Amazon sellers are such a hot commodity that one start-up is giving away Teslas for referrals
Start-ups are raising hundreds of millions of dollars to acquire the top independent sellers on the Amazon Marketplace, creating a gold rush to “roll up” these mostly small businesses into larger entities that have better resources and can pour money into growth.
Competition to acquire these Amazon sellers has gotten so fierce that one player, Acquco, is giving away a Tesla Model Y to anyone who refers a seller that the company ends up buying.
Acquco, founded last year by Raunak Nirmal, has representatives at the annual Prosper Show this week in Las Vegas, where Amazon sellers convene to network and share tips. The company is handing out t-shirts and flyers that say, “Refer a Seller, get a Tesla.”
Nirmal said in an interview that as of Thursday the company had received about 200 referrals in a little over 24 hours since starting the program and launching the promotional web page. He said the company is willing to give away up to $10 million worth of Model Ys, which retail for a starting price of around $50,000.
“There are two options for rewards,” the web page says. “You can either get a Tesla — you will have $49,990 to put towards a Tesla model of your choice. Alternatively, you can choose to take the cash directly!”
The reward should be received within 45 days of the closing of the acquisition, the site says, and the recipient will owe income tax on the car or the cash.
The red-hot market for Amazon resellers
Much of Amazon’s dominance in e-commerce has come from its third-party marketplace, which is filled with millions of independent sellers who use the company’s logistics services, shipping, fulfillment centers and mammoth customer base to reach buyers.
Growing a business on Amazon has become increasingly complex in recent years due to a surge in Chinese counterfeits and other bad actors who set out to manipulate reviews and get rivals shut down. Aggregators are using those challenges as an opportunity to buy up promising products and storefronts, while using their scale and operational experience to clean up the marketplace for consumers.
Acquco has raised over $165 million in equity and debt to buy Amazon marketplace retailers, building a business with close to $200 million in revenue from those entities. It’s one of the busiest corners of the start-up market, as companies like Thrasio, which ranked 22nd on the 2021 CNBC Disruptor 50 list, along with Perch, Heyday, Branded and Boosted Commerce have raked in billions of dollars combined to pull together businesses that have grown up on Amazon.
Nirmal said the top sellers are so inundated with pitches that it’s difficult to get meetings with them.
“As a seller, when you get a message from someone about acquiring your business, you think of it as spam and go about your day,” said Nirmal, who previously spent over a year in Amazon’s marketplace business and also started his own brands and consulting businesses. “This is a unique opportunity to connect with friends, family and people that surround the sellers.”
While Nirmal didn’t attend the Prosper show, he sent a few of his 60 full-time employees, including the head of sales, to network and meet sellers. Acquco also had some contractors distributing flyers and handing out merchandise.
Rivals Thrasio, Heyday and Perch had an even bigger presence at the show, as they were paid exhibitors with floor space and some speaking slots, according to Prosper’s website. It’s a big change from the last conference in 2019, when the rollup market was in its infancy. Thrasio was founded in 2018 and others followed over the next couple years.
Total attendance at Prosper appears to be up about 15% to 20% over the last in-person show in 2019, which attracted over 1,500 people, a conference representative said. The show began on Tuesday and wraps up on Thursday.
How to lure sellers
Casey Gauss, a vice president at Thrasio, attended the show as part of his company’s contingent. He told CNBC that he joined in April 2020 as employee number 26, and that the last time he checked last week, the company had a workforce of 930.
Thrasio has raised $1.75 billion, the most of any company in the space. While it’s not giving away Teslas, the company did host a pricey party Wednesday night at the Bellagio Hotel, called “Feast by the Fountains,” referring to the resort’s outdoor fountain show. Gauss said he expected about 180 people.
“Feast by The Fountains will offer 5-star American cuisine and an open bar of top shelf cocktails inspired by the top supper clubs around the world,” the website for the event said.
