It can be tempting for companies to over-invest to scale rapidly—but that zeal can come back to bite them.
So says Jon Michael Reese, who focuses on investments in the healthcare sector as a principal and board member at General Atlantic, a private equity firm based in New York City. Reese shares how healthcare companies in particular can avoid common pitfalls while scaling more responsibly.
Prior to joining General Atlantic in 2017, Reese worked for GTCR in Chicago as an associate focusing on investments in the healthcare sector. He began his career as an analyst in the leveraged finance group at Bank of America Merrill Lynch.
How are you helping the healthcare companies within your portfolio?
Across our portfolio, our boards are focused on helping the CEO and management team balance organic growth and near-term profitability, while minimizing downside risks such as execution risk, macro risk, security and compliance risk.
The companies with which we partner are often growing more than 30 percent on topline organically and may or may not be profitable and/or have reached free cash flow breakeven. Consequently, there is heightened execution risk, and our job is to make sure the company doesn’t break under the stress of maintaining, if not accelerating high growth.
Most of our recent board discussions center on trade-offs between investing for three-to-five-year growth opportunities and protecting near-term results. Usually, the answer lies in the management team and the board’s conviction in consistency and scalability of strong unit economics, the cost of client acquisition and expansion, and the scalability and bandwidth of the existing team.
How are you mitigating some of your portfolio company’s toughest challenges?
General Atlantic deploys a hands-on approach to working with our portfolio management teams, even in non-control positions. We have a full “library” of resources with our growth acceleration team, which we offer to portfolio companies free of charge, and which spans key expertise areas that align with our management teams’ desires and needs—including human capital, technology, big data/analytics, pricing and go-to-market, and marketing.
At Marathon Health, this value-added approach helps advance the company’s advanced primary care model and sales motion, meeting growing demand from self-insured employers without compromising clinical quality or financial sustainability.
Regarding challenges, between 2020 and 2023, employer healthcare initiatives slowed as HR leaders focused on reshaping remote and in-office policies. For Marathon’s in-person primary care model, this trend temporarily stalled our sales and development pipeline.
In response, our management and board accelerated investments in virtual care. This allowed us to serve patients during a confusing period when urgent access to both Covid and non-Covid services was vital.
The market recovered in late 2023 as employer policies stabilized—mostly returning to in-office cultures. Because our core clients operate in sectors where in-person work is essential, we maintained high retention and built an even stronger case for advanced primary care.
Partnering with growth-oriented private equity firms like General Atlantic allows us to execute these strategic investments nimbly. We prioritize long-term growth over near-term earnings, focusing on revenue and profit goals over a four-to-five-year horizon.
How do your portfolio companies keep up with the opportunities—and risks—of emerging technologies?
In terms of emerging technologies, there’s obviously a lot of buzz right now in healthcare around adoption and use of generative AI. As growth investors, we’re fortunate to see a wide range of players and platforms, with an eye toward both commercial partnerships with our portfolio companies as well as direct investment opportunities.
As board members, it’s important that we stay on top of technological developments and flag potential use cases and partners to our companies, especially for our provider-focused healthcare companies. We believe models of care and technologies that focus on prevention, provider enablement and proactive care hold enormous, untapped power for higher quality, consistent care and administrative burden relief.
What are your strategies to ensure your portfolio companies remain resilient?
Resilience comes from balancing growth with sustainable unit economics. Many companies in the growth healthcare space, specifically in areas like digital health or consumer health, over-invested in growth at a time when the capital markets underwent a violent swing as interest rates shot up and capital became more expensive.
Meanwhile, these same players may not have proven their right to win over the long term absent attractive and defensible margins and a path to profitability. Some of these companies have had to make tough calls and cut back on resources to varying degrees. Others underwent complete wind downs or “fire sales.”
More resilient companies probably used only moderate, if any, debt financing to fund growth and preserve adequate cash on hand to weather tougher times.
Our management team closely monitors the balance sheet—and trends related to future funding needs and growth—and we proactively course-correct as needed to ensure the company’s capital structure is optimized for its opportunity, regardless of shifts in the broader economy.
