Exclusive Interview: Inside Cleveland Clinic Ventures’ Strategy for Transformative Innovation with JD Friedland
In this edition of the Experts in Motion series, we speak with JD Friedland, Managing Director of Cleveland Clinic Ventures, where he spearheads investment strategies in digital health, medical devices, and life sciences. Join us as he talks about his career journey, from investment banking to private equity, and the unique innovation ecosystem at Cleveland Clinic. JD also shares how Cleveland Clinic Ventures identifies and nurtures groundbreaking ideas, the delicate balance between financial returns and improving patient care, and how their approach is driving the future of healthcare.
FJP: Thank you for joining us today. Let’s start by sharing a little bit about your background. How did you end up at Cleveland Clinic Ventures?
JD: I’ve really had three, not careers, but three stages of my career. Prior to arriving at Cleveland Clinic, I was an investment banker for many years and an M&A advisor to companies in the healthcare industry. I worked with a lot of companies helping them raise money, helping them find a buyer when they were ready to sell, and working with buyers to identify companies that they might want to acquire. I have a lot of transactional experience working with venture stage companies in healthcare.
I also held a business development role at a large Fortune 500 healthcare company called Henry Schein. I ran business development for a $2.5 billion division of Henry Schein in the medical field. I was negotiating a lot of licenses and acquisitions and joint ventures and things like that, and then also started something there called the Innovation Initiative, where it enabled Henry Schein, a public company, to make small minority investments in venture stage companies.
The most recent step of my career before joining Cleveland Clinic was joining a private equity firm based in New York that was focused on making investments in the healthcare field. I went from being an agent to a strategic partner to being a principal and investor in healthcare companies, with a specific focus on digital health and medical device companies. Along the way, I’ve had the chance to serve on boards as an investor, as an independent board member, and then also guided boards as an investment banker, advising boards on strategic directions.
A couple of years back, a friend who was working for the venture effort here reached out to me and said, we really can use someone with your background, focus, and experience. Would you be willing to relocate to Cleveland? I was not living in Cleveland at the time, and I’ve not previously lived in Cleveland until three years ago. My wife is from New York City and feels like a fish out of water whenever she’s not in New York. This was a big ask for her and our daughter to move with me to Cleveland. But we made the leap and moved to Cleveland about three and a half years ago. And so, I’ve been part of the venture effort here since May of 2021.
I love working at Cleveland Clinic. It’s a fantastic organization. If I were to interview myself from 20 years ago, I probably would say today, and I would have said this 20 years ago, too: Cleveland Clinic is at the apex of healthcare. To work for an organization like Cleveland Clinic on a daily basis and to have the opportunity to work with the physicians, the caregivers, and the researchers here at Cleveland Clinic, who are the leaders in their field, is really a privilege. It’s a unique privilege in our industry, and I feel very lucky to be in this position.
FJP: What is the overarching innovation strategy for the Innovations and Ventures team, and how does it align with the future of healthcare and your role in shaping the future?
JD: Clinical innovation is one of our organization’s core foundational principles. It is central to our nature and central to our mission. We have over 80,000 caregivers, and I’m considered a caregiver. Every nurse, doctor, and researcher is also considered a caregiver. And we have a strong culture of innovation. We want folks to explore the leading edge of their fields, and we want to encourage that innovation. Part of the function of the organization that I report to in Cleveland Clinic Innovations is to be a center where caregivers can submit inventions and discoveries.
If you’re familiar with a tech transfer type effort, we are a not-for-profit with full-time employees, and they submit their discoveries and inventions to Innovations. We have an entire process to take those ideas, vet the ones that are worth spending time on and advancing and investing in those ideas, to translate those ideas into bodies of licensable intellectual property. We get hundreds of new inventions and discoveries submitted to our office every year, and we enter into a very large double-digit number of new licenses every year.
One of our primary goals is to advance those ideas to the point where they are licensable and then find a license partner who can commercialize them, pay us a licensing fee and royalties.
The Ventures team is involved in this whole ecosystem filled with great ideas moving through Cleveland Clinic and Cleveland Clinic Innovations. We have the opportunity to identify those “diamonds in the rough” that are moving through our office that could be foundational intellectual property (IP) around which we can start and build a company. We can pick out some of those innovations that we think make sense to license exclusively to a company that we create.
We form a new company and enter into an exclusive license agreement between Cleveland Clinic as the licensor and the new company as the exclusive licensee. Our team will recommend investments to our investment committee to invest first dollars into those companies to capitalize on them. We’ll go out and hire a management team. We will serve as board members, and then we will introduce these companies, sometimes in the preformation stage, to other investors, strategic and financial, to elicit whether they would be interested in co-investing in or co-founding these companies with us. It’s not the only way we invest, but one of the primary ways we invest is a foundational level formation with pre-seed capital to start a company.