Gauss said that the topic of aggregators has been front and center at the show and that companies have to find clever ways to meet sellers.
“We tried to throw a nice event to allow high-end networking,” he said. “It’s a good opportunity, not only for us to hang out with prospective sellers that may want to sell to us and people that have sold to us. But also, we’re pretty intentional about just building good relationships in the community.”
For Acquco, this year’s Prosper is its first big event. The company said it’s trying to get its name out to more people — and the Tesla giveaway program is a way to make a splash.
David Lam, the company’s vice president of growth strategy, said he’s been working with Tesla’s enterprise sales team on the program. The start-up did not get reduced pricing on the Model Ys, but he expects that once the program reaches about 20 cars, a discount will kick in, and then perhaps a steeper discount at the 50th sale.
Tesla giveaways have become more commonplace among non-profits as a way to raise money and give people a chance to win through online raffles. The overall popularity of the cars is the main reason Tesla says it’s able to keep down marketing, promotional and advertising costs, which were “immaterial” over the past three years, according to its latest annual report.
Acquco says in the giveaway material that it accepts leads for businesses with at least $500,000 in revenue but Nirmal expects to generally buy sellers that have topped $1 million. Nirmal won’t say how many acquisitions he’s completed to date, but said that three deals have been signed this week that will bring in about $40 million in revenue. Those all came prior to the Tesla giveaway.
Nirmal said Acquco started marketing the program at Prosper and will continue this week with ads across social platforms and Google as well as through influencers.
“If there’s a business that looks good and fits into our partner profile, we want to give away these Teslas,” Nirmal said.
— CNBC’s Katie Schoolov and Lora Kolodny contributed to this report.
Telcos are barely done rolling out 5G networks — and they’re already talking about ‘5.5G’
You probably remember mobile operators raving about the promise of 5G several years ago. Now, they’re getting excited about a new upgrade: 5G Advanced.
Angel Garcia | Bloomberg | Getty Images
BARCELONA, Spain — Telecom operators haven’t yet finished rolling out 5G wireless mobile networks. And yet bosses of major carriers are already talking about building something called “5.5G,” or “5G Advanced.”
There was a lot of chatter about 5.5G at the Mobile World Congress tech trade show in Barcelona, Spain.
At the show, executives from some of these companies that they were working toward rolling out a new generation of mobile internet.
These apps are already well served by the current mobile internet, but in the future 5.5G is expected to power more advanced applications.
But it also means some of the things that 5G promised us years ago, such as self-driving cars, unpiloted air taxis, and smart manufacturing enabled via the so-called internet of things (IoT), will start to become a reality, too.
5G is the next generation of mobile internet after 4G, which promises superfast data speeds and better coverage.
You probably remember mobile network operators raving about the promise of 5G several years ago. Carriers in China, South Korea, the United States, and Europe, properly got underway with launches of 5G networks in 2019.
Now, nearly five years on, penetration of 5G among consumers remains low.
The number of consumers with a 5G connection is increasing. But it’s still well below “mainstream” levels.
5G has been the fastest mobile generation rollout to date, surpassing 1 billion connections by the end of 2022, rising to 1.6 billion connections at the end of 2023 and 5.5 billion by 2030.
5G connections are expected to represent more than half (51%) of mobile connections by 2029, though, and that is forecast to then rise 56% by 2030. Those numbers are up to date as of January 2024, GSMAi said.
5G has been positioned by the telecoms industry not just as a consumer product for faster download speeds, but as a network that could underpin new technologies like driverless cars or unpiloted air taxis.
That’s because it has lower latency than 4G. That means the time it takes for devices to talk to each other is significantly reduced, a feature important in scenarios where data needs to be delivered quickly.
However, after hundreds of billions of dollars of investment into 5G networks, carriers have struggled to see the return. Analysts say that the real potential to monetize 5G might be on the horizon.
5G Advanced, or the name for the next stage of 5G, is the next evolution of mobile networks.
