considerations for him start-ups 2012
DESCRIPTION
Considerations around raising capital for HIM start-ups by Lora LindseyTRANSCRIPT
The Digital Health Chessboard:
Considerations for Start-ups
Healthcare Information & Media (“HIM”) Universe Defined
Content
Professional
Consumer
Distribution
DTC Advertising Healthcare
Spectr
um
Information & Media Spectrum
HC Social Networks
Waiting Room Media
Directories
Patient Education
Diagnostic Games/Awards
Digital Disease
Management
Doctor Reviews
Personal Health Magazines
Data Analytics
Practice Management
Tele-health/V-consults
Smart Monitors
Electronic Health Records
Appointment Scheduling
Digital Health Management
Electronic Medical Records
DTP Advertising Old CME
Prescribing Data
Research Data
Management
Clinical Collaboration
Provider Collaboration
Professional Journals
Physician Reference
HCIT Consulting Services
UGC Publishing
Lead-generation
Remote Monitoring
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New CME
Elements of Sustainable Companies
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Clarity of Purpose: Summarize the company's business on the back of a business card.
Large Markets: Address existing markets poised for rapid growth or change. A market on the
path to a $1B potential allows for error and time for real margins to develop.
Rich Customers: Target customers who will move fast and pay a premium for a unique offering.
Focus: Customers will only buy a simple product with a singular value proposition.
Pain Killers: Pick the one thing that is of burning importance to the customer then delight them
with a compelling solution.
Think Differently: Constantly challenge conventional wisdom. Take the contrarian route. Create
novel solutions. Outwit the competition.
Team DNA: A company’s DNA is set in the first 90 days. All team members are the smartest or
most clever in their domain. "A" level founders attract an "A" level team.
Agility: Stealth and speed will usually help beat-out large companies.
Frugality: Focus spending on what's critical – headcount is a key metric. Spend only on the
priorities and maximize profitability.
Inferno: Start with only a little money. It forces discipline and focus. A huge market with
customers yearning for a product developed by great engineers requires very little firepower.
Raising Capital for Growth
Preparation
Value
Partners
Approach the Investor Universe All at Once Lock step discussions with investors is the quickest way to give away your
negotiating leverage
Ask for as much money as you need to fund your entire plan (< 20% market
share), because the funding window may not be open in the future
Do your homework upfront Know who your best investors are and at which stage they invest at, return
hurdles, etc.
Map out your business plan in as much detail as possible – be transparent
Identify all competitors – having no competition is not a good thing
Ask for help – don’t go to Court without a Lawyer! Try to find “Smart Money” – that can help scale a business
Incubators, venture investors initially and later on investment bankers
An Investment Banker’s role is to identify and communicate the underlying
value drivers in the business; bring awareness of the operating strategies of
each potential buyer; maintain assertive control of the auction process; have
hands-on management of due diligence; and enlist skillful negotiation
Strong advisors build venture credibility
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HIM Investments By Stage in Q1 2012
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EARLY CORPORATE LIFECYCLE MATURE
Seed Deals Series A & B Series C & D
# of Deals: 2
Amount: $1.4M
Typical Deal Size: <$1M
# of Deals: 8
Amount: $75.5M
Typical Deal Size: $5M+
# of Deals: 17
Amount: $107.2M
Typical Deal Size: $15M+
Early Stage Smart Money and Angels Sources
http://rockhealth.com/
http://www.healthboxaccelerator.com/
http://www.blueprinthealth.org/
http://www.startuphealth.com/
http://www.remedysystems.com/
http://angel.co/
http://www.crunchbase.com/
http://gust.com/funding-resource/california-healthcare-foundation/
http://www.healthevolutionpartners.com/
http://www.athenahealth.com/disruption/
Methods for Valuing a Startup
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Cost-to-Duplicate
• Buy or build decision, ignores intangibles
Market Multiple
