Episode 28

The Mind of an Entrepreneur

with Todd Cozzens

September 23, 2021

Todd Cozzens
Co-founder & Managing Partner, Transformation Capital

Todd Cozzens brings to Transformation Capital more than thirty years of experience in the digital health industry that includes founding, operating, building, investing in and exiting innovative and market leading companies.  He has a history of creating value both as an operator and as an investor co-founded Transformation Capital and its predecessor management company, Leerink Transformation Partners LLC, in 2016 and serves on the boards of two Fund I portfolio companies: PatientPop and LetsGetChecked (Chairman), and one Fund II company, SWORD.   Todd was formerly on the board of PatientPing before its sale to Appriss in 2021 for $500M and on the board of Health Catalyst for 6 years until a year after its IPO in 2019.

Previously, Todd co-led digital health investing at Sequoia Capital with Transformation Capital Managing Partner Mike Dixon. Todd joined Sequoia Capital in 2012 and helped build several breakthrough companies in digital health alongside Mike where they both were board members of Health Catalyst (IPO in 2019), AirStrip and MedExpress (sold to UnitedHealth Group for over $1.5 billion).   He was also on the board of ZirMed (acquired by Bain Capital in 2017 for over $800 million) and SCIO Health Analytics (acquired by EXL Service in 2018).  Todd remains on the board of Natera (IPO in 2015, current market cap of approximately $9.8 billion).

Prior to investing, Todd was a founder, CEO and operator of two digital health companies taking one public (Marquette Medical) and later selling it to GE and founding, seeding and leading the other (Picis) as CEO and selling it to UnitedHealth Group.

Picis was a specialty electronic medical records business that became a worldwide leader in high-acuity electronic medical records, automating operating rooms, intensive care units and emergency departments of more than 2,000 hospitals in twenty-three countries. Todd co-founded and provided seed capital for Picis and the company was acquired by UnitedHealth Group in 2010 as the company was preparing to file to go public.

Following the acquisition of Picis, Todd joined UnitedHealth Group, the largest commercial health insurer in the world, and helped form its Optum subsidiary, which, today, at over $120 billion in annual revenue, has become one of the most important companies in the digital health landscape, as well as an active acquirer of growth equity-backed digital health businesses.

Before his role in strategy and M&A at Optum, Todd also started a new business unit, Optum Accountable Care Solutions, to enable health systems to bear actuarial risk and transition to value-based care and served as Chief Executive Officer of the unit, which built a revenue base of more than $400 million in 18 months.

Earlier in his career, Todd was the president of a division of Marquette Medical Systems Inc., where he led international sales expansion from 2% to 40% of that company’s revenue.  Todd also co-led Marquette Medical’s initial public offering and assisted in its subsequent sale to GE for more than $800 million.

During Todd’s operating tenures at Marquette Medical and Picis, he was directly involved in raising more than $400 million in venture capital, growth equity, private equity and institutional capital and led six acquisitions which helped further differentiate and grow the parent companies.

Todd graduated from Marquette University, and completed Harvard Business School’s Program for Management Development.

Todd was a member of the US Sailing Team for three Olympiads, reaching a No. 2 worldwide ranking and winning several North American and European championships, two Bacardi Cups and a gold medal in the Pan American Games.

Todd gave up grand prix sailing competition to focus on his other babies – the companies he founded and led and his family, wife Carme, daughters Chloe and Chantal. He has been trying to replace sailing with golf for ten years but admits that course records where he plays are in absolutely no danger of being broken when he’s playing.


(Healthcare) is a market where you need expertise in the team you build. Hire slow and fire fast. You need an orchestra, not a bunch of musicians tuning up.



Gary Bisbee  0:06

Washington, D.C., is my home away from home. I’ve worked here for the better part of three decades as a founder, entrepreneur, policy expert and author.

Don Rucker 0:10

Probably the longest title. Everybody sort of shortened it to ONC for sanity’s sake.

Gary Bisbee 0:15


I’ve learned leadership secrets from many health care executives who understand that Washington is the largest payer and regulator of health care.

Nancy-Ann DeParle 0:25

She said, well, because you’ll never get a husband if you do that.

Gary Bisbee 0:29

I began interviewing health care leaders many years ago because what better way to learn how they think, why they make it to the top and how they remain there?

Think about, what was your most challenging engagement.

Greg Carpenter 0:40

Health care has been the most difficult problem, as you said.

Gary Bisbee 0:43

We’ll talk about that later.

Todd Cozzens caught the competition bug early in life while learning how to sail. He went on to become an Olympic-level sailor, and an Olympic-level entrepreneur and investor. Competition and a can-do attitude-fueled Todd as an athlete and a business person. He shares the story of his early days as an operator, how he took one company public, founded, grew, and sold another, and led growth through M&A. Todd shares his learnings about the importance of good company culture and how leaders cultivate it. Todd was invited to join Sequoia where he refined his approach to investing and he shares his key learnings with us. He also explores the importance of founder CEOs and how to evaluate them, the importance of recognizing and supporting the balance between governance and management, the difference between venture and growth funds, and the size of the investment Transformation Capital is prepared to make in their portfolio companies. For future entrepreneurs, Todd recommends that you reflect, talk to consumers, and make sure you’re solving a needed problem.


