Tips on and Trends in Healthcare IT Investments By Rob Harris, Tyson Bickley | 04-02-2015
On Tuesday, Waller hosted the second installment of our Healthcare and Big Data panel series. Joining us to discuss investments in healthcare IT (HIT) were Vic Gatto, founder and CEO of Jumpstart Foundry, Jesse Bland, Principal at the Heritage Group, and William Seibels, CFO of Change Healthcare. We spent some time covering the ins and outs of financing – from friends and family to accelerators to series A or B all the way to a sale of the company. The panelists also discussed some of the trends in the marketplace specific to Nashville and HIT. Here are a few themes that emerged during our conversation.
Nashville’s unique platforms: Let’s face it – Nashville is changing at a rapid pace in more ways than one – including the landscape for HIT companies and investors. With access to many of the healthcare industry’s largest companies – particularly on the provider front – young HIT companies find it attractive to make Nashville home. But, in order to get the training, the introductions and the investment dollars, there is a need for mentoring. Enter accelerators, like Jumpstart. These programs provide structure and help young companies figure out and learn the major tenets of the process. Instead of simply throwing money at the companies, accelerators like Jumpstart provide a unique marketplace for development (think of it like a b-school for entrepreneurs). Then, there are venture groups, like Heritage, that provide access to their investors and partners, which include for-profit hospital systems (e.g. LifePoint), large not-for-profit systems (e.g. Memorial Hermann), and payors. Compared to the banks based on the East or West Coast, Nashville’s investors can be more collegial and collaborative in their approach.
Particular constraints for HIT companies: For an entrepreneur, it’s your concept and you’ve focused on it a lot. For investors, you can see thousands ideas a year. Startups need to evaluate the playing field, but it’s difficult to study the competition because most are small and private. Investors want to know who will have the shortest on ramp to the super highway. There may be several similar companies in a given marketplace, but investors want to find the one that has clearly defined the onramp and has a plan that they will grow slowly. Investors pass up on them if the market is fully saturated or if the company’s identifying an opportunity where the market is too small.
Preparing for a capital raise: If you are preparing to raise capital or even sell your company, there are a few key points to remember:
You need enough money in the bank to get you through this process. It may seem counterintuitive, but it's key to have enough money when you go out and raise money.
Many assume the money-raising process is quick and easy. In reality, it will likely take six to nine months after you're completely prepared and have conversations lined up before you actually have the capital available to use.
Don’t cold call investors; getting a personal introduction will open many more doors and put you at the top of the investors’ list.
Have all of your ducks in a row before you reach out; be prepared to answer the questions the legal, financial and other advisors will have.
Know the market for your solution and how you will capture a reasonable share. While your business plan is based on many assumptions, you should still have as many proof points as possible.
Be aware of what intellectual property you control as well as any IP assets you don’t control; consider trade secret protection for things where patenting will be a challenge.
In our next Healthcare and Big Data panel session, we plan to demystify data breaches in the healthcare space and cover privacy and security issues. Stay tuned for more details on date, location and panelists.