Anita Watkins - Rex Health Ventures

[00:00:00] Anita Watkins: So, we look at it through the lens of, is this company well positioned to give us a return of a 3 to 5x is typically our target in 3 to 5 years . But the other lens which we look to it is strategic. So is the company strategic to us? And can we be strategic to them? And one of the things that we've learned and seen over the years, if we don't have KOLs that meet with the company and come back to us and say, okay, yeah, I'm really interested in this. It can be the most investable deal we've seen we will not invest unless we get that reaction.

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[00:00:44] Giovanni Lauricella: This is the medtech startup podcast. And today we are in Malta where we are going to get into the head, the heart and the gut of this medtech investor. We're with Anita Watkins, the Managing Director of Rex Health Ventures out of North Carolina. We're going to jump into the story here.

[00:01:03] But first and foremost, I want to say thank you very much, Anita, for being with us here today, all the way in Malta.

[00:01:08] Anita Watkins: Thank you. Thank you for having me.

[00:01:10] Giovanni Lauricella: Thank you. Um, so today we really wanted to cover what it means to be a health system venture arm and how did these hospital systems actually become these venture options that these entrepreneurs typically don't even know about the history behind them, etcetera.

[00:01:26] But before we get into that whole idea and talking about these options that these entrepreneurs have, we really want to learn about you. And then we're going to jump into what Rex Health Ventures is and then we're going to talk holistically about what these hospital health venture arms do and how these entrepreneurs can find them.

[00:01:45] Anita Watkins: Great.

[00:01:45] Giovanni Lauricella: So let's take it off. Anita, who are you? Where do you come from? How did you do everything in your life leading all the way up through academia, professionalism, to the point where you became the managing director of Rex Health Ventures here with us today in Malta?

[00:01:59] Anita Watkins: Well, thank you for having me.

[00:02:01] So, um, I'm originally from North Carolina, I'm in my home state, my hometown, working for a university system that has been a big part of my life and my career. So I'm pretty honored to serve in the role that I have. And, um, who am I? I'm an attorney by training and spent about 20 years in public policy, um, most, before jumping into venture, I actually represented the university system , and then moved over to the health care system and found myself in this role of helping build and develop a strategy for really what we, where we started was an innovation arm and venture was a piece of it, but innovation was the key focus.

[00:02:48] What we had in mind were three goals that have really helped prove for the almost 12 years since we launched the fund. So we wanted to build a culture of innovation within the health system, help diversify investments, and also provide our executives, operators, and clinicians early access to the most cutting edge technology to improve patient outcomes.

[00:03:10] And those have held true and our investments all have a piece of one of those or all three of those over the 12 years that we've been investing

[00:03:20] Giovanni Lauricella: So we're going to jump into Rex Health Ventures at this point. Thank you very much for sharing that but 12 years ago UNC decided about Rex Health Ventures and just to create this innovation arm.

[00:03:33] Anita Watkins: Yeah, we originally, um, called it Rex Strategic Innovation. So, um, to get some context, UNC Healthcare is a large health system in North Carolina, but Rex is the largest community hospital. And we've particularly wanted to start within the community hospital setting, because that's where the majority of care is provided.

[00:03:55] While UNC has a world renowned academic medical center, um, based in Chapel Hill, there's only about 50 medical centers in the United States, where there are, um, over 3, 000. community hospitals. And that is where the majority of care takes place. And we felt like if we looked at companies from an innovation lens and also an investment lens from the community hospital perspective , then we're going to get a better sense of scalability, applicability, um, rather than a very specialized here that might be provided in the medical center.

[00:04:31] So we started it at Rex, hence the name, uh, which often confuses people why we're not U. N. C. Ventures. But it is. It's where we started, and it's where our roots are. But we do represent the entire university health system.

[00:04:47] Giovanni Lauricella: Very cool. So from an investment standpoint, imagine we're talking to all the medical device entrepreneurs are med tech entrepreneurs and I know and we'll get into it but I know that you guys do more than that, but focusing on med tech for a second here. We're going to be speaking with all these entrepreneurs and teaching them about how hospital venture arms actually exist in this ecosystem for them to have optionality with that.

[00:05:08] So my question for you would be: How do you guys invest? What we want to tell these entrepreneurs to think about because if they are thinking about more of the traditional, okay, I can raise from high net worth individuals like angels and I've heard of this thing, or maybe this is where I'm at now in the status of my current company where I'm raising from venture capital, right?

