The Cambridge-based venture capital powerhouse General Catalyst — which has backed notable tech names such as HubSpot, Instacart, and Venmo — is taking a dip into a new kind of investment vehicle that’s become popular on Wall Street.
General Catalyst is the sponsoring firm behind a special purpose acquisition company, or SPAC, named Health Assurance Acquisition Corp., that plans to raise $500 million in an initial public offering, according to documents filed with the Securities and Exchange Commission on Monday. Health Assurance plans to invest the proceeds in companies at the intersection of health care and technology.
However, General Catalyst is pursuing a slightly different style of SPAC listing, known as a “Stakeholder Aligned Initial Listing,” in which it will take a smaller stake in exchange for other investors agreeing to buy into a long-term strategy for Health Assurance. So instead of owning 20 percent of the company, as is typical in SPACs, General Catalyst would hold a 5 percent stake. The Health Assurance IPO would also have fewer investors overall in order to ensure all the shareholders are behind those long-term goals.
General Catalyst said it’s also set up so that initial investors do not see profits until after outside shareholders.
“Our economics are contingent upon sustained performance,” the firm wrote in its filing. “Our initial stockholders will not earn returns on their alignment shares until our other stockholders do.”
The offering expects to sell 50 million securities at $10 each.
Health Assurance Acquisition said it believes “health care is at the beginning of its Internet moment,” and it wants to power the next wave of “consumer-centric, data-driven, cloud-based health care” companies. Like other SPACs, Health Assurance Acquisition’s goal is to use the money raised in an IPO to acquire an existing company.
As a model for the type of businesses its wants to target, Health Assurance points to Palo Alto-based health care startup Livongo Health, which was just purchased by the telemedicine company Teladoc Health for $18.5 billion. Livongo was started in 2014 to help people with diabetes better manage their condition, giving them access to real-time data about their insulin levels.
Much of Health Assurance Acquisition’s management team hails from Livongo.
General Catalyst managing director Hemant Taneja, who was the lead investor in Livongo, will serve as chief executive and chairman of Health Assurance. He will be joined by Livongo’s founder and executive chairman Glen Tullman, as well as its president Jennifer Schneider.
“We want to create the conditions for 1,000 Livongos to bloom,” the company wrote, adding that General Catalyst already backs these types of companies. “We believe there will be dozens of multibillion-dollar winners created by this sectoral shift, and HAAC has a set of core beliefs and values that will help to identify the best health assurance businesses.”