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Lewis Noah recently spoke with Trusted Insight on the past, present, and future of GE Ventures in an exclusive interview. See the full transcript below.

https://www.thetrustedinsight.com/investment-news/exclusive-qa-noah-lewis-managing-director-at-ge-ventures-20160218177/

Noah Lewis is a managing director at GE Ventures, specializing in healthcare IT, digital health, clinical services and medtech investments across high-growth company lifecycle stages—from series A to growth equity. Prior to entering venture capital, Noah led corporate strategy for the $10B GE Healthcare Systems division. Noah holds a master’s degree from MIT and a BS from Skidmore College.

Mr. Lewis was recently named to Trusted Insight’s ranked list of the Top 30 Healthcare Institutional Investors. He graciously spoke with Trusted Insight on December 18, 2015. The following interview has been edited and condensed for clarity.

Trusted Insight: Let's begin by talking about your history. You started out in sales, and then you worked your way up into a corporate strategy capacity at GE and then founded and transitioned into GE Ventures. I think that's a very interesting pathway from the sales side, then corporate strategy and into investing. Tell me about that path to your current position and how that sales factor might have provided you with a competitive advantage over your peers within the space?

Noah Lewis: I'm a firm believer that investors of varied backgrounds can be quite successful. I don't think there's one pedigree that leads to good investing and investments.

My entire life has been focused on the growth side of business. My career path really started at the ground level doing solution sales for IBM. I then worked my way up through the “stack” of all the business functions that lead to how to make great products and drive sales in an accelerated pace, entirely focused around the customer.

I'm a 20-year operator-turned-investor. What's been helpful about my background is that the first part of my career was in enterprise technology. I transitioned into healthcare after MIT, and I applied many of the same patterns, principles and technology stack within the healthcare industry. One of my basic philosophies is that healthcare will certainly mimic, borrow from and follow similar innovation and adoption paths as enterprise technology—but in a very unique fashion.

TI: You're listed as one of the founders of GE Ventures. What spurred the creation of GE Ventures? What was the hole that GE Ventures was trying to fill, both within the healthcare division and within GE more broadly?

NL: I was leading corporate strategy for a division of GE Healthcare for a CEO named Omar Ishrak. When Omar left, I was tapped to run corporate venture investing for GE Healthcare within the business unit in more the traditional corporate VC model.

Fast-forward, our CEO and chairman, Jeff Immelt, became interested in the venture capital industry. He put a call out for those investing across GE, and it turned out there were only healthcare and energy investors. We traveled to Silicon Valley and spent eight hours with our chairman, framing the blueprint for GE Ventures. In a great way that really only a company like GE can do, we took out a blank piece of canvas and entirely outlined how GE Ventures was going to work.

We like to call GE the world’s oldest startup and have always focused on what’s next and tried to stay close to new thinkers and innovators.

Our guiding principles are:

Everything must be focused on founder first. Founders must win in everything we do.

GE Ventures is a participant in the investment ecosystem and our co-investors must always win.

We really need to bring value-add by opening up the great toolbox that GE provides—whether resources, experts or customers—to enable young companies to grow quicker than they do within the current model.

With these principles in mind, GE Ventures is entirely independent. We're a separate investment group that exists at the corporate level of GE. We think of GE Ventures as an accelerator and incubator for the company. We partner with entrepreneurs and startups to accelerate growth and commercialize ideas to strengthen our growth and innovation efforts within GE’s businesses.

We are financial investors, which is very different than most corporates who invest purely strategically. We manage our investments, like any other fund, and we're looking for cash-on-cash returns and IRR-driven investments.

Thirdly, we have to be quick and nimble and in it for the long haul. We can move quickly—from first look to close investment in as little as 30 days. We modeled everything about how we work based on how our co-investors work, from partners' meetings and investment committees every Monday to ensuring that we're going to do follow-ons

That is the genesis of GE Ventures.

TI: GE Ventures is relatively new, in the scheme of things. Can you tell me about your investment team, how that's grown and evolved? What sets you apart from other institutions?

NL: GE Ventures has grown substantially, both in terms of assets under management as well as number of portfolio companies, in addition to exits.

Our managing partner and CEO, Sue Siegel is a former general partner of MDV and the CEO of Affymetrix. Under Sue's great leadership, we have about 15 total investors of different levels of seniority. We invest across energy, healthcare, advanced manufacturing and software and analytics. We have nearly 80 portfolio companies. Our investment focus is a barbell strategy, with 70% late stage and 30% early stage.

In terms of what sets us apart, this is really the fun part and what we're proud of. It's the best-of-both-worlds for a founder—being able to have the strength and speed of a straight financial investor, but the competitive advantage of leveraging GE's resources.

There are several things we offer our portfolio companies that are unparalleled.

