99 – From Wall Street to Healthcare | Guest Sergei Polevikov on AI, VC, & Transforming Patient Care

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[00:00:17] Vic: Okay. Welcome to have further. We have a guest show today. Sergei Volkov. Thanks for doing this. Really appreciate it. Sergei, you are the author of a really impactful newsletter called Health AI Uncut and also founded, you're wearing the t shirt, you have the t shirt to prove it, founder of Well. ai. Thanks for doing this.

[00:00:38] Vic: Appreciate it. 

[00:00:39] Sergei Polevikov: No problem. Thank you for inviting me, Vic. 

[00:00:42] Vic: So as we start off, maybe give the audience a little bit about your background. You were born outside of the U. S. and then came here and just give us your sort of personal story. Thank you so much. 

[00:00:54] Sergei Polevikov: Uh, yes, thank you by my accent. You can probably figure out I'm from outside the U S I'm from a small [00:01:00] country, Belarus, middle class family, which is by American standards, probably very, very poor family.

[00:01:08] Sergei Polevikov: Uh, but yeah, I had a good background. Both my parents, um, came from science from academia. So I had very good science and math and physics knowledge, uh, graduated. Bachelor's, um, in Minsk and, uh, kind of looking for applications of my math knowledge. And, um, when I started looking around, I figured that a lot of topics in economics and finance, they were, um, math based and evidence based, and that kind of intrigued me.

[00:01:47] Sergei Polevikov: And I started looking into grad schools, because at the time there was, at least, From my perspective, the most probable [00:02:00] reason to get to a good school and maybe, uh, get a good job. So that's how I ended up in the U S I, um, went to a couple of graduate programs here, uh, at SMU, could have been in Texas for a couple of years, actually, uh, while being at SMU solid Methodist.

[00:02:18] Sergei Polevikov: I've met, um, uh, some interesting folks from the Federal Reserve Bank. And in fact, the chief economist at the time, Mike Cox, uh, eventually became a boss. So I spent, um, I spent a few months on that and kind of continued working remotely, uh, for Mike. And in fact, it was, I think, pretty, instrumental contributor to his book, uh, myths of the rich and poor, which is kind of in line with my article that I posted today, which is basically, you know, why is America so great in innovation and, um, [00:03:00] um, you know, what has gone wrong potentially in the last decade or two, because that book actually came out in 1999.

[00:03:09] Sergei Polevikov: So that was. Yeah. It's like a 

[00:03:11] Vic: dot com, like run up to the internet craziness. 

[00:03:15] Sergei Polevikov: Yeah. And, you know, a lot of the topics that were popular back then, you know, we've just started getting smartphones and, um, not smart smartphones, uh, I'm sorry, mobile phones and a lot of improvements in technology and obviously internet.

[00:03:32] Sergei Polevikov: And that's how this whole conversation started. But the book is actually a very good overview of just, you know, historic wisdom and knowledge on innovation. And, um, yeah, so I, I was kind of like a stats guy. So there are a lot of graphs. How 

[00:03:50] Vic: was it to come from Belarus and then be working at the U. S. Fed?

[00:03:54] Vic: That must have been an interesting transition. 

[00:03:57] Sergei Polevikov: I was surprised they hired me, you know, with, especially with a [00:04:00] name like mine. Uh, but no, it was, uh, it was a lot of fun, especially given that it was my first job and I was still kind of, being in grad school. So I started as an intern and then kind of developed into something more and spend, um, actually.

[00:04:16] Sergei Polevikov: In total, almost like two years, um, on and off. So, so great. A lot of great economists. And, uh, I don't know if people realize, but the federal reserve banks, the research departments are basically like your econ departments and top, um, academic program firms like NYU, Stanford, Harvard, um, you know, some top economists, they.

[00:04:40] Sergei Polevikov: Prefer sort of hands on experience, um, hands on experience on the markets and inflation and various surveys. So they prefer actually being in the Fed as opposed to doing some research in academia. So really, really top, uh, top of the crop, uh, I would imagine you 

[00:04:59] Vic: have access [00:05:00] to the best data sources anywhere at the U S Fed.

[00:05:04] Sergei Polevikov: Oh yeah, yeah, absolutely. I mean, just having the databases and just looking at them all day long and, you know, exploring and, you know, getting some insight. It was just like, for me, like being at that, like in my twenties, that was, that was paradise. 

[00:05:22] Vic: Yeah. And then you went to the, the big times as far as like, uh, macroeconomics and tech went to Wall Street and really spent some time there, right?

[00:05:32] Sergei Polevikov: Yeah. Before that, I actually got my MBA from the University of Rochester, uh, where I actually, I was lucky to get a scholarship, which is not very common for, especially for grad programs, for MBA programs. But, um, yeah. And then after my MBA and I. On top of that, I've always kind of been curious in the latest research, so I ended up, um, in every program I feel like I went to, I was actually friends with PhD [00:06:00] students as opposed to, um, MBA students, which is kind of interesting, but I felt like this is where they cutting edge research was going on.

[00:06:11] Sergei Polevikov: So yeah, I got my MBA, uh, got exposed to some cutting edge research in finance and ended up on Wall Street as quant analyst in the beginning, and then, um, developed into more portfolio management role, uh, but always been around math, around statistics, around machine learning. And, uh, that was the time where the AI algorithms and AI training became popular.

[00:06:38] Sergei Polevikov: And, uh, I was. All kind of, um, deep into that and, you know, developed a lot of my own algorithms. Um, I was, um, in particular, I did a lot of research on explainability. Um, you know, when you are a fiduciary working for [00:07:00] clients, obviously they're asking, you know, what is, what the heck is this black box model?

[00:07:05] Sergei Polevikov: Can you give us more insights where all this great numbers coming from? And, you know, it's kind of funny exercise because you're kind of, uh, trying to find a story. So I feel like on Wall Street, it's a lot of a storytelling, but in all honesty, you don't always have the answer. So we have all this great algorithms, but the, I think the biggest myth is that.

[00:07:31] Sergei Polevikov: Um, you know, we can kind of, uh, explain the output, so to speak, and show the clients, you know, where everything's coming from, which is, uh, to be honest, in most cases, it helps 

[00:07:43] Vic: people feel good, but it's not necessarily accurate. I mean, the data is the software algorithms are doing what they're doing. You may have a predictive model, but that's different than being able to explain it.

[00:07:56] Sergei Polevikov: Correct. There is a, you know, people don't realize, I think, [00:08:00] uh, even, you know, The ones that are dealing with AI models, but, um, you know, as I've learned over the years, there is no, you know, silver bullet there. There is, there's always a trade off. You, you have a great model that you can get some, you know, great, let's say accuracy or whatever the performance matrix is, but that's not always obvious why, where the results are coming in.

[00:08:27] Sergei Polevikov: Or you can have a model that's highly explainable, but You know, it's not going to perform well. So those are the trade offs you've been dealing with. And over the last couple of days, I guess I would say there have been some, especially in academia, there have been some good research that are kind of trying to converge those two areas and sort of basically make some, some kind of, uh, Uh, golden middle, so to speak, uh, so, you know, that, that could be a good model, but also, um, you know, we [00:09:00] not completely a black box, um, but again, it's, it's, it's, it's not an easy task.

[00:09:05] Sergei Polevikov: It's, it's a, it's a very hard problem to solve. 

[00:09:08] Vic: Yeah, so the reason I was really interested in having you on, you have a great newsletter that we'll cover in a minute, but Wall Street was really an early adopter of machine learning and AI in 2004, five, and then through the great financial crisis. And you were in the middle of that where, where the really kind of on the, on the frontier of how we could use AI in a business application.

