Why do a16z and General Catalyst portfolio companies outperform everyone else in health tech by such ridiculous margins? Been wrestling with this question bc the gap is too big to ignore.

Three theories. They’re better pickers. They’re better company builders. Or it’s mostly self-fulfilling prophecy where the brand creates the outcome.

Spoiler: it’s mostly the prophecy thing.

Top decile seed firms generate 2.3x higher multiples in healthcare IT. Their portfolio companies have 80 percent Series A conversion vs 40 percent for everyone else. That’s not selection skill, that’s structural advantage.

Once you’ve got that brand check everything changes. Follow-on investors see it as validation and compete to get in. Enterprise customers trust you more bc if your product fails they can say “well General Catalyst backed them.” Top talent joins bc they know you’ll probably raise your next round. Portfolio companies cross-sell to each other.

Healthcare makes this worse. Long sales cycles, risk-averse buyers, regulatory complexity. A CIO picking between two similar products will almost always choose the one with the brand name investor. Nobody gets fired for buying the General Catalyst portfolio company.

For angels this means you’re either investing way earlier, focusing on markets they ignore, building your own platform, or syndicating with them. You’re not winning head-to-head against a16z for a hot deal. The game is different.

Wrote longer breakdown with data on why this happens and what it means for how we think about early stage health tech investing.

-----

Disclaimer: These thoughts and opinions are my own and do not reflect the views of my employer or any other entities.

-----

Link to the full analysis