This Venture Capital Fund Wants to Get You Pregnant

Illustration by II

Illustration by II

Private capital is surging into the (formerly) private business of conception.

A little more than a year ago, just days apart, two fertility centers — one in California, one in Ohio — destroyed thousands of human eggs and embryos by accident. Storage equipment malfunctioned, wrecking many people’s only chances to conceive biological children.

“I was devastated,” said Katelynn Gurbach, a client of the Ohio clinic who had frozen her eggs after developing ovarian cancer, to NBC News earlier this year. Gurbach’s ovaries were removed as part of her cancer treatment. “There were a lot of hopes and dreams in those [eggs and embryos].”

Those equipment failures led to tragedy — and lawsuits — but also laid bare a major flaw in the fertility industry. Cutting-edge science allows for egg freezing and in vitro fertilization, in which a woman’s eggs are fertilized by sperm outside of the body and later implanted into the uterus. Improvements in egg freezing technology in the past few years have dramatically increased the potential patient market and reduced the amount of time it takes for women to conceive.

But the storage of these eggs and embryos is shockingly archaic. The precious cargo sits in tanks called cryogenic dewars (rhymes with “sewers”), which are filled with liquid nitrogen. Scientists have to open the tanks to check the liquid nitrogen levels — using dipsticks, as if changing oil in a car — and retrieve samples, creating suboptimal drops in temperature. The samples themselves are often identified with handwritten, stick-on labels, and lab workers refer to coffee-stained print-outs to find where particular samples are stored. Some space-constrained labs pile dewars under staircases or in closets.

“The storage of frozen eggs, sperm, and embryos has always been a poorly executed afterthought that we, for a long time, should have been doing better,” says Dr. David Sable, formerly a practicing reproductive endocrinologist and now manager of a pair of venture capital funds. “But as the industry has grown, the sort of duct-tape-and-paper-clip way that we were doing it in the lab came back to haunt us.”


Since the first test-tube baby was born in 1978, more than eight million people have been born via IVF. Fertility experts expect this number to explode to more than 200 million by the end of this century.

It’s a sector that’s ripe for disruption — and some startups are staking their claims. One is TMRW (pronounced “tomorrow”), which has built the first robot to automate the storage and retrieval of eggs and embryos. And where there are startups, there are venture capitalists funding them. Sable is one of TMRW’s backers.

But potential technology disruption isn’t the only attractive aspect of the fertility industry for investors, Sable explains. Private equity firms are also investing, primarily by backing established fertility clinics.

Sable estimates there are nearly 500 fertility clinics in the U.S. — most of which operate as independent “artisanal kitchens,” he says. Private equity firms are taking stakes in clinics and pushing for consolidation in hopes of seeing cost savings, process improvement, and growth.

In one recent deal, Prelude Fertility partnered with Inception Fertility, instantly birthing the biggest provider in the United States. One of Prelude’s backers is private equity firm Lee Equity Partners, which created Prelude in late 2016 when it bought stakes in an Atlanta fertility clinic and a frozen donor egg bank.

Clinics are a highly fragmented business in the U.S. — for now, says Lee Equity partner Collins Ward. Prelude is the largest clinic operator by far, with a market share of just 8 percent. “The industry is now undergoing real consolidation. That’s attractive for private equity,” notes Ward. “In the last two and half years, we have seen a ton of interest from a wide spectrum of private equity firms, both domestic and international, both middle-market and bulge-bracket firms.”

Other private equity firms investing in clinics include TA Associates, which owns a stake in the Colorado Center for Reproductive Medicine; MTS Health Investors, which invested in Ovation Fertility; Sagard Capital, which backs IntegraMed America; and LLR Partners, which took a stake in Vivere Health (and later sold the clinic to Prelude). Meanwhile, venture capital firms are pumping money into startups ranging from TMRW to firms that offer financing plans for fertility treatments.

