Carrot Health founder launches SPV-only health tech VC fund

Two weeks ago, a team of four founders launched Engage Venture Partners, a Minneapolis-based venture capital firm focused on early stage medical tech companies. 

Engage is situated in Minnesota’s Medical Alley. With more than 1,000 healthcare tech companies calling the region home, the area is one of the country’s hottest incubators for medical technology innovation. 

The founding team established Engage to decrease friction between early stage medical tech companies and their investors by bringing its investments to market via special purpose vehicles (SPVs). This team consists of four members, two of whom serve as the company’s managing directors.

Steve Sigmond and Kelly Prchal are Engage’s managing directors. Sigmond most recently served as the founder and chief financial officer of Carrot Health, a healthcare analytics software company that Unite Us acquired last year. Prchal is an active angel investor who co-founded AlliedVirtualCare, a telehealth platform focused on senior brain health and age-related hearing loss. They are joined by Morgan Evans, who has founded two medical tech companies (Agitated Solutions and Highland Circle Innovations), and Ryan Spanheimer, a practicing patent attorney who specializes in medical tech.

All of Engage’s founding members are experienced in the health tech investment sector, and they created the firm to give investors more flexibility and lower management fees through its SPV model, Sigmond said in an interview. The firm is currently building a network of accredited investors, which he said comprises angel investors, trusts, IRAs and corporate organizations.

Instead of raising a massive upfront fund  — which takes six to 10 years and requires a venture capital firm to ask investors to make a commitment to a blind investment pool — Engage organizes an SPV for each startup investment it makes. This makes it “very different from a traditional venture capital fund,” according to Sigmond. 

When angel investors become a limited partner in a traditional venture fund, they typically have to make an exuberant minimum commitment. The minimum investment to participate in an Engage SPV is a “whole lot smaller,” Sigmond said, adding that this model increases investors’ access to quality investment opportunities in the healthcare tech space.

“You can sign up as an investor on any or all of the SPVs we bring to market,” he said. “You can do every one of them or just one deal — you don’t have any minimum requirements at all. That allows for control and flexibility that’s really different within our venture investing model compared to a traditional fund.”

Management fees are also considerably lower in Engage’s model. Engage charges the investors in its network an one-time, upfront management fee that is usually 4-5%. Sigmond pointed out that traditional venture funds usually charge their angel investors a 2-2.5% management fee, but that fee recurs every year throughout the fund’s lifecycle. About 20% of an investors’ capital can end up going to management fees in a traditional fund, he said.

Engage’s model is attractive to health tech entrepreneurs as well because it simplifies the fundraising journey, according to Sigmond. Instead of the cumbersome and time-consuming process of identifying accredited investors and repeatedly giving them the same presentation, he said startups can use Engage as a “single point of contact for fundraising.”

As for the companies the firm is looking to invest in, Engage’s first investment focus is in medical devices designed to solve unmet needs. Early-stage medical device companies usually have not gained regulatory approval yet, so when vetting potential startups to invest in, Sigmond said his team will analyze their initial research and product development, the strength of their medical advisory board, and how they’ve begun to protect their intellectual property.

Simultaneously with its launch, Engage announced its inaugural investment in Melodi Health, a surgical device company creating an absorbable scaffold designed to support soft tissue. The startup was established with the goal of reducing the infection rate among women undergoing reconstructive or cosmetic breast surgery.

For each SPV it brings to market, the investment will typically be in the range of $500,000 to $1 million, Sigmond shared. Going forward, he said Engage will probably organize four to six SPVs per year.

Photo: Engage Venture Partners