[00:05:29] So it's either angels, high net worth individuals or venture capital, but there's all these other optionalities that most of them don't understand or are even aware of. So hospital health venture arm. How do they fit into the equation? And how does specifically Rex Health Ventures invest?

[00:05:43] Anita Watkins: I hear your question is kind of two parts.

[00:05:45] Kind of what advice to give to those CEOs and also where we invest. I'm going to start with the advice side. One of the advantages of working with a fund like ours is that we provide that insight on workflow on usability on, um, the incumbent perhaps devices and what it might take to replace those incumbent devices, things that really need to be thought through on the very early stages of the device design and well before you get to commercialization and manufacturing.

[00:06:19] So what I suggest on the med tech side companies that they come to funds like ours, and there's a lot of us that invest on the medical device side, um, come to ours fairly early on. Even if you're not quite ready for an investment, we're there to provide advice and guidance on what we've seen in your particular space in the past, perhaps connect you with clinicians that can become advisors.

[00:06:45] For example, on point of care or something, a device that might be used in the lab or something that's applicable in pharmacy , having access to those experts really early on to talk about this is this is what we need. Here are pain points. And you're solving this piece of it.

[00:07:01] Can you also solve that piece of it so that they can get that holistic picture in mind early on. Um, and then while we tend to invest on the med device side, right around commercialization will invest pre- FDA approval if there's a clear regulatory pathway. But oftentimes we found that we can be most strategic when we invest right around commercialization to really help grow and scale the company.

[00:07:28] Giovanni Lauricella: Going back to investing more closer to that commercial state.

[00:07:32] What type of checks are we talking about? And also we've heard from previous stories that these hospital venture arms often act like almost like a corporate venture arm where they could invest off their balance sheet. Is it a set fund or is it an evergreen fund? How does that work?

[00:07:49] Anita Watkins: So ours is an evergreen fund.

[00:07:50] So we launched actually fairly small amounts. Um, back in 2012 with 10 million dollars, and then it was, let's give this a try. Um, we've been, uh, very fortunate that we've had some really, really good outcomes and our board has been very supportive. So over the years, we've had additional funds allocated to us and we were able to reinvest our proceeds.

[00:08:17] So it's given us quite a bit of runway. Um, so we're not looking to, Oh, we're going to be out of money in the next. three years. What? You know, what are we gonna do? We're really looking the long horizon and it allows us to really focus on finding the right deals and the right companies to partner with.

[00:08:35] Giovanni Lauricella: I want to go back to the innovation piece.

[00:08:37] So you started off as an innovation arm and it turned into a venture. You and I have talked about this before. This notion of In versus outward or inward versus outward or outward versus inward. Were you creating on the UNC campus first and then looking to make external investments or how did that work out?

[00:08:57] Anita Watkins: So the, the school of medicine and, um, the university of North Carolina have tech transfer arms. They have, um, innovation funds to really help that early ideation. So our fund, Um, from a complimentary perspective, we developed the fund to really focus on outside in, um, with a recognition that we have not just in the US, but all over the world.

[00:09:26] As we're sitting here in Malta, um, there are companies and ideas out there that we don't have access to. And this was a vehicle to bring as many of those ideas into the UNC system to enhance the incredible research and innovation that's already going on there. While we have invested in companies that have spun out of UNC, we have primarily been an outside fund.

[00:09:51] And I like, um, I like that focus because while we have this, again, this incredible academic center where new therapeutics and new devices and new research is being developed each and every day. It creates, I believe our fund has created this symbiotic relationship with the health system of really building on that innovation culture, but by introducing companies and founders and thinkers that otherwise wouldn't be exposed to the UNC system until way late in the process when there's somebody shows up on a sales call,

[00:10:35] Giovanni Lauricella: But what's the need of that innovation?

[00:10:37] So, I mean, 12 years ago when you started this. Is a hospital system needing something that it wasn't getting, which is the reason why you started this innovation arm, and then even taking that further, like you said, looking on that outside in approach, even on the innovation piece, you were looking to then get out.

[00:10:55] What is developed externally from the campus? So what is that actual need for what the hospital needed 12 years ago and to why this was all created?

[00:11:03] Anita Watkins: So

[00:11:04] one of, you know, I think the genesis of this came down to,David Strong, who's now president and CEO of Orlando Health.