Telecommunications networks require standards. These are globally accepted technical rules that define how a technology works and its interoperability around the world — interoperability is the ability for two or more systems to work together.
These standards take several years to come up with and finalize and involve several players from companies to academics and industry bodies.
The standards-setting body 3GPP, which contributed to 5G, uses a system of parallel “releases” to provide developers with a platform to implement new features at a given point and then allow more functionality to come in further releases.
In the 3GPP releases system, 5G is considered release 17. That means 5.5G is dubbed “release 18” by the industry.
Release 19 is what will effectively be 6G, another major network upgrade. Work is also underway on 6G standards, but it’s still in the early stages.
“Main priorities for developing 5G Advanced standards are to increase commercial relevance of 5G by expanding vertical markets, resolve deployment issues, and continue technology evolution to build a bridge towards 6G,” Milind Kulkarni, vice president and head of InterDigital’s wireless labs, told CNBC.
“Research in standards have introduced, improved, and finalized several new enterprise-specific features for 5G Advanced, including network slicing, the integration of private and public networks, enhanced positioning, and even applications specific to each enterprise vertical.”
Howard Watson, the chief technology officer of British telco giant BT, said that 5.5G will promise faster uplink speeds, meaning you’ll be able to stream video, post things online, and play multiplayer games, much faster than before.
“My children’s generation, or even dare I say it, my grandchild’s generation … that generation, they share a lot. And clearly, sharing requires quite a lot of upstream,” Watson told CNBC on the sidelines of MWC. “There will probably be a doubling of upstream capacities coming in release 18.”
Further benefits to 5G Advanced over current 5G, telco execs say, is that it will make the networks themselves more “intelligent” through the application of AI and machine learning, while also boosting performance and reducing overall power consumption.
Mats Granryd, director general of the GSMA, told CNBC he hopes the industry can continue focusing on staying in a 5G environment for years to come, as there’s still plenty of work to be done on monetization.
“I hope that we can stay in 5G territory for long, because normally in the 4G environment, you and I were the consumers. And it’s quite quick for us to just say, change a SIM card,” Granryd told CNBC’s Karen Tso. “In 5G, 5G is a technology standard that is predominantly towards business to business. And it takes a longer time for businesses to convert and use new technology.”
“This normal of 10 years between standards, I wonder if that’s going to be enough,” Granryd added. “We hope that we can stay in a 5G environment. 5G advanced — 5G standalone, that’s absolutely fine. But push out the time and make sure that we have enough mileage to capitalize and monetize and show the world that 5G is a fantastic technology.”
With 5G Advanced, telecoms firms could start to make more money from their 5G rollouts by charging higher prices. And, with a key focus of 5G being enterprise applications, that could be a much more significant money maker for network operators than consumers.
Telcos haven’t yet revealed how much more a 5G Advanced data plan will cost compared with 5G. But analysts expect they’ll look to make money from 5G Advanced by getting clever about subscriptions and using AI and other technologies to operate their networks more efficiently.
With a key focus of 5G being enterprise applications, that could be a much more significant money maker for network operators than consumers.
The telco industry has been awash with talk about so-called “private 5G” networks, nonpublic mobile networks that are installed on-premise at companies’ work sites for example, in a smart factory, or remote surgery operation.
Chinese telecommunications equipment supplier Huawei expects 2024 to be the year that commercial deployments of 5G Advanced officially begin. For Huawei, 5.5G is a network that will be capable of 10 Gbps downlink speeds — and in case you’re wondering, yes, that is very fast.
Huawei revealed eight 5.5G “innovation practices” last week which it says will help operators build 5.5G networks across all frequency bands. The company is working with carriers in the Middle East, Europe, Asia Pacific, and Latin America to deploy 5.5G.