Still, the baby-propagation sector may not seem like an obvious place for investment. It’s relatively small, not many firms are investing in it, and the high cost of treatments in the U.S. has capped the number of potential users at far below the number who need it. So why are some venture capital and private equity firms so attracted to it?

TMRW’s founders were drawn in during a simple catch-up meeting with a former colleague. Alan Murray and Joshua Abram, founders and co-CEOs of TMRW, had worked with the entrepreneur at a previous startup. They were surprised to learn that she had taken time off to go through the process of getting her eggs frozen. She rattled off stats about egg freezing, gathered through extensive research and personal experience, and told them she intended her eggs to be frozen for between ten and 20 years.

That piqued Murray and Abram’s curiosity. A few Google searches yielded alarming photos of cryogenic dewars — which Murray says “began life on dairy farms and look a lot like what you see in farmers markets or a vintage store” — being stored haphazardly.

Then their research began in earnest, starting with interviewing embryologists. That’s when the co-CEOs learned that these highly educated, specially trained scientists spent a good deal of their time essentially functioning as warehouse managers. “Around 25 percent of their time is spent on busy work — making labels, doing inventory, filling nitrogen into the dewars,” notes Murray.

He and Abram eventually teamed up with Dr. Jeffrey Port, who had previously started a medical device company to track medical sponges and other surgical items that, thanks to human error, are sometimes left inside patients. By incorporating radio frequency identification technology — the same used in antitheft clothing tags — the company, RF Surgical Systems, came up with a way to eliminate such costly and potentially fatal errors.

Murray and Abram quickly saw the potential in applying tracking technology to embryo and egg storage, a market they predict will grow rapidly in the coming years. Their solution: Build a robot that automates the identification, freezing, and storage of eggs and embryos, providing a “100% digital chain of custody” for these samples, according to the company’s website.

“With the touch of a few buttons, a robotic arm comes up out of a deep freezer and grasps the sample and places it into a deep freeze at minus 190 degrees Celsius in a very specific spot inside the robot,” explains Murray. (Institutional Investor has not seen the technology.) “It’s easy to make deposits, and withdrawals are just as easy. With a couple of finger presses on the touch screen, just like an ATM, the machine always produces the correct embryo and presents it to the embryologist.”

Sable was hooked on the concept almost immediately. He invested in the company and also serves on its scientific advisory board. To him, TMRW is just one example of the investment potential the fertility industry holds. “My own feeling about the industry is it’s a small, maturing industry with an unformed, bigger industry waiting to be formed alongside it,” he says.

That transformation may already be underway. Barriers to entry are still high for people seeking fertility treatments, but the customer base is growing. For one thing, egg freezing — once the exclusive province of cancer patients — is increasingly being used by women who want to delay having babies for personal or professional reasons. In 2012 the American Society for Reproductive Medicine decreed that egg freezing was no longer experimental, which spurred the practice.

Another factor increasing the overall customer base: the legalization of same-sex marriage and the rise in gay couples seeking to conceive children. Sable and TMRW’s founders also point to advances in genetic testing of embryos that could help detect — and eventually even eliminate — Huntington’s disease, cystic fibrosis, and other devastating diseases.

“Genetic testing is allowing us to potentially prevent a generation of genetic diseases that we spend tens, if not hundreds, of billions of dollars on,” says TMRW’s Port. By using genetic testing in the IVF process, people can select embryos that don’t have those mutations and possibly eliminate many of these conditions, Port says.

Finally, although IVF treatments remain extraordinarily expensive in the U.S. — a single round of IVF averages $23,000, according to data tracker FertilityIQ, and multiple rounds are usually required to achieve success — more insurance companies are offering coverage than ever before. That includes the U.S. Veterans Administration, which started covering treatments for battle-injured veterans in 2016.

Some companies are offering to pay for IVF treatments and egg freezing to attract and retain talent. These include financial services firms Bain, Bank of America, and KKR, and tech companies including Facebook, Pinterest, Spotify, and Google. Some fertility-related startups, such as New York–based Progyny, a fertility benefits management company, are specifically targeting the financing aspect.

