The first rule for any healthcare practitioner is to do no harm. So Chris Grant, head of Kaiser Permanente's venture capital and corporate development group, emphasizes that Kaiser's investment fund aims to keep pace financially with VC firms -- and indeed, the 5-year-old program appears well on its way to doing so.

"I am responsible for making strategic venture capital investments that help us improve clinical outcomes, services and cost structure, while generating competitive ROI," explains Grant. "And while it's too early to predict, indications are that we'll end up well in the top quartile of returns for venture capital firms."

Growing out of industrialist Henry Kaiser's experiment with prepaid health insurance for the thousands of employees who worked in his San Francisco Bay area shipyards during World War II, Kaiser Permanente was the original HMO. After the war the program was expanded to include workers outside of Kaiser companies, and the $29 billion nonprofit organization has always prided itself on innovation in both medical treatment and management.

Grant says Kaiser launched the venture fund to advance its internal understanding of new healthcare technology, as well as to promote technology and services that could benefit from its practice. The company invests in medical device companies, and healthcare services and information technologies; it does not do drug development or biotechnology development deals.

"We have a very deep focus on two purposes, and the most important is to create a meaningful strategic benefit to the company," he says. "By being outwardly focused on technology, we want to be able to introduce technological advances into Kaiser and accelerate adoption, and the companies need to have the potential to positively impact care."

With about $40 million invested in 22 portfolio companies since 2000, Kaiser's venture program has seen four liquidity events averaging in aggregate better than 30% returns. The company is often a customer of its portfolio companies, but Grant says it does not make venture investments in companies it is considering acquiring.

Kaiser's dedicated venture fund is approved every two years. Grant says the company currently invests about $10 million a year, putting in $1 million to $4 million in each portfolio company, including provisions for follow-on investments over a four- to seven-year period.

The group does no seed investing, but is often in the first institutional round for companies it is involved with strategically. Kaiser will source its own deals and on occasion will lead them, but Grant also keeps in close contact with a core group of healthcare venture capitalists and groups including Three Arch Capital, Versant Ventures, Frazier Healthcare Ventures, De Novo Ventures and Alloy Ventures. Unlike many corporate venture groups, Kaiser frequently takes an active board role in its portfolio companies.

Grant was previously responsible for development of a portfolio of startups within Kaiser, such as hearing aid and laser vision correction centers, and emergency department services. Prior to that, he held corporate development positions with Rockwell International Corp.

Kaiser is an active acquirer in the consolidating healthcare industry, and Grant serves as the coordinator of all of Kaiser's mergers and acquisitions of hospitals and medical groups. The integration is largely performed by regional operating units, but here, too, the Hippocratic sensibility no doubt serves him well. - Clifford Carlsen

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