The Triangulation Problem: Portfolio Optimization Across Medtech, Biotech, and Digital Health
Disclaimer: The views and opinions expressed in this essay are solely my own and do not reflect the views, opinions, or positions of my employer or any affiliated organizations.
Table of contents
I. The Illusion of Diversification
II. Capital Efficiency and the Burning Question
III. Regulatory Arbitrage as Alpha
IV. The Reimbursement Riddle
V. Technology Risk vs. Biology Risk
VI. Exit Dynamics and the Multiple Problem
VII. Construction Principles for the Modern Health Portfolio
Abstract
Portfolio construction in healthcare investing presents unique challenges that defy conventional venture capital wisdom. This essay examines the structural tensions inherent in balancing medtech, biotech, and digital health assets within a single fund, arguing that superficial diversification often masks correlated risks while obscuring the fundamental differences in capital efficiency, regulatory pathways, and value creation timelines. Through analysis of burn rates, regulatory economics, reimbursement dynamics, and exit multiples, I propose a framework for portfolio optimization that acknowledges the distinct risk-return profiles of each sector while identifying genuine diversification opportunities. The central thesis challenges the assumption that sector allocation alone constitutes meaningful diversification, instead advocating for a more nuanced approach that considers regulatory arbitrage opportunities, capital velocity, and the asymmetric nature of biology risk versus technology risk.
Introduction
