Chamath Palihapitiya Wants to Rewire the Crap Out of Healthcare

6/12/13Follow @wroush

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do anything. We have to make sure we are cutting things off at the pass before it gets into those kinds of situations.

And so the by-product of that is that we act quickly with very big opportunities. But we also incubate stuff, just germinating our own ideas. And everyone says, oh, you can’t incubate, but that’s because most people aren’t very good entrepreneurs. I tell myself every day when I wake up, I built three of the top Internet products in the world, I’m not that bad. So I’m just going to go and build stuff.

X: The stuff you built, though, was mostly on the Internet/software side. It was consumer facing Web software. So when you were deciding which areas you were going to invest in at Social+Capital, how did you decide to focus in on healthcare as one of those areas?

CP: [The earlier products were ] really about figuring out consumer behavior and figuring out the psychology of an individual person, and driving the behavioral dynamics that you wanted to see in the world. So, with Winamp and even with ICQ and Facebook, they are all very different products, but ultimately you are creating behavior change and you are getting people to adapt and behave in ways that they’ve never done before. Some start out incredibly uncomfortably, but then it becomes second nature. So that’s the skill.

If you take that skill and you say where can you apply that skill in areas that have massive potential upside, one of the top areas for me was healthcare, just because every interaction in every area related to health is just so shitty. The software is crap, the services are crap, the people are crap. So there is a lot of value that people like us can add because you have a very different perspective on how the system should work.

And so, a lot of my motivation was to say, if we take the principles of how we build great products, and we apply it to industries that have not, frankly, benefited from that kind of insight, and you still marry it up with people who understand healthcare in very specific circumstances but you isolate them, you can probably create really interesting things.

X: I want to go back to a quote from one of your recent interviews. You were talking about Gnutella and Winamp and the whole disruption of the music industry, and you said you were trying to do the same kinds of things through Social+Capital. You said that the fund is about “deconstructing calcified centers of power” and hopefully being rewarded for doing that, for coming up with more equitable, useful models.

CP: The business model of the future is to serve individuals, because individuals are now relatively smarter. That’s not correlated with education, by the way—they are smarter because they have access to tons more information. And so we are all more connected, we are all more engaged, and as a result we are all more cynical. And we all see that the emperor has no clothes. All these things that you thought were important—you just realize, man, these people just played the game longer than I did to get to the top of that mountain, but they are just as stupid as anyone else, so why would you trust these people? That’s true of banking, that is true of people who run educational institutions, it’s true of healthcare. So the model of the future is is to basically deconstruct all of that and empower the edges. That is the way you build a multi-gajillion-dollar company. Give people individual power.

X: I get your skepticism toward power. But the healthcare establishment is so deeply embedded in our whole economy, and there are so many people working in it. I’m wondering how direct a parallel you see to other industries like the music business. You can go down to Los Angeles and pull the rug out from under the music or movie industries, and it doesn’t cause a cultural crisis. But something like 17 percent of our whole economy goes into healthcare, so it’s a much bigger deal. I wonder if you think it’s as easy to disrupt.

CP: Yeah, it’s easier, because the stakes are higher. You are talking about life and death. Before, it was “Can I listen to Alanis Morissette without paying?” Who gives a shit? This is about whether you are going to live or die.

You see this today, where every time there is a clinical trial of a product in Germany, a drug that the FDA is dry-humping to death in the United States, people get on a plane because they want to live! Right? People say, oh my gosh, I will do whatever it takes.

So I think if you are building stuff, first you need to take a global view of things. If it’s the inherent infrastructure of the United States that’s stopping you, people will find ways to work around it. They’re doing it already in therapeutics. They’ll do it around services. They’ll just do it. Or they’ll download Tor and they’ll download your product and they’ll be IP-masked and you won’t know.

X: You guys sat down and studied Obamacare while it was crystallizing and then around the time of the Supreme Court challenge. You looked inside the act and you probably read it more carefully than most. What makes you think that the atmosphere for investment and entrepreneurship in healthcare is going to improve under the Affordable Care Act?

CP: It’s not that that enables this to happen. It’s that the few people who have taken the time to understand where the bodies will be buried because of it, will shine a path for a bunch of other people who will come after. Much like how in product adoption there is the notion of fast followers, I think in entrepreneurship there is a notion of fast followers. When you look at the N+1st photo app, those people are doing it because they looked at Instagram and said there is value here. Similarly, there are going to be a few pioneers who show that there is a ton of money available [in healthcare], and a bunch of people will follow. That’s what I think will happen.

The few that succeed today, it will be because they understand the nuances of where there are going to be massive pots of money and how to extract, how to use it, and how to think globally, not just U.S. specific. So that when you run into the FDA or someone else, you will be clever enough to work around it. Meaning, go direct to consumer, in subtle or nefarious ways. It may mean going to a different country, it may mean landing something with a CE mark in Europe and having people adopt it. There’s going to be all kinds of ways to figure out how to do it. You just can’t think traditionally about it. You can’t be like, I went to MBA school and here’s my SWOT analysis and bop bop bop. No. You have to build crazy good product.

X: Can you tell us a little bit about some of the companies you guys have invested in, on the digital health side, and how they relate to this thesis?

CP: The way that we think about it is that we have three discrete buckets of things that we do. I would characterize them, using a very simple framework, as crawl, walk, and run. So with crawl, the idea is, let’s find things that work within the existing system, and the idea is to improve it. Even if you are extremely skeptical of it, there are ways that existing things can be improved and there are opportunities to … Next Page »

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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  • Bob

    Great energy, ego a tad on the supersized, good luck with changing the entrenched world. The real novelty in his thinking is to put risk capital to work against a meaningful objective.

  • http://blogs.forbes.com/danmunro/ Dan Munro

    Encouraged by any investor putting money at risk in healthcare. Discouraged by the portfolio list so far (which is really around the edges – at best).

    It’s definitely become vogue to “disrupt” healthcare – but many (if not most) have no real understanding of the dynamics involved – mostly around really expensive costs and treatments – aging populations – and actuarial science (the only countervailing force to offset the huge imbalance between supply and demand of healthcare).

    History also has an amazing way of repeating itself. Steve Case had the same “vision” after cashing out AOL. He poured about $100M into a startup called Revolution Health. After a number of years – it got rolled into EverydayHealth – a web portal for consumer healthcare information. Pretty sure that wasn’t the intended disruption.