HealthQuest Capital’s Unique Investment Approach Proves Profitable

Dr. Garheng Kong is all about value. When asked what that means for healthcare, he will tell you that it’s about better patient outcomes and better health economics. In fact, a record $8.1 billion was invested in health in 2018, a dramatic 42 percent uptick from 2017’s $5.7 billion in 2017.

This year isn’t shaping up any different and with the amount of capital coming into the investment space, there will need to be a vehicle to funnel those funds into key areas of the healthcare industry. To address this issue, private equity firm HealthQuest opened a fund targeting growth-stage health tech companies and recently announced it reached its hard cap at an oversubscribed $440 million.

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As founder and managing partner of HealthQuest Capital, Kong has made value the guiding principle for his California-based private equity firm. This may make him an outlier on any investment company bell curve but could be a welcome change for those who believe that private corporations must take their place as responsible financial stewards in an industry fraught with spending excesses.

“We pursue innovation that results in much better outcomes. It might cost a little bit more money, but that’s good value. We’re also happy to do new innovation that’s the exact same patient outcome, but which takes five steps out of the healthcare system, saving a lot of money, and that’s good value too. Of course, most of our companies are doing both sides of that equation in terms of patient outcomes and better health economics, but that’s the central thesis,” Kong stated.

HealthQuest describes itself as a “growth capital firm” and look to invest in companies that are a little more established. These companies have probably achieved some commercial success and have a proven product or service in the market.

“The bright line that we have is that everything we invest in is commercial in nature. There’s not a revenue requirement in the sense that is has to be a certain dollar figure, but it can’t have any binary risk. It’s gone through whatever development it needs to do, it’s got some customers and it’s ramping. These are high growth companies that are addressing the adoption curve for a patient, a physician or a payer,” said Kong.

What is interesting about Kong’s approach is his flexibility. Nothing is written in stone and as the managing partner explained, there are nuances in each business not caught by the numbers. On one hand, HealthQuest has invested in a health analytics company with SaaS delivery model – it has some subscribers and revenue in the low single-digit millions. On another, they went with a company who only just received approval for a new medical device. Since that particular device both works and meets an unmet clinical need – it’s a promising venture.

The company’s current growth-stage fund will be ear-marked for medical companies that focus improving patient outcomes, lowering costs and practice efficiency. Kong’s plans to target companies who specialize in medical technologies, diagnostics, digital health and innovative services.