically, is an area that investors are increasingly beginning to explore to fund solutions that close the gap between the US maternal mortality rate and the rest of the world. 

The medical causes of maternal mortality are multifaceted, ranging from hemorrhage, infection, hypertensive disorders, cardiac conditions and others. While some disorders are unavoidable, many complications can be addressed by providing women with early access to care. Screening and early monitoring can help detect hypertensive disorders and cardiac conditions and also reduce C-sections. However, prenatal care is not just about showing up for visits. While the US standard of prenatal care dictates that 12-14 visits are required, we know that women who are uninsured or are on Medicaid are more likely to attend less than 10 prenatal visits. This leads to the conclusion that attending more visits must therefore be better. However, our European counterparts have better maternal outcomes and average recommending nine prenatal visits, significantly fewer than the US recommendation. Therefore, impact will not only come from getting women to attend appointments, but also from examining the quality of care that is delivered in -- and between -- those visits.

  While medical causes have often been the focus, morbidity and mortality also stem from other causes, including mental health and the social determinants of health. These require a focus on multidisciplinary care, going beyond the health care provider and including those in the mental health professions, social work, dieticians, doulas, midwives and more. One argument for the success of prenatal care in Europe is that women have more social support and financial benefits, suggesting that a more integrative approach to care may be important.

Racial disparities account for a large portion of the maternal mortality rate. Black women have a much higher mortality rate when compared to women of other races in the US. Black women receive less prenatal care as they are less likely to initiate care, less likely to access timely and affordable care, and less likely to utilize care by the end of pregnancy. 

The key social factors that impact maternal health outcomes include income, lack of social support and child care, food instability and education, all of which disproportionately affect black women. While these are important drivers, a greater emphasis needs to be placed on culturally competent care. When providers understand the background of the patients they care for, it allows for them to build trust, leading to a therapeutic relationship and ultimately better care.

Rural areas are also plagued by high maternal mortality. Approximately 15% of annual US births occur in rural hospitals, and rural communities have higher maternal and infant mortality than the national average. Overall there is a shortage of providers in rural areas and births are primarily attended by a family practice physician or midwives, rather than an obstetrician-gynecologist.

It is important to note that Medicaid covers about 50-60% of rural births. Medicaid is an important source of insurance for pregnant women regardless of their location. Insurance status is often linked to employment, and women who are expecting are less likely to be employed during the year they are pregnant. Public insurance is therefore an integral factor for pregnant women. Having coverage by public insurance was associated with a lower likelihood of spending >10% of their income and reducing the economic burden on pregnant women. However, women who do not normally qualify for Medicaid lose their Medicaid insurance 60 days postpartum. Medicaid expansion is done on a state-by-state basis, and therefore solutions that can solve this gap are greatly needed, in addition to lobbying for policy change.

Maternal health is a subset of the broader women’s health and femtech¹ categories, which are experiencing significant growth. Some estimate that the women’s health market will be approximately $60 billion by 2027. Specifically, the current challenges in maternal health make this an area that is ripe for investment. In examining the landscape of digital health products addressing women’s health, approximately 19% are in maternal health. Overall, femtech investments are also rising, with increasing capital and an increasing number of deals. There was a notable increase in 2021 in the amount of VC capital that was raised – Impact Engine portfolio company Elvie raised $97M, Maven Clinic raised $110M and Flo Health raised $50M. 

Startups in women’s health have been primarily divided between devices, diagnostics, and digital solutions. We focused on digital solutions because that is our primary lens on investing in this space. Digital solutions span online community resources, telehealth, and remote monitoring. Key themes of focus within the maternal health space include:

• Software solutions that help to educate and engage women of reproductive age, specifically those who may soon become pregnant or who already are pregnant. Focusing on women who may soon become pregnant is critical, as often women have undiagnosed pre-existing conditions, and improving the health of women before they become pregnant or early on in the pregnancy is critical to improving health outcomes throughout the pregnancy and beyond. 
  

• Solutions to pair pregnant women with additional support services such as doulas, midwives, nutritionists and mental health professionals. Given current labor challenges, it will be important for these solutions to also focus on increasing the supply of such professionals, which has a dual impact of increasing economic opportunity while improving health outcomes.
  

• Remote patient monitoring solutions that can be used in the home. These solutions, some of which integrate innovative devices and hardware, can bridge gaps in care as they can aggregate data and take a woman’s vitals (e.g., weight, blood pressure, and even fetal monitoring) to monitor women between visits and escalate issues as they arise, rather than waiting for a regularly scheduled check-up. 

While point solutions can target specific parts of the patient journey, it is important to keep in mind the holistic health of the woman throughout the entire process when considering solutions in this space. We believe that the winners will be solutions that address the woman’s whole health and/or integrate with other solutions to support various social and medical factors that may affect a woman’s health throughout her pregnancy and beyond.  