Good morning, Todd, and welcome.


Todd Cozzens  2:02  

Always great to see you, Gary.


Gary Bisbee  2:04  

We’re pleased to have you with us today at the microphone, Todd. You and I go way, way back so this will be fun to discuss some of our past experiences and bring us right up to date. We’re interested in leadership on this show. You’ve been a leader in many different ways as an entrepreneur, as an operator, as an investor. Before we dig into the specifics of the professional career, let’s look at how you got started in all this. Think about an early stage, what was your life like growing up?


Todd Cozzens  2:40  

It was a pretty typical Midwest suburb of Chicago. I grew up in Evansdale, Illinois in a typical Midwest family. Father was a many-time entrepreneur, so that’s a little bit how I got that bug. My mother was a real people person and taught me a lot about the value of relationships and talking to people from their point of view.


Gary Bisbee  3:03  

What about the young Todd? What did the young Todd think about leadership?


Todd Cozzens  3:08  

Young Todd didn’t really know much about leadership, or really think about it that much. I was very goal-oriented in some ways, but at the same time, I was a typical kid. I grew up in what I call the “Vietnam War hangover.” I was too young to go to Vietnam, but it was all the hangover from the 60s. We were kind of a skeptical generation at that point. Nixon had just been removed from office. And we were skeptical about everything. We were skeptical about all the hopes and dreams of the kids in the 60s. We were skeptical about the government. We were always asking questions. That whole aura skepticism was kind of our generation.


Gary Bisbee  4:01  

You mentioned your father was an entrepreneur, your mother was a relationship person. Do you think your leadership style today came at all from your parents?


Todd Cozzens  4:12  

Oh, very much. So. Yeah. My father was always a great mentor. To me. He was always probing, always looking at the other side of problems. My mother’s last job was running the volunteer department at Evanston hospital. And she knew everybody that didn’t matter whether the CEO or the janitor, she was in the Super Bowl pool with the janitors in the basement and she was cocktail parties with the CEO and I just I learned a lot about how she really got and other people’s soul and got to know them and you should have seen her funeral. It was just packed with all those kinds of diverse people from all walks of life.


Gary Bisbee  4:58  

What about your first leadership experience? Can you think back to that point? What was your first leadership experience?


Todd Cozzens  5:08  

Nothing really stands out except for when I was in junior high school, we had these things called the YMCA clubs. You would get a group of kids around you from your school and you would compete in sports and football and basketball and baseball in the spring. I started to get some of my friends involved and I was kind of the de facto leader of that group. We were an integrated school that was about 20% black, 15% Jewish kids from all walks of life. I started to become friends with some of the black kids at my school by playing ball with them and I brought them into the white club. I didn’t understand anything about race relations, one way or another. I just thought these were great kids and a lot of fun. We got to know each other, I went to their houses, they came to my house, so we ended up with that club being about 80% black and 20% white, and we didn’t think anything bad towards each other or anything. It was just learning the lifestyles of the others. I put that group together and we were very successful in winning a lot of the sports teams in the games. That was probably my first real taste of building a team.


Gary Bisbee  6:37  

Great grounding from your parents and the right instincts for you for sure. Where did your interest in healthcare come from?


Todd Cozzens  6:46  

In college, a friend of my father’s was a doctor at Northwestern hospital. And I was looking for a summer job. So I got this paying job to be an orderly in the operating room at Northwestern hospital. And I was at the lowest rung there. I was cleaning bedpans and taking the Bernese around etc. and taking orders from all the nurses. And it was a fantastic experience. I did that over breaks. I took shifts when the other people wanted to take time off. And I got to really see about patient care bedside manners. What do you say to a patient, what not to say to a patient, the hierarchy of a hospital because I was at the lowest rung. I learned that. That taught me a lot later, when I was selling the hospital, is that you got to get everybody to be on your team and to support you at all levels. You got to sell low, high, middle and get everybody to meet in the hallway and say, x product is the best product and one cardiologist once told me, you’re the pushiest guy I’ve ever met, but in a way that I really like.


Gary Bisbee  7:57  

I may have started on a lower rung than you did. I was a wall washer in a hospital for the four summers during high school. To this day, learning healthcare from the ground up is really important. We’re all interested in healthcare, but we’re really interested in your Olympic sailing experiences. When did you become a sailor? How did that all transpire?


