Fundraising in healthcare what investors look for

FUNDRIASING IN HEALTHCARE

WHAT YOU SHOULD KNOW

N J Gowri Shankar 28TH FEBRUARY ‘15, BENGULURU

SOME KNOWN FACTS

• An additional 1.8 million beds are needed by 2025

• This requires an investment of US$86 billion

• The share of healthcare spending in 2015 (Estimates)

– Government hospitals 19%

– Top Tier 40%

– Mid Tier 11%

– Nursing Home 30%

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REALITY CHECK

• 30-40% Hospital projects do not go beyond the idea stage

• 80% projects have budget overruns and time delays

• Most individual/ group initiatives have a change of

ownership/ shareholders within 3years

• Most projects do not show cash profit in the first 3 years

The main reason - lack of Project & Financial Planning !


TOPIC IN FOCUS

Hospital Fundraising - Principles & Techniques


PREPARING FOR FUNDING

• Project Planning – Business idea, Vision & Goals, Grit &

Temperament, Senior Management & Board members

• Financials – Estimate of Fund requirement, Own capital,

nature of funding required, leverages for fund raising sources

• External Advisors/ Agencies – Project/ Management

Consultants, Fund Syndicators, Auditor, Architect,

Construction Company


THE BASICS

Debt Funding

• Bank Loans

• NBFC Loans

• Lease Financing

• Foreign Debt

• Pre-purchase

Equity Funding

• Own, Friend, Family, Relatives & Fools

• Angle Investments

• Mezzanine Financing

• Venture Funds

• Public Listing


DEBT FUNDING

Positives

• Ownership is secure

• No interference in business

• Relationship limited to loan tenure (5 – 7 years)

• Interest is tax deductible

• Principal and interest clearly defined

Negatives

• Repayment term fixed

• Potential to impact cash flow

• Vulnerable during difficult times

• Impacts pace of growth

• Assets held as collateral

• Promoter required to give personal guarantee


EQUITY FUNDING

Positives

• Participation in business risk

• Long-term relationship

• No dilution of Profits

• Cash available for expansion

Negatives

• Higher cost of finance

• Share in ownership and profits

• Potential risk of loosing control of company

• Need investor concurrence for business decisions

• Exit options are complex and dilution of control at every level


BUSINESS PLAN DOCUMENTATION - DPR

• The utility of a DPR is beyond the limited function of

procuring a bank loan or equity funds

• It is a crucial document that captures the promoters vision

• The DPR can be used as an effective document

– At project stage as a Project Management Tool

– On commissioning as a Performance Review Tool


KEY INFORMATION REQUIRED IN A DPR

• The Service Model, Features, Facilities & Value Proposition

• The Promoters Profile, Type of Organization

• The Healthcare Scenario in the area & the Need Gap

• The Market scenario, Market Potential & Demand

• Business Plan, Cost of Project and Means of Finance, Revenue

Assumptions, Profitability Statements, Working Capital, Cash flows,

Projected Balance Sheets

• Risk Analysis, Key Financial Indicators,

• Implementation Plan, Management Team, Organization Structure


WHAT INVESTORS LOOK FOR

Crystal Gazing


WHAT BANKS LOOK FOR

• Promoter’s credentials & expertise in the business

• Project viability and management ability to execute the plan

• Project risks & DSCR

• Promoter’s contribution & Securitization of the debt

• Credentials of the vendors


HOW DO THE BANKS EVALUATE

• Technical evaluation of the project

• Financial Appraisal of cost assumptions and projections

• Validation of architectural drawing, structure and construction costs

• Legal Opinion on all documents

• CA Certification of promoters source of funds & Collateral

• Project Managers overseeing the implementation

• Lenders Engineers to approve the vendor invoices


WHAT EQUITY INVESTORS LOOK FOR

• Team: Your & team members credentials, ability to achieve your goals

• Product or Service: Your services, what does it actually do?

• Market Demand: Market size, and need you are solving?

• Market Fit in Today’s Economy: How does your offering improve quality

and reduce costs, specifics with data and examples?

• Competition: Your competitors identity, strengths & weaknesses? How are

you different?

• Financing Plan: Quantum of funds required and value creation?


HOW DO EQUITIES EVALUATE

• Market Size & Industry/ Segment’s stage of maturity

• Aggression of the vision, ability to manage growth & ability to scale

• Management team strength, dependence on Skills & Technology,

replicability of business model

• Cash & risk appetite, cash burn ratio and value creation

• Industry metrics to evaluate performance

• Exit options and possible resistance


INVESTMENT FACT SHEET

Investment 2013 2014

No. of PE/ VC investments

93 73

Aggregate Value US$

1.48 billion 0.94 billion

No. of M&As

68 92

Aggregate Value US$

3.3 billion 4.6 billion

• The last 3 years has attracted

investments in single speciality

space

• Volume of PE/VC investments fell

by around 30% in 2014

• Volume of Angel/ Seed funding

rose by 50%


SOME TAKE HOME MESSAGES

Debt Funds

• Cost overruns and time delays are

Red Herrings for banks

• Banks like conservative estimates

• The acceptable average DSCR for

a 5 -7 year debt is 1.7 – 1.9%

• They like the promoter to be the

star and Collateral is a must

Equity Funds

• Over dependence of promoter &

emotional attachment is a Red

Herring for VCs

• VCs like aggressive but achievable

growth estimates

• They like early stage investments

• Enterprise valuation & Scalability

is their mantra


SOME FINANCIAL TERMS TO KNOW

ABBREVIATIONS

DSCR Debt Service Coverage Ratio

NPV Net Present Value

IRR Internal Rate of Returns

EBITDA Earnings Before Interest, Taxation,

Depreciation and Amortization

P&L Profit &Loss Account

PBT Profit Before Tax

PAT Profit After Tax

BEP Break Even Point


THANK YOU

N J Gowri Shankar

HSB Consulting

Mobile: +91-98410-04496

Email: [email protected]

Twitter: @gowrinj

Blog: http://gowrishankarnj.wordpress.com

43rd Presentation 2006 - 2014


mailto:[email protected]

Fundraising in healthcare what investors look for

Healthcare

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