Discounted Cash Flow (“DCF”) – Market Potential
• <20% market share in 5-7 years
Valuation by Stage
Est. Company Value Stage of Development
$250,000 - $500,000 Has an exciting business idea or business plan
$500,000 - $1 million Has a strong management team in place to execute on the plan
$1 million – $2 million Has a final product or technology prototype
$2 million – $5 million Has strategic alliances or partners, or signs of a customer base
$5 million and up Has clear signs of revenue growth and obvious pathway to profitability
Potential Buyer List: Investors in the HIM Space
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Investors Recent HIM Investments Contact Information
Connecticut Innovations MyCare, Innovatient Solutions http://www.ctinnovations.com
Aberdare Ventures Jiff http://www.aberdare.com
Aeris Capital Jiff http://www.aeris-capital.com
BlueCross BlueShield Venture Partners Change Healthcare http://www.bcbsvp.com
Bluff Point Associates DocuTAP http://bluffpt.com
Charter Life Sciences Health Fidelity http://www.charterls.com
CHV Capital PerfectServe http://chvcapital.com
Draper Triangle Ventures OnShift http://drapertriangle.com
Early Stage Partners OnShift http://www.esplp.com
Easton Capital TigerText http://www.eastoncapital.com
Emerald Stage2 Ventures Halfpenny Technologies http://www.s2vc.com
First Round Capital Truveris http://www.firstround.com
Frontier Capital Healthx http://www.frontiercapital.com
Galen Partners Sharecare http://www.galen.com
Glengary OnShift http://www.glengaryllc.com
HLM Venture Partners Silverlink Communications http://www.hlmvp.com
Insight Venture Partners Kinnser Software http://www.insightpartners.com
iRobot InTouch Health http://www.irobot.com
LORE Associates Halfpenny Technologies http://www.thresholdpartners.com
HLM Venture Partners MedVentive, RedBrick, AventuraHQ, Teladoc http://www.hlmvp.com
Cardinal Partners Awarepoint Corporation, Teladoc, lifeIMAGE http://www.cardinalpartners.com
Chrysalis Ventures Intervention Insights, meQuilibrium, MyHealthDIRECT http://www.chrysalisventures.com
Founders Fund 100Plus, Practice Fusion http://www.foundersfund.com
Innovation Endeavors HealthTap, PharmaSecure http://innovationendeavors.com
Kleiner Perkins Caufield & Byers RedBrick, Teladoc, Awarepoint Corporation http://www.kpcb.com
CHV Capital MedVentive http://chvcapital.com
Versant Ventures Advanced ICU Care, RedBrick http://www.versantventures.com
Buyer Hot Buttons
Value Drivers
Barriers to Entry
Market Size & Share
Competition
Management
Business Model Maturity
Potential for Acquisitions
Customer Concentration
Brand Strength
Geographic Markets
Multi-Channel Distribution
Audience Capture
Intellectual Property
Growth Rate & Outlook
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Writing a Business Plan – Pitching Potential Investors
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Presentation: 15-20 slides with a lot of information in as few words as possible.
Company Purpose: Define the company/business in a single declarative sentence.
Problem: Describe the pain of the customer (or the customer’s customer). Outline how the
customer addresses the issue today.
Solution: Demonstrate your company’s value proposition to make the customer’s life better.
Why Now
• Set-up the historical evolution of your category.
• Define recent trends that make your solution possible.
Market Size: Calculate the size of market
• Top down (e.g. analyst projections, externally reported)
• Bottoms up (e.g. calculate users/usage/rev$)
Competition: List competitors, competitive advantages
Product
• Product line-up (form factor, functionality, features, architecture, intellectual property)
• Development growth/investment roadmap (keep market share under 20%)
Business Model
• Revenue model (unit economic analysis), pricing
• Average account size and/or lifetime value, customer/pipeline list
• Sales & distribution model
Team: Founders, Management, Board of Directors, Board of Advisors
Financials: P&L, balance sheet, cash flow, cap table, sources & uses
Software Revenue Models
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Software as a service (SaaS) is a software application delivery model in which customers pay to access and use software functionality over a network through a hosted, web-native platform operated by the software vendor (either independently or through a third-party).