Todd Cozzens  8:22  

That started actually in grade school. My older brother was an avid sailor. We used to have these things called frostbite racing in Chicago, you can imagine what that is, that’s when the harbor is closed down. All the boats are out of the harbor, and they put you in small dinghies, and you go race around. If you, for instance, capsize. You’ve got about 10 minutes to get out of the water. And it was just racing and winning races or losing races. I just got the bug. And then the other thing about that Chicago Yacht Club, right where I grew up sailing, we have three Olympic medal winners gold, silver, and bronze from previous Olympics. And we’d be racing these guys on the weekend. So it was like going out with Jack and Ernie playing golf. So I got the bug from them. And then I think it was one time, my brother and I were on the boat and in a race in a weekend race. And those champions were in the race. And we got a lucky shift on the right side of the course and won the race. And I was like, I was just overjoyed. When the silver medalist came up to me and he said, “Nice job, Todd,” that was the moment I got the sailing bug. From there, I did that three Olympic campaigns, the hardest thing I’ve ever done by far to date.


Gary Bisbee  9:47  

What did you learn about leadership in your three Olympic campaigns?


Todd Cozzens  9:52  

The question is, were we going to go out there and just kind of be a spectator, or are we going to try to beat all the other guys? It was fun having the attitude of “we’re gonna win.” And we’re here to win. And that’s it. In order to do that, sailing is a particular sport. People don’t understand the sport, but it’s about you got to understand aerodynamics, you got to have the fastest sales. You got to know a lot about mechanics how to haul the blocks, and the sheets and everything on the boat work, you have to understand meteorology, because that black clouds coming to you is that going to push the wind to the left or push it to the right, or you can lose a 200 yard lead on a small wind shift. And hydrodynamics and boat we sand the boat with 2000 grit sandpaper, you can barely it’s just like regular paper almost. And it was about preparation and no excuse to lose. I learned a lot. One of my mentors was Dennis Conner. And we raced a lot against Dennis and he was all about that with no excuses. Don’t come in after the race and say, “I lost this race because I didn’t have the fastest sales.” You have to be prepared for every aspect and you have to be constantly thinking about your weak areas and focusing on your weak areas. And I think that has a lot of parallels to building a company.


Gary Bisbee  11:21  

Let’s get on to your experiences as an entrepreneur and an operator starting out with Marquette medical then Pisces and then Optum, but back to Marquette Medical. How did you catch on with Marquette Medical? I know you ended up really driving the IPO process and the sale process, but what was the first connection with Marquette Medical?


Todd Cozzens  11:43  

I was out in LA training for the Olympics, and I needed a job. I didn’t have any money. And sailing is a very expensive sport. And the Olympic job opportunities program had me lined up to work at a bank and get paid full time and practice halftime. Well, I didn’t at that point in my life, I didn’t want to work for a bank, even if they paid me full time. And I could sail full time. But I found this job with this medical distributor and distributed market products. And I was doing just basic tasks. That was the lowest guy in that room too. And then one day, one of the sales guys in LA quit. And the boss said, hey, go out and take this EKG machine to this hospital and leave it there and maybe talk to them a little bit about it, here’s what you should say. And so I became a salesman, and I really got that bug because that was about winning, that was all about being prepared. And that was also about getting a straight commission when I started. So I didn’t eat or pay for my sailing unless I actually sold something. That put the right kind of motivation and within 18 months after those Olympics, I became the number one salesman in the country and just focused on my job. That was the beginning. One day we’re sitting around at a meeting in Milwaukee at the company headquarters and the founder said, Does anybody here know a foreign language? I said, “Yeah, I speak French.” He says, “How’d you like to go?” European operations are two people over there and a million dollars in sales. I said, “I’m all for it.” Then I built up their European operations. We built 12 subsidiaries in about five years and did a couple of acquisitions. That was really the impetus for us going public having that incremental revenue, that we weren’t expecting very high margin revenue and selling it to all these countries and all their health systems. I think I’ve been to every major university hospital in Europe. And in those days, we were out, we were selling in Eastern Europe, we were selling in the Soviet bloc, we had to go in and those were actually great sales because they’re all letters of credit. They paid cash upfront. Actually, though, that was one of my favorites. And then work my way up. And I took the company public with the founder Mike. That was an incredible place that taught me a lot about building a company. That company had an incredible culture that Mike built up, he was an entrepreneur. He was just what I would call him. He called himself a benevolent dictator. In other words, I’m going to build a team, I’m going to treat people fairly. But at the end of the day, I got to make the decisions. But we had beer and wine in the cafeteria. People think, “Oh, you use that now.” At the end of a really hard week, we’d meet there rather than go out to a bar or something and have a few beers or we were the first company to have an in-house daycare center. It was all about motivating the team, making everybody feel like they were part of it. Everybody had stock options. And it was just an incredible culture that whenever I did Next, I would hope that I could help lead or be part of a culture like that.


Gary Bisbee  15:08  

Once the sale occurred and you got to thinking about the next steps, you envision Picis. What was the thinking there? How did you compute all of that?