[00:11:13] Um, and some physicians that he recruited in that had done their training at Cleveland Clinic and other places. And they saw the richness that the community hospital environment created and essentially said, Why aren't we first, um, for testing out TAVR? Why aren't we first for having access to this new medical device for our patients?

[00:11:37] And so it was really the genesis of we've got so much talent here. We've got the environment that's perfect for testing. Why can't we put something in place to draw those companies to us? So that we can really get our hands on those devices first and improve our patient outcomes.

[00:12:01] Giovanni Lauricella: So then that outside in and inside out model going to the ecosystem.

[00:12:07] I don't know, you mentioned that Rex Health Ventures has been around for 12 years. I've heard of others come on. I don't want to say recently, but we have OSF Ventures. We have UH, University Hospital System Ventures over in Cleveland. Um, Mayo Clinic, Providence, we have all these other ones, but is, is the concept of having a, um, a hospital system creating its own venture arm. Is that a fairly new concept? Or are there more coming about more recently?

[00:12:39] Anita Watkins: So absolutely. I think the last five years has seen, um, maybe explosion is a little bit of an exaggeration, but we we created a group, um, about 2018 called, um, Strategic Venture Group, SVG, uh, Strategic Venture Group, where there was 10, 12 of us, and really, when we started the fund, we were looking to Ascension, Kaiser, Mayo, you know, some of the ones that have been around a long time to model ourselves after the few that were in the market at the time, and now I believe we have calls monthly with all of the health system funds.

[00:13:20] And I believe we've gotten up to about in the forties of different health system funds. And they range from some don't actually have a fund. They want to create a fund. Um, and some have been, you know, investing for 15, 20 years... So it's, it, there's a huge range, but certainly there's been quite a bit of growth in the space over the last five years.

[00:13:43] Giovanni Lauricella: So let's go back to the med tech entrepreneurs who may be listening in right now at various stages, probably a lot of them in their earlier stages and they have their pitch decks and they're clicking send on the emails to have all these various styles of investors. Where does, and you mentioned that they're all different, but where do health system venture arms fit into that equation for them. If they are exploding, if they are becoming more of an option for these entrepreneurs to see and hear about and learn about why should they be going after hospital venture arms and then the different styles or the different stages, like for example, you invest towards the commercial stage.

[00:14:21] Are there others that go earlier stage? Let's talk about that to help them learn.

[00:14:26] Anita Watkins: So, absolutely. So there's a smaller group of us that really focus on med tech and med device. Of those, there are some that like to get in really, really early. They like to be that first investor to help with the ideation with the device design. But most of them are going to invest right around the commercialization stage again, because that's where we can really add the most value.

[00:14:50] We can give access to the value analysis committees and what that looks like to get through that process. We have clinicians that are ready to be that first user and to test the device. We have those clinicians that can help with training models. You know, all of the devices have to have some element of training, and we've got those clinicians that can kind of walk the companies through.

[00:15:16] Here's what training should and could look like. Um, and it needs to be something that's very simplistic, especially if we're replacing procedure we've been doing for 10 years. We are a good partner to have in this . For example, a company we invested in several years ago called Gauss Surgical is an AI driven medical device company focused on maternal hemorrhage. Um, really, really interesting company, nine health systems funds invested in that company together.

[00:15:47] And, um, I know on the Rex Health Venture side our head of labor and delivery help them work in protocols of steps to take as you're measuring maternal hemorrhage , steps to take to help mitigate what's going on with the mom and the baby and to make sure that you get a better outcome .

[00:16:06] So the strategic advice and access for these med device companies can be really, really meaningful. And that company was acquired by Stryker.

[00:16:13] Giovanni Lauricella: Do hospital Venture arms and even specifically RexHealth, do you guys lead or is it constantly a follow on or do you need to have a syndicate always?

[00:16:24]

[00:16:24] Anita Watkins: A lot of the health system funds will not lead. We will, we'll lead, we'll co lead. The the syndicate I like to see, especially if we're leading or co leading is a mix of other funds like ours, institutional funds, that can really bring all of that guidance and expertise from know how to the table.

[00:16:44] We recently invested in a company where the syndicate had all of those elements to it. Some of the institutional funds have really been able to help bring talent to the table and help identify people for those key positions. And we've been able to give that insight and advice and access to the KOLs within the health system.