The increasing number of firms entering the women’s health space is encouraging. However, many solutions that target maternal health specifically are still early-stage and therefore have yet to show the correlation between the product or service and improved maternal health outcomes. It will be important to evaluate the impact that the solutions will have as well as women’s access to these services (e.g., via insurance coverage) in order for them to make lasting change and improve health outcomes. Hard questions need to be asked: How can we change the delivery of prenatal care to reduce the burden of receiving care? How can we provide culturally competent care to women? What outcomes should we be looking at e.g., reduced C-section rates, reduced preterm birth rates, reduced NICU days? How can we provide access in rural areas without compromising the quality of care? How can we reduce the cost burden on pregnant families beyond Medicaid expansion? These are a few questions that attempt to get at the core of the disparities that pregnant women experience in our current healthcare system and should guide the evaluation of new solutions. 

¹The femtech industry refers to a range of health software and tech-enabled products to improve healthcare for women across a number of female-specific conditions.

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References:

1. https://www.commonwealthfund.org/publications/issue-briefs/2020/nov/maternal-mortality-maternity-care-us-compared-10-countries

2. Collier AY, Molina RL. Maternal Mortality in the United States: Updates on Trends, Causes, and Solutions. Neoreviews. 2019 Oct;20(10):e561-e574. doi: 10.1542/neo.20-10-e561. PMID: 31575778; PMCID: PMC7377107.

3. https://www.cdc.gov/reproductivehealth/maternalinfanthealth/infantmortality.htm

4. https://www.americashealthrankings.org/learn/reports/2019-annual-report/international-comparison

5. Peahl AF, Smith RD, Moniz MH. Prenatal care redesign: creating flexible maternity care models through virtual care. Am J Obstet Gynecol. 2020 Sep;223(3):389.e1-389.e10. doi: 10.1016/j.ajog.2020.05.029. Epub 2020 May 17. PMID: 32425200; PMCID: PMC7231494.

6. Carter EB, Tuuli MG, Caughey AB, Odibo AO, Macones GA, Cahill AG. Number of prenatal visits and pregnancy outcomes in low-risk women. J Perinatol. 2016;36(3):178-181. doi:10.1038/jp.2015.183

7. Friedman Peahl A, Heisler M, Essenmacher LK, Dalton VK, Chopra V, Admon LK, Moniz MH. A comparison of international prenatal care guidelines for low-risk women to inform high-value care. Am J Obstet Gynecol. 2020 May;222(5):505-507. doi: 10.1016/j.ajog.2020.01.021. Epub 2020 Jan 18. PMID: 31962108.

8. Miller CA. Maternal and infant care: comparisons between Western Europe and the United States. Int J Health Serv. 1993;23(4):655-64. doi: 10.2190/RR4G-NTB1-L229-FVHG. PMID: 8276527.

9. Gadson A, Akpovi E, Mehta PK. Exploring the social determinants of racial/ethnic disparities in prenatal care utilization and maternal outcome. Semin Perinatol. 2017 Aug;41(5):308-317. doi: 10.1053/j.semperi.2017.04.008. Epub 2017 Jul 29. PMID: 28625554.

10. Kozhimannil KB, Hung P, Prasad S, Casey M, Moscovice I. Rural-urban differences in obstetric care, 2002-2010, and implications for the future. Med Care. 2014;52(1):4-9. doi:10.1097/MLR.0000000000000016

11. https://www.scientificamerican.com/article/maternal-health-care-is-disappearing-in-rural-america/

12. https://www.cms.gov/About-CMS/Agency-Information/OMH/equity-initiatives/rural-health/09032019-Maternal-Health-Care-in-Rural-Communities.pdf

13. Peterson JA, Albright BB, Moss HA, Bianco A. Catastrophic Health Expenditures With Pregnancy and Delivery in the United States. Obstet Gynecol. 2022 Mar 10. doi: 10.1097/AOG.0000000000004704. Epub ahead of print. PMID: 35271537.

14. https://www.statista.com/statistics/1125599/femtech-market-size-worldwide/

15. https://www.coyote.ventures/_files/ugd/e768ef_ea188df766ed445db2c3f02b47014c60.pdf

16. Pitchbook data

17. https://www.mobihealthnews.com/news/femtech-startups-nearly-double-funding-dollars-last-year-still-make-small-percent-market

18. https://news.crunchbase.com/startups/femtech-vc-investment-startups-womens-health/

Circuit: Why We Invested

By Chris Wu

The rise in urban traffic is putting massive financial and logistical pressure on cities, corporations and transportation providers while also having an extremely negative effect on the environment. US drivers make an estimated 186 billion trips per year, and 33% of all vehicle trips in the US are 2 miles or less. Meanwhile, studies have shown that ride-sharing companies like Uber and Lyft have caused a 160% increase in urban traffic and the growth in last-mile deliveries is projected to increase congestion by 21%. As a result, cities are currently responsible for 70% of global CO2 emissions, and 1/3 of that is generated by transport.

Solution

Circuit provides tech-enabled, shared, electric mobility services specializing in pooled short distance trips (0-3 miles). Circuit is focused on making short-range, shared mobility more efficient and sustainable with their on-demand app, teams of W2 drivers, and fleets of 100% electric vehicles. Circuit solves the short distance trip problem by working with cities and private companies to build and deploy turnkey solutions for delivering shared rides that reduce the number of trips made by single occupancy vehicles, resulting in fewer GHG emissions, less air pollution, and less congestion. Circuit is able to provide all this at a cost that can be as much as 5x less than alternatives and is free or low-cost to riders.