[00:09:31] Vic: And now, of course, after, uh, the transformer models have come to the mainstream, now every industry is looking into it, but you're one of the few people that have had decades working in this space. So talk to me about, uh, in 2019, right before the pandemic, you founded Well. AI. And I don't, I don't know if that was.

[00:09:55] Vic: It's a great time to start a company or a terrible time to start a company, but tell me about the [00:10:00] founding story. What were you trying to accomplish with Well. ai and um, how to, you know, what, how's it evolved? 

[00:10:06] Sergei Polevikov: I mean, I, I'd be honest, it was, uh, almost, um, an accidental path for me. Uh, and I'm, I'm very glad I ended up here.

[00:10:18] Sergei Polevikov: I think, uh, all of us at some point should be thinking, uh, you know, not just about some financial outcomes, but also how we can get back to the community. And I think that's how it all started. Obviously it's a, it's a business, so we try to make money, but then when it's come combined with the idea that, uh, there's so much wrong with healthcare industry and, you know, being the best democracy in the world, and unfortunately I've experienced the lack of democracy.

[00:10:48] Sergei Polevikov: So I know how great America could be. I was shocked how bad things were and still are in healthcare. Um, so [00:11:00] I, it was actually my company. You know, that I worked in finance was restructuring. So I was, um, actually thinking of what my next move is going to be. And, uh, one of my old friends, Daniel, who, uh, I met years before that, um, he's been involved in.

[00:11:20] Sergei Polevikov: You know, various, uh, uh, bioinformatics projects and just, uh, you know, kind of did some work related to healthcare on academic side, but also on machine learning side. So he kind of, uh, had this pitch to me that, um, he thought it would be great for the two of us to apply our AI skills to essentially help healthcare in some way.

[00:11:47] Sergei Polevikov: And our way was basically. Essentially, initially, I would say we were trying to build a better MetMD, uh, so to speak, um, after, after WebMD, uh, [00:12:00] You know, we, we thought that with the greatest latest developments in AI, we could literally put the, sort of the real time information into patients hands. So it was this kind of big vision.

[00:12:15] Vic: One of the things that I heard, I don't know if it was in your newsletter or in one of the podcasts you've done previously, that you really, uh, draw an important distinction between, The caregivers, the doctors, nurses, other caregivers who are doing the best they can. They're, they're great people. I mean, they're doing incredible work, but we're not really empowering them.

[00:12:35] Vic: We're not giving them the tools. And so that causes suffering for the caregivers themselves. And of course, for the patients because, um, so that distinction of not Um, not really blaming the people that are there doing their best work every day, but trying to bring them tools. Is that a fair way to characterize it?

[00:12:54] Sergei Polevikov: It's fair, and you have to understand the Uh, [00:13:00] standpoint of clinicians and just medical community as a whole, they've been for four decades, kind of, uh, uh, the, the receivers, all this endless sort of it promotions, you know, starting with, uh, electronic health records and every little it vendor basically bombarding them with their little adults.

[00:13:26] Sergei Polevikov: And that's sort of the problem that, and in fact, the book that I mentioned in, in my article this morning, uh, by Dr. Jesse Funk, that was released today on Amazon. Uh, he talks a lot about that. It's basically, and you know, the, the reasons are, Very deep and complex, but the bottom line is that all the IT vendors in healthcare we have right now, or not all of them, but most of them, they're solving like little local problems.

[00:13:58] Sergei Polevikov: Like none of them are addressing [00:14:00] big, complex healthcare problems. Little 

[00:14:02] Vic: point systems, maybe. It's a little, it's a little hidden here and there. A whole bunch of little things. 

[00:14:08] Sergei Polevikov: Yeah. One doctor that I know very well once told me that, you know, I open my computer, I have. apps. So my first question to whoever I talked to, uh, you know, he's, he's a very kind of nice kind of man.

[00:14:25] Sergei Polevikov: So he wouldn't say no to anybody on the phone, but he, so his first question, why do I need app number 101? If I, if I only have a hundred apps, when I open my computer on my iPhone, right? So, so the problem is that we. We sell apps. So we, instead of having this, uh, solution that kind of global and addressing the healthcare, every little startup, they have their own add ons, you know, for every little problem.

[00:14:56] Sergei Polevikov: So we have your, your script, you know, this end in [00:15:00] scribing that kind of addresses one issue, one very little tiny solution, which is nice. You know, then you have somebody else, maybe. Try to, um, you know, API to an HR system. So every, um, little solution is fragmented. It's, it's, uh, it's, it's not integrated into some big solution.

[00:15:20] Sergei Polevikov: And this is exactly what Dr. Funk is talking in his book. And that's part of the reason why we ended up here. And there are other reasons as well. But, um, and so when we started, well, yeah, it was actually, obviously we had this great vision that You know what, maybe we can sort of address the big issue, sort of, um, Getting as much information as possible to both clinicians and patients.

[00:15:48] Sergei Polevikov: At the time we felt like nobody really did it in an efficient AI based manner, sort of seamless, and we thought we had a chance to develop something. [00:16:00] Uh, but then we kind of faced all sorts of problems that I can talk if you want to. 

[00:16:05] Vic: Yeah, well, that's the original vision. And then, of course, uh, as you said about building it.

[00:16:12] Vic: I would position it as learning, like what did you learn and what insights, uh, did you uncover that, that I could learn from, or the audience could learn from? 

[00:16:20] Sergei Polevikov: I've learned a number of lessons. Number one is that being a newcomer to the industry, It's, it's a very hard sell, which is kind of obvious lesson, but, uh, especially for us, you know, both my partner and I, my business partner, we came from different industries, you know, finance, fintech, and software healthcare.

[00:16:43] Sergei Polevikov: So to establish that rapport, and you may have the best product in the world, but if you don't have sort of the, the networking aspect. I feel like you, it's very hard to succeed in healthcare. So you need [00:17:00] time, you need networking and it, it takes a lot of time. So that's the first lesson. The second lesson is that, um, even though I mentioned there's so many healthcare AI and digital health apps, there is still this, um, this kind of Adverse reaction from especially big players, whether it's payers or hospitals, when you try to tell them how this particular product can help you.

[00:17:35] Sergei Polevikov: The, the attitude that we faced, especially initially was that, you know, you guys like five guys in a basement, you really think you can help us Cigna, you know, build something in data science. We have 200 of our own data scientists. Um, and that's, that's the true statement. The problem is that They have thousands of other projects.

[00:17:57] Sergei Polevikov: This may not be on top of their list. [00:18:00] We already have a product and you know, all we're asking is that, look, you can test the product, it's already there. Um, but they have this attitude that they know best. And of course, after years, I've been kind of following the, the marketplace, um, Almost none of them kind of built what we were kind of talking about.

[00:18:23] Sergei Polevikov: Uh, it's the, the, the products, especially on the AI side that this big corporations they're building is kind of like either they have some issues and they have to be shelved or they just, the bureaucracy is so high there that they just ignore this, uh, whole market altogether. 

[00:18:44] Vic: So would you say like a non invented here culture?

[00:18:47] Vic: Or more of a, uh, you know, insider with all the acronyms and reimbursement things, but what was the biggest source of the problem? 

[00:18:56] Sergei Polevikov: I think it's the perceived market power [00:19:00] of some of these corporations. In other words, I feel like once you get in some kind of power position in the industry, you know, you, you prefer the status quo, you know, you, you, uh, you look at your cash flows and your revenues and you're like, well, why, you know, why, Break something that's, that's not broken, you know, um, and I feel like a lot of this corporation, they have this attitude, um, and that's the reason that in my opinion, we haven't seen much innovation, especially in AI and digital health in healthcare industry, because, um, in my view, I don't know if you want to call it monopoly or monopsony or I guess oligopoly, because it's not just one company, but in certain industries, My opinion is that, um, there is the Oligopoly power and they wouldn't let newcomers and innovators through, [00:20:00] um, because they, this is how they do things.