Todd Cozzens  15:21  

While selling all these high-end medical equipment into hospitals, like patient monitors, patient monitors with heart rate and ECG and blood pressure. And then we started adding pulse oximetry and mass spectrometry and all of these parameters, and I’d go into the ICU and see the nurses, all we did was make their life more difficult because now they had to write even more vital signs down on these big huge paper flow sheets. And I saw them spending so much time on busy work and so little time on the patient. And I met a doctor that had developed basically what you call today electronic medical records for these areas of the hospital. I said, “This is the next thing here. How could you make the data organized around the patient more automated, taking feeds from all those devices?” So the nurses didn’t have to read and write down the notes anymore? The vital signs? And how could you make a platform that would automate every aspect, which would not just lead to clinical data? But financial data? How could they do better with their billing and hospitals are notoriously bad for receiving the money that they build, etc? So we had that idea. And I seeded that company, actually, he had done a deal with IBM, early on, I bought the assets from IBM, and I was originally going to be just an investor on the board. And the founders said, Hey, once you come and run this company, I’ll develop the product. And we did that and, and we got a few early big customers like Mayo Clinic. And then I looked at that and said, Okay, you got the order. Now, we got to do something we got to deliver. And I learned all about delivering, these are critical care areas of a hospital where you can’t have any mistakes, you can’t have any bugs in your software. So I’m learning a lot about all the aspects of a company that I didn’t know anything about engineering, I didn’t know anything about finance. I didn’t know anything about what it was really like to deliver products and satisfy customers from every aspect of the company. And so that was the beginning of the crisis. And one of the early companies in that area, worked with your former company, Apache medical, as a partner. And that’s what I met you. And that’s what I got into the health management Academy. And boy, did I learn a lot from you, and what did I learn a lot about the power of relationships. I watched one of my early mentors—a good friend of both of ours, Neil Patterson, the founder of Cerner—work that room like a Stradivarius. The earliest biggest customers and Cerner came out of building those relationships. I want to be like Neil, so I did the same thing.


Gary Bisbee  18:21  

It sounds like you had the roots from your mother because you are a terrific relationship person and certainly were then. I know Neil had a lot of respect for you. When the opportunity came to sell Picis to Optum, which was an interesting place and you spent time there, what was your thinking? Was it the right time to sell and just feel that that was the obvious next step? What was your compute as an entrepreneur that you were going to sell your baby, in a sense?


Todd Cozzens  18:57  

There were two young companies in Boston that were growing really fast, there was us and there was Athena health. So Athena, as you know, is in the practice space, automating practice management. And there was us and we both had the same banker, Goldman Sachs, or we’re going to go public. We both had this same law firm, Goodwin Procter. And we both had the same lineup for the banking team for IPOs. And I talked to Jonathan a lot about this and he was, you know, hell-bent on going public. We looked at our revenue, where we were at, we said, Look, we probably are going to be like a five $600 million public company with very little analyst coverage. And that was a pretty big idea in those days, by the way. And so we made it and we also had an acquisition. So in a one-month period, we pulled RS one. We made the acquisition, raise capital. did all that in a 30 day period. And that was a company called Lynx medical systems that we added a whole bunch of financial, that turned our product really into that gotta-have products. And, and that’s when we really, really took off. And so I built that up. And we went through the financial crisis of 2009. Because healthcare wasn’t as effective as other markets. And then in 2010, we were going to revitalize our IPO again. And again, we’re about to get Rs one gun. And then United knows right about the time that the Affordable Care Act was passed. And they had things like medical loss ratio, which payers were freaking out about, like how much money is the government going to let us make, and so united kind of freaked out about that. And, and we all know that United made more money than ever, and the Affordable Care Act and subsequent events, but we looked around and they approached us, under the idea that they were going to go as United grew, they were, they were basically a roll-up of 108 different health plans. Every time they acquired a health plan, they got a claims engine or an analytics platform, or another piece of technology or services. And we used to throw that in the basement of united and called health services and report at the end of the earnings call, when the Affordable Care Act hit, they decided to dust that off and do a string of Prozac physicians, they bought our company under the premise that hospitals would just become big Icos and less acute services would move out. So that played in. And so they acquired our company, we thought that was the best option on the table at the time and that led to Optum. It wasn’t called Optum at the time. We got to about seven or eight of us that put all those assets together. And there were a ton of assets. And a lot of them are very well connected to each other. How are we going to rationalize that? How are we going to make sense of that to investors, consumers, customers, hospitals, health plans, etc? And we did that. And that was like the biggest startup that I was ever associated with. And it was really exciting pulling that together with a very big company, with a lot of big company bureaucracy. But I was always amazed at the people at United. But I’ll tell you, I’ll tell you about people united is very focused on results, very results-oriented, no company in healthcare is more focused on the end game. But everybody’s intentions were always the best. That’s not a backhanded compliment. That means people are always trying to do the right thing. And so it wasn’t really a great culture for being such a big company. But that taught me a lot too. But it was really exciting, being part of putting them together and seeing what it’s become today. It was just amazing.


Gary Bisbee  23:03  

Yeah, a very unique opportunity to be an entrepreneur within a much larger company, much different than the Picis situation, no doubt. Did you take away one or two lessons from going from Picis to United and then creating what now is Optum within United?


