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"Health care is a broken system: It's not user friendly and we can't afford it," said the Santé Ventures managing director. "We have to innovate our way out of it." Cunningham - a onetime practicing internist who worked at Austin Ventures and the $125 million Ascension Health Ventures fund before starting the Austin, Texas-based Santé in 2006 - said he's looking for investments in medical technologies and healthcare services and IT located in the middle of the country. The firm, which raised $130 million in December, has done a couple of deals so far. In March, it led a $10 million investment in Protein Discovery Inc., a Knoxville, Tenn., developer and marketer of products that simplify biological sample preparation for mass spectrometry applications. This past October it also joined MV Venture Partners and others in investing $16 million in Spinal Restoration Inc., an Austin-based developer of a minimally invasive, biologic treatment for low back pain. Cunningham said another investment is coming if it clears the company's board of directors, which was expected to vote on the deal Wednesday. A few other Austin Ventures types have joined Cunningham at Santé, mostly notably Kevin Lalonde, who co-founded and sold three companies: NetProfit to a privately held advertising agency in 1996; Serus to Netopia in 1998; and TimeMarker to PrimeHoldings in 2001. Cunningham says he's seeing a lot of companies with products to sell to hospitals but added that it usually takes 18 to 24 months to get in the door ("Hospitals are dysfunctional," he said, nothing that he's headed a couple himself). He's also seeing a proliferation of electronic medical record providers and biomarker companies ("I'm more interested in companies that serve biomarkers and EMR companies," he said). He's also seeing a lot of startups that have taken in too much money, not met key milestones and are thus valued too high. "We're looking to fund technologies that can commercialize cheaply and then use revenues from that to fund other products in the portfolio," he said. When asked how the health system can be innovated, Cunningham said the key is developing new delivery markets. "It's going to be out-of-the-box entrepreneurial activity versus just studying the problem, and it's going to have to be segment by segment," he said. He's got some money in his pocket to help. -- Claire Poole
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At a BioHouston breakfast Wednesday, internist-turned-venture capitalist Joe Cunningham argued that venture capital will play a key role in fixing the the healthcare system.