[00:20:03] Sergei Polevikov: They, they, they, they're used to doing things in particular manner. And I think once you get that power, you were actually, it's not in your interest to be innovative. Yeah. So that's, that's where we are. 

[00:20:15] Vic: Got it. Obviously, I run a VC fund in Nashville, and that's one of the reasons we started here in Nashville and didn't move to New York, Boston, Silicon Valley, because I think in healthcare, particularly in healthcare, the, uh, you know, human life is at stake, much more so than in other industries, and so that means that the regulatory bodies is.

[00:20:40] Vic: have a lot of power and, and will flex that power. That probably is good to protect public health, but it also can be overused or hidden behind to protect other things that aren't necessarily for the best for the patients or, or the providers or the payers really, anyone. [00:21:00] 

[00:21:00] Sergei Polevikov: I agree. It goes both ways. Um, I think the history of antitrust has shown that in my opinion, there could be some positives when.

[00:21:15] Sergei Polevikov: Company or corporation gets too, too big. Uh, like we've seen in the history with, you know, with, uh, with, uh, um, what's the Bell, AT& T slash Bell. And, uh, where's Microsoft, you know, they're broken up and actually new innovations came out of that. Uh, but I feel like in healthcare in particular, I don't, I don't see the regular to reaction.

[00:21:40] Sergei Polevikov: The, the FTC and department of justice. At least from what I'm reading, they're going into some regional and mid sized players, you know, which I guess is justified, but I wonder why in healthcare they're not going after, after the big guys. So it's kind of like, in my view, kind of. very [00:22:00] misplaced, the effort that they've been making.

[00:22:03] Sergei Polevikov: Um, I'm not trying to say it in their job, but I'm just kind of questioning what exactly, you know, why they're going to, you know, some local, after some local players, as opposed to addressing the big issue in the industry. 

[00:22:16] Vic: Yeah. I'm not sure about the FTC regulation, but as far as like HHS and CMS, FDA, it's, uh, it's sort of like incremental change.

[00:22:25] Vic: They test things. And then as soon as. you can see that it's safe and effective, then they will begin to allow innovation in. So, sitting here in Nashville, we're able to work with, uh, the big provider groups and really just try to understand what do they want to make improvements on in the next 6, 12, 18 months, uh, as opposed to just sort of changing everything whole cloth.

[00:22:51] Vic: Not that I don't think that would be valuable, I just think it doesn't really work so well in healthcare. Silicon Valley has several times. Tried that and it, [00:23:00] it gets stuck in the regulations because it's human life's at stake. So tell me where it, Well. AI is right now. You're also still on the board, uh, but you're no longer, um, CEO running it anymore.

[00:23:14] Vic: Is it still around and is there a product that we could test and talk to the audience about what, uh, checking it out? 

[00:23:22] Sergei Polevikov: Yes, absolutely. Our initial idea was to give it. It's directly into the hands of patients. Uh, but over time we evolved and as you mentioned with regulations, it's really tricky to, um, you know, to do direct to consumers.

[00:23:39] Sergei Polevikov: So now we work directly with business. Mainly, uh, medical practices and hospitals. Um, I think the best way to test a product is to sign up for a demo on our website, will. ai. health. Um, we have, well, at the top there in big letters, we have the demo scheduler. [00:24:00] 

[00:24:01] Vic: Yeah. So I'll link to that in the show notes.

[00:24:03] Vic: What is the most common use case or what, what, uh, what do people expect? What, uh, what does it deliver for them? Say I have a medical practice with, uh, 30 docs. Is that the right profile? 

[00:24:17] Sergei Polevikov: It's a very good profile. Yes. Uh, that the size approximately we're, we're working with usually 10, 20, 30 physicians. Um, right now it's actually the very, I would say sophisticated, uh, expensive IT system for, uh, medical practices.

[00:24:37] Sergei Polevikov: So we, we started with AI, but because of other needs and other requests, uh, right now, it's basically a. I would say full blown digital front door, uh, system. So you can, um, but in that other day, it's a communication device between patients and doctors. [00:25:00] So the AI, the, um, technology, the automation makes it that communication easier.

[00:25:07] Sergei Polevikov: So in many cases, you don't have to call the office. if you're patient, you don't have to sometimes to go there. Of course, if it's something extreme, you know, obviously you, you, you do what you do, but the idea is, especially for more routine things, uh, routine symptoms or routine questions. The organizations we work with, they are asking their patients, Hey, you know, you can go to the system 24 seven.

[00:25:35] Sergei Polevikov: You can open this app on your iPhone. Um, you can sign up for telehealth. You can chat with a nurse. You can, you know, access front desk. You can schedule something. You can access your actual medical records. Without, without going to Epic. Now there is a, there's an asterisk there that, you know, it, it really [00:26:00] kind of depends, you know, what, um, you know, where you are, because if obviously if you have a doctor outside of our system, then obviously you're not going to have, you know, Have that, those records can, can only 

[00:26:15] Vic: see what the doctor has access to.

[00:26:17] Vic: I would think, well, 

[00:26:18] Sergei Polevikov: whatever that practice has access to, the patient has access to. So, but, but patient can actually add their, their own medical records. So at the advantage is that they can quickly access our AI summaries and we have the tool called, um. the concept cloud, which is basically in one visualization, you can see all of your problems.

[00:26:42] Sergei Polevikov: Sort of, if you had something very persistent over the years, it would say something like, you know, uh, diabetes or something. And, and it would actually, when you put a cursor on it, it would actually tell you, uh, what's your dosage, for example, for medication, for the particular problem. So it's, uh, it's a lot of [00:27:00] sort of, you know, automation, simplification using AI, but also using our other technology.

[00:27:06] Sergei Polevikov: Uh, so again, saving time for patients, making triage, making communication with the, uh, with the office more efficient, uh, that's been the end of the day, what it's all about. Again, we started with AI. We evolved into this. digital health system. 

[00:27:24] Vic: Yeah, it's almost a practice management system with patient communication as a focus.

[00:27:29] Vic: Is 

[00:27:30] Sergei Polevikov: that correct? 

[00:27:32] Vic: Okay. And, uh, I'll send people to the website. They can check it out. Um, and is it in market where you're in production and can sell to practices now? 

[00:27:43] Sergei Polevikov: Absolutely. Yeah. We have live patients. We have live doctors. Yeah. Every day I talk to patients about this. Right, 

[00:27:50] Vic: right. Okay, good. And then, um, you also started this, uh, Substack newsletter called AI Health Uncut, and it's a great [00:28:00] newsletter.

[00:28:00] Vic: I, I, that's how I first found you is, is looking at that, trying to catch up on all the AI changes going on. Uh, you had one come out today as you've mentioned, reviewing a book, but talk, I don't want to dig into that in a second, but talk more about the overarching themes that you cover in the newsletter.

[00:28:20] Vic: Um, it's really kind of a deep dive into AI and, um, healthcare and how the startup world because so much just changing how it all is fitted together. Is that fair? 

[00:28:31] Sergei Polevikov: That's fair. What made me do this is, um, just a lot of questions and not a lot of, I would say, honest information around, Um, AI and healthcare, venture capital investing in healthcare, um, certain products and startups in healthcare.

[00:28:59] Sergei Polevikov: Yeah. There's a lot of [00:29:00] 

[00:29:00] Vic: hype and marketing buzz, but you're much more direct and honest. I mean, you might get excited about a, about a new technology, but you also, I feel like the newsletter is very clear and there are some things that are overhyped. And some things that maybe are not getting enough attention.

