Ep2: Impact Investing and Serving Vulnerable Communities, with Ship2B Ventures

[00:00:00] Henry Peck: Hey, everyone. It's Henry. Welcome to Emerging Medtech Today by LSI. Today, I'm joined by Jordi of Ship2Be Ventures, and we discuss Ship2Be's unique position as an impact fund operating in healthcare, the challenges in identifying, measuring, and reconciling both impact and financial objectives, and the vulnerable communities that Jordi and Ship2Be hope to better serve by partnering with innovative companies. Enjoy.

[00:00:28] Henry Peck: Jordi, thank you so much for joining me. Would love to give you a chance to do a quick intro and then let's get into it.

[00:00:34] Jordi Ferrer: Hi, Henry, my pleasure. Thanks for inviting me. Quick intro about myself. I'm Jordi Ferrer. I'm born and raised in Barcelona. I'm an economist by training with an MBA, started my career in the financial sector or corporate finance. What was intended to be a two years break into the healthcare sector ended into over 10 years in different healthcare industries from pharma to IBD to biotech. [00:01:00] And in the end, going back to somehow finance related, but investment related technology or, or innovation related. Um, I've been now two years working as an investment director at a Ship2Be Ventures, which is an impact venture capital fund based out of Barcelona, my hometown. So after living abroad in a couple of cities in Europe, also in the US, I came back and I'm now enjoying from my both experience, the financial one and the healthcare one.

[00:01:27] Henry Peck: Awesome. And we're looking forward to seeing you in person at LSI Europe 23 in Barcelona. So many of our community members are extremely excited to go there, experience the innovation and financing ecosystem. And obviously you and Ship2Be Ventures play a large role in that. Tell me a little bit about Ship2Be, about the fund that you're currently investing out of.

[00:01:46] Jordi Ferrer: Absolutely. Yes. So Ship2Be Ventures is an impact venture capital fund based out of Barcelona. As I said, it's a 55 million euros fund investing in healthcare, but also climate related projects and education projects.

[00:01:59] Jordi Ferrer: Healthcare [00:02:00] though, is half of the fund. So we are investing around 28 to 30 millions in healthcare. And we have a team with healthcare background exclusively dedicated to healthcare deals. So in this sense, we are, from the impact investment side, we are one of the few, if not the only fund that has this specialization inside the team.

[00:02:20] Jordi Ferrer: In terms of check size, we are early stage investors. We usually say that we like to invest between series C to pre series A. We invest only in Europe. This means that our first ticket is usually around the 800 to a million euros. And then we have capacity to follow on with up to 5 million euros per company.

[00:02:39] Jordi Ferrer: In terms of in healthcare, our segments of interest are, rather than technologies, are vulnerable communities. And we have identified elderly people, people with chronic diseases and people with impairments, either physical or cognitive impairments, as our target populations. And we are investing in companies that can help or can improve quality of life of [00:03:00] these three communities.

[00:03:01] Henry Peck: You use this term impact fund, impact investing to describe what you and Ship2Be Ventures do and, you know, I'm curious, I think in healthcare and medtech, healthcare, life sciences, more broadly, when we speak with investors, we often hear about investing to make an impact in patients lives, in building breakthrough businesses that improve, save lives globally. What differentiates an impact fund from traditional venture capital or private equity that's investing in healthcare with that model?

[00:03:35] Jordi Ferrer: That's an outstanding question and it's not easy to answer. First and foremost, I must say that I completely agree with you. I mean, healthcare sector is a sector that is bringing a direct impact to people. That's obvious. We can't deny that. Not only investors, but also Founders, how many founders are pursuing their passion out of trying to cure a specific disease or try to make the world a better place?

[00:03:58] Jordi Ferrer: So definitely [00:04:00] healthcare sector has an impact. Why we position ourselves a little bit different is maybe because of our background doesn't necessarily come from the clinical need or from the traditional healthcare background. We come from a more social background that comes from the philanthropy world, maybe, and is now entering into the mainstream investment world.

