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It's been a tough decade for venture capital, which has been especially hard on the biotechs and medical IT firms that sometimes have to go long years before turning a profit. But the most successful VCs can often point you to winning stocks in tadpole form.

Cardinal Partners, a health care-focused VC firm founded in 1996, has survived by handpicking a small number of early-stage companies. Its most familiar progeny to IBD readers might be Athenahealth (NASDAQ:ATHN - News), a provider of back-office clinical services that has returned 15 times Cardinal's initial investment.

Cardinal co-founder Brandon Hull recently spoke with IBD about what kinds of medical technology he's putting his money on.

IBD: How do you choose which companies to invest in

Hull: Prong one of what it takes to be successful in this business is really exhaustive domain knowledge. We immerse ourselves in these industries.

We invest across the entire spectrum of the medical economy — everything from health care information systems to biotechnology and life sciences to medical products and devices. Each of those sectors has had its season throughout our existence, as business cycles have ebbed and flowed.

At the moment, health care information systems is having explosive growth as health care begins to discover some of the efficiency and process-automation benefits you get from investment in systems.

We used to say the problem with health care isn't that it hasn't invested enough money in software. The problem is that their work flows and business processes are so screwed up that if you automate that, you'll just make mistakes faster. So we're at a seminal moment in the history of American health care, where the equation that has been promulgated, with its requirements for almost universal access, lower cost and higher quality, is fundamentally unsolvable without a major investment in IT and systems. These are the types of productivity gains that manufacturing and financial services and logistics all realized starting in the '70s, but health care is going to have to embrace these technologies, and it's going to have to do it really fast.

I would predict within the investment span of our next fund, this will be the lion's share of what we do.

It's many different subcategories. It's work flow and process automation, it's how we address the changing relationships of insurance companies and hospitals and doctors, and then it's how we respond to the emerging power of the patient behaving for the first time as a consumer. Those three categories alone could keep us busy for a decade.

IBD: What other areas interest you

Hull: The boundaries between different investment categories are blurring.

From the outset, we have done some medical-device and medical-instrument investing. But in recent years, what's interesting about devices and instruments is the degree to which they have begun to segue and merge with information technology.

So many implantable devices today have an IT component so they can do real-time patient monitoring. The whole category of devices that help people manage chronic care are getting a huge boost from handheld and remote telemetry that allows patients to manage conditions like diabetes or asthma better.

So medical devices is an area we'll continue to emphasize, although the FDA is currently having a very bad mood.

Our focus will be on those devices which either don't require FDA approval or do have heavy reliance on IT infrastructure.

Brandon HullCardinal PartnersCo-founder51 years old

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Health Care Turning To IT Info Systems