[00:29:17] Sergei Polevikov: No, I appreciate it. I, again, folks must realize that I came from math and AI background. So I'm, I'm, I'm all for technology, but I feel like a lot of people in the industry, they have some. Some alternative motive for fighting up certain technology. And so, uh, you know, I, I'm trying to sort of showcase my writing sets sort of independent and neutral, but you know, uh, because I'm in the industry, certain people may suspect that I'm doing also something that may not be totally independent, but you know, from.[00:30:00] 

[00:30:00] Sergei Polevikov: My personal perspective, this is separate from my business. This is separate from anything else. This is just my opinion, my honest stories, insights that I feel like Yeah, at least when I looked at certain information and insights, I couldn't find it. And so being honest, sometimes being, uh, you know, on the receiving side of some very, uh, you know, spicy comments and, uh, you know, I don't want to say hateful comments, but you know, when you write in this provocative manner, some people tend to get upset and that's okay.

[00:30:35] Sergei Polevikov: But I feel like this critical. look into healthcare and technology and AI applied to healthcare is what we need at this point in time. My final goal goal is to, uh, make sure that we understand both pros and cons of new technologies. [00:31:00] and also how we implement new technologies in healthcare, um, responsibly and safe.

[00:31:10] Sergei Polevikov: And so that, that's kind of the bottom line. Um, and again, I'm looking at both positive and negatives. It may seem that I have a lot of criticism of, Particular products and particular technology, but at the day, I just want to kind of find the truth. So that's, that's why I started the newsletter. 

[00:31:30] Vic: And so this week you're reviewing a book, uh, Unicorns, Hype and Bubbles by Jeffrey Funk.

[00:31:37] Vic: I have not read. I just heard about the book this morning when your newsletter came out. Um, but let's talk about the book and then, uh, maybe talk about a couple of sections in there. So, um, how did you come across the book? Do you know Jeffrey? Uh, how, how'd you get associated with him or do you just get asked to do it?

[00:31:56] Sergei Polevikov: Oh, that's to do it. I've known [00:32:00] Jeffrey's writings, especially on LinkedIn. He posts something every day, something very, I think, uh, insightful. And so I got to know him through, uh, social media, I guess, and. I don't know, just to read writings because I've been, I guess, his reader for, you know, at least a couple of years now, I guess.

[00:32:21] Sergei Polevikov: I know he's thoughtful and I think respectful, at least in that LinkedIn community person. So he reached out, um, I said yes, um, I didn't promise anything. But the funny thing when I started reading the book, I'm like, Oh my God, it's almost like. All of my stuff that I've been writing, it's like almost, uh, rhymes very close.

[00:32:49] Sergei Polevikov: And I was like, this is, this is, this is like eerie almost. Uh, but yeah, I mean, great book. I like, uh, I actually made a comment, you know, why don't you have [00:33:00] more, you know, charts and drafts? Those like visualization is so important. And you actually get back to me saying, you have to talk to my publisher because that's, that's not, that's not, uh, what I wanted.

[00:33:13] Sergei Polevikov: Um, so there's a reason that. I guess they minimize the number of graphs there. Um, but other than that, I mean, I thought it was very thoughtful. He apparently, you know, he looks like he's had some, uh, you know, 20, 25 years of experience in the industry. Um, you know, did previous writings. I actually read a couple of his articles even before this book.

[00:33:34] Sergei Polevikov: Um, but what I like is that, you know, I came from academic background. So evidence. And data are critical to me. And the fact that he is almost every sentence, he has a citation or reference that tells me that, you know, he spent quite a bit of time on this research. 

[00:33:57] Vic: Yeah. So, um, in your summary, you [00:34:00] talk through kind of, uh, Unicorns hype bubbles the gardener hype cycle.

[00:34:04] Vic: Are we in a AI startup bubble now or not? I think we are. I think you came out that we are. Um, but what I wanted to focus on, you, you dive into Tempus AI, Palantir and Babylon, uh, in a really interesting way, uh, sort of a compare and contrast Three different companies that are all, you know, taking a, a version of AI insights or intelligence and bringing it to market.

[00:34:35] Vic: Maybe talk through your analysis there. 

[00:34:37] Sergei Polevikov: Yeah. So Tempest CI was one of those companies, I guess, like one of rare IPOs this year. Uh, we, we don't have many, uh, and there, I think there are good reasons for that or I guess bad reasons. Okay. Thanks. But that was one of the moments that, you know, people get excited.

[00:34:55] Sergei Polevikov: Um, they. You know, their latest route [00:35:00] was like 8. 1 billion and it is with so many other IPOs it tanks like for the first seven days, it lost like 37 percent I was, I was writing, um, about and, um, it's, it's back now again, I, I'm not, you know, I don't want to kind of speculate on, you know, stock price. I think this particular company Tempus.

[00:35:28] Sergei Polevikov: It has a lot of things to sort out. I think the fact that it's, you know, it's looking at the balance sheet looks like it's moving in the right direction, but obviously as with most of digital health companies, you know, profits are not on the horizon yet. 

[00:35:49] Vic: Yeah. 

[00:35:49] Sergei Polevikov: I think it's hard. 

[00:35:51] Vic: Getting public is a huge milestone for any company.

[00:35:55] Vic: And it's also quite difficult to be a small, [00:36:00] growing, high growth health care company in the public market where you have to every quarter report, um, and you sort of contrast that against Palantir and Babylon. Palantir has partnered with, uh, Uh, some large health systems that I know of, Tamper General, LifePoint, some others, uh, they seem to be doing well.

[00:36:20] Vic: Uh, Babylon had the opposite experience, where they went bankrupt, um, maybe 19, 20 months after they went public. Um, and Tempus is, is sort of a question mark, right, you know, like, are they more like Palantir or more like Babylon? That's, that's what you're exploring. 

[00:36:38] Sergei Polevikov: Yeah, I was exploring, I actually wrote about this a few months ago.

[00:36:41] Sergei Polevikov: Uh, so I was kind of referring to that previous research. So in the previous research, and you know, I could give it the link as well to that article. Uh, but I was kind of thinking about it, you know, back to my Wall Street days. And I mean, healthcare is a little different, you know, [00:37:00] volunteer is obviously not a healthcare.

[00:37:01] Sergei Polevikov: Well, they have application in health, but it's a, it's a, it's a data company. It's an AI company. And that's why I put Temples in that category, because even though, um, the, their biggest segment is still, uh, you know, medical lab services and what they call genomics, uh, the business segment. But I dunno, I, I, I feel like in terms of margins, It's their, I expect them to develop their data segment, you know, pretty quickly, you know, cause that's, I think that's, that's, that's where, you know, the, the, um, you know, eventually, hopefully the, uh, profits are going to come from.

[00:37:45] Sergei Polevikov: Uh, but in terms of comparison, I have this, uh, what I call 21 criteria, IPO evaluation dashboard and that other article actually look, um, at the dashboard from the prism of these three companies. [00:38:00] And there is no, you know, there's no definite answer. Um, I, I thought Temple was kind of in between just because it kind of started out as maybe Babylon in terms of their claims, their, their AI developments, um, and sort of, you know, healthcare projects.

[00:38:21] Sergei Polevikov: Um, but I think in the end of the day, I feel like they're more of a data company. And that's where they're close with volunteer. The reason I chose volunteer because I was fascinated how, you know, I guess, disciplined they were, it's almost like, uh, doesn't happen very often, but it's almost like an, an Amazon story that, you know, there have been.