Why We Invested

Circuit’s co-founders, Alex Esposito and James Mirras, are impressive entrepreneurs with a deep understanding of the business and the problem they’re solving for cities, transportation planners, and for their private partners. They have successfully scaled an operationally complex, logistically challenging business while being extremely capital efficient. Circuit’s last mile solution has demonstrated that it can serve as a connector to public transit systems or mass transit hubs, and has effectively addressed transit deserts in places like West Dallas. The company has strong business traction with a diverse set of customers including cities, municipal partners, private inter-city rail companies, and real estate property owners.

Circuit has delivered over 5 million rides to date, and the company is actively operating in 25+ communities across the country such as San Diego, CA, New Rochelle, NY, and Hollywood, FL. We’ve also been impressed with Circuit’s ability to address cities’ short distance transportation challenges at a significantly lower cost. For example, in Pompano Beach, FL Circuit has provided over 2,000 riders per car per month at a cost-per-rider of $2.28 whereas fixed route buses with low ridership can cost a city over $35 per rider.

Impact

We believe Circuit's tech-enabled, on-demand shared mobility microtransit services can act as a connector to address transit deserts while reducing traffic congestion, reducing vehicle miles traveled (VMTs), preventing GHG emissions, and lowering household transportation costs. In 2021 alone, Circuit served over 650,000 riders, reduced congestion by over 1,000,000 vehicle miles traveled, and prevented 535 tons of CO2 emissions (which is the equivalent of 60,224 gallons of gas). 

The Shared-Use Mobility Center describes shared mobility as the systems and infrastructure that allows for the reduction of transportation costs as well as the reduction of carbon emissions by sharing rides and sharing vehicles. Studies have reported that shared mobility reduces the dependence on using private cars. By giving people more ways to get around, shared mobility can make our streets safer and connect more people to more opportunities. By reducing our need to own and drive (and park) our private cars, shared mobility can help reshape our streets, our towns, and our cities. Circuit offers a form of shared mobility called microtransit which is generally defined as pooled, on-demand transportation using electric vans and/or shuttles operating outside fixed routes. The Rocky Mountain Institute (RMI) states that microtransit can be an excellent way to address existing transit deserts, and names microtransit as one of the most promising ways to create more equitable access to electric mobility for low-to-moderate income (LMI) residents with the potential for significantly lower costs than other modes, which Circuit has clearly demonstrated. 

THE VITAL ROLE GROWTH EQUITY IMPACT INVESTORS PLAY AND THE CASE TO BACK THEM

IE Case Study

By: Ander Iruretagoyena and Priya Parrish

In many ways growth equity is the middle child of the private markets spectrum. "Middle-child syndrome" is the idea that if you're neither the oldest child nor the youngest, you get less attention from your parents and feel “caught in the middle.” Similarly, at times, it feels like the market forgets about growth stage companies and instead focuses all of its attention on when companies are ideas with the potential to change the world or when they are proven leaders. There is a lot of space between early venture and exits, and without the right backers companies may become yet another statistic. Of all companies, only about 60% of start-ups survive to age three and roughly 35% survive to age 10. In the case of impactful ventures, the perceived challenges to make it out of this valley alive may even be greater as companies are not only fighting traditional hurdles, but oftentimes have the added burden of convincing mainstream investors and the broader market that their inherently impactful business model is actually scalable and profitable. Investing in impactful companies at every stage is important; that is why we manage a platform that has the flexibility to back impactful funds and companies at all stages through a number of different investment strategies. 

Many people think that impact investors are most needed at the early stage, as this is when impact gets “baked in.” However, in reality impact is solidified over a much longer time period before it becomes embedded into  a company’s business model and value proposition. As a company matures it needs different kinds of support, and the role of the impact investor shifts as well. We at Impact Engine believe that the growth equity impact space represents an interesting spot in the risk return spectrum, while also being a critical financing juncture to create scaled businesses driving impact.  Before diving into this topic, it is a helpful exercise to establish some common vernacular to frame the conversation.

Even though the growth equity investment strategy lies in the middle of a theoretical company lifecycle, it should not be confused with the strategy PE/Buyout firms utilize when acquiring mid-market companies. The investment strategy utilized for these lower middle market companies often relies on garnering outright control of relatively stable, cash flow positive business through leverage, and optimizing operations to increase margins, pay down debt, and create a compelling narrative to exit at a higher multiple than the one used to purchase the business.  The upside potential to these investments is much lower than what most venture funds aim for, but buyout strategies also see few, if any, write-offs, leading to a consistent risk-return profile.

In early venture, GPs (General Partners) are often securing single to mid-teen % ownership stakes in a much greater number of companies via a combination of small initial checks, followed by additional participation in subsequent rounds to prevent dilution and increase exposure. The investments made typically have the potential for a 10x+ return, but in reality most will fail and the fund returns will be driven by a small number of companies. These funds thus have the potential for much higher returns than buyout funds, but also a higher probability of a lower return.