And then maybe, unlike other venture studios, tech transfer offices, whatever you want to call them, we will continue to invest in a material away across the lifecycle of those companies. We might put up some funds to start a company. We might put up additional funds to support Series A, and then we might write a check out for part of a Series B. Our goal is to be a material minority investor in companies when they exit, particularly when we have high confidence that they are going to be successful.
We want to back the companies that we believe in, both with our capital and as a strategic investment with any help we can bring to bear to support those companies.
FJP: You’ll clearly be very selective if you examine hundreds of inventions through the Innovations team every year.
JD: We start one or two companies a year. We’re highly selective. We have 14 discreet criteria that we look at to evaluate whether we should start a new company. It’s the same criteria we use when that same company comes around for the next round of capital. We apply the same discipline around every investment we make, regardless of stage, regardless of how much money we put in. The company must continue to meet the standards to support our recommendation. We look at things like market size, and whether there is one and only one acquiror of this business ultimately, or are there a lot of buyers? Is the technology unique and differentiated? Is the IP protectable and protected after we’ve gotten a patent issued? Is the management team strong? What does the business plan look like? Is it an executable discipline that we are highly confident will be successful? We look at all these criteria as inputs to evaluate whether we support it or continue to support it.
FJP: That gets into the investment approach a little bit, but is there anything in particular that you would point to that is really important to you versus perhaps other ventures teams out there?
JD: Number one, I’d say we have a bias towards companies that are licensees of Cleveland Clinic IP. We would rather support a company in which we have an interest because we’re the licensor than one that’s not. It’s a harder route to convince us to recommend an investment in a company where Cleveland Clinic didn’t create the IP. Now, in digital health, IP matters a lot less than, say, in biotech. And specifically, I’m talking about patents.
If we aren’t supporting Cleveland Clinic IP, though, we can still possibly get to a strong investment if the solution is the best solution available to address a high priority need or issue at Cleveland Clinic. If there’s a top three priority that we have to solve — for example, during parts of COVID and then 2022, when we saw higher inflation, we already knew there was a nursing shortage, but it was really bad then. If there was a solution that could help us address that problem, which was a burning problem at the time, we would have looked closely at it. We looked at a number of staffing solutions and automated capability solutions in that space. Then, I’d say the third criterion that we tend to look at is whether the technology is transformative.
We’re much less likely to invest in a slightly better orthopedic inplant. We’re more likely to look at something that’s going to completely change the way medicine is practiced. In particular, one of our portfolio companies, MediView, is using augmented reality (AR) technology to visualize minimally invasive soft tissue procedures. The clinician wears an AR headset and, looking down at their patient, they can see holographically imposed the patient’s CT data, MRI data, and real-time ultrasound data, and then they can register the medical device. You can see where your ablation catheter is going before it goes where it’s going. You can ablate that tumor with high confidence. You’re only damaging and destroying cancer tissue. You’re minimizing damage.
That’s going to potentially change the way that those procedures are performed. There’s very little technology like that out there. That’s one of the companies we’re really excited about. It’s a really good example of something that is revolutionary, transformative, backed by a really strong IP that originated here and it’s clinically available today.
FJP: How do you balance investment potential and the financial side of the decision-making process with the mission of caring for life and caring for patients?
JD: Great question. We’re not like a traditional investment entity. In fact, we are technically not a venture fund at all. We do not have dedicated capital. There are no funds. There’s no evergreen fund. There’s no pool of capital. We derive our capital for our investments from Cleveland Clinic. Our investment committee is represented by five senior executives at Cleveland Clinic. And so, every dollar that we invest comes from Cleveland Clinic’s balance sheet.
Our goal in supporting our companies is threefold. Number one, like any traditional venture effort, we want to get a very attractive risk-adjusted return on investment. Number two, and the reason supporting our IP is a primary theme, is our very generous inventor policy here. If you’re an inventor at Cleveland Clinic and you submit what’s called an IDF, an invention disclosure form, to our office, and we accept it, and your invention turns into a license, you receive a material minority portion of any value that’s received by Cleveland Clinic for that license. .
It has become an extremely powerful recruitment and retention tool to attract luminaries in their field to come to Cleveland Clinic and to want to stay here because we are creating an avenue for them to release their creative juices and get rewarded. But they also get rewarded for their inventions through their participation in the process. Along the way, they’re going to produce peer-reviewed studies, they’re going to get published, and be able to speak about the invention and be recognized based on their invention. Maybe the invention will get named after them. There are all sorts of financial and non-financial rewards that benefit Cleveland Clinic and the inventor.
