I spoke with Cody Nystrom, Managing Director at SJF Ventures. She leads SJF’s health and wellness investment practice. Cody currently represents SJF on the boards of Ellipsis Health (mental health machine learning platform), Take Command Health (health reimbursement software), Pierian (clinical genomics software), mPulse Mobile (mobile healthcare engagement platform), TemperPack (sustainable thermal packaging solutions), Solera Health (preventative and digital therapeutics health network), Validic (mobile health data platform), and Cecelia Health (clinician coaching for chronic conditions). Cody previously represented SJF on the boards of Versify Solutions, Community Energy, Inc., Vital Farms, and CleanScapes. Learn more about SJF Ventures here. 

Tell us more about SJF and its investment philosophy.

SJF is a 23-year-old venture fund, founded on the idea of using capital as a way to drive lasting and positive change for the environment and for society – which was a novel concept back in 1999 when it was founded. The other founding principle was a commitment to no trade-off between financial returns and impact – there are no conflicting interests between the two. Today, SJF is investing out of its fifth fund. We focus on investment opportunities in emerging areas like climate tech and sustainability, and also look to disrupt big, regulated industries (think workforce tech, supply chain, and resource efficiency). We prefer to invest in early stages, where we can truly help shape a company and contribute to the driving business philosophy. Our goal: create early infrastructure to produce strong governance practices and long-lasting social responsibility while supporting companies as they scale and achieve meaningful environmental and social outcomes. 

What are you seeing in the health and wellness space right now? Are you noticing any big changes after COVID?

It’s been an interesting last few years. A lot of venture capitalists flooded into digital health. I think it's all for the better, as there will be a massive consolidation, and there'll be winners and losers out of all of it.  And the winners will be on the front lines transforming our healthcare system. But remember, the healthcare industry was built 100 years ago. If we were to set it up today, we would not have set it up the way that we did. We have a multi-party system involved in which we have a patient, a different entity that pays the bills, and a different entity that supplies the services. To further add complexity, at times we have an employer thrown into the mix if an individual works for a company that provides benefits. All of that is to say, there's a need to follow how money moves in the healthcare markets. 

But the encouraging trend over the last couple of years, and as spotlighted during the pandemic, is the movement toward digital solutions. The analog system of health care is just not efficient. We absolutely have to embrace scalable telehealth and digital opportunities that enable physicians and practitioners to reach more patients more efficiently.

The clinician burnout and the clinician shortage will only continue to get worse. With fewer clinicians practicing healthcare and with more patients requiring more healthcare services who are living longer, there's only one way to solve the puzzle - through automation and enhancement via technology. Interestingly, we don't really have a technology problem – there’s a lot of technology that's already been built that can help scale clinicians. The issues stem from business problems, like revenue model problems, and reimbursement challenges. Most healthcare takes place in a fee-for-service world where we haven't rewarded value nor created the right incentives for providers to support, all the aspects of a patient's health which are complex and interdependent. We're starting to move in that direction with value-based care, which is a needed transformation. 

Walk me through your journey into VC. Was that a goal from an early time in your life? 

As in a lot of things in life, I think there was serendipity involved. I studied engineering at UVA before going into investment banking. This particular bank had a focus on alternative energy, before cleantech was a word. I will say my career and my goals were not nearly as defined as some people who are graduating today. It was a little bit more ambiguous. I have always been math and science oriented, so naturally ended up in engineering, and then found my way into investment banking. 

When I got into investment banking, I learned a lot coming from an engineering background. I didn't know finance as well, and while I learned a lot about capital markets and financial transactions, I did not like that there wasn't a heart in the business. At the same time, the capital markets kind of seemed to be this force that did not favor things like the environment or society. 

So, I started looking into careers in public health and I decided to go back to school for a master’s in public health. My now husband had moved to North Carolina, so it was just by a stroke of luck, more than anything, that my timing aligned with when SJF had just raised its second fund. The firm just happened to be based within a mile of where we just bought a house, an area where at the time there were no other venture funds in downtown Durham. So, I joined SJF in 2007 with the idea that this would be a great place to further my knowledge of the capital markets, but I thought I would ultimately go back to school and into a career in public health. Fast forward, 15 years later, and I now lead the health investment practice at SJF.  I think what really captured me was the opportunity to continue my intellectual curiosity around population health and preventative health, and work to bring technologies, services, ideas, and solutions to the patients and populations that need quality health care.

Now that you've been doing this for a long time, what about your skills and abilities and experience make you a great VC?

I think my engineering background, my orientation to math and science, certainly does not hurt. I'm analytical and data-oriented. I like to read numbers. But also, for my entire life, I was told that I asked too many questions, and maybe talked too much, too. I have an innate and obsessive drive to ask questions, to learn about things that I don't understand, to have this curiosity about the way the world works and the way new technologies and companies are building neat and interesting things. I think that general passion, married with an industry-specific passion in healthcare, and having that desire to learn were important. It’s also important to listen and reflect dynamically and quickly. In our line of work, we don't always have a lot of time to process; you have to be moving quickly, through opportunities and through board meetings. 