Todd Cozzens  23:29  

I saw a lot of the future of healthcare there. Like one of my early jobs, there was forming a new group called the Accountable Care Solutions Group, which was helping providers take on risks. It was the early days of value-based care. And there were no systems in place. It was how are you going to combine claims data with clinical data? How are you going to hospitals, and think about taking on risk? And instead of looking at these individual episodes of care under fee for service, where they’re trying to maximize revenue to maximize value rather than take care of the patient, this is a whole mind shift on to value-based care. So to me, it was you know, really, it was very hard. But we built that business up. And I really got to see where healthcare was going in the future. And that led to a lot of my ability and looking at companies as an investor. So I think that was the main takeaway, but also, no matter how big the company is, you can still run it in a very focused way. And from Steve Hemsley all the way down, there was that attitude at this very big company that I still to still today respect greatly.


Gary Bisbee  24:43  

The other thing about your experiences from Marquette to Picis to Optum is that digital health really was at the core of what they were doing. Obviously, it evolved over time, and that positions you nicely for your investing experience. Where you really do have that solid understanding of digital health, but let’s talk about Sequoia. What got you from Optum to one of the preeminent venture capitalists in the world?


Todd Cozzens  25:15  

The digital health boom was starting. The other big event, other than the Affordable Care Act, was the HITECH Act, which came out of the stimulus package of the 2009 financial crisis. And that was bipartisan, we don’t use that word very much anymore. A great bipartisan effort to put electronic medical records in the hands of doctors thinking that was going to help us really take care of patients better. And we went from basically a paper-based health system, pre-2009, to every hospital, every doctor, practically 96% of them having electronic medical records, which laid the digital pipes, the digital Foundation, they’re the data layer of the health system, of which everything else was built on 1000s of 1000s. Companies were being formed. Sequoia at that time was mostly ventures. They had two growth funds. Most of the first two growth funds will kind of add jumps to their venture, or venture companies need more money, let’s give it to them. By the time they got to the third Growth Fund, they said we’re going to go for growth and growth sake and have a new kind of investment thesis. And so they brought on a new team, with a guy from the summit and a summit-like model where young guys will be cold calling companies and they are three guys. Right away. They were in the traditional tech lanes of Sequoia, the fourth guy who came on was this guy, Mike Dixon. And he said, I’ll take the healthcare lane, I see this digital health boom coming. So they made a couple of early resorts, a couple of early investments like medexpress, health, catalyst, etc. Another guy had done Zermatt. And then after they done those investments, they looked around and said, “Hey, guys, this is typical.” Sequoia, being humble and always reinventing themselves. We literally have Sergey Brin on speed dial. But we don’t know Humana from the hospital, we need some help. And I had met these guys through a pattern recognition because I had been talking to medexpress, about potentially joining that company, I’ve been talking to health care less about potentially being their CEO. And I kept seeing support. And I said when I was raising money, I never saw a split before because they hadn’t been in healthcare for a while. And so I met Scott Carter and Mike Dixon, and they said, you’d be the perfect guy. You got payer experience, provider experience, you built companies, you’d be the great, great guy to help us build out our healthcare practice. And so I was lucky enough to join under that incredible team. And Mike and I co-led the healthcare practice there and built that up had some obviously, fantastic companies. I was fortunate later to go and negotiate with Dee Hensley and Larry Renfro on the medexpress. And selling that to United. So one piece of advice is always to keep good relations at the company you just left. But yeah, it was an incredible experience being at Sequoia I gotta tell you, it is truly the best investment platform on the planet for many, many reasons.


Gary Bisbee  28:23  

You mentioned a couple of things, but let me ask the question directly: what stands out as a takeaway? How do they relate to their portfolio companies? How did they relate to being on the board of some of the portfolio companies? How did they manage to differentiate them from what you might have been used to at that point?


Todd Cozzens  28:51  

The focus of Sequoia is 100% on the entrepreneur on the company, on its market size, dreaming big, but acting small, a small ball, how do we fix this company? So you could call it a tough love with the management team? But it was all about, we’re now owners of this company alongside you, we’re now aligned. How do we build this to be the best company possible? And not just taking everything for granted. But getting involved? Helping the entrepreneurs be more successful, helping hire the right people? Sequoia had this list of all the mistakes that they have made. We would look at that list, like every major off-site, and go through that and see what’s the pattern recognition of successful companies? How do we help them in the best way possible? We don’t run the company, but we can do a lot to guide them and help them and connect them to people. That’s their greatest strength. And it’s sometimes the entrepreneurs early on don’t realize it but later on, they say, “Yeah, I’m glad I built this sales operations DNA” or “I’m glad I hired this really strong CFO or this great FEMA guy because now I know what my forecasts really are,” etc. So it was again, it was kind of like sailing. It’s kind of like what I learned from Dennis Conner, which is no excuse to lose. Let’s fix all the things we know we’ve got a great company, we know we’ve got a moat. We know we’ve got a big team. But how do we win? Then once we win, how do we deliver? A lot about operating, a lot about strategy, and just really focusing on the endgame all the time.


Gary Bisbee  30:40  

Founding Leerink presented a really interesting personal next step, but it sounds like it might have been somewhat difficult to leave Sequoia? What was that decision process like?