The # and AUM in growth equity is dwarfed in comparison to PE & VC

Currently in the Pitchbook platform there are a total of 5,635 primarily PE-VC managers with traditional market structures (commingled LPs, primary funds w/. 10 year life, and raising more than $50M). Of those, 2,974 are venture (53%), 2,240 (40%) are buyout, and 421 (7%) are growth equity. Collectively these managers oversee 14,309 funds for a total of $7.29 Trillion.

• Buyout- 5,367 funds (38%) managing $4.66 T (64%)
• Growth- 1,615 funds (11%) managing $0.89 T (12%)
• Venture- 7,327 funds (51%) managing $1.74 T (24%)

Growth equity investing typically focuses on companies with established product market fit, a proven revenue model (often translating to $10M+ in revenues) and who have attractive unit economics making them either EBITDA profitable or in a position to achieve this milestone within 2 years of the current funding round. In other words, these companies are at an inflection point and need capital to scale an already proven business model that is well beyond the typical venture risks of product/business model development and product market fit; rather, they are mainly facing scaling and execution risk. Companies begin to professionalize, start meaningful collaborations, and come into their own by learning from their BODs (Board of Directors) who might include sophisticated institutional investors for the first time. From a risk/return profile, growth equity is therefore rightfully less risky than venture while offering buyout-like consistent performance without the need for heavy leverage to magnify returns. GPs deploying this strategy often have a relatively concentrated portfolio (high single to low double digits) of significant minority positions with each of them being underwritten to base cases in the 3-4x range while expecting low single digit write-offs.

The difference continues in the world of impact

Of those same 5,635 managers and 14,309 funds there are 257 managers who self-report that they seek ESG/Impact Investments. Of those, 127 are venture (49%), 107 (42%) are buyout, and 23 (9%) are growth equity Collectively these managers oversee 378 funds for a total of $137B.

• Buyout- 121 funds (32%) managing $80.7 B (59%)
• Growth- 75 funds (20%) managing $23.6 B (17%)
• Venture- 182 funds (48%) managing $32.7 B (24%)

Buyout, early venture, and growth GPs not only differ in investment strategies and the underlying stage of the companies but they also have some important differences in how they support the companies they invest in. This is especially true for impact investors relative to mainstream investors. These differences are summarized in the table below. Of course there are going to be some similarities across the stages, given that a good GP is often doing a wide variety of activities to add value and help the underlying portco grow, but there is definitely a palpable shift in emphasis depending on which stage the company is in.

Despite the difference, AUM growth in GE is quickly on the rise driven by technology…

Digital technology has forced growth equity and late-stage venture capital to the forefront over the past few years, and fast-moving investors with innovative new business models have joined the battle to control this burgeoning market under the belief that the digital disruption is still in its early stages. The numbers are shocking.

Growth and venture assets under management have expanded at about twice the rate of traditional buyout AUM over the past 10 years. Since 2014, $367 billion has been raised globally for growth equity.

Global Buyout, Growth Equity, and Venture Capital AUM ($T) | Preqin as of 06/30/21

… and that same pattern is observed in capital deployed

Growth equity and late-stage venture capital deployment has grown at 1.5 times the pace of buyout funding and now represents 61% of its levels.

Within growth equity, the SaaS vertical accounted for around 30% of total deal value in 2021.

Global Buyout, Growth Equity, and Venture Capital Deal Value ($B) | Preqin as of 06/30/21

To further illustrate the highlighted blue square and its underlying investment strategy, let's spotlight the work of one of our impact growth equity investees, Lumos Capital Group.

• Overview: Lumos invests in high growth private companies developing innovative technologies and platforms in education technology, knowledge services and human capital development.

• History: The firm was established in 2019 by Victor Hu and James Tieng  who were longtime friends and worked together at Exceed Capital Partners (a single LP fund with the vision of democratizing education by unlocking how technology can be used to provide greater access to learners of all ages). Together James and Victor have over 30 years of combined experience in the education sector. Victor was responsible for establishing  the education practice at Goldman Sachs, which he led for close to a decade, and James has invested over $1.5B in education and tech through his roles in Quad Partners, Apax Partners, and Irving Place Capital. This powerful combination of backgrounds (transaction advisory in M&A, strategy, corporate finance + principal investing) is exactly the type of backgrounds we like to see and the ideal one to source, secure, and support winning investments.

• Investment Strategy / Portfolio Construction / Impact Thesis & Fund Cycle: In July 2021 Lumos held its final close for Fund I and currently has ~$200M AUM (assets under management). With it Lumos has executed several growth equity investments where they saw room for value creation and potential for global scale. Transaction structures are typically Series B+ with Lumos as the lead investor. Initial equity checks have generally fallen in the $10-20M range with up to 30% of the fund reserved for additional follow on opportunities. The fund expects to allocate 75% of the investments in North America and 25% globally. Some of the guardrails the GP has put in place include setting minimum revenue hurdles of $10m, targeting EBITDA profitability in at-most a 18-24 month window, and detailed investment screens for strong unit economics. Furthermore Lumos invests with structural protection in terms of preference shares and enhanced governance rights, and typically secures other protective provisions such as exit rights (ie. early-exit protection, lock-up periods, drags with return thresholds, and tag rights). Lumos has made 7 investments to date with the following characteristics and impact theses.

