The CEO of buzzy healthcare startup Clover Health regrets setting up shop in Silicon Valley. Here's why he just opened an office in Nashville.

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The CEO of buzzy healthcare startup Clover Health regrets setting up shop in Silicon Valley. Here's why he just opened an office in Nashville.

Vivek Garipalli (1)

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  • Vivek Garipalli, the CEO of the health insurance startup Clover Health said, "If I had to do things over again, I don't know if we would have located in San Francisco."
  • The health insurance company is opening an office in Nashville where there is a booming healthcare and healthtech industry.
  • Nashville is now home to over 900 companies working in healthcare.
  • Click here for more BI Prime stories.

In 2014, Vivek Garipalli set up shop in Silicon Valley. The tech hub seemed like an obvious choice for his health insurance startup.

But now, in 2019, if he could start all over again he wouldn't begin in San Francisco, Garipalli said. Which is why he's now opening an office in Nashville.

Garipalli's startup, Clover Health, provides health insurance to seniors 65 and older through Medicare Advantage, the private version of the government-funded Medicare program. The company has raised $925 million and was valued at $1.2 billion as of 2017, according to PitchBook.

As the company developed, Silicon Valley wasn't the ideal place to have a healthcare startup, he said. Clover Health wanted to be closer to healthcare industry professionals in Nashville.

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"If I had to do things over again, I don't know if we would have located in San Francisco," Garipalli told Business Insider at the Global Insurtech Leaders' Summit in New York.

Read more: Health insurance startups like Bright and Oscar have raked in $3 billion in venture funding. They're using that war chest to plot out massive expansions across the US.

For now, the company is maintaining its headquarters in San Francisco, but hiring heavily in Nashville. The company picked Nashville because Garipalli said he noticed that Clover Health was hiring more and more people from the area.

"A little over 30% of Clover's employees work remotely," he said. "We would do video conference calls and everyone was sitting at their home in Nashville. So it made obvious sense to put our office there."

In March of this year, Clover Health laid off 25% of its employees, changing its focus to hiring people with more knowledge in the healthcare. At the time the company said it was seeking people with "deep Medicare Advantage skill sets."

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Nashville's healthcare talent

Nashville is a major healthcare hub, with numerous health systems based in the area. As tech companies increasingly break into the healthcare industry, startups that want to tap into that expertise are headquartering in Nashville, instead of in the tech-focused Bay Area.

In 2016, the Nashville Entrepreneur Center launched a startup accelerator focused on healthcare, called Project Health, bringing healthcare, tech, and business leaders together to nurture startups The center has enrolled 12 different startups from across the US.

Nashville main street

Clover isn't alone in relocating to Nashville. The San Diego-based pharmaceutical company Harrow Health in June announced that it's moving its headquarters to Nashville by the end of 2019.

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The city is now home to more than 900 companies working in healthcare, and Nashville's healthcare industry generates more than $92 billion in annual revenue. There are 18 publicly traded healthcare companies headquartered in the city, according to the Nashville Healthcare Council's annual report.

Read more: We took a look at the latest financial results for health insurer Clover Health, which raised $500 million in January and laid off 25% of its staff in March

Why Silicon Valley's startup culture doesn't work in healthcare

Garipalli noted that the Silicon Valley business model doesn't work well in the health-tech sector. In tech startups the goal is to raise money quickly and develop a strategy to grow quickly. For Clover Health, the approach was build infrastructure first, steadily grow the consumer base, and then after some time, increase the growth rate, he said.

"Our consumers can't show up at a pharmacy and have a denied prescription because of our error," Garipalli said. "If we grew too fast and weren't able to enroll their data fast enough, that stuff has real consequences."

Clover Health learned this lesson the hard way when the company started selling insurance, CNBC has reported. The startup tried to use negotiating tactics with the clinical labs Quest Diagnostics and LabCorp, which backfired, CNBC reported in early 2018. As a result, Clover Health customers were sent hefty medical bills from the labs. The company's Medicare star rating also fell.

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The more cautious mindset needed for a health-tech startups is something Garipalli said is better suited for anywhere outside of San Francisco. Clover also has an office in New Jersey, where many of its patients live.

The Nashville office opened on June 12. And while it's still too early to evaluate whether the move was the right choice, Garipalli said, "I'm glad we did it."

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