The third pillar has nothing to do with the actual financial return that we receive. If we can transform and improve the way care is delivered, the way a procedure is performed, and the way patients’ lives are saved, that’s a big part of the mission accomplished.
Another company in our portfolio that we sold last year is called VisionAir Solutions. It’s a 3D custom airway stent for relatively small market populations of patients who have some kind of benign tumor, and it is now being used for malignant tumors as well, where the tumor growth is blocking the patient’s airway. This is a unique solution that Dr. Tom Gildea, Section Head of Bronchoscopy & Interventional Pulmonary at Cleveland Clinic, will tell you is saving patients’ lives on a regular basis.
Cleveland Clinic is the number one customer of this company, and there are 30 other hospitals in the US that are using the solution. This product would not exist today but for the nurturing of it through Cleveland Clinic Innovations and our venture arm. We do still own a minority stake, but we’re able to facilitate an outcome. We’re deferring a return because we took stock in the successor entity. But Dr. Gildea still has access to those products, and he continues to implant those airway stents into patients on a regular basis, and he continues to save lives. So as far as I’m concerned, that’s mission accomplished.
FJP: Do you have specific domain areas you focus on? If so, how do each one of these domain focus areas fit within Cleveland Clinic’s broader healthcare strategy?
JD: We focus on three domains, which we call our power alleys. Digital health, medical devices, and life sciences. I won’t talk too much about life sciences because it’s not an area of my expertise, but we have members of my team who really understand biopharma and diagnostics. I am a fish out of water when we talk about biotech, but that’s about a third of our portfolio of companies right now. It’s a material amount of our portfolio. We’re actually significantly increasing the square footage of our Lerner Research Institute’s basic science and research effort here at Cleveland Clinic, and we already spend over $400 million a year in basic science and research, with most of the innovation being developed in diagnostics and life sciences. We expect that to continue to be substantial.
FJP: One of the three “power alleys” you mentioned is medical devices. I just wanted to dig in a little bit more on the MedTech side and cover some specific subsectors within devices. I know you have a big focus on structural heart, neuromodulation, as well as surgical visualization and navigation. Why those areas in particular?
JD: There are two simple reasons for that. Number one, those power alleys happen to align very closely with the institutes at Cleveland Clinic and are probably the most well-known. When people think about Cleveland Clinic, they typically think about it being the number one heart hospital in the world, I think it’s 30 years running now. Some of the great inventions in cardiovascular medicine have come out of Cleveland Clinic. We have access through our innovation process to some of the great minds and great inventions in the cardiovascular space. But also, if we do find something external, we can take those ideas to the same leaders in the field to understand why that technology is going to make a difference in care for patients. It’s the same with the Neurology Institute, which is also internationally renowned
Surgical visualization and navigation are a little bit of a different animal than neuromodulation and HVTI, which is our Heart, Vascular and Thoracic Institute. But it’s an area that we’ve seen, like with a company like Centerline, that has applications for surgical visualization in the cath lab that plays into the HVTI. MediView, the company I mentioned earlier, works with multiple institutes across the enterprise including our Cancer Institute and Digestive Diseases Institute as well. But again, that goes back to the other theme I talked to you about, which is transformative technology.
This is potentially game-changing technology. We’re integrating traditional medical device capabilities enabled with new technology to transform critical information that can be delivered to the clinician while they’re performing the procedure. This will favorably impact their ability to make good clinical decisions.
Another company I’ll mention in that space, Method AI, is a licensee of IP invented by Dr. Jihad Kaouk. So, we really lean on the folks across the street in the clinical institutes and their expertise to help us think hard about where we ought to be focusing most of our energies.
FJP: Cleveland Clinic Innovations has brought many incredible medical technologies to the world. Can you share some examples from the past and today?.
JD: Artificial Intelligence is, of course, the easy answer, but I really think we’re two years into a transformational technology. I think we’re going to look back ten years from now the same way we look back to the advent of the internet and how it changed commerce, healthcare, and almost every other industry. I think with AI, we will probably look back ten years from now, saying that was a game changer for our economy. Specifically, I think healthcare is one of the industries that is really going to be, and is currently being favorably impacted by, the introduction of generative artificial intelligence.
I believe this is probably going to sound a little self-serving, but one of the challenges with AI is energy consumption, which I’ll call the process of computing horsepower consumption that AI will require. We need to have systems in place to support that.