  • Ellevation – Led a $15mm Series B-1 round in March 2020. Ellevation is a market-leading software-as-a-service (SaaS) business for K-12 school districts in the US, serving English Language Learners (ELLs). ELLs experience outsized achievement gaps relative to non ELL students (41% of ELL fourth graders score below basic in math and 69% score below basic in reading) and there is a tremendous shortage in administrator and teacher capacity across the education system to support them (only 24% of teacher training programs train teacher candidates in strategies to support ELLs specifically).  Ellevation’s Platform product allows schools and administrators to comply with the requirements of federal law and other regulations surrounding ELLs. Ellevation also helps to close achievement gaps through both their Strategies product, which provides teachers with instructional support to help them differentiate instruction, and Ellevation Math, which is an academic language product used directly by students.

    • In June 2021, Ellevation announced the closing of an acquisition by Curriculum Associates. Lumos exited the investment as a result and served on the Transaction Committee, working to ensure that the company’s impact mission would be maintained through any strategic sale by the counterparty.

  • Ironhack – Led a $20mm Series B-1 round in December 2020. Ironhack offers technology-oriented programs for adult learners in areas such as web development, UX/UI design, data analytics, cybersecurity, and JavaScript. Adults without a postsecondary degree who hold a certificate or certification have higher full time employment rates than their peers with no credentials, as well as higher salaries ($45K versus $30K). Ironhack provides a quality education and relevant job skills to students and employees for a fraction of the time and money that traditional postsecondary education requires (typically 4 years and $100K+). By providing high quality technology skills training, Ironhack helps students start careers in high demand technology fields, improving their economic mobility by achieving high post program salaries. The company recently submitted their B-Corp Certification application with Lumos’ active support. 

  • OnlineMedEd – Led a $20mm Series A growth round in March 2021. OnlineMedEd (“OME”) is a digital healthcare learning platform primarily serving medical students globally. Healthcare education remains expensive and inaccessible in many parts of the world. Much of this is attributable to a traditional pedagogical approach that has yet to embrace innovation. In addition, people of color continue to be underrepresented in the healthcare community and inequity in health outcomes persists among these underrepresented demographics (people of color fare worse across a range of health measures including lower life expectancy). With over 80% of medical students in the US using OME and users in over 190 countries, OME can potentially improve outcomes by offering inclusive educational content and helping improve diversity of medical practitioners in the US, which in turn may contribute to closing health outcome disparities. For its part, Lumos has worked closely with the company to, among other things, recruit mission-aligned executives.

  • Openclassrooms – Led a $80mm Series C round in April 2021. OpenClassrooms (“OC”) is a leading global digital education-to-employment, reskilling and upskilling platform headquartered in Paris. OC provides a product suite of both free and paid online programs that trains a diverse global workforce for the future. An estimated 1B jobs will disappear worldwide between 2020-2030 while 300M people are estimated to enter the workforce during that same timeframe. Even for people with existing competencies, additional training/ reskilling will be necessary to keep up with the rapidly evolving world of work. The company intentionally provides access for the underserved  to participate in the digital economy through apprenticeships and a robust job placement support system. Additionally, to make its products more financially accessible, OC helps students unlock 3rd party funding; today a majority of its students are able to access its products such as technology apprenticeships with no out-of-pocket costs. The company tracks its impact goals and reports on them through an annual impact report which measures its success in job placements. Lumos has worked actively with the company’s executives on global expansion initiatives, both organic and inorganic, to help OC reach more learners and underserved populations.

  • Podium – Led a $20mm Series B round in December 2021. Podium is a high-growth digital learning company that provides credit-bearing, turnkey online courses for in-demand skills, delivered in partnership with universities to undergraduate students. In a recent survey run by Gallup, Strada, and McGraw-Hill, 86% of students said gaining skills to be successful in work was very important in deciding to pursue college. However only 36% of them believe they will graduate with the skills they need to be successful in the workplace. Podium’s offering combines high quality asynchronous content, real-world case studies, live interactions across schools, on-demand support, and seamless integrations to make for a student experience that stands on its own compared to traditional courses. In its most recent semester, Podium’s courses achieved a +68 NPS with completion rates at ~95% ( vs. ~50% for traditional undergraduate compsci courses for non-majors). Importantly, all courses can access federal financial aid and in some cases (e.g. Arizona State University) the university charges no incremental tuition for a Podium class.

