General Catalyst Wants to Transcend Venture Capital

In its own words, General Catalyst has set out to “transcend venture capital.” Their plan to do so centers around the acquisition of a health system. It’s part of a broader “health assurance” initiative, a long-term thesis focused on transforming healthcare through what can be roughly summarized as tech-forward value-based care.

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Executing that thesis is newly launched company Health Assurance Transformation Corporation (HATCo). General Catalyst says HATCo’s goal is to work with other health systems "to help them develop and execute their transformation journey to health assurance.”

Put simply, the fully-owned health system is meant to serve as a proof of concept for new digital health products — demonstrate efficacy to ease full launch into a challenging market.

Taneja’s Personal Quest

General Catalyst CEO Hemant Taneja has been cooking up the health assurance thesis for years, iterating on his approach as he’s climbed the firm’s ranks.

Taneja moved to Silicon Valley in 2010, notching a series of notable wins in the years since. One of his first checks was Stripe’s seed round, which opened up a lead role on its Series B and participation in its C, D, and G rounds. Other high-profile investments include Anduril, Snap, Gusto, and Grammarly.

An admirable track record, but Taneja’s deepest conviction was diabetes management company Livongo. He became deeply interested in its novel approach to chronic disease management and championed a business that got a lukewarm reception nearly everywhere else.

Tech columnist Eric Newcomer, at the time a Bloomberg reporter, recalled his efforts to source stories from Taneja:

Back in 2014 when I first got to know Taneja, I would try to mine him for information about his buzzy investments, but he would always redirect the conversation to his quixotic investment in a diabetes diagnostic company called Livongo that he’d helped incubate.

Ultimately, I stopped hounding him largely because I felt bad refusing to write about his idealistic health tech company.

In 2017, Taneja messaged me: “Hey – If I gave you an exclusive on a financing, will you cover it? Or you don’t like covering financings?”

I replied, “Possible but has to be fairly high value. What is it?”

Taneja responded, “Confidentially Livongo. Raised $50m. I doubled down.”

I tried to pass the story off to another Bloomberg reporter. She didn’t write about it and neither did I.

Many Silicon Valley venture capitalists shied away from Livongo too. “People in the Valley were not interested. Everybody passed,” Taneja told me.

Eric Newcomer

Livongo ultimately sold to Teladoc for $18.5 billion in 2021, at which point General Catalyst held nearly 25% of the business.

Along the way, Taneja found time to author UnHealthcare: A Manifesto for Health Assurance, a reflection on his experience with the U.S. healthcare system and a vision for its change. Most of that vision was centered on the proliferation of Livongo-style businesses across the healthcare continuum — digital-first, AI-enabled, outcomes-based, and accessible.

Putting General Catalyst in the Mix

Taneja wanted General Catalyst to play a leading role in his health assurance movement. His thinking: “venture [had] gotten comfortable and lazy,” and it was his responsibility to do something about it.

And the first health assurance attempt was not entirely comfortable — General Catalyst launched a $500 million SPAC in 2020 named Health Assurance Acquisition Corp. The well-publicized effort failed to find a target and liquidated two years later.

His next attempt in the space was centered around the 2021 launch of General Catalyst’s health system network, featuring partnerships with 20 systems in an effort to provide a testing ground for new products and services.

Whether the partnerships didn’t move the needle or Taneja wanted a second chance at his failed SPAC, he’s now on to his third major health assurance foray.

This week’s HATco launch appears a like-for-like reincarnation of General Catalyst’s SPAC thesis, though with potentially fewer structural challenges. It’s set up as a permanent capital vehicle with a goal to invest over a decades-long time horizon.

Former Intermountain CEO Marc Harrisson has been tapped to lead the business. Neither he nor General Catalyst provided specifics, other than noting that they’re working to build scaled platforms that can move beyond the fragmented point solutions common in today’s healthcare landscape.

The information they did disclose: HATco’s target is to close on a health system acquisition within its first year of operations.

(1) Persona-driven consumer experiences that leverage AI feedback loops; (2) Virtual healthcare services that increase access and affordability; (3) New economic models for managing risk and paying for care; (4) Cloud infrastructure that helps generate data; (5) Tech-enabled modern workflows for health systems and providers.

Health Assurance Acquisition Corp.’s areas of focus

Not as Nonsensical as It Appears

In some ways, the move does make sense. Hospitals and health systems are a notoriously difficult end market to sell into. They have long sales cycles, are financially pressured, must deal with unions and internal politics, and often have unsophisticated management teams.

That means most products need to demonstrate an immediate ROI to break in. A promise of improved patient outcomes or future financial performance usually isn’t good enough.

Frustratingly, even clearly obvious cost savings or financial guarantees may not be enough — health systems aren’t always rational actors. Maybe a department VP sees a product as a threat to their job, the CFO golfs with the incumbent provider’s local leadership, or the health system is drowning in an Epic implementation with no capacity to onboard.

An owned system in which you can immediately roll out new products, with the opportunity to quickly iterate, would be a meaningful competitive advantage. But, is it a clear enough improvement over General Catalyst’s existing partnerships to be worth the headache?

Potential Targets

Less-than-ideal financial conditions across the health system universe mean there continues to be active deal flow, though maybe not of the quality General Catalyst is hoping for.

If the venture investor is up for it, there are bargains available.

Last week, Mercy Iowa City nearly sold for $20 million to the University of Iowa Health System (UIHC), though a competing last-minute $40 million credit bid won the deal. UIHC had floated a $605 million offer for the same asset just two years earlier.

Taneja will probably opt for a target that isn’t on the brink of collapse, though what better way to showcase the health assurance model than the turnaround of a failed system.

Sam Hillier

Sam Hillier is a reporter at Transacted, covering private equity and investment banking. He previously spent time as an investment professional focused on direct buyouts, as well as an earlier strategic advisory stint.

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