Second, like many foundations, we were funding successful, innovative programs. For example, we funded a demonstration project that used text messaging to keep kids with asthma out of the emergency department. But when grant funding ran out, those programs couldn’t expand or sometimes, even continue. This was problematic because our goal was to sustain and scale innovations, not just demonstrate that they work.

Third, we realized that by working only with our usual partners — university-based research centers and other nonprofits — that we were cutting out some of the most entrepreneurial, innovative organizations in health care.

Q: What are your focus areas?

A: CHCF’s investments are geared toward meeting our organizational mission of improving health care delivery for underserved communities, and this past year, we’ve been focused on HIT and service model innovations that can do that. We don’t support the development of devices, biotech, or pharmaceuticals because we don’t have experience in those areas. Our service delivery experience in Medicaid, rural, low-income, and other underserved environments is an asset that we bring to a syndicate of investors. Next year, we’ll continue to look broadly but will place a special focus on mental and behavioral health care, and care for dual eligibles and people with complex, chronic conditions — areas in which we have confirmed the need for innovative approaches with safety-net providers in California.

Q: Besides money, what do you contribute to investees?

A: Often, our nonmonetary contributions can be equally or even more important than the funding. Typical early-stage companies and safety-net providers don’t organically meet each other. We provide the networking opportunities. We’ll do personal introductions or have companies present at conferences or on webinars where safety-net providers are the audience. We also provide technical assistance: financial analysis or planning. We also work with companies to help them understand Medicaid or community health center finance, reimbursement, and policy issues. This is a major focus area for the foundation and an area that is not well understood by companies.

Q: Describe how your work complements traditional investors.

A: We want to take promising companies that we think will have an impact in the safety net and get them through one of the big “valleys of death” — this early stage where they need to get enough traction, data, and proof of value to be attractive to more-traditional financial investors.

With companies that already have traction in the commercial market, we partner with traditional investors to take that company into a market like Medicaid that is often much less familiar and almost certainly less lucrative. The likelihood that these companies would take on a challenging, unfamiliar market while they’re still trying to get established is not high. We provide the capital, relationships, and the know-how in the operations and financing of safety-net institutions to help a company take on that new market.

CHCF is different from traditional investors. Our primary purpose for the investment is mission impact, not financial return. We don’t have thresholds we have to hit for profitability margins. A venture investor might love a company’s idea and product but not invest because the market isn’t big enough. We can be a good source of capital in these situations.

Q: Do you allow for partnering in investments?

A: We made our first co-investment last year with The Kresge Foundation in Direct Dermatology, a company that provides dermatology specialty care at an affordable price to safety-net providers through telemedicine. Our funds are helping Direct Dermatology take their service to more Medicaid programs, community health centers, and other providers serving low-income populations around the state and country.

We’re launching another initiative with Kresge that focuses on technology and services that improve access in community health centers. This initiative is a response to the ACA and the dramatic increase in the numbers of people — those newly insured — going to community health centers, which were struggling to provide access to services to begin with. We are interested in co-investing with other domestic health care foundations that share our goals.

Q: How do you measure impact?

A: We are looking for how a company will provide new or much more timely access to 100,000 people in California annually and/or how that company will lower costs by $25 million annually. We’ve set specific metrics that we hope are meaningful targets that relate to our foundation’s overarching goals.

We’ve seen real impact. With Direct Dermatology, people who were waiting 6 to 12 months for a consultation are now getting consultations in 24 to 48 hours. Direct Dermatology has detected skin cancer and other conditions for which timely treatment is important. The application is being used in regions without a lot of dermatology specialists and in regions where specialists don’t see Medicaid patients. This is an example of capital from a foundation helping to scale a service to serve more Medicaid plans and more providers — and ultimately, patients — who have a real need and demand for more-efficient care.