The Dynamics of the Sales Process
Negotiated Approach
A carefully selected group of buyers are
prioritized according to their acquisition interest
& ability, and are contacted one at a time
Advantages
Highest degree of confidentiality
Best control over information
Seller can terminate process easily
Minimal possibility for information to leak outside small group
Least business disruption
Leaves opportunity to conduct another transaction process at a later date
Targeted Auction Broad Auction
Advantages
Promotes competition among a select group of prequalified buyers
Confines information distribution to a relatively small group
Some flexibility to cancel the process without contaminating the market
Effective approach when there are clearly identifiable buyers
Allows for a faster time-schedule than a broad auction
Advantages
Creates maximum competition
Asserts pressure on buyers to submit fully financed bids
Maximizes likelihood that all viable buyers will be contacted
Most likely to achieve the full value of the asset
Provides early insight on buyer perspectives on value, structure and issues
A limited group of highly qualified buyers are
contacted and offered the opportunity to
evaluate the Company
Indications of interest are solicited from a broad
spectrum of potential buyers with the goal of
creating a highly competitive auction
Concerns
Information is broadly distributed
Can attract tire-kickers
More difficult to unwind the process; risk of contaminating the market
Significant interaction between greater number of buyers and the Company
Two-step approach extends process
Concerns
Lack of competition typically will not result in the highest value being achieved
Negotiating position is weak
Can take a long period of time
Process lacks urgency
Key Factors
Valuation – Closing – Probability – Confidentiality – Business Disruption – Negotiating Leverage
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Targeted Auction Process Overview
Selling Closing Marketing Preparation
Initiation Phase Qualification & Outreach Demonstrate Value Execution
Review sequence and timing
Complete internal due diligence
Develop financial model
Gather market data
Refine positioning and investment considerations
Compile buyers list
Finalize prospective buyers list
Contact potential buyers and negotiate CAs
Distribute information memorandums
Assemble data room
Conduct listen-only management presentation
Prepare and rehearse management presentations
Receive and analyze indications of interest
Select second round participants
Conduct management presentations
Manage data room access
Facilitate buyer due diligence
Manage interactions between management & buyers
Finalize draft Purchase Agreement
Solicit final bids
Evaluate bids and/or contract mark-ups
Select winning bidder
Facilitate confirmatory due diligence
Negotiate and finalize terms of Purchase Agreement
Sign Agreement
Closing
2 – 4 weeks 1 – 3 weeks 4 – 6 weeks 4 – 5 weeks
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Advice to Potential Sellers
Understand Sale Objectives
Determine key objectives to be achieved in a transaction, such as strategic and access-to-
capital advantages
Agree on importance of buyer characteristics like tax status, commitment to seller’s mission,
market position and reputation
Manage Internal Communication
Involve only critical staff required for due diligence, decision making; limit morale impact
Minimize market disruption and buyer leverage with limited external communication
Perform Rigorous Internal Due Diligence
Compile internal information on financial, operational, legal, and market matters
Resolve any identified contractual or regulatory issues (e.g. assignability of contracts, etc.)
Define key value drivers and prepare supporting evidence
Time Market Entry Take advantage of higher pricing environments and natural market cyclicality
Negotiate from the strongest financial position through early market entry
Move Quickly & Decisively
Avoid the potential of negative changes to organizational profile and local/national market
Hire a transaction advisor when ready to actively pursue options
Involve Multiple Potential Buyers
Maintain leverage with a dynamic, systematic simultaneous buyer search; avoid sequential
exploration
Run an iterative bidding process to identify highest bids, best terms and best strategic fits
Negotiate comprehensive terms with multiple bidders to avoid re-trades
Explore breakup fees for bidders demanding exclusivity
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Lora Lindsey
Healthcare Information & Media
Passionate about connecting People and Ideas
in Health Information & Media (HIM)™
Email [email protected]
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