“Right now we’ve got seven million people in the United States having difficulty getting pregnant, and using our most effective treatment, we’re creating approximately 70,000 babies, so we’re only solving the problem of 1 percent of the people with this problem,” notes Sable.

There is tremendous unmet demand for these services. In markets where IVF has become more affordable, more people use it, as statistics in international markets show. In the U.S. just 1.5 percent of babies are born as a result of IVF, versus 4.5 percent in Australia, 5 percent in Japan, and a whopping 10 percent in Denmark. U.S. consumers often finance IVF cycles by taking out second and third mortgages on their homes — and only a third of people who need IVF even have homes that enable them to do that, Murray says. In terms of utilization, “we’re at zero on that 50 to 70 percent of the country that doesn’t have access for financial reasons.”

The potential for growth is even higher when China is factored in. Of a population of 1.4 billion, some 30 million are infertile.

For clinic operators like Dr. Angie Beltsos, chief executive and medical director of the Vios Fertility Clinic, the startups and the venture capital firms that back them are a boon to an industry that, for all its state-of-the-art science, is sometimes hamstrung by a lack of business savvy.

“Sometimes it takes someone from the outside to look in and say, ‘Why don’t you just do xyz?’ And you go, ‘Oh, my god, that’s brilliant,’” says Beltsos, whose lab will be one of the first to test the TMRW robot prototype. “People that can see the business advantages, that can use some of their financial backing, to easily push forward technology that’s been used in another arena — that’s where you propel science and medicine forward.”

But is the fertility sector actually a good investment?

It’s probably too early to tell — but fund managers tout other benefits. Private equity firms say consolidation has improved patient care through automation, standardization, and refinement of processes. It also has brought management expertise to businesses that have historically been run by doctors.

“Physicians are probably not the most business-savvy people,” says Dr. Ravi Gada, a co-owner of Dallas Fort Worth Fertility Associates, a clinic in Texas. “They went to medical school and residency to take care of patients, and allowing a business-focused entity to come in helps alleviate the burden.”

Investors also bring an instant cash injection, which can be attractive for clinic owners looking for an exit strategy or immediate liquidity. For owners there can be downsides to selling out, however — not least of which is a loss of control over the business, and possibly patient care decisions.

“When you sell to a private equity firm, the decisions are being made jointly by the physician and your new business partner,” notes Gada. “Physicians are very used to being the sole owners of their practices and being able to make those decisions on their own. Physicians go into medicine to take care of patients and provide the best care that they can. I think [private equity] firms are looking at that as well, but by definition they are also looking at the return on investment that they are getting from putting money into this.”

Gada says that though he wouldn’t rule out selling, he and his partners have not accepted private equity investment in their clinic, figuring that taking a long view will offer a better payout. He suggests that any clinic thinking of accepting private equity money do thorough due diligence on the firm, including reviewing its investment track record, looking at whether it’s invested in other clinics or hospitals, and contacting physicians at those places to gauge their happiness with the relationship.

“You want to makes sure that the culture of that investment firm lines up with the culture that your practice had prior to bringing on an investor,” Gada explains.

For her part, Beltsos thinks the influx of private capital into the fertility industry will be crucial to funding advancements in the field and meeting the increasing demand.

“The number of customers is going to increase, and we have to rely on these types of innovations and automations to make sure we have improved things for safer outcomes as well as accessibility,” she says.

And as long as there is venture capital, the disrupters will keep trying to disrupt fertility. They may even disrupt sex.

“We have a wager in the office that some future generation, maybe our college-age kids, when the child comes home and says, ‘Mom and Dad, great news. We’re having a baby,’ the response will be, ‘Well, that’s fantastic! But just reassure me that this wasn’t the result of some wild Saturday night — that you had a doctor involved and you did it the right way,’” says TMRW’s Abram. “Sex will be for fun and recreation.”