[00:38:46] Sergei Polevikov: Constantly criticized by analysts, you know, Oh, you know, it's like negative cash flows and, you know, new projects and, uh, new, new liabilities. But in the end it, it all [00:39:00] paid off. I mean, they, they were doing a lot of projects and, you know, last year they, they finally broke even, uh, they found a path to monetization.

[00:39:13] Sergei Polevikov: And 

[00:39:13] Vic: the best way to silence the bears is to, is to actually deliver. Right. 

[00:39:19] Sergei Polevikov: And, um, I think volunteer, and again, I have this dashboard, but, um, you know, they have, even when they were losing money, you know, I was looking at, like, Before IPO and after IPO, you know, balance sheet, they're pretty strong in terms of this, all this app scores and, um, accounting metrics, um, unlike let's say Babylon.

[00:39:44] Sergei Polevikov: So, you know, so you can't really predict, like nobody's claiming that they can see the future, but sometimes, you know, you can kind of tell looking at the balance sheet in combination with the, what kind of products they're developing and what kind of R and D they're doing. [00:40:00] Uh, you know, Babylon. You know, obviously in my opinion, it was fraud.

[00:40:06] Sergei Polevikov: Um, the founder. And I guess the board didn't reveal that basically there was nothing there under the hood. Uh, they were claiming a lot of very advanced AI and the day, it was almost like a spreadsheet that was not capable of doing much. Uh, and that's, in the day, that's, that's why they went down. Um, so 

[00:40:27] Vic: I'll link to the, I'll link to your previous newsletter.

[00:40:30] Vic: If you let me know, I think it'd be great for the audience to have that dashboard because even though it's not. Perfect. There's, there's several aspects to it. It can give a lot of clarity on what to look into more or where to, where to be nervous about something where, where you might see that it might have a lot of momentum.

[00:40:50] Vic: Yeah. Most like a useful, uh, useful cheat sheet to like put these things on and then be able to sort of compare one company to another. [00:41:00] 

[00:41:00] Sergei Polevikov: Yeah. So again, it's kind of funny, like to summarize, You know, no one can, can see the future, but I, I find it interesting to find, uh, this, you know, analogous to maybe paths to either success or failure.

[00:41:16] Sergei Polevikov: And I feel like the reader or, you know, whoever is interested in the analysis just have to make their own conclusions, uh, essentially. But again, the parallels are, are kind of interesting. That's what I always kind of been fascinated with, you know, you cannot repeat history, but sometimes you can find some little things from history.

[00:41:38] Vic: So then I want to talk about this concept of the, the healthcare innovation mirage. I think it's what you called it, where we're, we're sort of building APIs. But those aren't really breakthroughs, they're connectivity. Talk, talk through that, that concept, um, and then I want to ask you about sort of how we fit into the [00:42:00] existing, um, monopoly or misnopoly, you know, framework by doing a breakthrough.

[00:42:08] Vic: There's like, there's a tension there, I think. 

[00:42:10] Sergei Polevikov: There's definitely tension there. Um, in today's article, I was kind of combining my knowledge with the wisdom of Dr. Fung's book. So I think Mirage was my term, but there were a lot of good stuff from his book that I cited. So first of all, he is going. Almost like top down in terms of innovations.

[00:42:31] Sergei Polevikov: I'm more kind of bottom up. Here's what I mean. So he, he started talking, especially beginning of his book about sort of grand scheme of things he was saying, you know, just look at the century of innovation, you know, where, where, where we hundred years ago with, you know, electricity and cars and so many, um, you know, great innovations in [00:43:00] pharmaceuticals.

[00:43:00] Sergei Polevikov: Um, and so from, in his view that Uh, what we've had over the last maybe, you know, two, three, four decades, um, there were some great innovations. I would say like, you know, internet and smartphone in my view are actually not marginal. Dr. Funk. It makes this claim that, um, you know, for the most part, those are marginal and insignificant innovations.

[00:43:34] Sergei Polevikov: So he was giving examples, for example, you know, the invention of, uh, all led lights, right? So it's like, well, yeah, they're, they're better than LCD lights. They are more efficient, they, they, you know, you, you, you don't replace them for many more months. But in terms of scanners, impact of human lives, it's like, well, no light [00:44:00] versus light is a much bigger impact than 

[00:44:02] Vic: the creation of the light bulb from nothing is a, that's a sort of step function innovation versus maybe an incremental innovation.

[00:44:11] Sergei Polevikov: Yeah, the same thing he did, he was comparing electric vehicles with the Ford's like, like Model T, right? So you have, you know, you've been using, you know, horses and in buggies and then all of a sudden you can much faster get from point A to point B. So electric is nice, but it's like in the end of the day, you, you get it from point A to point B.

[00:44:32] Sergei Polevikov: Um, and so he kind view was more like top down, um, and then he was going into more detail. So I think those details, especially for healthcare, that's where our views converge there. So, you know, I've been in the industry for five years and, um, you know, I've been to conferences. I've met some great people.

[00:44:56] Sergei Polevikov: There's so many, I won't just want to say upfront. There's so many, [00:45:00] you just wouldn't believe how many great thinkers are out there who are thinking every day. Um, whether it's with the medical community or data science community, or, um, economists community, then have so many great ideas for healthcare. Um, but in my view, nothing.

[00:45:21] Sergei Polevikov: Um, Really kind of disruptive for no major breakthroughs have been happening. Uh, and I've had a lot of, you know, I guess, beef with so many people, especially in investing community and startup community. Again, I'm not saying that there, there, there is lack of great ideas. I'm just saying in terms of products, um, I haven't seen much sort of breakthrough innovations.

[00:45:49] Vic: Yeah, I mean, I think for me, it's very clear that. There has been very strong innovations in the treatment of disease. So take cardiac [00:46:00] disease or, I don't know, almost any disease. There's new medications with pharmaceuticals. There are new surgical devices, new technologies, new diagnostic tools. That has been pretty strong over the last couple of decades.

[00:46:16] Vic: And then when you think about how we take care of patients and the throughput and workflows And how we decide what to pay for and is it fair and all the adjudication of the business side of healthcare and how the patients work through the system, that has not seen as much innovation. And so I think we, that's the tension that was a lot like inside the operating room or in pharmaceuticals, we've had pretty strong innovations, but not in the application of the overall system.

[00:46:49] Sergei Polevikov: Yeah. I actually had a conversation with, uh, my cardiologist the other day. Um, you know, I heard this issue that I keep kind of going back to him, but, [00:47:00] um, and I asked him, I said, you know, what does it take for you to kind of, uh, even like marginally change your routine a little bit, because I'm seeing you kind of coming into the room, you know, not to be kind of like very offensive, but you know, you're opening your epic, um, you know, you're not looking at me, you kind of type in something.

[00:47:22] Sergei Polevikov: If I would offer you something that would maybe record what you're doing, and you, you may be like spending more time with that. Work for you. He's like, I doubt it. You said, uh, first of all, I'm part of a corporation, so they haven't really, you know, since Epic, they haven't really, in his opinion, kind of, um, offered any kind of big time technology tools.

[00:47:50] Sergei Polevikov: Uh, he said, I haven't used AI. Um, and you know, we talk, I mean, I, I live in Long Island, so it's like, you know, pretty populated areas. It's, it's not like we. you know, have [00:48:00] lack of like technology or doctors. So, and I think it's kind of a general attitude that, that, you know, certain, I mean, I know, like, I work with doctors that are, some of them are such champions of technology, but I think, I think, um, I think most of the medical community, they're still very reluctant and there are reasons for that.

[00:48:22] Sergei Polevikov: And I don't know one reason, by the way, and I've been writing about this, I have this article called, um, Doctors Doctors go to jail, engineers don't, because for every technology doctors use, they're actually responsible, um, uh, for the outcome of that technology, especially if it's outside of the so called standard of care, as you know.