It’s going to take some convincing for consumers to go from 5G to 5G Advanced, given the little noticeable improvement they’ve seen from their phones upgrading to 5G in the past five years. But Philip Song, Huawei’s chief marketing officer of the carrier business group, said that it’s important telcos convey the use cases of 5G Advanced to consumers well.
“The most important thing for us is how can we support the customers,” he said at a press briefing last Tuesday, in response to a CNBC question. The “biggest success” for 5.5G will only arrive if carriers “acknowledge solutions” and bring that across to customers sufficiently.
In some markets, operators are still working on deploying 4G, Song said — but he doesn’t think that matters because different parts of the world “are at different stages.”
Watson told CNBC that he thinks 5G Advanced will arrive on the EE network later this year. That’s because the 3GPP standard release 18, or 5.5G, is already open for experimentation and telcos have been working on trials. It is expected to conclude by June 2024, by which time the protocols that enable 5.5G should be stable.
“Release 18 we will start to roll out this year,” Watson told CNBC. “We also plan to launch 5G standalone this year as well.”
5G standalone is different from 5G Advanced. Sometimes referred to as “true” 5G, it refers to the development of a 5G network that uses technology independent of 4G and comes with the promise of realizing 5G’s full potential.
5G Advanced, on the other hand, is a complete evolution of the network.
There’s no definitive date for when 5G Advanced will start to be rolled out, though. And telcos are on the clock to get it up and running.
“I hope that we will be at the bandwidth, the latency, the capability needs to be sufficient,” Mats Granryd, director general of the GSMA, told CNBC’s Karen Tso at MWC last week.
“That’s what we’re struggling with to see in Europe. In five years, we’re going to have a quadrupling of data usage. And I am really concerned about what’s going to happen at that stage.”
“Will we have cut-offs? Will we have congestions?” he added. “Will we have a much much worse situation, a much worse landscape? By having that worse landscape, the competitiveness of Europe will go down.”
— CNBC’s Arjun Kharpal contributed to this report
College AI degree programs are booming. Are they worth the cost?
Ute Grabowsky | Photothek | Getty Images
Computer science is not a new major at top schools, but with AI jobs in high-demand, there’s a growing list of colleges and universities offering a four-year “AI” degree specifically.
These programs generally move beyond the foundations of computer science to home in on topics such as machine learning, computing algorithms, data analytics and advanced robotics. The University of Pennsylvania recently announced that its B.S.E. in Artificial Intelligence program will begin in fall 2024. Carnegie Mellon introduced a program well before gen AI was a buzzword, in fall 2018, and MIT’s program began in fall 2022. Purdue University offers an AI undergraduate major, while many colleges and universities offer AI classes within their computer science department, even if there’s not a dedicated major.
The rise of AI-specific degree programs comes as companies are short on talent for this fast-developing field. Half of the highest-paid skills in technology are AI-specific, according to the employment website Indeed.com. Even so, there’s some degree of skepticism about the applicability of an AI-specific four-year degree given how quickly the technology is changing. But proponents say that as long as a program is steeped in computer science and other fundamentals, a focus on AI could provide a resume-building boon.
Here’s what students and their parents, as well as anyone thinking about going back to school for a new career, needs to know about a four-year AI degree:
STEM fundamentals remain critical
Students that want to pursue a degree in AI should look for a program that teaches fundamental information such as computer science concepts, statistics, mathematics and engineering, which lay the foundation for a career in an AI-related field, said Kerem Koca, chief executive of BlueCloud, a cloud service provider. The technology itself is changing, but these core underpinnings do not, and they can prepare students to be successful, even as underlying technology changes, he said.
“It’s important that AI degrees and other education training programs not only focus on specific skill development, but that the focus is on helping students learn how to learn, which includes developing an intellectual curiosity, and skills like leadership, communication and critical thinking,” said Maria Flynn, president and chief executive of Jobs for the Future, an organization that focuses on worker opportunity and education, in an email.
AI degree spike since 2011
There are a number of different programs that focus on AI at the undergraduate and graduate level, and there has been an increase in offerings and degrees being awarded for over a decade now.