[00:17:06] Giovanni Lauricella: I want to go back to the point that you made that was really interesting. A lot of these hospital systems are focusing on digital health. We're talking about med tech, of course, but at the same time, we can't act like digital health doesn't exist and digital health. I mean still to this day is somewhat nebulous to be honest with you. I mean, I know that there's a center for digital health that has been created by the FDA, but depending on who you talk to, it could be just as regulated as the hardcore medical devices that we all know and talk about. And other times it could also be like a wellness product and a very different commercial path. So what is keeping these hospital venture arms more focused, let's say, on digital health versus the hardcore heart valve, for example.

[00:17:49] Anita Watkins: So, um, less regulatory risk. I don't want to speak for the funds that are focused on digital health, but my sense is those health systems feel like that's their their pathway to help. Really move their health care system to a more digital world. Being able to care for patients remotely. There's so many applications, as you just noted, so many applications of digital health. We couldn't cover them all during this conversation. But that's my sense of why some health systems have really focused on the digital health space.

[00:18:24] Um, and then also, you know, there are some health systems, their funds, they will only do certain classes of medical devices. It comes down to a risk tolerance standpoint. They might not feel comfortable taking the risk on something that's implantable. Um, but they feel perfectly fine taking a risk on a wearable.

[00:18:45] So I think it also comes down to risk tolerance within the health system fund.

[00:18:50] Giovanni Lauricella: I asked these questions because I'm trying to learn. When we think about a hospital system . Yes, they want to change and they want to digitize and they want to make things smoother. When we think about hospitals, you don't get an artificial heart valve on the street or anywhere else. You go to the hospital system. So that's where those patients will be. At the end of the day, yes, it is about risk, especially on the regulatory side. But when we think about what products could be used to save lives versus iterative or augmenting lives, um, do hospital systems like to get into the hard stuff that could actually help surgery or help these interventional procedures.

[00:19:26] Anita Watkins: We do. That's certainly something that when we set off, actually, when we launched the fund, we thought we would be majority digital health.

[00:19:35] You know, it was 2011 2012. It was kind of the coming of age of digital health applications . But what we found was that our expertise lied more in the med device and therapeutic space. So while we've invested in digital health companies, we really feel like our sweet spot is more in the therapeutic and medical device, med tech, tech enabled services.

[00:20:00] And that being able to work directly with our clinicians that would use the device. Um, one of the things that I like from an investor standpoint is: there are 5 physicians that may use a particular device. Getting all of their feedback is a much different process than a digital health application that's going to be used enterprise wide. The amount of conversations needed to really understand how we would use and implement and put in place a digital health application can be really, really complex.

[00:20:34] Giovanni Lauricella: So then is it fair to say that when you talk about the health system venture arms, they truly are looking at a risk reward situation where they also are trying to take less risks and be able to building, bring in products that are more capable of, Speed to, um, uh, clearance or, or, or use it, but in a commercial setting, or is this something that Um, if they don't decide that they're going to bring it into their own hospital system, are they looking for a return on investment as an actual cash investor would like an institutional, for example?

[00:21:11] Anita Watkins: So that's a, that's a great question. And one of the things that's really, really important in our process is when we look at a potential investment, we look at it through two lenses. One is the financial return we've from that perspective. We're not a granting agency. We are a fund, and our fund depends on returns .

[00:21:29] So, we look at it through the lens of, is this company well positioned to give us a return of a 3 to 5x is typically our target in 3 to 5 years. But the other lens which we look to it is strategic. So is the company strategic to us? And can we be strategic to them? So from that perspective, it is, can they be strategic to us?

[00:21:52] Are they filling a need that our health system has? And one of the things that we've learned and seen over the years, if we don't have KOLs that meet with the company and come back to us and say, okay, yeah, I'm I'm really interested in this. It can be the most investable deal we've seen we will not invest unless we get that reaction so what important is in and what's important for also for the CEOs to understand is that partnering with us is truly a partnership.

[00:22:26] We are there to help create a company that can grow and scale and can bring those, the innovation to us to help fill a real need. So, it's really a wonderful relationship and a wonderful process when we find that right fit.

[00:22:45] Giovanni Lauricella: So is it fair to say that the physicians actually do, I don't want to say call the shots, realistically, but that's your litmus test, your beta test, where you can have an investable company, like you said, with a great technology, but if it's not for those physicians in your hospital health system that are saying, yes, if we could get this over the line, I would use it. That's really where your yes or no syndrome comes from.