[00:48:44] Sergei Polevikov: Um, and so there's a barrier that I feel like we need to overcome. And, um, And that, that's, that's, I think that's what we have to address when we're talking about the future of healthcare. 

[00:48:59] Vic: [00:49:00] Now, you have been, one of the things that I like, I mean, I'm a venture capitalist. One of the things I like about your writing, and one of the things I wanted to have you on to talk about is, you've been, I think it's fair to say, decently critical of the VC markets overall.

[00:49:14] Vic: The business model of venture and the whole process has some challenges. Um, but we still need to get innovation brought to market in healthcare. So maybe, how would you talk about the VC markets from your point of view? Um, I want to, I mean, of course I am a venture capitalist, but I want to be open and listen to the criticism and, and try to understand it.

[00:49:39] Vic: Uh, hopefully I won't screw up any startups. or as few as possible. Uh, and then maybe let's talk about like, let's try to think of an example where, where that could be illustrated. 

[00:49:49] Sergei Polevikov: Yeah. So I've been writing about this a lot and you know, Again, as you, as we talked about, I am coming from finance background.

[00:49:57] Sergei Polevikov: I've actually, as part of my [00:50:00] responsibilities when I was working on Wall Street, it was actually managing the multi asset portfolio and, uh, private equity and venture capital was part of that. And then I was actually on the other side. I was, um, I've been NLP, um, in, um, uh, some of the venture capital and private equity funds.

[00:50:18] Sergei Polevikov: So I kind of have, I feel like. And you've done your own 

[00:50:21] Vic: startup. You have all the different sides of it. 

[00:50:25] Sergei Polevikov: Yeah, exactly. So, and, and that's, that's where my observations and my analysis are coming from. It's almost like chicken and an egg story. I don't know which came first, but I feel like, you know, the venture capital community definitely feel, feel in a pinch there's, uh, in terms of, you know, performance for a lot of these funds.

[00:50:49] Sergei Polevikov: Um, in terms of, you know, picking the, the next roof, next Uber's or next Airbnb's. I [00:51:00] think we actually have many, many more venture capitalists companies ever than ever before. Uh, on the other hand, performance on average has suffered. Um, 

[00:51:16] Vic: And I think those things are related. I mean, it seems like they're related.

[00:51:20] Vic: There's a finite number of. Really talented management teams with great ideas every year. And if you, if you quadruple the number of venture capital firms and you don't change the number of great founders. You either get price competition and those, those great founders are able to seek a much higher valuation, which of course reduces the returns to VCs or each VC doesn't get access to the same number of opportunities that they would if there were a lot fewer VCs.

[00:51:54] Sergei Polevikov: Right. Um, and you know, I don't mind the [00:52:00] number. I just think they, the whole process of asset allocation, especially in healthcare. Maybe it should be rethought, uh, how we do it. Um, so in, in healthcare in particular, as you know, it's been very challenging to find a profitable, uh, company. And, you know, but, you know, these things, they, they feel like they need to allocate, especially there's some specialty funds, uh, specifically for healthcare.

[00:52:34] Sergei Polevikov: Um, I, I feel like they're, they're, you know, obviously they haven't been very good. The performance suffered, uh, in every conversation I've had with venture capital, they're like, Oh, you know, um, we, we have this great company. And by the way, Sequoia has that company as well. And that was kind of formed the reason we looked into the company, uh, [00:53:00] that, you know, one of the, one of the big guys picked it.

[00:53:02] Sergei Polevikov: So I think the whole notion that when the industry started 80 years ago with Arthur Rock and all this other great legends. I think we evolved into something very different. Um, I think a lot of people are actually, if you look at big venture capital firms, You know, the people, at least I've been talking to, they actually, some of them don't even know healthcare very well, you know, and they're investing in healthcare.

[00:53:30] Sergei Polevikov: So we, I think came the whole kind of big loop from people being actually from the industry. So they know the industry inside out and that's how they invest. So people may be coming from business schools, you know, straight into the C companies. And again, I'm, I'm talking about like, you know, large players here because I think that's where most of the.

[00:53:53] Sergei Polevikov: Problems that are coming from. 

[00:53:55] Vic: So let's define that. Uh, what would you say a large fund, how would you [00:54:00] define a large fund? 

[00:54:01] Sergei Polevikov: Over a billion, let's say. Okay. It's some management. 

[00:54:04] Vic: Yeah. So 

[00:54:05] Sergei Polevikov: we're talking big brand names. Yes. Right. We're talking about big brand names. I 

[00:54:10] Vic: think, I think, uh, I mean, I am a believer in small funds where the 2 percent management fee is enough to cover your office costs.

[00:54:21] Vic: So it'd be just quick math. Say it's a hundred million dollar fund. You have 2 2 percent of a hundred to run your office. And, you know, you could have an okay salary if you have three or four people working there and you have expenses, but when you go to a billion, now you have 20 million, I think per year to, to spend just on overhead and it's, doesn't scale that way, right?

[00:54:46] Vic: Well, you still, maybe now you need to eat people, but it's very profitable. And so the incentive kind of flips when you get to a very big fund. And the 20 percent carried interest like where we're aligned with the LPs and trying to make money for [00:55:00] them because we get a share of the profits in a small fund.

[00:55:03] Vic: That's really like for me. That's really important. I have a little 8 million fund. So the fees are almost nothing. I need to live on, you know, really plan for the carried interest. My partner has a 55 million fund. Those small funds, I think you're very aligned with the LPs. And as you get bigger and bigger, 500 million, 700 million, a billion, 2 billion, the 2 percent management fees are a lot of money.

[00:55:29] Vic: So the, the 20% carry becomes less of a driver and it's much more about the getting the money out so you can raise the next fund and keep, keep the, you know, the money train of the 2% going. Is that a fair way to characterize it? 

[00:55:44] Sergei Polevikov: That's exactly right. So at 1 billion there's a saying, you're probably aware that, you know, 2% becomes larger than 20%.

[00:55:53] Sergei Polevikov: So that, that. You know, when I was on Wall Street, exactly what happened in the [00:56:00] hedge fund industry about 15 years ago started happening. Um, a lot of these funds found out that, you know, they can't really generate alpha. Um, and at least in the old days, they had the story that, oh, you know, we have diversification, you know, you, you, we're not like SMP.

[00:56:18] Sergei Polevikov: Well, guess what? They became like SMP and they lost alpha. And so. Especially, you know, the bigger, uh, guys in the hedge fund industry, uh, they can have already two mutual funds because, uh, because one or 2 percent for them is that size, uh, you know, when, when you're not generating alpha anyway, you know, Um, mutual fund is more accepted because they have great distribution system and, um, great, uh, uh, sales channels.

[00:56:50] Sergei Polevikov: And so a lot of them was like, you know what, we can, we can just, just charge one, one and a half, 2%, uh, still kind of. Uh, you know, [00:57:00] be a hedge fund, but on paper be, be a mutual fund. And I feel like to some extent, that's what's happening right now with the larger players in the VC industry. I, you know, I have to say they're, they care less and less about their portfolio companies and kind of care more how they structure themselves.

[00:57:20] Sergei Polevikov: And so the 2%, as you mentioned, because you're kind of a big deal for them. And if you think from that perspective. It doesn't really matter, you know, I don't know what that point is, whether it's a hundred million, a billion, 10 billion, but at some point they're like, well, you know, we are, you know, leading, uh, VCs in, in, in the funding round.