According to the Georgetown University Center for Security and Emerging Technology, AI degrees have bucked the general trend in education since 2011, with positive degree conferral growth versus negative growth across all degree areas. AI-related degree awards, in particular, grew even faster than STEM degrees as a general category at bachelor’s master’s and PhD levels. Its review of government data and other sources on the higher education market described the growth of AI degree conferrals as “dramatic,” increasing 120% since 2011 at both bachelor’s and master’s levels.
Some students might also be interested in pursuing AI as an associate’s degree, which several schools, including Miami Dade College, offer.
Education relevance in fast-changing tech market
Some students may wonder if they even need a degree at all, given how fast the market is changing and the fact that more employers have expressed a willingness to hire workers without degrees if they have the appropriate, job-required skills.
It’s important to note that recent research suggests the practice of hiring people without degrees has fallen short, however, and research from the Ladders career site shows that a degree is still required for the highest paying jobs, a list that includes software engineers.
A four-year degree is still a big step up for most entering the job market for the first time, said Celeste Grupman, chief executive of Dataquest, which supplies AI-related educational materials and labs to universities. “It’s still one of the first things an employer is going to look at. It’s not going to get you disqualified, whereas not having one might.”
Even so, several providers including Dataquest and Coursera, offer certificate programs for learners to build skills quickly. These programs may be appropriate for students who lack the time and resources to complete a four-year program, or already have a degree and are looking to upskill, Grupman said. An online platform allows students to quickly start building projects and understanding how to implement these tools successfully for employment purposes.
AI vs. computer science
It’s important for students to think critically about the curriculum for the program they are considering, how it’s different from a standard computer science curriculum, the likely career trajectory for graduates of the program and economic outcomes for graduates. “As we see in product marketing, anyone can slap ‘AI’ onto an existing product. Students should ask what aspects of AI they will be learning,” Flynn said.
It’s also important for students to carefully consider what they want. Are they looking for a program that provides exposure to AI or practice using AI, or do they want a technical program that provides foundational content and courses on AI technology? They should also consider whether they ultimately want relevant skills and knowledge that will get them into the labor market right now or whether they want a broader degree that will be a foundation for longer-term advancement, Flynn said.
“If you’re an architect, you don’t want a degree in hammers. You want to understand hammers, you want to understand zoning and you want to understand how to build a house that helps a family come alive. The same is true in AI,” said Nichol Bradford, artificial intelligence and human intelligence executive-in-residence with SHRM, an organization for human resources professionals.
How to gain an edge with employers
Some employers may look more favorably upon an AI-specific degree versus a plain-vanilla computer science degree, said David Leighton, chief executive at WITI, an organization for technology-minded professionals. “I think it sets them apart.”
On the other hand, no one really knows right now what the value of such a degree will be in a few years. “In the year 2000, if you had an internet degree, if there was such a thing, it would have looked great,” Koca said. “Now, it wouldn’t be as applicable. But if you had it in 2002, you could have gotten a job anywhere. The same could be true for a degree in AI.”
Given the uncertainty, some professionals said students can’t go wrong with a traditional computer science degree or an AI-specific one, provided the fundamentals are covered. Those who take the former route, however, should consider taking classes related to AI and data science, which can be important for future employment. Otherwise, students might need to “close the practical application gap themselves post-graduation,” said Bryan Ackermann, head of AI strategy and transformation at the management consultancy Korn Ferry, in an email.
Venture capital firm’s plan to buy nonprofit hospital system has Ohio community on edge
Dr. Marc Harrison, who’s now CEO of HATCo, speaking at the Healthy Returns conference in New York City on May 21, 2019.
Astrid Stawiarz | CNBC
Dr. Marc Harrison is a different kind of venture capitalist.