  • BookNook – Led a $25mm Series B round in January 2022. BookNook provides a digital education platform that allows schools and districts to deliver high quality ELA (reading and literacy) supplemental support for K-8 students, both remotely and in-person. Today, the K-8 workforce is in ‘crisis’ mode due to staffing challenges, high student:teacher ratios and limited budgets; many of these existing difficulties were significantly exacerbated by the global pandemic As a result, the education system is struggling to provide personalized learning to students. BookNook has the ability to help readers achieve foundational skills more quickly and is able to reach a broader base of students than traditional in-person tutoring services. BookNook can leverage tutors anywhere in the world to provide access to students in both rural and urban settings that may not have otherwise had access to an in-person tutor. The company’s offering is differentiated given the use of real tutors and synchronous teaching in a small group setting, which is unique compared to the increasingly common asynchronous and gamified delivery methods. Most importantly, the solution democratizes tutoring by shifting the cost from individual families to the school district, enabling a service that previously was affordable to only a minority of families to become accessible to all.

  • TRANSFR – Led a $33mm Series B round in February 2022. Transfr is an emerging leader in the field of immersive learning (virtual reality simulations) for workforce development and training, particularly in the skilled trades. While graduating college does not necessarily have to be the ultimate goal, it is a pretty telling sign that the US higher education is deficient when approximately 2/3rds of US adults never see that system to completion and do not earn a college degree. As if this wasn’t enough, even the ones that do are often overburdened with debt, carrying an average student loan balance of $29,800, and only half say that the lifetime financial benefits of their degree outweigh the cost. TRANSFR’s career exploration modules expose students to a wider variety of jobs and immerses them in hands-on practice / training which are accessible, cost-effective, low-stakes, and effective ways to gain skills required for in demand jobs. TRANSFR also has strong relationships with local employers to complete the bridge to employment. Some of the delivered outcomes include 50% improvement in troubleshooting time; 93% retention of employees in the job at 6 months vs. 30% from employees sourced from temp agencies and 90%+ learner preference for VR training relative to traditional methods. The learners who utilize the solution are generally underserved by traditional higher education and include high school students, adults seeking to re-enter the workforce without a degree, students or job seekers with disabilities, and those formerly incarcerated. Lumos has worked with the company in its financing strategy, introducing its network of commercial partners, and has assisted in various other strategic growth initiatives.

2-3 more investments will round out the portfolio before a larger Fund II is raised in the first half of 2023.

Impact + Portfolio Support: As a co-investor in two of these transactions and as Chair of  Lumos’ Impact Advisory Board, Impact Engine has collaborated with and witnessed first hand how Lumos has embedded impact into every stage of their investment processes and how they have stayed true to the highlighted cell above. Leveraging its sector focus, relevant experience (operators, IPOs, M&As, principal investing) and networks & partnerships, Lumos’ portfolio support centers on helping their investments execute on (i) global growth (ii) follow-on M&A and (iii) capital financings and exits. 

• Global Growth: James & Victor have worked in the global education and human capital development industry for years, and bring their network and knowledge of international markets to bear on the Fund’s investments with value-added introductions to commercial partners, referred to by Lumos as Ecosystem Partners, as well as an extensive Advisory Board with significant networks in various global markets. Domestically, the Investment Team is also uniquely knowledgeable of the tailored go-to-market strategies required to be successful across different market segments (with both B2B and B2C models), having invested or advised in many such situations over the past decade.

• Follow-on M&A: A key strategy that Lumos has employed in past successful investments is to assist a portfolio company in consolidating a fragmented product category or extending its platform through accretive M&A. Lumos brings specific expertise in acquisition processes, as well as in-depth knowledge of the competitive landscape to be able to help companies execute on this strategy.

• Expertise in Financings, Exits and Growth Strategy: The Lumos Investment Team has worked with numerous human capital development companies in growth strategy and positioning for follow-on financings and exits, and brings a differentiated value-add in these areas to assist portfolio companies post-investment. For example, James and Victor personally know key decision-makers at strategic acquirers throughout the industry, have advised numerous companies in minority financing and sale processes, and have also guided many companies in the sector to successful initial public offerings.

Lumos’ impact processes and philosophy centers on an overarching theory of change which recognizes that for numerous reasons the global status quo is unsustainable (most of the global workforce has less than a college degree, annual earnings of <USD20K, and is in danger of being left behind due to accelerating automation), that education is THE crucial lever for systemic change, and that purposefully investing in impactful private sector innovation will drive a more prosperous and inclusive future for everyone. Utilizing various frameworks and tools they embed impact into their investment processes in the following ways:

• Sourcing – Multiple approaches, including thematic (e.g. education to employment outcomes) particularly in the wake of COVID-19, with a focus on proprietary opportunities aligned with broader impact theses and market trends; tracks deals with founders from marginalized backgrounds.

• Diligence – Their diligence process is designed to deepen their understanding of the prospective company’s thesis to improve outcomes for students and educators, especially marginalized communities, and to uncover opportunities to more deeply embed accessibility and outcomes into the product or service. The team thoroughly reviews any research studies or academic papers the company has produced.

• Investment – Formalize accountability with investee through explicit conversations with CEOs and impact side letters / legal documentation. Often ideate with CEOs as Lumos may be the first investor to ask for this thoughtfulness around impact.