[00:57:43] Sergei Polevikov: So we can pick this company. And then after a few rounds, we can just unload it to some other soccer, you know, and make money this way. It doesn't matter what the company does. It doesn't matter if there is a growth opportunity, profitability. Absolutely doesn't matter, you know, especially for [00:58:00] those bigger guys, uh, because, you know, later, you know, later last, I would say a few years, that's become unfortunate, especially after the, um, sort of COVID pandemic hype didn't work out for Soundless VCs.

[00:58:16] Sergei Polevikov: And they started losing money. This is the tactics they're using now. I, I, I'm sorry. This was definitely, this was happening. Um, and in fact, I was, you know, reading some recent research. Um, I am more and more inclined to think that the reason that Sound, especially this larger VC companies are very tentative and, you know, uh, don't want to go, don't want to lead the company into IPO anymore is because they're making more money in, in, in, in secondaries.

[00:58:54] Sergei Polevikov: You know, they, they're, I was looking at statistics from pitchfork and I can [00:59:00] share with you after the call, um, but the, their. More startups, uh, I don't remember if it was on unicorn side. I think it was a general number, just, just in general, there are more startups than ever. They're doing MNAs instead of IPOs.

[00:59:16] Sergei Polevikov: And there are more startups that ever are doing secondaries as opposed to IPOs. Because for those who see first, it's an easy way out. With IPO, there are all sorts of, as you know, there, there are all sorts of regulatory requirements. Now you're dealing with lockup periods. It's, it's not as easy to, uh, to get out.

[00:59:34] Sergei Polevikov: And so then they say, why do IPOs if, if I can just unload my shares to, to, to some soccer? You know? So if you think about it like that, and again, I'm, maybe I'm being extreme and I kind of generalizing. I'm sure there is some great, no, I mean, I, 

[00:59:47] Vic: I, I think I agree with there. I, I see a need for. A seed investor or series a investor who actually Understands health care and [01:00:00] importantly as connections with the payers and the providers and the tech providers and the device companies and knows where is there a gap that we need to to fix as opposed to maybe something that could be too big and the industry is not ready for yet.

[01:00:17] Vic: There's a lot of timing issues around this because of the regulatory environment. I mean, obviously I'm biased because I run a small fund, but a small fund where you're, you're sort of aligned with the LPs and you really help the management teams. I think that can be really valuable and that also gets completely polluted if you raise too much money because if you're, if you're managing a billion, 2 billion, you can't be doing a 500 K investment in a seed company, just not worth your time.

[01:00:48] Vic: So you end up doing 50 million in a growth thing and it becomes, you know, sort of a narrative. Can we, can we tell this narrative and get, get a lot of excitement around it and then we'll sell the [01:01:00] shares. Whether it's an IPO or secondary or M& A, we'll sort of get the story spun up and then we'll, we'll get out of it.

[01:01:09] Vic: And that it's not that that never works, but that doesn't really create value for the healthcare system overall. 

[01:01:15] Sergei Polevikov: I agree. And unfortunately, statistics and the data support that. Um, for example, and you know, I've been looking into something, I'm actually writing an article on that, but, um, you know, another sort of number The, the, the, the, the amount of earnings that digital health companies go on IPOs generate that are VC backed versus non VC backed.

[01:01:46] Sergei Polevikov: And you see that dichotomy there. If you look at those companies and they're about equal number, I think right now, but I was also looking at the ones that, that disappeared, obviously, because we cannot have a survivorship bias. There's definitely a difference, uh, [01:02:00] both segments of suffering, but Uh, just statistically speaking, VC backed companies did much, much worse in terms of earnings.

[01:02:11] Sergei Polevikov: So it's very negative earnings and as a result, very negative, uh, stock price performance. So we're talking about, I was doing this analysis. We're talking probably around 70 companies right now, and it's about half, half right now. FVC backed, uh, F non VC backed. I think I was looking at the U. S. side only, not, not globally.

[01:02:31] Sergei Polevikov: Um, so again, I mean, not to kind of throw, uh, more gas into the fire, but I think, especially in healthcare, we Have to think, uh, you know, definitely innovators need ways to, uh, fund their projects, you know, that, that's, that's, that's undeniable. Uh, but I feel like we need to think the way we found it, you know, maybe, right.

[01:02:55] Sergei Polevikov: Maybe, um, you know, smaller, uh, VC funds [01:03:00] need to need to step in. I feel like with smaller guys, there's more, um, communication going on. You know, if Sequoia comes in and, and again, I'm not saying like, I'm sure every sponsor would love to have business with Sequoia, but on the other hand, I feel like they, they come in and they say, all right, this is how we going to do things because our next goal is our, you know, series B or what our series C now, you know, so here's what you have to do, you know, here's what you have to do with your, with your pitch, with your direction of your company.

[01:03:31] Sergei Polevikov: So all of a sudden they're becoming this big bosses, you know, and I feel like that's, That's why a lot of this start has been underperforming. And as a consequence, the next generation of innovators are saying, you know what, you know, I'm saying, Oh, I'm seeing all these failures anyway, like nothing gets through.

[01:03:51] Sergei Polevikov: So instead of me being an innovator, I'm just going to have some low, low hanging fruit. Like have this open AI API and, you know, call it a product [01:04:00] and, you know, try to sell that. So some great people basically being rational say, look. You know, I cannot get through in this industry, you know, even if I created the greatest product ever, I cannot get through for all the reasons that we mentioned on this podcast, you know, so I'm just going to do the easy thing and if it doesn't stick, I'm going to move on, you know, and if it does stick, I'm going to ask for more money and I don't think that's the solution.

[01:04:25] Sergei Polevikov: This is not how things are supposed to work, uh, in any industry, you know, not to mention the ones that are dealing with, uh, with human lives. 

[01:04:34] Vic: Yeah, I agree. I mean, I think it's both ends, right? Like, we must have, um, a process to help companies build real value, build a sustainable business that delivers value to a physician group, or to a patient, or to a health system, or to an insurance company.

[01:04:54] Vic: It can't be a figment of someone's sort of hype cycle. It has to be actual value [01:05:00] to the end user and you charge them less than it's worth to them. That, that's the American way. Like that, that has to be at the core of what happens. And of course there is, um, marketing in great companies that are really delivering value.

[01:05:16] Vic: You still have to market and tell your story But it can't be all, I don't think it can be all of one, it can't be all narrative and hype. You also can't be adding value, but not be telling people about it. And I think the pendulum has swung sort of too far to the very large funds, sort of resting on their heritage of decades of success, but really now optimizing for the quick win, the narrative, the hype.

[01:05:45] Vic: And I think it's, it's now swinging back to actually building products that people value and will pay for. So you have a sustainable business. 

[01:05:54] Sergei Polevikov: Buying one. Experts to be running those [01:06:00] allocations, uh, you know, I want them to speak the same language as the founders. I feel like. In the last couple of decades, as you were saying, Pendulum swung into complete extreme when, you know, some, some Wharton MBAs are, are running those, uh, allocations.

[01:06:19] Sergei Polevikov: And I feel like the results we are observing right now is that, you know, the industry hasn't moved anywhere, innovation stopped and, you know, venture capital haven't delivered their returns to, to their LPs. 

[01:06:34] Vic: Now, I want to try to end on an optimistic note, if possible, I think, you know, AI better than I do, but, but I think AI is, uh, really empowering very small groups of people to do much more impactful products.

[01:06:51] Vic: Even down to, it could be two people, one person. Um, I agree that does not make sense to build your company on [01:07:00] a closed proprietary model that could change pricing at any time for tokens. That, that is idiotic. And if you're doing a startup, relying on OpenAI, Gemini, Microsoft, uh, tokens, that does not make sense.

[01:07:15] Vic: I mean, you could have that, but you also need the open source, resilient, like going to be sustainable because you control it. But I think if we can get there, technology could bring the pendulum back and kind of level the playing field for smaller groups and smaller funds like myself to really compete and add value.