Far removed from the internet hub of Silicon Valley, Harrison went to medical school in the late 1980s and has spent the bulk of the past two decades at the upper ranks of medical systems, most recently as CEO of Intermountain Healthcare, a Utah-based nonprofit with 33 hospitals and over 63,000 employees.
In January, General Catalyst announced it was buying Summa Health, a nonprofit integrated health system that supports more than 1,000 inpatient beds across its network of hospitals, community-based health centers and its multi-specialty group practice. Summa operates across five counties in northeast Ohio and also runs a health insurance entity.
Under its new structure, Summa will become a for-profit organization, and General Catalyst says it will introduce new tech-enabled solutions that aim to make care more accessible and affordable.
General Catalyst set the stage for the deal when it brought in Harrison and, a year later, introduced a new company called the Health Assurance Transformation Corporation, or HATCo, that would operate on a “decades-long time horizon.” Harrison was named HATCo CEO, and is now in charge of overseeing its work with Summa.
“This is the first time that anybody has done anything quite like this,” Harrison, 60, told CNBC in an interview. “There are many digital health solutions that are out there as point solutions. This is the first holistic transformation of a health system to a thoughtful combination of digital and in-person care.”
The deal isn’t done.
Over the next several months, HATCo and Summa will engage in a due diligence period, work to craft a definitive agreement and begin to map out the specific challenges they hope to tackle. In the latter half of the year, the transaction will go through the regulatory approval process.
The parties declined to share specific financial details about the acquisition with CNBC, but HATCo wants to make clear that this isn’t just “another ‘private equity’ deal,” Harrison wrote in a statement. By that, he means the objective isn’t to overhaul Summa by cutting costs.
Summa Health Medina Medical Center
Courtesy: Summa Health
While buying a hospital is an unprecedented move in the venture industry, where firms rake in big piles of money from institutional investors and seek to outperform the market, General Catalyst has a rich history in the broader health-care sector.
The 24-year-old firm has closed the most deals in digital health since 2020, according to data from PitchBook. Its portfolio companies in the space include insurer Oscar and digital health company Livongo, which was acquired by Teladoc almost four years ago.
Hospitals are different though, and many are nonprofits for a reason. Providing health care is expensive, and reimbursement rates can vary dramatically. With patients shouldering so much of the load, a study last year by the Urban Institute found that 73% of adults with medical debt owe hospitals at least some of that money.
An October report from Fitch Ratings said labor costs “remain stubbornly high,” and that controlling these expenses will be crucial if nonprofit hospitals want to reduce credit pressure and deliver stronger margins.
Conditions are not likely to change overnight.
“We expect weak margins to persist through 2023 and into 2024 due to an inelastic revenue model and higher labor costs due to still very tight labor conditions,” Fitch said.
General Catalyst says it wants Summa to serve as a “blueprint” that shows other health systems how delivering better care for patients can also be “good for business.”
Experts like Ceci Connolly have concerns. Connolly, CEO of the Alliance of Community Health Plans, which represents nonprofit provider-aligned regional health plans, said she’s excited to see if the deal presents a new approach that can address some of the problems in health care. She’s just not sure how it will work.
“I would be lying if I didn’t say it gives me a little bit of pause that you are going to take a nonprofit, community-based health-care entity, and now have it answering to investors and needing to generate profits,” Connolly said.
Connolly’s viewpoint makes sense. Limited partners — the endowments, sovereign wealth funds and pensions systems that put money into venture capital — look to the asset class as a bet on innovation in tech. It’s where billions can get minted on a single lucky bet.
“A lot of people feel like a PE or venture capital company owning a hospital is kind of like asking Freddy Krueger to come babysit your kids,” said John Bass, CEO of the health-care venture studio Hashed Health. “It just makes people a little nervous, and it doesn’t feel quite aligned with this concept of health care being a human right.”
Still, Bass said he’s “thrilled” to see General Catalyst take big swings in health-care innovation, given all the challenges the industry faces.