First, our portfolio companies no longer need to have a strategic relationship and give away rights just to get introductions to top customers. GE Ventures has a group dedicated to introducing our portfolio companies to all of GE's top CEO-level customers. Conversely, our customers come to our Ventures group asking for the best innovations, seeking our guidance on how to leverage our portfolio companies.

Second, we enable our portfolio companies' management teams to join GE's world-renowned executive development programs. These programs cover how to become a better CEO, CFO, CMO, etc.

Third, we enable our portfolio companies to tap into our global PR platform. This helps amplify their message and drives more customer and investor awareness.

Fourth, we embed GE executives into startups for free for temporary assignments of up to a year. This allows startup access to skilled executives, which they might not be able to afford otherwise. These GE executives work hand-in-hand with that portfolio company to help further their goals and bring GE’s operating experience that is often additive to a young company.

Finally, if and when a partnership materializes, which is not in any way mandatory for an investment, we have a sidecar fund of millions of dollars that we can inject non-dilutively into the startup. This investment can accelerate that partnership, and help both parties be more successful in the market.

TI: Right now, the market environment on both the public and private sides is rather tough. How might your venture portfolio evolve heading in 2016 in order to adapt to the near-term volatility? Where specifically are you looking for sustained growth, both geographically and in terms of sector?

NL: Although young, we're already in the top quintile of portfolio return profiles. We're feeling pretty good about our decisions from an investment perspective, including having passed on many overpriced deals.

We actually love the market as it is today. We think we're very well positioned, and that our selective investment philosophy puts us in a great place to capitalize on valuations. This year, we made many good investments. We were listed the top digital health and health IT investor of all investors, and we did that selectively at good prices with great companies.

Throughout 2016 you'll see continued velocity of deals and increased thought leadership from GE Ventures. We expect our investing to grow, and with GE's balance sheet we can lean into the market. We're a long-term, long-focused investor.

TI: You have mentioned that you are very highly selective. What do you look for in your relationships with these particular firms? What identifies a solid investment versus one that is overvalued, for example?

NL: We are an investment thesis-driven company. We're about 80% thesis-driven and 20% opportunistic, meaning we study the market and identify profit pools that can be disrupted or created. Then, we look for winning business models, compared to just looking at a thousand deals and only picking a handful.

We look at company team first and foremost—having a strong team with a track record of success is a critical hurdle for us. We have a strong philosophy around people. As a corporation, GE is renowned for identifying talent and developing it. We also keep in-house several EIRs (Entrepreneurs In Residence) that we work with to identify markets, and even start new companies.

We also look for the ability for business models that create a sustainable and first-mover competitive advantage. We study the friction points of market value chain. We also understand where there are arbitrage opportunities, and where incumbent business models are more likely to be disrupted. From a technology perspective, we're big fans of protectable solutions, whether a trade secret or IP-based.

Lastly, we like to look for ways that we can put a finger on the scale. If we have competitive advantages that benefit a portfolio company, we use that to our advantage.

TI: You mentioned that you love the market as it is today. Technology has disrupted many industries, almost to the point of saturation in some cases, but healthcare seems to have a lot of room for innovation and disruption. From your perspective, what stage of life is healthcare VC in right now on a spectrum of infancy to saturation? Where do you see the industry developing in the next five to 10 years?

NL: When I was in business school, a few classmates and I went out to Omaha to meet with Warren Buffett. He took us out for dinner. We all asked for his advice and said, "What should we do? Where should we go?" Warren said, "Get on a train that's going somewhere," meaning, pick a megatrend. The one he pointed out was healthcare. I'd previously been in enterprise technology, but I took Warren Buffett's advice and really leaned into healthcare. In the US alone, it's a $3-trillion, bloated, inefficient and ineffective market. On a scale of 1 to 10, healthcare is probably a 3, beginning to breakout and skip steps to 6 - and it's been stuck at 2.5 for a decade!

However, healthcare is really picking up velocity and momentum in adopting innovation. The key to that is the 95% adoption rate of EMRs, which provide the data platform that enables customers to adopt new technologies more readily.

Economic and policy-wise government regulations have created incentives and disincentives around improving cost structures, increasing access for more patients, as well as maintaining and ideally increasing quality.

TI: What areas of healthcare hold the most potential for disruption?

NL: This is where our thesis-driven investing really comes into play. We have three focus areas:

Transition to value-based care – That comes down to disrupting payment models and enabling virtual health. In essence, this thesis is riding the trend of paying people for outcomes, rather than for procedure. We love business models like Valence Health, Iora Health, Aver Informatics, and Apervita, which are all capitalizing on that transition.

Precision medicine – Regarding customized diagnostics for each patient, mapping to an individual therapy at the genetic level. These are essentially in-vitro diagnostic tests, such as blood tests, as well as next-generation sequencing instrumentation that can bring research-based capabilities into your everyday hospital.