[00:23:08] Anita Watkins: Certainly on the med device side. I would say really any type of company, but on the medical device in particular, if the physician's just kind of like, well, that's interesting, it's a pass for us.

[00:23:20] We have to see that. And not only do our physicians need to react that way, but in our diligence process, we talk to every health system that has looked at the device or potentially already used the device to get their physician's feedback as well. And that all of those, we need to see some excitement and some true energy

[00:23:39] behind the physicians and, and their review of the company before we'll invest.

[00:23:44] Giovanni Lauricella: You bring up that word diligence or due diligence. I definitely wanted to jump in on that one because once again, for these earlier stage entrepreneurs who are sometimes reactively looking for cash, they have a few months left or their burn rate and their run rate is short.

[00:24:00] It's six months or less. And they're raising right now. And we just came off of a very difficult time of the economy, hopefully, and it feels like it is warming up. So keep our fingers crossed, but we've heard once again, stories of corporate venture capital, and I'll throw it out there, J&J or Abbott or whatever it may be, they can take their time during a due diligence process.

[00:24:24] And if you're down to two or three months cash and you're going after a corporate strategic, it's probably not your best bet. Angels, it's their money. Um, they could be nimble, they could be an emotional investor and say, Hey, I just love what you guys are doing and write a check the same week or the same day.

[00:24:40] Sometimes the angel groups, we've also heard that they take, have a little song and dance and a little process going that that could also take months. Um, in terms of timing. So once again, so these entrepreneurs can learn how hospital systems work. Even if they do vary. What's your typical diligence process like?

[00:24:56] How long does that really take? Is it a slower process? Can you guys move quickly?

[00:25:00] Anita Watkins: We could certainly move quickly. Um, I would advise any company not to get down to three months of cash, particularly in this market. Because everyone's taking longer , um, not just your traditional funds or funds like ours.

[00:25:13] Everyone's taking longer to make. Decisions because the market is difficult right now. But I would say for our diligence process, we typically want about 6 to 8 weeks to get through the whole process. We can move quicker if we need to, but that tends to be what our process takes. We have a really engaged investment committee.

[00:25:35] It's one of the keys to our success. I believe I say that pretty much anytime I talk about our fund is the level of engagement we have with our investment committee is really, really meaningful and, it's an important part of our process, so we wanna make sure that we have time.

[00:25:50] These are busy executives. Um, we have the president of Rex, we have the COO of the system. We have the CFO of the system on our investment committee. So while we have standing meetings, we wanna make sure to, to have the time to get the company in front of 'em. They can ask the questions they have, where we include, incorporate that into our diligence process, and then get back to them for a potential vote. We can move quick, but we ask that any company not come to us with, hey, we're closing in four weeks. Typically, even if it's an exciting company, I'll just pass at that point. It's not in either of our interests to move that quickly to make sure that we are creating the right partnership.

[00:26:36] Giovanni Lauricella: Do you guys take board seats as well?

[00:26:38] Anita Watkins: We do. In fact, most of our companies, um, we at least have a board observer seat. Um, we have found and, and the CEO is often welcome, you know, even if we're not one of the larger checks. They welcome our presence on the board, um, whether it's in a board seat or observer seat.

[00:26:56] So we can continue to deliver on that strategic value.

[00:27:00] Giovanni Lauricella: When it comes to specifically Rex Health, you do invest in more things than medical devices. What are some of those things?

[00:27:07] Anita Watkins: So, we really invest all across the health care spectrum and the way we have thought about it historically is if we have expertise within the health system, then we'll take a look at the company.

[00:27:20] If we don't, then our diligence is going to be limited to the financial side. And it also probably means that we can't be strategic to the company. So, um. We invest in therapeutics as long as we have physicians that have expertise in that space. Um, typically they tend to be repurposed drugs, um, just because the amount of capital required fits better with our investment thesis.

[00:27:46] Um, we invest in and device, tech enabled services, diagnostics. What we have found is being opportunistic and not artificially defining, really led us to some of the best opportunities and best outcomes.

[00:28:02] Giovanni Lauricella: It's an overgeneralization, I'm sure. But when you look at that portfolio, and once again, either it could be for Rex or it could be for how hospital systems think in general, what does that breakdown look like?

[00:28:12] Anita Watkins: So it's typically about a third, a third, a third. So, um, a third on the therapeutic side, a third in the medical device, um, med tech space, and then a third and the tech enabled services, um, and true health IT.