HATCo is capitalized outside of General Catalyst’s funds structure. It operates as a holding company within General Catalyst and is completely independent from its venture business, the firm says, though it will collaborate with the investment team.
General Catalyst said HATCo is not designed to realize returns through increases in volume-based revenue or cost cutting. Instead, it will work to generate new revenue streams by introducing new solutions and models of care.
Chris Bischoff has been leading General Catalyst’s health investments since 2021. The firm has been in the space for more than a decade, and Bischoff said it’s come to view the health-care business as having two distinct but interrelated parts.
The first is the “innovation side,” or the more traditional venture business, where General Catalyst works with entrepreneurs to create and scale new solutions. The second is the “transformation side,” which now includes HATCo. The goal there is to partner with health systems to try and speed up delivery and roll out new tools.
“We see a really powerful flywheel between the two,” Bischoff told CNBC in an interview.
Chris Bischoff speaks at Slush 2023.
Courtesy of General Catalyst
General Catalyst has teamed up with more than 20 health systems across the U.S., Canada, the U.K. and Israel as part of its transformation business. The partnerships are designed to share best practices and encourage collaboration. Bischoff said they help reduce friction when it comes to tech deployment, eliminating the need for a bunch of third parties to get involved.
Some partners include HCA Healthcare, University of California Davis Health and Intermountain Healthcare, Harrison’s former employer. In a book published last year about his work at Intermountain, Harrison wrote that General Catalyst was helping the hospital build a new marketplace, much like the App Store, for health care.
“Think of it this way: Major airlines don’t build their own air-planes,” he wrote. “They work with a range of partners to help them deliver their offerings. To revolutionize how we care for patients, we in health care are doing the same.”
The matter is personal for Harrison.
In 2009, he was diagnosed with bladder cancer, which was remedied thanks to “aggressive surgical treatment,” Harrison wrote in his book.
But almost a decade later, he was diagnosed with multiple myeloma, a form of blood cancer, and things looked dire. After a failed bone marrow transplant, Harrison said he “scrambled” and tried a novel immunotherapy that eventually helped him get his condition under control.
“I don’t know how long this treatment and others I might try will contain my disease, so I’m not wasting a minute,” Harrison wrote.
If his athletic accomplishments are any indication, Harrison isn’t one to back down from a grueling fight. He’s a nine-time Ironman participant who represented the U.S. in 2014 at the world triathlon championship.
Michael Greeley, co-founder and general partner at the health tech VC firm Flare Capital Partners, said the health-care provider world is in “acute distress” as many organizations are trying to operate on “razor thin profit margins.”
“There’s a lot of unused capacity, like beds that are empty, because they literally don’t have the labor to clean the rooms,” Greeley told CNBC in an interview. “It’s a high fixed-costs business that, if you can’t drive the volume through it, you’re gonna lose money.”
On its FAQ page about the acquisition, Summa said it’s in “sound financial standing” and on track to meet its targets. The organization reported $1.79 billion in revenue in 2022, up from $1.67 billion in 2021, according to Summa’s annual reports.
However, the organization said it would have a limited capacity to invest in growth or other improvements within its existing structure since challenges like supply costs will continue to hurt its bottom line.
Summa had been on the market for a partner since 2018. The next year it announced plans to merge with the Michigan-based system Beaumont Health. The organizations reached a definitive agreement that December, but Beaumont, now Corewell Health, suddenly pulled out months later without offering a public explanation.
Summa Health System – Akron Campus
Courtesy: Summa Health
Dr. Cliff Deveny, Summa’s CEO, said that in the years that followed, the organization hadn’t been able to find a health system with adequate digital health resources and technological ambitions, especially since many large providers are contending with similar financial constraints.
“We had been on about a 10-year journey of growing, but not really making the transformational changes in and how we run our business,” Deveny told CNBC in an interview. “We saw this as a way to really pivot and change how we provide care.”
HATCo set its sights on Summa after scanning the broader health-care environment. Harrison said he was fortunate to meet Deveny early in the search.
