SoftBank's Vision Fund 2 just made its first bet on a buzzy US pharmacy startup. The CEO of Alto told us how he plans to use the fresh $250 million.
- Alto Pharmacy, a startup that delivers medications, just became the SoftBank Vision Fund's first foray into the pharmacy business.
- Reuters reported in January that Alto had raised $250 million in a round led by SoftBank Vision Fund 2, which valued the company at more than $1 billion.
- "Really from the beginning I was surprised by the level of depth and rigor that got put on profitability and economics," Alto CEO Matt Gamache-Asselin said of SoftBank's investment in the startup.
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SoftBank is turning to US consumer healthcare startups as it begins to make its next round of mega-investments.
SoftBank's Vision Fund 2 led a $250 million investment round in Alto Pharmacy, a startup that uses couriers to deliver medications from its brick-and-mortar locations. GreenOaks Capital, Jackson Square Ventures, Olive Tree Capital and Zola Global also joined in on the Series D round. In total, the startup has raised more than $350 million.
The investment marks the start of Vision Fund 2's foray into US consumer healthcare, according to a person familiar with the mater. The Vision Fund team plans to make more investments into consumer-facing healthcare, such as direct-to-consumer health companies and primary care companies, the person said.
The latest funding round puts Alto's valuation at more than $1 billion, Reuters reported. The funding was also reported in January by CNBC. Reuters said that Vision Fund 2 contributed the majority of the $250 million.
Alto has plans to use the funds to grow its footprint nationally, after years of focusing on the startup's northern and southern California footprints, CEO Matt Gamache-Asselin told Business Insider. The startup will enter five to 10 markets over the next year, he said.
"We really spent the first four years refining that playbook," Gamache-Asselin said.
Alto marks the latest big-ticket investment for the SoftBank's Vision Fund 2, which was announced in July 2019 and has yet to close. To date, SoftBank Group is the sole investor in Vision Fund 2.
SoftBank's Vision Fund is known for pouring hundreds of millions into growing companies like WeWork and Uber, but lately has come under scrutiny as WeWork's initial public offering fell apart and some investments expected out of the Vision Fund have fallen through. A number of SoftBank-backed companies like WeWork, Oyo, and Zume, have gone through layoffs as their businesses faltered.
What it's like when SoftBank invests
Despite the challenges at SoftBank, from where Gamache-Asselin sits, the process hasn't felt that different from other venture investors he's met with.
"There's more mystery around SoftBank than there probably should be," Gamache-Asselin said. "In most ways they've behaved and acted like every other Silicon Valley investor we've worked with."
The talks between Alto and the SoftBank team began about 18 months ago, around the time Alto was raising its last round of funding. The talks became more serious starting 6 months ago, at which point the investment had to be vetted with SoftBank's investment council via a video conference, which included SoftBank Group CEO Masayoshi Son.
While SoftBank has backed a number of enterprise healthcare and biotech companies like Collective Health and Roivant, Alto's the first consumer healthcare investment made by Justin Wilson, a partner who's also an investor in Oyo and Compass.
Even early on as Alto started talking to the Vision Fund team, Gamache-Asselin noted an emphasis on profitability while thinking about the startup's future.
"Really from the beginning, I was surprised by the level of depth and rigor that got put on profitability and economics," he said.
How Alto is taking on the pharmacy market
Alto CEO Gamache-Asselin told Business Insider that the company has recently launched into new markets, expanding into Seattle and Denver in January. Alto also operates in Las Vegas.
Prior to that, Alto had just been in California markets around San Francisco and Los Angeles.
For now, Alto only offers fertility medications out of its pharmacies in Seattle and Denver. Partners wanted Alto to be in those markets, Gamache-Asselin said, which helped get the startup into those areas. Alto hasn't completed all the contracting and administrative work to operate as a full-service pharmacy in those cities yet, he said.
Gamache-Asselin said the startup has expanded at a measured pace over time, because it didn't want to outgrow its ability to provide good service to patients. It's not been easy to grow as fast as the startup would like, even in the initial California markets, he said.
Alto's growth comes at a time when the pharmacy industry is getting more competitive, as new entrants like Amazon look to make a foothold while existing players like CVS Health and Walgreens look for a more sustainable business model. Amazon in 2018 acquired the online pharmacy PillPack, launching it into the prescription-drug business.
Alto, which was founded in June 2015, isn't alone in the business of prescription delivery via couriers. Others, including the New York City-based Capsule, are taking a similar approach to getting folks their medications. Capsule for its part raised $200 million in 2019 as it plots a national expansion.
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