We are grateful for the gift of your attention to allow us share something that is so deeply sacred to us. Over the past several years, we’ve had the honor to co-steward the most meaningful initiative we’ve ever come across in our lifetimes and what we believe to be the most exceptional and meaningful entrepreneurial endeavor in healthcare today - Devoted Health.
It started with the spark when Tabreez first met Devoted co-founder Todd Park five and a half years ago for a cup of tea. During this cup of tea, both recognized the profound connection that felt like an eternal moment. There emerged a shared resonance, a mutual recognition and love that didn’t make any sense in chronos time. From that seed moment, we’ve been on a deeply life changing journey together for the past 5 years. It is our humble honor and true joy to extend an invitation to you to join us on the journey with Devoted. Thank you for taking the time to really read this letter from your head, heart and gut.
Hear about Devoted from a real member, Dwuane.
Over the past six years, the incredible humans at Devoted have built an “alternative universe all-in-one” healthcare system that is reinventing each of its foundational elements with love at the center and an ethos of caring for members as if they are “literal family”. They are just getting started but their full stack integrated insurer, provider, and health guide team all powered by an ethic of love and new technology has already revolutionized the health and well being for hundreds of thousands of members.
We can see proof of this in the thousands of deeply personal member stories where Devoted has dramatically changed and saved lives as well as in many quantitative results including reducing the medical costs relative to traditional Medicare by 40%, catapulting to ~$2B in revenues in five years since launching, standard-setting scores, ratings, and member experience that are multiples better than the industry, and outperforming the most successful incumbents on both financial success and quality of care.
The metrics are astounding, but to truly understand Devoted is to listen to its members share their experiences of their own lives being saved and radically transformed by the power of love delivered through all-in-one Devoted service. We had the opportunity to meet some of these members in person throughout the country and directly experience their significant life changes and the sharing from their hearts of gratitude for what Devoted has provided to heal their lives. If nothing else, we sincerely hope you click the links above to feel and experience the truth and essence of what is happening through Devoted that our words alone cannot express.
What is clear to everyone who gets to know Devoted is that they are building a category-creating generational “N of 1” company by redefining what is possible in healthcare. It is a truly spectacular team, mission, and company on every level from saving and dramatically improving lives to financial returns. They are our country’s greatest chance to demonstrate at scale that we the taxpayers can actually save money and reduce the rate of growth in healthcare spending by taking better care of our citizens starting with seniors. To illustrate the gravity of the situation, the US spent more on healthcare last year than all military spending.
Devoted is operating in a TAM that is expected to be over $1.5T by 2035, and we believe they are building the largest and most meaningful healthcare company in the world with a market capitalization that will eventually exceed $1T. Our modeling indicates potential for a ~30x return over the next 10 years with an exceptionally low chance of capital loss.
As Devoted matures, the world will see a new archetype and range of possibilities for what leadership and culture rooted in an ethic of love could be. We have already seen the evidence of what a transformational force that can be for shifting culture, beliefs, and practices by rewriting the narrative of what is possible in business.
These are some of the many reasons why it brings us tremendous joy to offer you the opportunity to participate in contributing to and benefiting from the abundance of what is being created. After leading the last two financings for Devoted Health, we are now co-leading their final financing round.
Overview
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Devoted Health's mission is to dramatically improve health care for all people, starting with seniors, by caring for them like they are literally family. Founded by Todd and Ed Park on the core value of love, this venture is calling forth their unique experiences and learnings from co-founding and scaling $17B Athenahealth; Todd co-founding Castlight Health; and Todd’s public service as CTO of the Department of Health and Human Services; as well as being the CTO of the United States and President Obama’s top technology advisor in the White House).
The present healthcare landscape is infamous for its structural inefficiencies, machine-like treatment of people, and spiraling costs, dominated by misaligned incentives that consistently sideline patient care. It responds to catastrophe, but is unable to prevent catastrophe. It is within this context that Todd and Ed Park were called to initiate a much-needed paradigm shift to a compassionate love and trust-based, preventative, proactive, and highly coordinated whole health ecosystem.
They started with a clean sheet of paper and reimagined and then built every foundational aspect of healthcare from the insurance company down to the care delivery, and also wrote powerful new software that enables them to scale right care-right time-right place across the country. They also assembled an incredible group of humans to form one of the best teams and cultures that the healthcare industry has ever seen, and attracted executives considered the single best people in the world for their roles and Board Members including fmr Senate Majority Leader Dr. Bill Frist and fmr HHS Secretary and Governor Kathleen Sebelius who are all signed up to the express purpose of bending the arc of our entire healthcare system (beginning in the US) by significantly improving care for millions of lives while dramatically reducing costs.
Devoted may be the most significant company to emerge in American healthcare in over a century.
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Devoted is a direct response to a fundamental flaw in our current system where health providers are paid by procedure (fee for service) which incentivizes an avalanche of unnecessary procedures and avoidable hospitalizations instead of the obvious “stitches in time that save nine”. There is a movement underway to instead pay health providers by value, measured as keeping patients healthier. This saves tremendous amounts of tax-payer money and has been proven reliably and consistently across the US in small and diverse pockets. While those pockets are growing they will only ever reach a very small percentage of the population. Devoted is the first engine built from the ground up to be an "alternate universe" healthcare system that can operationalize and massively scale the proven blueprints of value-based care.