[01:07:33] Vic: Uh, do you think that we could have some hope that, that this new technology, even though it's causing a lot of confusion and it's a new product coming out every day, it seems like that that's also going to empower a really smart entrepreneurs to do great things. 

[01:07:48] Sergei Polevikov: There is hope. I, I told him, the first thing I said is that there are great people in this industry.

[01:07:53] Sergei Polevikov: And we actually acquired some great people from outside, from, from, you know, from Silicon Valley that [01:08:00] in my opinion, just from my interactions, from the conferences I'm going to, and there are a lot of great events happening here in New York, uh, they're really concerned. I mean, they're, they really care, but at the same time, you know, when, when you run a business, you.

[01:08:15] Sergei Polevikov: Want to run a sustainable business. And so, you know, they're thinking as well, if I can run a sustainable business, you know, why do it at all? And so a lot of great ideas, uh, but we need to create a system within healthcare that, uh, you know, those ideas will be implemented and, uh, you know, helping people in real, real life scenarios.

[01:08:39] Sergei Polevikov: Um, so for that to, you know, for that to happen, I think, um, you know, I don't know how, but the industry structure is working, I guess, innovators. 

[01:08:54] Vic: Well, don't you think a lot of VCs will fail if you don't return funds? [01:09:00] eventually the VC fund fails. Now, it may be slower than, definitely slower than I would like, maybe slower than you would like, but I have faith that eventually, if you're not creating real value and delivering returns to LPs, you won't be able to raise a new fund.

[01:09:16] Vic: And that will sort of self correct to where we have a, whatever the natural number of, 25, 50, 100, 200 million size funds that are actually at a value that might be more sustainable. I don't know how many of those, but, um, obviously I'm biased, but I think there's a need for, there's a need for seed funds and aid funds because you can't.

[01:09:39] Vic: You have to have some capital to get going. 

[01:09:43] Sergei Polevikov: Right. And from technology standpoint, so that's on the VC side from technology side, again, as I mentioned, uh, so many times we need to resolve that liability problem because, you know, we can talk about marginal solutions and, [01:10:00] um, low hanging fruit, like. In my opinion, like all this ambience scribing, for instance, which are great products, by the way, some of them I've, I've had a chance to test and a lot of my friends use it, they love, they love it.

[01:10:13] Sergei Polevikov: But again, they're, they're an adult. They're not solving big problems. Whenever AI is making a decision, that's when all the innovation stops in healthcare. Because at that point, the. The, the owner, uh, of, of that, of that business that employs that AI, I would say, well, hang on a second, you know, I'm the one responsible.

[01:10:35] Sergei Polevikov: So, you know, what's the purpose of using AI if I'm going to check the AI results anyway, right? So what, so I'm paying for this product. And then at the end of the day, it adds to my, you know, pajama time anyway. So that, that aspect has to be solved, I think, because AI has a lot of potential. So it's, it's a.

[01:10:54] Sergei Polevikov: You know, breakthrough technology is definitely, um, you know, by historic [01:11:00] standards, it can do a lot of good things. Yeah. We just need to figure out those little obstacles or some big obstacles. 

[01:11:06] Vic: I think that's an important thing that just clarified. So you're talking about the legal, I mean, in healthcare, just the reality is people come to healthcare because they have disease, they have healthcare symptoms, and at times.

[01:11:22] Vic: They pass away and that's just, that's just the reality. Any, any health system has people that die. And so we have to figure out how do we manage the kind of medical liability, the malpractice risk, protect the patients, but also make sure that if a physician or a healthcare leader is using an AI tool, that either it's their decision, this is what you're saying, it's their decision, and they then take personal responsibility for legal responsibility, or the AI is making the decision, and then they.

[01:11:57] Vic: are, I think at some level, not [01:12:00] responsible, but then maybe the AI provider is, or who is? And that's the open question right now that you're, you're referring to, right? 

[01:12:09] Sergei Polevikov: Yes. And I think AI will get to some You know, great performance that are sort of, um, satisfying to all the parties, uh, in healthcare, but I think it's going to take a while.

[01:12:24] Sergei Polevikov: Um, again, the issue is that we can have a great AI model, 99. 99 percent accuracy. Then it makes an error that's from a human perspective, it is kind of a silly error, right? That no, no medical student would ever make, right? But because The algorithms are built differently. They're not built like human brain, even though, you know, we, we can, the, the name is neural nets, it actually works differently.

[01:12:52] Sergei Polevikov: Uh, the errors it makes are also different. And so. Um, we have to sort of overcome [01:13:00] that aspect as well. Uh, because again, if it makes a silly error, even if it's, you know, one in a million, um, you know, no doctor is going to use that AI, unfortunately. 

[01:13:11] Vic: Well, I mean, especially if, if a health system or insurance company is over five years treating 10 million patients, if it's one in a million, there's going to be 10 deaths.

[01:13:22] Vic: Right. And that may be a lot fewer than when humans are making decisions, so you even could be like a net fewer deaths, but you still have a problem of, okay, well, when that person passes away, who is responsible for that? And right now we don't know. That's an unknown question. Well, 

[01:13:44] Sergei Polevikov: right now, um, no, right, right now it's, it's the, um, kind of standard of care Slash diagnosis decision.

[01:13:55] Sergei Polevikov: That's, that's all doctor. 

[01:13:57] Vic: Yeah. The doctor is, uh, doctor is not [01:14:00] supposed to use AI. And if they were to use AI, like you're saying, they still have to overread and make the decision themselves or be responsible themselves. 

[01:14:08] Sergei Polevikov: No, I mean, they can use, I mean, they're great AI tools. I'm just saying. You know, at this point in many situations, it actually adds to their time.

[01:14:20] Sergei Polevikov: So they're supposed to be saving time. They're actually adding time. And it's kind of like, uh, we're going back like to the early days of EHR. So, so, um, so I think there's a lot of potential, but we need to kind of overcome this, uh, this issues of liability outside of that. I think, um, even by the time we get there, I think there are a lot of, um, um, Things that I can do in terms of being a copilot being sort of, um, augmented, um, analytical tool being sort of an automated tool for a lot of things [01:15:00] around your office.

[01:15:00] Sergei Polevikov: Uh, there's still a lot of. Yeah, that's 

[01:15:04] Vic: where it's flourishing now, all the back office, you know, taking billing, scheduling, all of those kind of non clinical, but time consuming chores or activities. That's where AI is really making progress, but it's also pretty crowded. So we're seeing it held further.

[01:15:23] Vic: We're seeing now in the last month, a whole bunch of AI companies moving into the, into the. Clinic into actual patient care, but they haven't addressed this this challenge yet. 

[01:15:36] Sergei Polevikov: Yes. 

[01:15:37] Vic: Well, Sergey. Thanks for doing this I will link to your newsletter and well AI Dot health so people can try the demo Anything else that you want to point to people too, so they can find you online or, or, um, any handoffs you want to give to, to let people find you?

[01:15:53] Sergei Polevikov: Most free places. So it's the business while I had a health, it's my [01:16:00] subsec, which is separate from the business, uh, AI health uncut and also LinkedIn, uh, where I would say I'm, I'm, I'm pretty active and Twitter as well, so social media. 

[01:16:16] Vic: Yeah. Okay. Well, I'll put that in the show notes. Thanks for doing this.

[01:16:18] Vic: Really appreciate it. Be excited. Hopefully AI takes off. 

[01:16:22] Sergei Polevikov: Thanks for having me. Thanks for having me. 

[01:16:24] Vic: Okay. 

[01:16:24] Sergei Polevikov: Bye.