Is It an Opportunity or Not?
While both are important, who is usually more compelling to healthcare investors than what when it's time to put money down.
Investors in healthcare companies aren't as concerned with trendsetting business models as they are with finding and funding managers who can identify and respond to emerging trends in the market.
Investors are as interested in start-up opportunities run by successful management teams as they are in the business concept itself; they feel management risk is more important than concept risk. They've learned that innovative ideas often turn out to be poor investments, especially without experienced management leadership, no matter how innovative, unique or strong the concept.
That was a universal theme at the joint program of the Nashville Health Care Council (NHCC) and the Nashville Capital Network (NCN) on February 15. The program was designed to give an inside glimpse into what leading angel and early-stage investors look for in healthcare, including key sectors of interest and ways for entrepreneurs to position their opportunities for funding.
The program was moderated by Tom Wylly, senior partner at Brentwood Capital Advisors and chairman of the board of NCN. Contributing to the panel discussion were Fred Goad, a partner at Voyent Partners, David Jones, chairman of Louisville-based Chrysalis Ventures, Stuart McWhorter, managing partner and cofounder of Clayton Associates, and Donald McLemore, managing partner of Claritas Capital.
More than 270 guests braved a wintry weather mix to attend the sold-out breakfast meeting at the Nashville Marriott at Vanderbilt University, sponsored by Bass, Berry & Sims, First Tennessee Bank and KPMG.
"Today's program brought together some of the key early-stage investors in healthcare — both angel investors and venture capital players. It was a great opportunity to hear what are viewed as the major trends in healthcare, what areas they thought were attractive for investing, and what criteria they look for," commented NHCC president Matt Gallivan.
Panelists agreed that healthcare is still a great place to put dollars, as evidenced by the strong growth in number of start-ups in the past year. New technologies are attractive to venture capitalists, and opportunities are strong in companies that help providers, payors, and patients cope with crushing costs.
McWhorter suggested that investors are looking for companies that drive efficiencies at both the top and bottom lines and that include incentives for employees in their business plan.
Goad emphasized the importance of building an environment that works toward disease management, and one that attracts those who pay out of pocket. He also discussed a growing trend toward a salaried doctor system versus private ownership of physician practices. This often is a result of the decreasing number of doctors, who are working fewer hours, and reduced access to those doctors who aren't taking new patients. The advent of subscription based "concierge medicine," which guarantees certain user-friendly patient services, demonstrates how growing affluence can be leveraged into a business model to respond to patient frustration with a cumbersome coverage system.
Jones agreed that the salaried physician trend is growing and noted that, in the United States, to get more value for dollars spent, we will see more personalized medicine, as well as more hospice care. This trend is currently seen in oncology, where individualized medical care and customized approaches have been very effective.
There will be funding opportunities for concepts that successfully develop and produce comprehensive software that allows providers to identify the patient's self pay portion at the time of service, McLemore suggested. Jones agreed that physicians and hospitals are looking for computer programs that will accurately forecast the patient portion of the total charge.
Sid Chambless, executive director of NCN, cosponsor of the event, said, "The panel of professional investors at the NCN/NHCC event discussed a number of high growth sectors that were appealing to them and represent promising healthcare investment opportunities."
He added, "These panels are a great way for entrepreneurs to learn what makes a company fundable in the eyes of angels and venture capitalists. By hearing investors discuss their criteria for investment, recent transactions, and areas of interest, entrepreneurs are able to learn more about the evaluation process, and how best to approach these professional investors."
Almost $4.3 billion in venture capital and private equity funding was secured by healthcare start-ups and established companies in the Nashville area in the years 2000-2006.
Gallivan added that the program presented "a great opportunity for networking among executives and potential investors."
Wylly concluded, "The Nashville healthcare community is always interested in emerging trends and new opportunities for entrepreneurs and investors. The investors on today's panel openly shared their perspectives on a number of these opportunities. We are fortunate that these experts are willing to share these valuable insights."
The Nashville Health Care Council is an association of healthcare industry leaders working together to promote Nashville's position as the nation's healthcare industry capital. Nashville Capital Network is a collaborative initiative of the Council, Vanderbilt University, Nashville Technology Council and local investors established to promote entrepreneurial education and economic growth in Middle Tennessee