[00:04:20] Jordi Ferrer: There's a movement that is called the Global Empirical Investment Network. It's actually a community of investors that is promoting and implementing things, certain methodologies and certain ways of investing that have a triple aim, right? So we are not only looking for financial results, but we are also looking for impact results. And we are completely aligned with two objectives. For instance, our bonuses and our retribution is completely aligned to both the financial results and the impact results. This means that if we are providing financial returns to our investors, but we don't meet our, uh, social impact criteria, our bonuses, and our character interest will [00:05:00] go to, uh, an NGO that will be determined by our investors. They will not go to ourselves. So we put both goals at the same level. And I think this, uh, in terms of intentionality, it brings a lot.

[00:05:10] Jordi Ferrer: There's also, and speaking of intentionality, there are three pillars in impact investing that have to be met for every single investor. And in every single investment, which are, the intentionality of the project or the startup, the additionality of the startup, and this is pretty familiar with healthcare because we usually, when we speak about additionality, we're usually referring to a clinical need and how are we solving this clinical need.

[00:05:34] Jordi Ferrer: But there's a third aspect that is crucial and that is commonly forgotten that is measurement. So we measure impact results of all our investments and we measure impact results of our fund. And I think this is important because when you see regular funds and not only in healthcare, but in general reporting, they usually report financial results. They are now reporting also some ESG [00:06:00] results that are also in that sense.

[00:06:02] Henry Peck: And we've heard a lot about that lately.

[00:06:05] Jordi Ferrer: Yes, definitely. It's a big trend and we can talk about it later. It's not exactly impact investing. It's about how you do things rather than what you do. But in our case, we're also reporting how many people have we helped and in what measures and in what percentage are we behind or above the original goal that was set by the fund, right? So in this sense, I think we are a little bit different from others.

[00:06:28] Henry Peck: It strikes me as interesting and complex when you talk about measuring both financial results and impact results. And let's talk about that measurement philosophy and approach for a moment because financial results, that's venture capital 101. You can calculate your internal rate of return and everyone with their MBA knows how to do that. And folks coming in and out of the space look at that as a metric of the success of a fund. And that's very, very well studied and well understood. But this impact results, measuring that sounds like it's more [00:07:00] nuanced, and so when you talk about tying, your tying everything from the success or failure of a fund, the compensation of the employees and the overall satisfaction of LPs and those stakeholders affiliated with the fund, in the success of the fund based both on finance and impact results, those impact results must be very, very important.

[00:07:22] Henry Peck: And I imagine there's a lot of work and calculation that's gone into deciding what metrics of impact you're looking at and how you look at that both in the short and long term. So tell me a little bit more about how you and ship to be measure impact.

[00:07:37] Jordi Ferrer: Absolutely. And great question too. I think the most important thing is to understand that impact alone as a word does not have a meaning if you don't bring a context to it. And the first thing that an impact investing fund has to do or a startup that wants to provide impact has to do is identify, frame this impact, right?

[00:07:56] Jordi Ferrer: So and speaking of methodologies, we use a methodology [00:08:00] that is used the theory of change. We have it for our fund. We have our own theory of change, our own set of vulnerable communities, as I was saying. With this theory of change, we understand what's the current situation, what are the current pains and where we would like to get in the future or after our investment. So the reason why we invest in them, why we want to bring these solutions. And with this theory of change, you are able to identify or to name or frame the level of impact and the segments of impact that you want to bring.

[00:08:34] Jordi Ferrer: And from this, you develop your investment thesis that includes of course, certain financial and types of companies, or even sectors you want to invest, but you also identify and define, as much accurate as possible, the type and the quantity of impact that you want to provide to society.

[00:08:50] Jordi Ferrer: And you have to be loyal to both definitions. And this defines the whole company. And you mentioned the compensation is measured regarding it. [00:09:00] But for instance, we also have our investment committees. We don't have only one investment committee, we have two. We have the, let's say the financial one, but then we have the impact one and we usually do them one right after the other.

[00:09:12] Jordi Ferrer: The members are not necessarily the same and they are not necessarily looking for the same outcomes, but we have to present both and both have to be well prepared. And if we don't pass both investment committees, we cannot invest in the company. So it also brings an additional layer of complexity here.

[00:09:30] Jordi Ferrer: And then in the end, of course, in portfolio management, this affects in portfolio management as well. There are some impact related clauses in the portfolio management. Some of them are relatively easy and they are linked to transparency and reporting of not only financial KPIs, but also impact KPIs, but some others.