Todd Cozzens  30:57  

It was really hard. I love the place. I love the culture. I learned so much from people like Baglioni, I was on two boards that definitely only now run the firm. And he was the best board member I ever saw. He goes into board meetings and they’re always he wouldn’t get into all the minutia and pontificate and make it about him. We’d go into every board meeting. And right away, he’d know what are the three things we need to focus on. This part of the company is not working well guys, let’s talk about it. Let’s not sweep it under the carpet. Let’s hit this head-on. So it was an incredible culture. And so I could have stayed there and thought about it. But the only thing about it is that Sequoia is so busy. And you’ve seen how busy they are with all the snowflakes and Airbnb and all this stuff they’ve done just in the last couple of years. they’re always reinventing themselves and they’re always at the top of their game. Healthcare was just destined to be about 10 to 15% of what they did, even though the digital health boom was coming. It’s very difficult in a generalist fund to bring a healthcare deal across the table. One guy comes in with zoom, who doesn’t get a zoom in a nanosecond? Is video conferencing on the cloud? Okay, here’s the TAM. Here’s the mode. Let’s go for it. I got this fantastic company that helps players with their managed Medicaid contracts, close gaps in care, and improve their heaters and star ratings. And there was like, Alright, I’m going to need about an hour to figure out what you just said. And so ever since I joined Sequoia, Jeff lyric runs the largest healthcare-focused investment bank, even at that time, Jeff is an entrepreneur. As most investments eventually want to do, they want to set up a principal investing arm of the bank using all their expertise. And Jeff was no different. And he wanted to set up a digital health growth equity fund because he caught the bug. He had incubated a company called medica, which was an analytics company and I actually introduced that company to Optum, who bought them. He got a 7x return on that. And he was very strong in biotech and pharma. But he wanted to branch into others and healthcare. So that was the first one he wanted to start, even whisper in my ear ever since I joined Sequoia. Then one day say, “Hey, Todd, I’ve got the initial funding of this one. Let’s get together and go raise the rest of it from typical institutions and build a team.” I’d known Jeff for 10 years. And I was like, I’m all in. And that was the opportunity because the digital boom was coming out, didn’t want to just do one or two or three deals a year, I wanted to do more and really get on this, this, this ride that was happening. And so we left in late 2015, very late 2015, and really got the fund going in 2016. And then my first job was, who am I going to get to do this with and even though I had all this experience, and that was the first guy in the firm, I said, I’ve got to bring out an equal partner. I can’t just be that you make this a big hierarchy. We’ve got to make this a team. At the top of my list, we’ve looked at all the different investors and all the different healthcare-related firms. But with Korn ferry, but the top of my list was this guy, Jared Kessel, Haim who was incredible lights out academics from Harvard, undergrad, medical school, Business School, but more importantly, he was leading Bain Capital ventures, digital health practice at the time, and he was running into the same buzzsaw about a generalist firm, it’s just hard to really get the great investments that will probably a lot, a lot of services, a lot of techs and to understand the labyrinth thick reimbursement model and all that is difficult, and Jared is a pretty risk-averse guy, but he said yeah, that this is a great combination Todd with his connectivity me with my clinical experience. And so we were the founding team members and We’d built the team out from there.


Gary Bisbee  35:02  

Then the story from Leerink to Transformation is also interesting. Share that one with us, if you would.


Todd Cozzens  35:10  

As we were thinking about raising fun, too. We looked around and right then in there, lyric was bought by Silicon Valley Bank. And that put a whole new layer of regulations into what lyrik as an investment bank could or could not do, because now they’re part of this federally regulated bank, they are subject to things like the Volcker Rule, limiting actually how much they can actually invest in funds. And so it was a perfect setup for us to spin out. We did it with Jeff’s blessing, we did it with Silicon Valley Bank blessing, and we spun out. And that was just as we were starting to raise fund to after, right before and there was a successful spin-out and, and right at that time, the guy that I had pulled on healthcare investing the guy that built the healthcare practice, deploy Mike Dixon, after I left, he was even more of a man on an island at Sequoia and he had a choice either become a generalist, and do more than just healthcare, or focus on this coming digital health boom, equally tough decision for him, we were fortunate enough to be able to attract him the commodity and worked with them together, he knew Jared. So he was the third leg of the stool, that got us off and running on fun, too, as an independent firm. And we were off and running. And it’s just been a great partnership. And we filled out the team with equally focused digital health. Practically everybody in our firm, all they’ve done in their adult lives post-college is digital health investing. That was the mantra.


Gary Bisbee  36:54  

It’s a terrific team, no question about that. It stands out for sure. Tell us a little bit about Transformation in terms of what kind of investments you’re making, the amount of the investment, and a little bit about the marketplace if you would in digital health.