Summa’s executive leadership team will remain intact, and the organization says it will continue to provide the same services to patients and the greater community.
Harrison said the executives will have to remain careful and rigorous about managing traditional operations, but that they will now have additional “money, time, people, technology.”
“This is not like a turnaround, this is not a distressed system,” Harrison said. “This is an excellent system that has weathered maybe the most difficult time in health care that anybody’s ever experienced, and they’ve done it well. And now they’re ready to go to the next level.”
HATCo said its primary objective is to bring sustainable and agile innovation to Summa, particularly through the introduction of new platforms and tech solutions. The organization will also transition to what’s known as a value-based care model, which incentivizes preventative care and keeping patients healthy as opposed to charging fees for services like appointments and procedures.
It’s an expensive undertaking, and aligning insurance payers, clinicians and patients behind a value-based care model is often easier said than done.
Harrison said HATCo will likely use tech solutions from some of General Catalyst’s portfolio companies, as well as from others. The tech companies HATCo taps will be on the mature side, not early-stage startups, he added.
Ben Sutton, Summa’s operating chief, said the two organizations are also still evaluating what introducing new technologies will look like in practice.
“We want to build it from the ground up,” Sutton told CNBC. “We really want to make sure that we’re tailoring those solutions to the challenges that we’re having here in Akron and in the region that we serve, and make sure that we’re implementing things that are most impactful immediately.”
Additionally, Summa will no longer operate as a nonprofit system. Summa said on its website it will start a new community foundation in order to maintain its commitment to charity care, but the Summa Health Foundation will no longer be operational.
We’re not ‘guinea pigs’
Summa supports a workforce of around 8,500 people, making it the largest employer in Summit County, home to the city of Akron. There’s some fear among the locals about what happens next.
At a luncheon in late January, Akron Mayor Shammas Malik said residents and employees have expressed some confusion and concern about the deal, according to a report by Ideastream Public Media. More than 450 people have signed a petition urging Summa to remain a nonprofit and to halt negotiations with HATCo.
James Hardy, a member of Akron’s city council, said during a meeting on Jan. 22, that he opposed the sale, citing a “moral objection to the use of Summa, its staff and its patients as ‘guinea pigs’ for venture capitalists.”
During his more than six-minute speech, which was met at the end with scattered applause, Hardy went on to ask that Summa pause the process and consider alternatives like converting the hospital to a “county-owned system.”
“The community has not been consulted at all and we stand to gain or lose the most at the outcome of this proposal,” Hardy said. “At the very least, Summa owes greater Akron a transparent process where concerns and questions of the general public are asked and answered.”
Mayor Malik met with Harrison and Summa executives early in February, following the city council meeting, and had a “positive and thoughtful conversation” about their ambitions to create a “new model” for health care instead of making cuts, the mayor said in a statement to CNBC.
“When looking at the proposed Summa acquisition, there are plenty of fair and understandable concerns,” Malik said in a statement. “There is also the potential for this to be a very positive and transformative step for Summa, stabilizing a pillar of our community.”
Harrison has dealt with competing concerns in the past. In his book, he wrote about steering Intermountain during the Covid pandemic, when health-care workers, government officials and Utah residents openly disagreed about the right path forward.
“Rather than avoiding conflict or seeking to ram through it, we’ve accepted it as a fact of life and attempted to manage it adroitly and compassionately on behalf of progress,” Harrison wrote.
HATCo has a complex, decades-long road ahead, and Harrison is now at the center of an effort to show that community-based health-care providers can be profitable without cutting costs or abandoning patients.
Flare Capital’s Greeley said other VCs are unlikely to follow General Catalyst’s lead because of all the costs and complexities involved in owning a hospital system. But he said he’s cheering the firm on from the sidelines.
“Hats off,” he said. “If anybody can pull it off, I think they’ll have a reasonably good shot.”
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