[00:09:47] Jordi Ferrer: And, depending on the company, but some others can be also linked to certain governance methodologies or governance practices that we want to reach, or governance goals that we want to reach, or certain priorities within product [00:10:00] development to make sure that even short term or midterm, the company has a temptation to prioritize a new market that might be lucrative but might lose the impact, we might find a way to, of course, ensure the survival of the company, but we also try to make sure that the ultimate impact goal for the community that we have identified is also met. So we try to stick to the original principles and we even have some ways to get out of the company, if the company loses the impact purpose.

[00:10:37] Henry Peck: Interesting. Talking about the investment process for a moment, you mentioned having kind of parallel investment committees, ICs within the company that are looking at the financial opportunity and the impact opportunity and they need to be aligned. And it makes sense for what you've described to me where without the impact committee, this is a traditional venture capital fund.

[00:10:58] Henry Peck: And without the [00:11:00] venture capital committee, this is purely philanthropy or charity. And so bringing the two together create this unique approach to investing in healthcare technology. But I have to imagine it happens more often than zero, at least I won't say more often than not, where you have misalignment between those two sides of the investment process. Is that accurate? What's been your experience kind of bringing impact related investments to this and scrutinizing them to the financial lens and vice versa, bringing things where you've de risked it on the financial side, but need to also de risk it on the impact side. Have you seen challenges, is there generally strong alignment between those two based on the areas that you're investing in? How do you reconcile those two things?

[00:11:46] Jordi Ferrer: We see conflict all the time, I must say. So we, we see companies with a huge impact potential. And with tremendous intentionality from the teams that don't have [00:12:00] scalable business models. Most of them or some of them might have sustainable business models that, you know, the company might work with a little bit of financing, but would not bring the returns expected from venture capital.

[00:12:10] Henry Peck: Which is important because you're still a fund that needs to be investing in venture scale businesses, both in your first check and follow on investments. That's still a major part of this, not to be lost in the importance of the impact, but you still need to have that aspect of venture scale business in order for this to be a viable investment.

[00:12:28] Jordi Ferrer: Exactly. We have to, we have to. And on the other hand, we see some business models or some projects that have a very interesting financial model or business model. And we see many platforms in this sense that have a first indication that could be a rare disease or something with a very huge clinical need, but that is in a kind of a niche market and would have a way larger market by focusing on a more mainstream indication.

[00:12:55] Jordi Ferrer: So within our due diligence, we make sure that the intentionality and the priority of the [00:13:00] founders is aligned to pursuing this first indication. And then we can use this indication as a first milestone to then scale to more mainstream and to use it as platform and so on and so forth. So this is also something that is very complicated.

[00:13:13] Jordi Ferrer: For instance, we have one of our portfolio companies, they are developing a specific, it's a digital diagnostics company that is developing something very specific for pancreatic cancer. It turns out that they can develop a way better business case with other organs or other types of pathologies, but they are committed, they want to launch with this first product, pancreatic cancer, and then they will roll out the product two or three and four based out of the same platform.

[00:13:40] Jordi Ferrer: So we ensure that the priorities are aligned and we will make sure that the first product, which is the critical one and the most impactful one will go live. And then from there we will support whatever is needed to scale the company.

[00:13:52] Jordi Ferrer: In terms of, going back to the beginning of your question, there is indeed a lot of misalignment between companies, but these also depend on the [00:14:00] business models and the technologies. And going back to the methodologies we use, we use a methodology called I. M. P., Impact Management Project, that has different steps. But one of the steps is aligning where in the value proposition, or in the value creation of the company, where the input is created. And you have four or five columns, I would say in this exercise, so you can have companies that have impact because of their input, for instance, they are hiring people in risk of social isolation or they're hiring people in certain conditions, or they are using raw materials that have a certain impact aspect, and this would be input.