We’re not in the energy industry, so I’m not going to address that, but we are proud to have a quantum computer on our main campus, and I think transformational information technology architecture that can support an order-of-magnitude advancement in computing power is not only going to support AI, but it’s going to support the days, months, years of traditional computing horsepower that would be required to, say, optimize the molecular structure of the next therapeutic compound, or cull through millions of patient records to identify correlations between a particular disease and conditions, which humans can’t see it because there’s too much information. We need the processing horsepower of a quantum computing capability in order to turn those years into minutes.
I’m a big believer in surgical visualization and navigation. Augmented reality and virtual reality capabilities and how they’re able to be brought to healthcare. I think we’re just starting to see the potential, and not just in the operating room. To me, that’s one of the most obvious areas of opportunity that we’re capitalizing on today, but everything from medical education to allowing participants around the globe to participate in and consult on a procedure on location, I think it’s going to be proved to be transformative in a way that Teams and Zoom proved transformative during COVID times to allow us to continue to communicate and engage in commerce in ways that we couldn’t have even imagined in 2019.
FJP: What do you do to drive innovation within the organization? I’d also be very curious to hear about the challenges that you run into implementing a culture of innovation.
JD: I’d say two things here. Number one, like I said, innovation is really part of our culture. It’s a foundational principle at Cleveland Clinic. But we support that through my colleagues within Innovations. We have a group called the Engagement team, and they spend a lot of time educating inventors and would-be inventors at Cleveland Clinic on how our process works. We have shark tank like events, and we invite new inventors to participate to learn more about and collaborate with existing investors. We have all sorts of forums and social events to allow folks to ask questions. And then, once a would-be inventor submits something, there’s an ongoing dialogue between Innovations and that inventor to help them.
We’ll work with them to help sharpen up their invention disclosure form to a point where there’s a higher likelihood that it is going to be accepted. You can think of us as the admissions office of the college that works with the applicants on sharpening out their application, because we want there to be more inventions. We want more and better inventions, and we want to facilitate and support that culture of innovation that starts across the enterprise. We really do try to fuel that within Innovations because it’s really central to what we do.
FJP: I do think that you guys have navigated that challenge better than most.
JD: My point is, it’s ongoing. We have to continue to push the envelope. If we stop for a moment, it’s really easy to kind of settle back into being part of a conservative organization. Whether innovations are financially successful, whether we get ten times our investment in everything that we ever do, will not necessarily have a material impact on the future of Cleveland Clinic as an organization. Cleveland Clinic exists and will continue to succeed as an organization because the people doing great work across the street, they’re inventing things, they’re discovering things, they’re treating patients, they’re saving lives. But the culture of innovation that we can help perpetuate here, there is a feedback loop here where we do have an impact. I believe we are contributing to the overall culture, so it allows us to try new things.
Dr. Tom Mihaljevic, our CEO, did a town hall a couple of months ago where he said something inspiring. He said, particularly in healthcare, we never get to a point where we’re like, yep, we finally did it. This is the best we could possibly be and there’s no opportunity to improve further. We are always continuing to innovate, and if we’re a powerful, effective healthcare organization, we have to continue to challenge ourselves every day to be a little bit better than were yesterday.
FJP: I do think that it works for Cleveland Clinic because it’s proven and it’s part of the DNA, and it’s something that you guys have always done. And you can make a case with the leadership and all the financial types that this is just a part of the ethos of the organization, where I think a lot of other health systems don’t have 50, 60, 70 years of innovation experience.
JD: To your earlier point, we’ve made mistakes along the way, too. I like to say we know how to do it right now because we pretty much made every mistake along the way. So, one thing we pride ourselves on is that I think the organization approaches it the same way. We’re not always going to be perfect, but if we understand the root cause, if we do a root cause analysis, which we typically do when a mistake is made, we can really prevent ourselves from making the same mistake twice. And that applies in surgery, and that applies in what we do every day as an investor.
FJP: Medtech Digest is all about driving momentum in the MedTech industry. So, I am curious about what momentum means to you and how you drive momentum within the organization, with your partners, your colleagues, your portfolio, or in your personal life?
JD: I’d say it’s something I apply both in my personal life and my professional life. And I think it’s not just me, it’s probably our approach within Innovations and Ventures and maybe even across Cleveland Clinic. It goes back to what I just said earlier, which is never settle, and that as good an outcome as we can have, we can always work a little bit harder, we can make it a little bit better. Maybe there’s an easier way to do something or a better way to do something. My wife, she’ll say “I’m a perfectionist.” She’s never satisfied. And that’s the bottom line. Don’t settle, don’t be satisfied, because you can always do better. And innovation is the fuel that allows us to do that.
If you’d like more expert interviews like this one with JD Friedland, subscribe to our newsletter here and check out our other Expert in Motion interviews here.