[00:28:29] Giovanni Lauricella: So if I was a medical device investor and I have my technology hearing from what you've been sharing with us so far, if it comes down to these physicians, will they use it or will they not use it? What happens if I went to a conference or through networking I found this physician and it happened to be part of the Rex health system, UNC system. And he or she loved my technology. Would they champion it? To the venture arm and bring that to your attention.

[00:28:57] Anita Watkins: We welcome that approach. We have somebody bringing a company to us that they're excited about, that's meaningful. Um, then versus us having a company that, you know, me and one of my colleagues find and we bring it to the physician, it's just a it's a it's a different process. Um, and certainly a different diligence process.

[00:29:21] They're having to get, um, not only up to speed on the company and what they're doing, but they have to meet the management team. There's a whole process. So when the company is actually engaged with our physicians and the physicians are bringing that company to us, um, that's one that's gonna get prioritized higher.

[00:29:41] Giovanni Lauricella: What's your advice or how do these entrepreneurs find these physicians that champion their devices?

[00:29:47] Anita Watkins: Um, getting on the podium at many conferences, it's possible that, you know, specialized in their area, um, or partnering with a physician to get on the podium or have your, at least have your, your paper presented in some way. Um, one of the keys that to for us is there's got to be clinical data. There's got to be substantive clinical data to show that this is, um, you know, not just another me too in the device space that there's meaningful changes and outcomes for the patients.

[00:30:19] Otherwise, the incentive to use it, especially if you're already using a device in that space or already doing a procedure in that space. The incentive to change what you're doing is, um, that's, uh, that's really hard to overcome.

[00:30:33] Giovanni Lauricella: So I'll lean on your law background and I'm probably speaking for a bunch of entrepreneurs and I hear this very regularly.

[00:30:40] So I'll call it a class action question, but these, um, these ideas of investors coming in at this commercial stage, we hear, I hear personally, a lot of these entrepreneurs saying, and they get frustrated about it. They say. It's great that you want clinical data. I appreciate that you want clinical data. I want to have clinical data, but I need capital to be able to generate the clinical data.

[00:31:08] How do you solve that?

[00:31:10] Anita Watkins: So I think, um, seeking as much non diluted funding as possible, and that is hard in the, in the med device space, but really tapping into as much non diluted funding as you can find to generate that clinical data.

[00:31:23] Um, finding those early champions, um, who are willing to. to run those initial clinical trials for you. Um, is important. And that's, I think part of that is identifying, um, depending on the space you're in, but really identifying those centers of expertise. Um, so if you know whether you're in the heart and vascular space, the acute kidney injury space, identifying those centers of excellence and really engaging with those clinicians.

[00:31:53] I recognize it's really hard because a lot of these physicians are, you know, their doors are knocked on every single day, virtually, but they're being pitched by companies all the time and it's hard to get their time and attention.

[00:32:08] I think finding that those early champions. As hard as it is, is the real key to success. Um, because if you can't bring clinical data, um, there's a company we're looking at right now. That's, you know, really, really interesting. Um, created a device for a procedure that's fairly hard to do right now. So those patients don't have great outcomes.

[00:32:35] Um, and this would Create a much simpler way for those patients to have a essentially a noninvasive procedure to correct. Um, their current health issue, but they, um, you know, when I've shared it with my docs are like, well, this would be great. So how many patients has it been used on? And they, they just, they can't take the risk, you know, of a device that's only been used on seven or eight patients.

[00:33:05] So I think trying to find those champions that will early on, take your animal data and translate it to human really is going to be key for a successful investment from a fund like ours.

[00:33:21] Giovanni Lauricella: I'm gonna plead ignorance on this again. So I hear that you come in at the commercial stages, and I'm once again trying to represent and speak to this entrepreneurial audience.

[00:33:30] That's hopefully listening in now is walk me through how this works. So I know as an entrepreneur, I'm going to have to get FDA clearance or approval, and that's really only the green light to then be able to commercialize. That's when the game really begins. But then allegedly, especially if Rex helps with my cap table or on my board, um, there's clearly clinicians that are willing and ready and interested in using it.

[00:33:55] So from your experience and the Gauss Surgical or another example that you have, just walk us through this chronological line of identify an investment opportunity. You invest in that opportunity. You hang on tight until. FDA clearance or commercialization, however short or long that phase is, and then once it is ready and willing and able to be sold or commercialized, is it forget about hiring the sales force for that immediate company.