Todd Cozzens  37:15  

The market has really changed. Once we have this data from the electronic medical record. It wasn’t just interesting to providers to build systems on top of that data to guide care, automate, care, etc. It was important to payers to getting that clinical data, they’re now match up with their claims. And now moving to value-based care, you’re looking at episodes of care and outcomes. You can’t look at outcomes. Without that digital data. It’s important to pharma. Big Pharma is always trying to get products to market quicker. Farmer used to have to take paper patient records off the shelves of hospitals, transcribe them into computers, to see how their drugs were performing. Now with the digital data coming from the lifetime medical record, they could live stream into these databases and get products, see how their drugs were doing or develop them earlier, recruit patients for clinical trials much easier. So pharma became a big customer area. So the tech, the TAM of digital health grew bigger. And then there was this big wave of self-insured employers. These are employers that just take risks. They don’t have a capitated arrangement with a payer, they’re self-insured. And they’re increasingly not happy with the solutions that they’re getting from the third-party administrators and their brokers. And they’re buying these digital Health Solutions directly. That’s how livongo grew, for example, helping employees manage their diabetes, etc. So that was a new wave of customers. So it wasn’t just payers providers. Now it’s pharma, a self-insured employer. And then now as you know, we all have a healthcare consumer. Back in the day when you and I first entered the workforce, there were no co-pays, no deductibles. And now, deductibles are as high as 810 $1,000 for a family before we even touch your health care. So people are going in droves online, to take control of their health care, so direct to consumer products and technologies. And companies were booming. So all of a sudden, we have all these new customers, we have this wave of new companies being formed. So what we want to focus on is we’ll take anything from commercial what we call commercial stage, we don’t like to take product-market fit risk because it changes so much what the product-market fit is what is the gotta-have versus the nice to have the priorities of health system CEOs and payers, etc changes and you never know what’s going to take you never know what’s really going to hit the right moment in time and decision making. There’s a lot of hit-or-miss there. So we want to see companies with four or five customers that installed the product, no betas, no giveaway. ways that actually delivered those products customers paid for them, we could with our network, we could do a lot of stealth diligence, we could talk to customers that we do with either had the product or didn’t have the product and go out and talk to them. And it was really a lot of that talking to customers that would guide us on these growth companies. As the companies grow, we know we can help them a lot with introductions, we have this big, big, deep, and wide network with a lot of experience building companies before so we could impart some of that to them. And so take them all the way up to pre IPO. And that’s kind of what we do, our sweet spot is anywhere within that commercial-stage, which could be sub 10 million in revenue, all the way up to pre IPO, we don’t need profitability as a proxy for whether a company is going to well, because all the growth, the hyper-growth companies are probably losing lots of money expanding if they’ve got a great product with a great mode. They’re, you know, expanding their Salesforce, they’re building out new products with engineering, as long as you can understand the unit economics, or gross margin profile and a steady-state, what that looks like, and are they charging enough and getting paid enough? You can make pretty good judgments about the right companies to invest in.


Gary Bisbee  41:16  

Where does the founder CEO fit into your formula for assessing investment in a company?


Todd Cozzens  41:23  

Really understanding the motivation of the C suite of the company. What’s really driving them? Many great healthcare companies are built for many reasons, but some are built because the founder actually had an adverse health care event. And really, maybe it’s a tech guy, that gal that wants to come in and change the world and that respect, or it could be somebody from in the health system events, these experiences are these incredible dislocations that we see in the health system every day and wants to want to pick what’s their motivation, what’s driving them. And I can compare that and my own experience. It’s also as an investor, you got to really make this transition. So it’s hard for a former CEO, control free to make that transition. It really is. And early on, I can remember one company, the CEO pulled me outside and accomplished enough the board meeting said, Todd, I’m the CEO. And so you got to balance it. And you have to, you have to customize your relationship with every CEO and help them focus on the areas that they need, that they’re weaker on, and help them and be that mentors kind of condescending, be a partner, your partner that like you were going to answer any questions you have if you don’t know the answer, say it, don’t always come up with the answer, say, I know somebody here that can help you with it. And a lot of it is getting a gate hub having them talk to the right person. So it’s understanding how difficult it is to build a company and being apathetic. Because as a CEO, I always say one day or the hero one day or the coat, one day, you win the Mayo Clinic as your biggest client, the next day, the FDA comes on your door and wants to do an inspection. And so you’ve got to really be prepared to be battle-ready all the time. It’s a lot about being empathetic to their challenges, and really, in any area that they’re weak in not condescending or not dictatorial way. First of all, realize the problem, you know, the solution ending is helping that party realize what the problem is, and then giving them suggestions, ideas on how to solve it.


Gary Bisbee  43:42  

How did your rich background as an operator help you as an investor?


Todd Cozzens  43:51  

I have a lot of sales DNA in me. A lot of our success in all the companies I’ve associated with sales, growth, equity, in sales, are you going to get a valuation multiple, because first and foremost, because of your sales growth with demonstrates that you’ve got a product that is hitting the sweet spot that’s got a significant unfair advantage, etc. So once that’s established, that’s great to sell. But you got to deliver. And I learned a lot of that on the job in my career, and it’s really about how you as a CEO, inspect what you expect, etc. So many companies have great ideas that wonderful ideas but great ideas don’t always work in healthcare. It can be some twist in the regulatory environment, that’s your angle, etc. But it was really about helping CEOs do what I did, because almost nobody comes out of college. Understanding finance, understand being a great salesman, being an incredible engineer. They’re usually one of those different categories. And so how do you help them, understand the other disciplines, and then delivery, delivery and satisfy your customers and putting your ego aside. So it’s being holistic. It’s understanding all the operational detail, fixing the things that are not working, maybe having to reinvent the whole strategy. So it’s being complete, being a complete leader. That’s what it takes to take a company from, you know, startup to the public or being a big company.