[00:14:39] Jordi Ferrer: Then you have output, which is the company's producing something that is helping many people within a specific community. Then you have outcome, and this is whatever that this company is producing and is helping a specific community is providing a specific outcome. So it's really [00:15:00] changing the status quo, is providing a solution to something that was needed. We focus in this third one. So we focus on outcomes. Our impact indicators are based on companies or outcome based business models. When you focus in this type of companies, there's no trade off because the better the business model, the larger the company, the larger the scale of the impact that they will provide.

[00:15:22] Jordi Ferrer: So within our thesis, we voluntarily made the decision that we will invest only in companies that are making impact through their outcome. And we will measure these by establishing outcome indicators, we might establish if the company also has that some output indicators or some impact indicators or down the road, some sector changing or world changing trends, which would be the next steps within the scale, we might lease them too, but we will focus and we will measure our impact based on the outcome indicators. And this is also something that we work with together with the founders by the time of our diligence after passing the investment company.

[00:15:58] Henry Peck: Jordi, you had mentioned [00:16:00] that you are one of the few, if not the only, impact fund investing in healthcare as we've differentiated that from traditional healthcare technology and med tech investing. Why is this approach not more broadly used? And why aren't more people doing this? It sounds like it makes a lot of sense from the way you've set it up. And candidly, it sounds hard, right, having to reconcile those two sides of the business, the way that you've explained the input, output, outcome model, focusing on outcome does seem, as you said, to alleviate some of those potential blockers between impact and financial risk, but why aren't there more impact funds investing in healthcare using similar methodologies as you are?

[00:16:46] Jordi Ferrer: There are many healthcare, traditional healthcare funds generating a lot of impact, as we already said. There are many social impact funds that are investing among other things in healthcare or socially related, somehow to [00:17:00] healthcare projects as well, or even into pure healthcare. What I think differentiates us as a fund is that we have a team within our fund exclusively dedicated to healthcare. And I think this is not that common.

[00:17:12] Jordi Ferrer: So the investment team doesn't come from the impact investing background. We all come from different healthcare backgrounds, and I think this is something different. And we landed into an impact investing fund that is using a number of methodologies and that comes maybe from a relatively new world, which is the impact investing world that probably has its routes in the philanthropy or venture philanthropy world. So we are kind of merging two different worlds.

[00:17:39] Jordi Ferrer: Why are we one of the few doing this? I think it's only a matter of time because impact is a huge trend. ESG is a huge trend. Regulation in Europe and governments in Europe are heavily, heavily betting on impact investing. As a matter of fact, I've [00:18:00] already spoken to certain traditional healthcare funds that are looking to enter into the impact investing world with impact investing methodologies, very, very seriously. And we might have them soon.

[00:18:12] Jordi Ferrer: And I think it's just because the impact investing world is kind of newer. The healthcare investing world has been there for ages and it's getting in there. The amount of assets that are being put into impact investing is increasing exponentially year after year. And I think this is a big wave and we're going to see them more and more. We might sound kind of niche or kind of different nowadays, in 2023, but very, very soon it will become the norm, probably.

[00:18:43] Henry Peck: You heard it here. In 10 years, we'll have many more funds following a similar impact methodology. Even those that have begun as traditional healthcare technology investors will begin incorporating this type of methodology into their decision making processes.

[00:18:59] Jordi Ferrer: For [00:19:00] sure. And some of them are kind of already doing it without calling it specifically impact methodology. And I always refer to value based healthcare. Value based healthcare is, in the end, is outcome based healthcare, right? And it's about aligning interests from payers to practitioners to patients, getting them all aligned, right?

[00:19:21] Jordi Ferrer: And it's about fixing the system. And in the end, if you look at what the impact investing is doing with their measurement methods, it's pretty much the same. We might call it differently. We might have different methodologies or different approaches, but the ultimate goal is very similar. So in the end, these two words will converge.

[00:19:41] Henry Peck: One thing that strikes me about this approach is it seems that by adding this new lens of impact to the overall investment thesis, you have the potential to identify and develop companies for significant unmet needs that don't fit the traditional areas of interest for early [00:20:00] stage innovators and venture capital.

[00:20:01] Henry Peck: And one of the things that we do at LSI, in addition to our curated partnering events, is our global medtech market intelligence services. And we provide research to a lot of the large global medtech and life science companies. And so one of the data sets that we have access to is where are the dollars flowing globally in terms of different surgical procedure markets and different subsegments of this broad world of healthcare.