[00:34:23] Right now we have five docs that are ready to use this in the hospital system right now and it's cleared. So just give us the product and we can put it to use. How does that work? How does that whole chronological

[00:34:32] process?

[00:34:33] Anita Watkins: So typically the rounds we would come in from a device, the one of the uses of funds is to hire a sales force, whether you're partnering or, um, or hiring your own direct sales force.

[00:34:45] So it's rare that you have enough docs that are ready to use it that you can say, you know, we'll just start generating revenue from from these couple of docs. We would want to see an investment and a strategy to make sure that they're going to hit the revenue targets there that they can and should within the first couple of years.

[00:35:07] But it does help to have those early adopters because they're reference customers. We'll use that as an example. I knew early on from my head of labor and delivery that she was very concerned about the number of transfusions that our moms were experiencing based on maternal hemorrhage.

[00:35:24] And so her excitement about having a way to actually measure blood loss during labor and to intervene quickly was really important. So I knew she was going to put the technology in place as quickly as possible. But we also had, we couldn't rest on the fact that nine health system is invested and that was going to build the commercial base for this company.

[00:35:44] We had to really help them build their sales force and grow in scale and use those health system investors as their reference customers.

[00:35:54] Giovanni Lauricella: Thank you for sharing that. I wanted to wrap up and just once again, put a conclusion on all this. If I'm a med tech entrepreneur, and I've learned a lot from this conversation on where hospital health system venture arms exist on the spectrum of optionality for me. Why should I consider wanting them on my cap table? I know that even you mentioned in the syndicate, you're talking about having other health systems in there, usually institutional. So that forces me to have to look at this whole gamut. But why should I really consider hospital systems to be part of my future as I develop and also my investor syndicate?

[00:36:34] Anita Watkins: It's

[00:36:34] a great question, and it's one that every CEO should ask themselves. You should pick your investors very, very wisely and make sure that they are true partners and not all health system funds, uh, even if if they've got the KOLs, even if they have the right Um, you know, a set of patients to fit your device.

[00:36:57] If they're if you can't find that partnership, um, they're probably not the investor you want to work with. So, it is a question that every CEO should ask very critically and to find those investors that can help them grow and scale that they're there is a partner, not an adversary. They're a partner, and their objective is certainly it's gonna for all of us.

[00:37:22] It's gonna be a return, but it is gonna be to help that company grow to the next level. And I believe that my colleagues, um, like our fund. That's our objective. We don't have LPs that we're answering to. We are our own GP. We're our own LP. What we're really focused and intent on is improving health care and improving patient outcomes.

[00:37:48] Giovanni Lauricella: And that's my final question. And the perfect segue is what's in it for Rex Health Ventures. So when I think about it, yes, you're investing in technology that hopefully can actually benefit the hospital system from an actual patient usability perspective, but also if there's an exit, there's capital returned, but the way it sounds, and I don't want to call it a nonprofit, but is that, that does that go right back into the fund to go invest into the next one, or is it like this 20 percent carry that you hear with this institutional investors, like where's the rub on that.

[00:38:19] Anita Watkins: So it goes back to why we started on and what it is. I mentioned these three fundamental principles of held through diversify investments. Yes, we have demonstrated a very healthy return for the health system in times like this when margins are really tight. Well, we're not adding a ton to the that bottom line.

[00:38:41] We are helping support all of those entities across the health system that are really struggling right now. So diversify investments, help build a culture of innovation. Um, it gets folks excited. I've had clinicians, I've had executives tell me that what when we engage with them on a company, it's their favorite part of their job.

[00:39:06] And I imagine if you think about what COVID put health systems through and what the current economic crisis is putting health systems through, when you bring somebody an opportunity to think innovatively and differently about what they do on a day to day basis, um, it does help build that culture of innovation.

[00:39:25] And then the third is to provide that early access. All three of those have held true. And those are what drive us on a day to day basis and helping to find companies to invest and partner with.

[00:39:38] Giovanni Lauricella: I want to say thank you very much to Anita Watkins, the managing director of Rex Health Ventures over at UNC in North Carolina.

[00:39:46] And today we got into the head, the heart and the guts of this particular medtech and health system investor. Oh, thank you very much for coming with us, Anita. Appreciate it. Thanks for being here with us in Malta.

[00:39:59] ​

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