• Portfolio Support – Seen as a partner to portfolio management teams and engage in regular dialogue on impact priorities and positive social returns as the business scales. Develop, monitor, and continuously report on impact KPIs. Active voice on the board in regards to impact priorities.

• Exit – Build relationships with impact aligned strategic and financial partners, and serve as a point of accountability at the board level in considering potential exit opportunities. Consistent dialogue and strategy planning with company on future plans.

As an example of how they used the Impact Management Framework and its 5 dimensions in the previously discussed first investment (and successful exit) please see the table below:

Lumos demonstrates that it takes a specific skill set to manage with success and impact at this stage.

Venture funds extending into later stages via opportunity funds or buyout funds being forced earlier due to competitive pressures need to understand that finding success at this stage requires much more than insider or sector knowledge. Take for instance the example of LendUp, a fintech company that had the mission to provide everyone with a path to better financial health. Through its proprietary software, it supposedly designed safe, transparent products that expanded access, lowered costs, and provided credit-building opportunities for the population of Americans who had limited options within the traditional banking system because of low credit scores and income volatility. Well after 9 years of operations and $366M in funding (including some of the most famous names in VC ie. Andreessen Horowitz, Google Ventures, Y Combinator, PayPal Ventures etc.) the US CFPB “shuttered the lending operations of this fintech for repeatedly lying and illegally cheating its customers,” causing the company to officially declare itself out of business on March 1st 2022.

The sector’s promise has inspired a number of the top buyout firms to launch large growth funds

Examples include: Bain Capital, TPG, and KKR. Blackstone, which manages $881 billion in assets across a diverse set of funds, is one of them. In March of 2021 it raised $4.5 billion for Blackstone Growth, its first-ever fund devoted to growth equity, and built a team of growth specialists led by Jon Korngold, an 18-year growth equity veteran from General Atlantic. Now it is supposedly already raising the 2nd vintage with over $3B secured in the first close.

Having said that, long standing growth equity players like Insight Partners are doubling down and protecting their lead by successfully raising its 12th flagship fund with over $20 billion in commitments.

As deal sizes increase growing companies can stay private longer

While in the past most growth companies eventually turned to the public markets to finance their expansion via IPOs, many today are delaying it and instead are tapping the ever deeper pools of private capital. IPOs are not going away, in fact they had a record year in 2021, but companies are reaching a relatively more mature stage of growth before subjecting themselves to the notoriously distracting and expensive IPO process. This trend has steadily increased the average deal size in the growth equity and late-stage venture markets, bringing (at least the $ figure) much closer to the range historically attractive to PE investors.

Average US Late-stage Venture & Growth Equity Deal Value ($M) | Pitchbook as of 06/30/21

As evidenced by the various callouts throughout the article, the rise of growth equity is evident but it is still in its early stages. Elevated valuations and general euphoria are certainly producing questionable transactions (not exclusive to growth), making it hard to assess which strategy will be the most lucrative over the long term. Nonetheless, the current investment wave driven by technology innovation seems to have stronger fundamentals than previous investment cycles like the dot.com era. In the approximately 1,700 calls/meetings Impact Engine has had with funds in the last three years, we have seen a variety of approaches, and we believe there are multiple ways to win. A wise person once said, “There are many ways to make money and there are many ways to lose money.” However, beyond financial outcomes, as this article has argued, we believe that supporting impactful growth investors is critical to the health and success of the broader impact investment ecosystem; as such impact growth equity holds a special place in our hearts and minds.

Pooled Horizon Net IRR for Global Funds | Cambridge Associates as of 06/30/21

Performance of Impact Growth Equity vs. Growth Equity (2006-2018) | Pitchbook

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Alcanza: Why We Invested

By Sophia Friedman

Clinical trials have historically lacked representation from diverse ethnic and racial groups, while also lacking diversity in gender and age. Clinical trial populations are often not proportionate to the populations that are affected by the disease.  Recent studies have shed light on the lack of diversity in clinical research. One example can be found in gender representation.  Women and specifically women of color have historically been underrepresented in clinical trials. A recent Northwestern Medicine study analyzed over 20,000 clinical trials between 2000 and 2020 and found that women are underrepresented in clinical trials in cardiology, oncology, neurology, immunology and hematology. This stat is particularly troubling given that cardiologic and oncologic diseases are among the leading causes of death among women in the United States.

Minorities are also vastly underrepresented in clinical research. A 2019 article in JAMA Oncology highlighting the disparities in race reporting and diversity in clinical trials in oncology found that on average, 76% of trial participants were white, 18% Black, 3% Asian and 6% Hispanic.  Even more striking, a recent analysis of Alzheimer’s trials found that while Black people are more prone than White people to develop Alzheimer’s disease, they represent only 2% of those included in clinical trials.