Gary Bisbee  45:39  

Seems like there’s a lot of interest in innovation these days seems like there’s a lot of money being poured into venture private equity and whatnot. Markets are doing well. Do you worry about a bubble here?


Todd Cozzens  45:55  

We’re still in the Neanderthal ages in digital health. We’re still at the very beginning here. Healthcare is still 30 years behind any other industry that has automated. So there’s a long runway here before we get to the level of automation, the use of the data, the easy-to-use workflow solutions that are visual platforms that you use. So I think the market and healthcare do run a little bit transverse to the rest of the economy. And I think the pandemic has just accelerated our understanding of what it means to get digital and get digital fast. So I think the long-term secular trend of the market is going to keep growing. There will be times when sectors of the market have tough times, like, obviously, providers have a very tough time. And still today, throughout the pandemic, they’re dealing with their ICU use of their overflow beds filled up with COVID patients, they’ve got other fish to fry. Right now. Can’t think too much about the long term. But there many of them have recovered of that. A lot of the consolidation has happened and healthcare has helped them they’ve got strong balance sheets now. They didn’t have before to withstand that. But at the same time, when the health when the providers were having were struggling, the payers were flush with cash and but also competing with each other. Optum is yet the big, the big behemoth but all the other payers, anthem, Cigna, CVS, Aetna, Humana, they want to build their own Optum. So they’re trying to acquire companies build companies within themselves. So there’s all the appetite on the m&a side, then you have big tech, Microsoft, Amazon, Google, trying to get into healthcare and acquiring companies. So I think there’s going to be a long-term strong positive tailwind here. The pandemic is only what I tell people is, we still have a $4 trillion Tam, which is the money we spend on health care. And what’s changed is the adoption rate of this technology. It’s gone up dramatically. So what we thought was going to be a digital hub boom, find one became even accelerate. Isn’t that fun too? So I think this is an unstoppable train. That’s not to say that each sector of this area won’t have its rough spots, going through some of these adverse events. But overall, I think it’s still very, very bullish on where this whole digital health market is gone.


Gary Bisbee  48:28  

I agree with you 100%. You made the point earlier about the HITECH Act. We spent 35 or $40 billion last decade to digitize medical care, we haven’t even begun to realize the benefits of that yet. And you’re just on the early stage of that with the Transformation Capital, so well done. Todd, this has been a terrific interview. I have one last question: For our audience that are earlier stage leaders, what advice would you have for them?


Todd Cozzens  49:02  

First of all, make sure that you’re really solving a needed problem. And I would say, in your early days, you may have a great idea. I would get out there and talk to who your prospective customers might be. If you’re selling a new value based care analytics tool, I would get into every aspect of what that means. And I would talk to people I payers that are still talking to the CFO of the hospital who probably still got a huge dependency on fee for service. I would talk to caregivers, in ICU, oncology departments, etc. Understand, really the problems that they’re experiencing every day. And you get a lot of advisors around you that really understand this space. I seem the most successful entrepreneurs in this space are sponges for that type of information, you got a couple of our portfolios and decided patient pain, Amano subaqua at Memorial health, they are constantly out there talking to former entrepreneurs, customers, getting really into every detail of what the problem is. And then what is the right solution to bring it to us. And that’s the first piece of advice. And then secondly, as you start to build your company, hire the best people you possibly can. And don’t worry about it, state, stay a couple steps ahead of them, whatever you got, this is a very, very complex space. And you’d have to have subject matter experts. You have to have company building experts, the financial aspects, sales operations, just to be able to get into the mode of predict. If you’re going to be a big company, you got to beat rates, under promising over performing. And make yourself holistic, and focus on the things that aren’t going right. and fix them and get lots of supportive advice from real experts. This is a market where you really need that expertise, and build a team around you. That is absolutely the best, hire slow and fire fast. It’s not working out. If we’re just not the right person. rip the band aid off. But if they’re the right person, give them everything they can to be successful. Make it an orchestra, not a bunch of musicians tuning up.


Gary Bisbee  51:31  

That’s a great place to land. Todd, lots of wisdom in this conversation. Thank you so much for your time.


Todd Cozzens  51:38  

Great to see you again, Gary. Thanks a lot. Take care.


Gary Bisbee  51:42  

New episodes will debut every Thursday. Join me in conversations to gain advice and wisdom from CEOs, presidents, and healthcare experts. Health care leadership is hard work, but it becomes more manageable as we learn from the remarkable lives and careers of our guests. I’ll see you there.

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