To do this Devoted has built a groundbreaking tech-enabled payvidor (insurance company plus care delivery platform) purpose-built to support value-based models of patient health and prevention, and to generate trust with members - trust is an essential ingredient to providing better care and prompting them to take better care of themselves. It is comprised of five distinct, essential, and highly integrated ingredients:
The Devoted Health Plan insurer that gives them the ability to change the way healthcare is paid for, is the initial means by which seniors find and interact with Devoted, and is optimized for proactivity and excellent personalized service.
Devoted Health Guides who function as a tech-enabled guardian angel team of multidisciplinary practitioners who build deep trust with members while coordinating and navigating care, solving problems, and providing emotional support.
Partnerships with Local Providers including a curated group of the best primary care doctors (PCPs) and a broad network of specialists that enable Devoted to scale without building physical infrastructure.
Devoted Medical - the first truly great primarily virtual (95%) and in-home value based provider for seniors composed of amazing practitioners and bundled into core tech enabled services that produce mind blowing health improvements and savings through precise proactive preventative care.
Orinoco Software Platform: harnessing best-in-class, custom-built tech stack (with significant investment going into AI) that is the heart of Devoted’s “right care, right place, right time” machine, they are able to iterate and improve literally three orders of magnitude faster than legacy health plan systems (eg 100+ new software releases per day) and the gap is growing.
The model is already proven to reduce medical costs while improving health outcomes and is creating a virtuous performance cycle that quickly compounds until Devoted fulfills its destiny of being the largest healthcare company and one of the largest companies in the world.
Devoted is doing all of this in one of the most attractive, fastest growing TAMs in the world, with a market size of $1 trillion in 2030 and $1.5 trillion in 2035 (significantly larger than the advertising industry which supports the market caps of both Facebook and Google). Navigating the complexity and massive new entrant disadvantages of Medicare Advantage (MA) is the golden ticket to playing in this field. Many well funded high performing teams have tried to do a fraction of what Devoted has done and failed miserably because it is beyond unbelievably difficult. Where they have failed, Devoted has thrived - for reasons we detail in our materials - and is now (and almost certainly will be) the only real disruptor in the entire MA landscape.
As a result of the 5-layer stack, unlike other MA players, Devoted has two distinct but fully integrated and coordinated businesses and therefore two large profit pools within this enormous TAM. One that comes from the insurance company and another that comes from its medical group. Devoted Medial is the entity that is “at-risk” in a value based care arrangement where it gets to participate in the savings that it generates from keeping members healthier. Given the 40-60% levels of estimated waste in the US healthcare system, Devoted Medical has the potential to generate far more savings and profits than the insurance business with extremely small capital requirements and zero customer acquisition costs.
In just the insurance arena there is already high visibility on Devoted being a top 3 player, and they are well-positioned to eventually be #1. Devoted Medical is already on track to be by far the largest medical group in the country. The result is a business that in our view of the long term will have $100s of billions of dollars in revenue and $10s of billions of dollars in profits, and a market capitalization well over $250B.
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In the two years since the last (Series D) financing, some of Devoted's achievements include:
3.5x increase in run rate revenue to ~$2B per year with a simultaneous 50% improvement in opex efficiency
Retaining and sustaining unparalleled trust scores (92%) and NPS (77)
Disrupted the MA oligopoly with historic and industry leading growth and market share gains in 2022 and 2023, capturing ~40% of ALL net new growth in Devoted’s more mature markets and ~20% in brand new ones.
Successfully expanded into 8 new states and hit key milestones and targets in each one increasing coverage from 11% to 23% of the U.S. senior population
Despite being brand new and only in a fraction of the country, Devoted claimed the 3rd spot in terms of growth in absolute numbers on a national basis ahead of, e.g., all the Blues, Aetna, Cigna, Centene, etc.
Achieved 30-40% lower churn rates than their largest competitors
Reduced medical costs by ten points in 2022 (it is unprecedented in this industry to reduce cost at this rate while scaling this fast)
Received 4.5 star average ratings (critical CMS score that determines bonus payments and ability to invest in benefits) - the highest of all national players
Retained 100% of their population in 4/4+ star plans in 2023 while six market leaders fell 22pts on average
They launched Devoted Medical as a risk bearing provider, born with $628 million of revenue, which opens up access to a new, massive, and profitable market.
Devoted Medical (DM) launched 16 different largely virtual services from diabetes management to intensive home care, each of which are or are or soon will be best-in-class services that would be valuable companies on their own. DM continues to dramatically improve patient outcomes while dramatically reducing costs.
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It’s hard to fathom but important to grasp that despite its ~$2B in revenue and enormous success, Devoted is just barely getting started and is still less than 1% of the way along just its Medicare Advantage journey, which will lead naturally into expanding into new markets. Devoted currently has ~$750M of unrestricted cash on their balance sheet and has elected to raise a new and final round of financing (Series E) in order to lean further into growth opportunities, while providing an additional, prudent margin of safety to get to cash flow positive by 2026.
TSB is co-leading Devoted’s Series E and is inviting a mission and values aligned group of investors to join an investment vehicle it has created for the sole purpose of participating in the Series E financing. We think this is the best risk-adjusted return opportunity to invest in Devoted that we’ve seen, with our modeling showing a potential ~31x gross return (41% gross IRR) for investors by 2033 with little risk of capital loss.