Considerations for HIM Start-Ups 2012

14
The Digital Health Chessboard: Considerations for Start-ups

description

Considerations around raising capital for HIM start-ups by Lora Lindsey

Transcript of Considerations for HIM Start-Ups 2012

Page 1: Considerations for HIM Start-Ups 2012

The Digital Health Chessboard:

Considerations for Start-ups

Page 2: Considerations for HIM Start-Ups 2012

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

2

New CME

Page 3: Considerations for HIM Start-Ups 2012

Elements of Sustainable Companies

3

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.

Page 4: Considerations for HIM Start-Ups 2012

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

4

Page 5: Considerations for HIM Start-Ups 2012

HIM Investments By Stage in Q1 2012

5

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/

Page 6: Considerations for HIM Start-Ups 2012

Methods for Valuing a Startup

6

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

Page 7: Considerations for HIM Start-Ups 2012

Potential Buyer List: Investors in the HIM Space

7

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

Page 8: Considerations for HIM Start-Ups 2012

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

8

Page 9: Considerations for HIM Start-Ups 2012

Writing a Business Plan – Pitching Potential Investors

9

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

Page 10: Considerations for HIM Start-Ups 2012

Software Revenue Models

10

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).

Page 11: Considerations for HIM Start-Ups 2012

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

11

Page 12: Considerations for HIM Start-Ups 2012

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

12

Page 13: Considerations for HIM Start-Ups 2012

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

13

Page 14: Considerations for HIM Start-Ups 2012

Lora Lindsey

Healthcare Information & Media

Passionate about connecting People and Ideas

in Health Information & Media (HIM)™

Email [email protected]

Mobile 646.734.8375

Skype Lora.Lindsey1

Twitter @HIMBanker

LinkedIn www.linkedin.com/pub/lora-lindsey/0/185/225

Pinterest www.pinterest.com/HIMBanker

Crunchbase www.crunchbase.com/

Stay In Touch!