What was one of the toughest decisions you've had to make in this VC role? 

As a VC, you make decisions all day, every day, very similar to CEOs of companies. It’s little decisions, big decisions, and everything in between. Then you multiply it. Imagine if you're the CEO of one company, and then you spread it out across your portfolio of companies, and then you spread it out one more layer across all your partners’ and team’s set of companies. We have about 40 active companies for which we are constantly thinking through decisions. You can't be overwhelmed by the volume of decisions because there are so many.

But the toughest decisions are ones where there are emotions involved, and that's often around management teams, or when to buy and sell a business. That's when there can be a real difference in alignment among board members or management teams and investors. And it is very hard to take the human out of this business, it's a key part of building a company. It's humans that are pouring their hearts into building and growing these businesses. 

You're on several boards of your portfolio companies. Tell us about some of the challenges you find with board work?

I love board work, and that enjoyment comes from a couple of factors. First, it's a very human experience. In-person board meetings are a way to build relationships and understand how someone's doing outside of their professional life. The other aspect of board work that I love is the strategy. The board meeting is an opportunity to take a breath and go back up to a 20,000-foot level with a lot of really smart people in a room who come from various backgrounds and who bring different perspectives. And really gut check. Are we building the right product? Are we in the right market? Do we have the right team? Do we have the right capital?

From a challenge perspective, building consensus and alignment amongst disparate parties and parties who perhaps don't have a reason for alignment is a big one. There was a board I was on a long time ago, in my early 20s, and there was a big rift between the management team and one of the leading angel investors in the business. And at the time of an M&A transaction, the leading angel shareholder wanted to hold back all signatures. It was because they had lost trust in management; they felt like they were mistreated. There were a lot of emotional reasons for not wanting to do the deal, not financial or practical reasons. In fact, the deal would have been very accretive to the investor, but there were too many feelings involved. I think being a woman and being younger, and maybe naive, I thought I could help bridge the divide. I was able to work both sides of the table of the management team to find some middle ground. I think being a woman was what really helped there. I think it helped put egos aside, and we were ultimately able to transact successfully. Your firm may not always be the consensus-builder, and sometimes you might be the dissenter, but I think what is important is to always take a step back and revert to rational thinking.

The genesis of CEOX came from working in venture and I was watching CEOs be replaced as companies grew, because not all founders can transition into a growth and scale skillset. Every time I watched that happen, it was a man given that role, including at a women's health care platform for tracking fertility. Have you had to replace CEOs at any of your portfolio companies and how was that process for you?

I've done it several times. When you started a business 10 or 15 years ago, there was less capital out there. That often meant that exit and growth expectations were not nearly what they are today. To provide one example, a company that maybe had $5 million in revenue may have only raised $5 million, or maybe even $10 million, at most over the whole life of its growth trajectory, and might have grown to be a $15 to $20 million revenue company. And that would have been a great success. 

What's changed over the last five years is, instead of raising $5 or $10 million, now that company is raising closer to $50 to $100 million. When you start raising that amount of capital and get that many new shareholders involved, the exit expectations and the growth expectations balloon. That same CEO who could have had a very successful exit 10 years ago may not be able to today. I do think there has been this more natural progression of CEOs realizing that there might be a time when the company gets to a stage that they move into a different role, or they step down completely and recruit a professional CEO who's maybe done it three or four times, and hopefully the interests are all aligned. 

There's also still a challenge of the culture. A woman CEO who we invested in went through that transition, about midway through growth, and was replaced by a different woman CEO. It's a challenging process in a lot of ways because you want to incorporate the feedback of the founder,  shareholders, and management team. I do think that with groups like CEOX, the opportunity is going to be completely elevated with a funnel of talent that is CEO-ready, and you’re increasing the probability of including women CEOs in that recruitment cycle. We're doing that for any company where we are replacing senior-level people. 

I talk a lot about venture being broken for women. I'm curious to hear your thoughts and what the industry needs to do to get more women fund managers like you involved because I think that will translate into more women-led companies being invested in as well.

I think the reason I have been successful working in the venture capital industry over the last 15 years, is that I have a team that is highly unique. They support me both as a venture capital professional and also in having a family and meeting the demands of both. Their supportiveness, flexibility, and accommodating nature are very unusual, at least that’s my perception, amongst other groups within VC and PE. I think that's why I'm still in it. There's just no way to get around the fact that being a fund manager or being in VC or PE as a woman, if you have other obligations - whether home, children, aging parents, any other responsibilities that you're taking on outside of your profession - it is a very difficult way to balance 24 hours in a day. I think with this profession –it is a relationship business, and there's a heavy travel component to this job. Heavy travel means that women have to rely on a lot of other constituents in their village, and building that village takes time. I'm fortunate enough to have used all the modern conveniences like Instacart and Amazon, and great nannies, family, and friends.