[00:20:26] Henry Peck: And one thing, if we take a look at pharma for a moment and just think about the way that they spend dollars on assets, if I were to draw a chart like this, and on the x axis you have number of patients, and on the y axis you have value per patient, right, pharma always wants to be in the top right. And what's in the top right? Neurology, Oncology, and Diabetes.

[00:20:48] Henry Peck: But for that small collection of diseases, you have thousands of other rare diseases where you have highly engaged patient communities that are [00:21:00] looking for financing and are looking for assets and attention to be put on the diseases that affect their community. And so when you talk about this outcome based methodology, of course, with the potential to build a venture scale business in that world, you could imagine that an impact investing approach would lead to more dollars flowing into assets that have a high impact on the community within a rare disease or a set of rare diseases.

[00:21:27] Henry Peck: Whereas today, without that methodology, these are areas that get overlooked and you can scale that idea of kind of investing in areas with very proven numbers of patients and lifetime value per patient, but impact investing being something that across biotech, med tech, and health tech will enable us to treat and address more diseases that are prevalent in communities that are at risk and have need for impactful technology.

[00:21:56] Jordi Ferrer: Absolutely. I can't agree more. I'm not sure whether that was a question [00:22:00] or the answer, because I perfectly agree with you. And I go back to the three pillars, intentionality, additionality, and measurement. As the additionality, as impact investor, you want to identify fields or clinical needs that are underrepresented or that are lacking investment, and these might be related to a lack of business opportunity, but in most cases, there's not because the whole sector is aligned with you.

[00:22:25] Jordi Ferrer: For instance, the FDA has a fast track for pediatric drugs or for drugs in rare or ultra rare diseases. And you can even trade FDA credits with the approval of some of these drugs. Same thing in Europe, the regulation is in favor of approaching all of these so in the end, impact investing is about investing for vulnerable segments. And of course there are big diseases and you name them, oncology, diabetes, CNS that are huge and that have still clinical needs. And we must still invest in those. But by looking [00:23:00] at it a little bit different, you might identify new niches.

[00:23:03] Jordi Ferrer: We don't look specifically to a technology or to a pathology. We are quite agnostic in that. We have identified three communities, which is elderly people, people with chronic disease and people with impairments. And we look at their problems.

[00:23:17] Henry Peck: As fun as it would be for us to talk about big pharma and the areas that they are and aren't investing in, let's focus on what Ship2Be is looking at in terms of the areas where you see opportunities for your impact fund to both generate financial returns and have the impact that you're looking at. Talk to me more about the communities that you've identified that are at unique risk and some of the opportunities and trends in the problems that are affecting them directly.

[00:23:46] Jordi Ferrer: If we take, for example, the elderly community, which is our largest opportunity or the largest representation in our fund, we have identified that there's a mega trend much beyond silver economy that is [00:24:00] living longer and healthier at home.

[00:24:03] Jordi Ferrer: And there is a huge opportunity beyond the chronic conditions that these elderly people might be in, which might also be the same as many funds are working. We identify that in their daily lives, they have specific pains that cannot be uncovered unless you look at it from the person's perspective. As I said, the sidecare trend, right? So from a nurse care or from the hospital to being able to be taken care of at home, from suffering from social isolation to being able to socialize and gain purpose again, and all these stigmas that elderly people are facing.

[00:24:41] Jordi Ferrer: We can identify huge opportunities that no one is looking at because they are not from the person perspective, but indeed have a great opportunity to scale. If we look at chronic conditions, for instance, we could focus on curing chronic diseases, which is great. Chronic diseases are by definition long ones, they need [00:25:00] long treatments, therefore very lucrative opportunities. But if we look deeper into what are these people's problems, we see people that are suffering from a specific condition. And because of that, they might be a suffering of undesired loneliness or from social isolation, or they might have specific barriers that are preventing them to have a normal life, go to work or socialize or whatever.

[00:25:25] Jordi Ferrer: There are huge opportunities for this community beyond curing their conditions that have a tremendous willingness to pay and that have a tremendous market in there. And by looking at the community and identifying what are the pains, you can find great opportunities in there too.

