Bill Gurley — the legendary investor who backed Uber, Snap, and eBay — is now betting big that healthcare has hit a ‘tipping stage’

Benchmark Capital general partner Bill Gurley.Reuters

• Bill Gurley, the legendary Silicon Valley venture capitalist, is getting serious about healthcare.
• After a multiyear journey to learn more about the industry, he’s starting to invest in companies based on a conviction that the future of healthcare is going to revolve around consumers.
• He’s not the only one: A growing number of tech investors have been getting into healthcare in recent years.

Bill Gurley is getting serious about healthcare.

The tech investor, a general partner at Benchmark Capital, has made a name for himself backing companies like Uber, Snap, Twitter, and eBay. But Benchmark’s footprint in healthcare wasn’t as prolific.

In 2014, he tweeted that the healthcare market is “really messed up,” leaving room for startups to come in and shake things up. The reality was a lot more complicated than that.

Now Gurley’s ready to jump in, with investments in Solv, a company that helps book same-day urgent-care appointments, and Stitch, a communications tool for doctors.

Benchmark’s interest in healthcare investments comes at a time where there’s been growing interest from Silicon Valley in healthcare. Andreessen Horowitz, for example, in December raised its second biotech-focused fund at $450 million. Speculation that Amazon might be getting into the pharmacy business has been running rampant. And Menlo Ventures also got back into biotech in 2017.

Business Insider spoke with Gurley in December about what he learned during the three years between his initial tweet and his new investments, what it’s like to launch a startup in a regulated industry, and what the future of healthcare looks like in the US.

A journey to figure out healthcare

For investors and entrepreneurs, jumping into healthcare after spending a career in other sectors can be an uphill battle. The industry’s heavily regulated, people’s lives are on the line, and there are middlemen who make paying for healthcare complicated.

“The first year I just felt dumber and dumber every day because you realize it is so complex,” Gurley said.

There are also a lot of companies and ideas to sift through that won’t necessarily make a dent in bringing down the spending on healthcare, which has been increasing. While on the lookout for entrepreneurs with smart ideas, Gurley found himself coming across startups that weren’t going at it the right way.

“A lot of entrepreneurs go into healthcare because they want to make a difference and make an impact. And as they build a business model, many of them are building tools that make the problem worse,” Gurley said.

For example, electronic health records are mainly built to help healthcare providers communicate with health-insurance plans. That doesn’t do a whole lot for patients, who are increasingly on the hook for paying more of their healthcare costs. The consumerization of healthcare is something Gurley, who will join Stitch’s board, hopes the healthcare system will shift toward as a way to drive down the cost.

“I’ve seen others that just help carriers extract every last dollar. The software’s being used to drive up healthcare as a percentage of the GDP, not improve it,” he said. “There may even be a quixotic tilt to want to improve things for the customer and hope the market’s moving in that direction enough that it relates to sales. Our early signs suggest so, but that’s probably a risk.”

There may even be a quixotic tilt to want to improve things for the customer and hope that the market’s moving in that direction enough that it relates to sales. Our early signs suggest so, but that’s probably a risk.

What Gurley does envision is that the consumers — the patients who are actually receiving the care — are going to start expecting more. Instead of waiting for an appointment or struggling to find out how much a particular procedure is going to cost, care might start getting more convenient.

“The industry’s gotten to a point where the customer is expecting better service,” he said. For instance, there’s the MinuteClinics CVS hopes to build on with its acquisition of Aetna, to transform the drugstore chain into a “Genius Bar.”

“You’re getting different service levels in other industries, so your expectation is rising as a consumer,” Gurley said.

And there’s some evidence to suggest consumers might start being better healthcare shoppers. Patients are now a more active part of paying for their healthcare, thanks to the rise in high-deductible health plans, which leave people on the hook for thousands of dollars before their insurance starts pitching in.

We’re at a ‘tipping stage’ that’s making care more convenient

In particular, Gurley said he’s seeing this happen with urgent care, which he hopes will someday rebrand itself to “convenient care.”

For example, Gurley said, there’s a pediatrician in Dallas who’s open from 3 p.m. to 11 p.m., so that instead of kids leaving school to get a check-up, they can wait until the evening. “Why are kids leaving school to see a pediatrician? We all taught ourselves that that’s OK,” he said.

The shifting approaches of established healthcare companies like CVS toward quick-service clinics is a sign we’re on track to more convenient and consumer-friendly care.

“We’re at that tipping stage,” Gurley said. “Because deductibles are going up and coinsurance is going up, you’re making more people shoppers.” Online, for instance, you can see a price list that helps you determine how much you may be on the hook for during a particular visit.

“The US market is remarkable in that it has the perception it’s competitive and capitalistic. The perception of being regulated in terms of pricing. But it’s got the benefit of neither.”

“We’d be better off with either a wide-open competitive system or a single-payer system than we would be with this one we’ve got. It’s so bad.”

Changing the way we pay for healthcare

The change toward more consumer-focused healthcare could have an impact on how we pay for this care too. For example, Gurley sees companies that encompass both healthcare provider and insurance plan gaining momentum.

“One of the benefits of that is that they become a de-facto narrow network,” Gurley said. Narrow networks are controversial because they contain fewer providers that people who have the plan can go to. So in the case of Kaiser Permanente, which has both a health plan and a hospital, members see the doctors Kaiser Permanente employs in network.

A Kaiser Permanente health clinic inside a Target retail department store in San Diego.Mike Blake/Reuters

The thing holding narrow networks back, Gurley said, are employers. Employer-funded healthcare covers more than half of the non-elderly population, according to the Kaiser Family Foundation.

“Narrow networks are a huge opportunity here,” Gurley said. “I don’t know if employers would have the gumption to maybe offer one of each. Or if that could somehow be mandated, because then you get around the big hospitals that are driving up costs. People are afraid not to have them on their list.”

Ideally, employers would be removed from the picture entirely.

“I’m a big believer that you should get the employer out of the game altogether. We’re the only mature nation that actually does that. It’s silly,” Gurley said. “They’re just an extra step in the process and they’re reluctant — they don’t even want to be there. It’s not their fault.”

‘Disrupting’ regulated industries

Healthcare is among the most regulated industries in the US. For example, it might take a new medication about 10 years to get through all the necessary steps toward approval.

“I have a saying I use that regulation’s the friend of the incumbent. And I firmly believe that,” he said. Gurley has some experience with regulated industries.

Gurley, who until June sat on Uber’s board, watched the company take on odd rules such as one that wouldn’t allow black-car service to pick up a passenger within an hour of the call being placed, a rule that ultimately favored taxis.

“The biggest problem with the United States capitalism is that democracy and capitalism corrupt one another over time. The industries that become the most regulated become the most corrupt, and the people that write the regulations are the incumbents. It makes it harder for startups to break in.”

That also applies to the Health Insurance Portability and Accountability Act, or HIPAA.

“If you ask them each about HIPAA you will find that HIPAA’s used to block innovation more than anything else,” Gurley said. “And it’s used by the incumbents to argue why they don’t have open APIs and insurance information. It’s this big, big blocker.”

When it comes to finding more healthcare startups to invest in, there are a few things Gurley said he knows he doesn’t want to do: developing drugs and selling medical devices are among them. He also knows making waves in the industry won’t be easy.

“And one thing I will tell you is I’m eyes wide open. I know there are a lot of traps and hooks and concerns and I don’t come at it with this attitude of, ‘Oh, my God, we’re going to disrupt them all and it’s going to be easy.’ I don’t have that attitude at all.”