Adequate representation is critical in clinical research for various reasons. First, disparities in access to clinical trials prevent minorities from benefiting from advances in science. Additionally, lack of adequate trial diversity can result in trial outcomes that are less applicable to the entire population. Further, therapies can have different efficacy and safety effects in different subpopulations.  Therefore, lack of diversity in clinical trials may fail to assess racial differences that affect clinical outcomes. Diversity in trials is needed to promote equitable access to healthcare and to improve outcomes by making trial populations better reflect the population across various racial, ethnic, gender and age groups. However, historically, no clinical trial site network platforms have specifically focused on diversity and increasing representation of minority groups.

Solution
Alcanza, which means reach in Spanish, is focused on targeting diverse clinical trial participants and underserved markets to improve equitable representation in the clinical research space. Alcanza Clinical Research is a multi-site, multi-phase clinical research platform with locations currently in Massachusetts, New Hampshire, Michigan and South Carolina. The company has established a presence across Phase I-IV studies and various therapeutic areas, including Neurology, Dermatology, Psychiatry and Vaccine.  This is a roll-up strategy in which Martis Capital formed Alcanza upon the acquisition of three initial sites, has since acquired a fourth site and intends to continue to grow both organically and via acquisition of additional sites.  By leveraging its national footprint, best-in-class systems, standard operating procedures and deep sponsor relationships, Alcanza is positioned to become a market-leading platform in a highly fragmented space of more than 2,500 independent research sites. 

Why We Invested
Minorities continue to be under-represented in clinical trials. However, racial, gender and age diversity is critical in ensuring the equality, validity, and scientific rigor of clinical research. While the issue is beginning to gain wider acceptance, scientific research still suffers from a severe lack of representation across all therapeutic areas. Recently, the FDA and pharmaceutical sponsors have called for greater trial diversity that better resembles the overall population. Further, lack of patient recruitment diversity can slow the drug development process, as evidenced recently by the Moderna COVID vaccine clinical trial. However, while the FDA has called for greater representation in clinical trials, no specific regulations have been enacted. Given the FDA and society’s push for pharmaceutical corporations to implement adequate patient diversity in clinical research combined with the fact that there is no existing market leader in the space, clinical trial site networks such asAlcanzaare well positioned to differentiate themselves by driving recruitment of minority populations. A scaled clinical trial platform such asAlcanzawill have the integrated systems and capabilities to run larger and more complex trials with diverse patient populations, thereby advancing innovative treatments through the various clinical trial stages.

The Alcanza team has extensive experience in the clinical research space and integrating sites. More importantly, the team has an explicit focus on the patient experience and recruiting diverse patient populations; diversity in clinical trial participants is core to the Alcanza team’s mission. Specifically, CEO Carlos Orantes has over 25 years of experience in the drug development industry. Carlos previously led a leading site network brand and oversaw over 50 clinical trial sites.  He has direct expertise integrating sites into a broader platform and brings with him a depth of industry relationships and clinical trial expertise. Further, Alcanza’s leadership and the lead investor, Martis Capital, are working closely together in further professionalizing the Alcanza platform. More recently, the Martis Capital and Alcanza teams have developed a true partnership, working together to launch the Alcanza platform and develop the core business strategy. The Martis Capital and Alcanza teams share a similar mission to build a leading clinical trial site network that is committed to increasing representation in the clinical trial space.

Impact
We believe that Alcanza can not only increase representation for minority groups in the clinical trials that it manages, but also has the potential to serve as a market leader in this space and help to change the way the industry approaches diversity in clinical trials. Central to our investment thesis is the fact that Alcanza aims to increase representation for underrepresented groups in clinical research. However, recruiting and retaining diverse populations into clinical trials is not always straightforward as specific subpopulations may be hesitant to enroll in clinical trials, may lack the means of adhering to the trial requirements and may be uneducated as to how their involvement in trials may impact their own health as well as contribute to broader scientific research. Therefore, there is a high level of engagement required by Alcanza in order to educate and engage diverse populations. We are confident that Alcanza has the expertise and the commitment to address this issue.  Alcanza has brought on a well-regarded industry expert to serve as the Chief Patient Experience Officer, a leadership role unique to Alcanza within the industry, which further solidifies Alcanza’s focus on this issue.   Alcanza intends to specifically focus on aspects related to community and patient engagement in order to successfully recruit and retain diverse trial participants.

IMPACT ENGINE AND BERNSTEIN PRIVATE WEALTH ANNOUNCE STRATEGIC PARTNERSHIP

We are excited to announce that we have established a strategic partnership with Bernstein Private Wealth (NYSE: AB), a global investment management firm serving institutional investors, individuals, and private wealth clients. 

The partnership will specifically focus on investments in environmental sustainability, economic opportunity and health equity across venture capital, growth equity and buyout managers. The partnership with AB is a significant vote of confidence in our strategy of generating financial returns, while driving positive impact outcomes.

Adding this investment strategy supports our firm’s mission as a Public Benefit Corporation to “engage more investors, entrepreneurs, and advisors in a market where financial returns are linked to positive social impacts.” It will also contribute to the growth and diversification of the impact investing industry, and the reach of our firm. 

You can read the AllianceBernstein press release, and you can always learn more about our firm and investment strategies on our website. Thank you for being a part of our community and sharing in the journey toward our vision of a world in which all investments optimize both financial and social returns.