[00:25:39] Henry Peck: So with the impact model, you're not just looking at curing or managing symptoms of a disease, say with your ageing population that wants to age at home, think about some of the cognitive diseases and disorders that affect them. You're not just looking at treatments for the disease itself, managing the symptoms and [00:26:00] care of those individuals, but you're also looking at, you mentioned social isolation and other lifestyle related factors that contribute to their overall health and well being, but are only opportunities that you can gain unique insight on when you take this impact investing approach of looking at the community, the problems that they're experiencing living with these diseases, and then kind of back that out into investment opportunities rather than the traditional approach of looking at the disease kind of as a black and white spectrum instead of numbers versus the person centered approach that you're talking about.

[00:26:32] Jordi Ferrer: This is exactly that. So taking an example of an oncology patient, for instance, we can be focused on the molecule on the, that cell, that cancer cell per se, that we are obsessed with and we want to terminate. But what happens to the real person living today facing a radiotherapy treatment that is extremely painful, that prevents the patient to be in contact with their beloveds or their families for a few days because of radiation, that is scared of [00:27:00] radiation, that this suffering a huge stress, anxiety, fear, and cannot communicate with anyone. Can we do something about it as well? Would this person or the system, the payers, want to do something?

[00:27:13] Jordi Ferrer: In this specific case, for instance, there's a huge correlation between mental health and treatment adherence, right? So by looking at the person and what are their real problems, you can identify problems that are different. We're not only focusing the treatment. Actually, we try to have a holistic approach. So from prevention, diagnostic, treatment, and then reinsertion to real world.

[00:27:32] Jordi Ferrer: Actually, we try to be more focused towards prevention and diagnostics, which are kind of also niche and not so traditionally sexy segments, but we make specific efforts to look at those. Of course, we are into treatment because you have to be, and there's a tremendous opportunity as well, but we try to look at the whole spectrum. And same thing with the concept of care. We are not exclusively focused on physical health or mental health, which is now growing and very trendy, but [00:28:00] we are also looking at social health, the social isolation aspect that I already mentioned a couple of times, or even the spiritual health, the purpose and the loss of purpose that can arise from having a chronic disease or losing hope because of specific condition or because of aging or whatever. We are also looking at those aspects and this kind of helps us understand better what people are thinking, what are the problems and what would be beneficial to them.

[00:28:24] Henry Peck: So Jordi, as you know, LSI Europe 23 in Barcelona is coming up this September. We're under 100 days away. And you've talked to us a lot about the impact investing model, what you're looking at and how you approach investment portfolio management in a unique way compared to the traditional venture landscape when we reconvene at that event in just a couple short months, what do you hope to share with the global investor and innovator community that's going to be there, and vice versa, what are you hoping to learn from the rest of that community as you evangelize this impact investing model in our [00:29:00] space as a way to build the next generation of breakthrough businesses and impactful companies?

[00:29:05] Jordi Ferrer: So only a couple of months, can't wait to be there. I actually, I'm grateful that, uh, LSI is coming to Barcelona to my home town. It's a great congress. I'm looking forward to attending first and foremost to learning from all the great people, brilliant people, investors, founders, and different stakeholders within the ecosystem that will attend there.

[00:29:27] Jordi Ferrer: I'm hoping to learn a lot about trends, about technologies, about how people see the sector in these days. And hopefully I can provide also my little something, I can add something to the audience as well with our perspective, how impact is investing is not scary, but rather it can be also an opportunity. In fact, we try to co invest in every single investment. So we will see our peers there. We will share the flow, we'll share ideas and looking forward to learning a lot from them and hopefully having a great week in Barcelona.

[00:29:58] Henry Peck: Well, Jordi, thank you so much. [00:30:00] Looking forward to seeing you in Barcelona.

[00:30:02] Jordi Ferrer: Thank you. Looking forward too. Thank you very much.

[00:30:05] Henry Peck: Thanks for tuning into Emerging Medtech Today by LSI. Be sure to subscribe on your favorite podcast player so you're automatically notified when there's a new episode. For more about LSI and the Emerging Medtech Today podcast, and to continue exploring our suite of videos, interviews, and other resources, visit Emergingedechoday.com and find the link in the show notes.