Minimally invasive procedures – This is both a medtech and a software category, all driven around surgical procedures and diagnostics that have either a smaller invasive procedure, or totally non-invasive diagnostics and treatment. Acutus Medical is a GE Ventures portfolio company that is disrupting the $3B electrophysiology market. Another portfolio company is Neuronetics, which is a non-invasive neurostimulation product for treating major depression instead of drugs.

Our theses drive our investments, with our 30 healthcare portfolio companies spanning these focus areas.

TI: To what degree does timing the markets for this potential demand for this have to do with the success for your portfolios? To what degree is that a concern?

NL: It's a big concern as timing is everything. Unfortunately, in healthcare, just because it's the right idea, doesn't mean it will be adopted. There is the chance of perverse incentives and conflicts of incentives between clinical providers, payers, and patients.

We spend a lot of time modeling adoption curves, driving our thinking around not how great the technology is, how market ready it is, when will it be ready, and which events in the marketplace could change the adoption curve?

In biotech, it’s the same as in-vitro diagnostics. A lot of firms lost tons of money investing too early in genetic-based testing. We played that pretty well, we think. For example with our IPO in NanoString, timing it more around reimbursement rather than early-stage innovation.

TI: A lot of the talking heads are predicting a bubble in venture capital. Is that true for healthcare? If there is a bubble in venture capital, does it risk bringing down healthcare venture with it? In which case, does that create a favorable buying opportunity for GE Ventures?

NL: I think most of the discussion around a bubble has been focused around the consumer and enterprise tech categories. I think what’s different today, is that there's actual revenue tied to most of these companies. For companies that are ad-based, they're actually turning eyeballs into dollars, which is great.

I do think those companies need to figure out their P&L structure and cash use, and map that to their growth trajectory. In terms of healthcare, we've certainly seen some unicorns that won't survive, and we passed on those. I think there has been some irrational exuberance, but those types of companies are rare in healthcare. So, even with a correction, we would commit. Most companies wouldn't be too hurt by it, and most valuations have stayed pretty reasonable across healthcare. It's lifted some boats nicely.

TI: What trends have you identified during your time in healthcare? How have these evolved starting from when you were doing initial sales to today?

NL: There are three trends:

Data and analytics – Data and analytics has always had a huge emphasis on my career. A decade ago, I wrote a business plan on machine-based data and the value of data analytics. In that business plan, I wrote out my thesis that I still invest on today: where data will come from, how it will be useful, and to whom it will be both disruptive as well as value creating.

Connected world  – Real-time collaboration – healthcare has long suffered from silo based clinical care and patient experience. We anticipate new technologies and business models enabling great efficiencies and better outcomes by leveraging collaboration solutions that enables clinicians, patients and payers to operate in real time. Key to this is breaking down workflow and data silo’s to optimize what care is delivered, in what setting and at what price—all in real time.

Financial value chain disruption  – There are many inefficiencies in the flow of dollars between players and stakeholders. For me, that's long been something from my enterprise tech days that I've kept an eye on. We're seeing that materialize right under our feet in healthcare now with the disruption of the insurance market, as well as the disruption of how clinicians are paid.

TI: What challenges does GE Ventures and the broader industry face that are unique to investing in healthcare, aside from timing?

NL: The regulatory process is still slow and costly.

There are structural inefficiencies that are very entrenched and slow to change. In a normal market, you have a producer and a consumer of a good. For instance, Apple makes an iPhone, and I can choose to buy it or not. In healthcare, the producer and the consumer have a middleman, the person who pays for it. That middleman is either the government, an insurance company, or an employer. This creates a weird dynamic where patients typically don't pay for the product that they receive, and don't understand the correlation of value to cost. Similarly, the manufacturers of those goods and services - let’s call them our doctors - have had misincentives aligned around volume production versus quality production.

In that three-party market with misaligned incentives, you've got too much spent in a product which is too slow to be delivered and isn’t delivered at the quality that it should be.

Additionally, government interference is a challenge. There is increasing regulation through ACA, as well as uncertainty around that regulation. It's difficult for business people, as well as clinicians, to make decisions. That indecisiveness can lead to some paralysis around making new adoption decisions or investments. Anytime there's uncertainty, whether it's in taxes or in government regulation, it can lead to inaction.

TI: What is your strategy to combat those three challenges? Does that all go back to your thesis-driven investment model?

NL: Yes, it all comes down to our model. You have to deconstruct the market, understand the players, understand their incentives, and understand what might lead to disruption.

TI: What does it feel like to be at the forefront of new technologies, in terms of having the chance to truly help people, both from a financial standpoint, as well as from a health and well-being standpoint?

NL: It is a real privilege to be a healthcare venture capitalist. I love what I do and love this market. We have fun with it and constantly adopt new technologies and services to get the first hand consumer experience.  Key to this is backing founders that have a breakthrough vision and tenacity to make it happen—and work as their advocate to help the company succeed. Everyday I come into the office with a bounce in my step because what we do in this role makes a difference for our family, friends and society.