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Considerations for HIM Start-Ups 2012
Considerations for HIM Start-Ups 2012
Considerations for HIM Start-Ups 2012
Considerations for HIM Start-Ups 2012
Considerations for HIM Start-Ups 2012
Considerations for HIM Start-Ups 2012
Considerations for HIM Start-Ups 2012
Considerations for HIM Start-Ups 2012
Considerations for HIM Start-Ups 2012
Considerations for HIM Start-Ups 2012
Considerations for HIM Start-Ups 2012
Considerations for HIM Start-Ups 2012
Considerations for HIM Start-Ups 2012
Considerations for HIM Start-Ups 2012
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Considerations for HIM Start-Ups 2012

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

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

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  1. The Digital Health Chessboard: Considerations for Start-ups
  2. Healthcare Information & Media (“HIM”) Universe Defined Professional HCIT Consulting Services DTP Advertising Old CME New CME Clinical Collaboration Prescribing Data Data AnalyticsPhysician Reference Directories Research Data Practice Management Management Spectrum Professional Journals Smart Monitors Digital Disease Lead-generation Electronic Medical Records Management Remote MonitoringContent Information & Media Spectrum Distribution Healthcare Doctor Reviews Personal Health Magazines Tele-health/V-consults Appointment Scheduling Patient Education Electronic Health Records Waiting Room Media DTC Advertising Digital Health Management HC Social Networks Provider Collaboration Diagnostic Games/Awards UGC Publishing Consumer 2
  3. Elements of Sustainable Companies Clarity of Purpose: Summarize the companys 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 whats 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. 3
  4. Raising Capital for Growth Do your homework upfrontPreparation  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 Approach the Investor Universe All at Once  Lock step discussions with investors is the quickest way to give away yourValue 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 Ask for help – don’t go to Court without a Lawyer!  Try to find “Smart Money” – that can help scale a businessPartners  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
  5. HIM Investments By Stage in Q1 2012EARLY CORPORATE LIFECYCLE MATURESeed Deals Series A & B Series C & D # of Deals: 2  # of Deals: 8  # of Deals: 17 Amount: $1.4M  Amount: $75.5M  Amount: $107.2M Typical Deal Size: <$1M  Typical Deal Size: $5M+  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/ 5
  6. Methods for Valuing a Startup 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 StageEst. 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 6
  7. Potential Buyer List: Investors in the HIM Space Investors Recent HIM Investments Contact InformationConnecticut Innovations MyCare, Innovatient Solutions http://www.ctinnovations.comAberdare Ventures Jiff http://www.aberdare.comAeris Capital Jiff http://www.aeris-capital.comBlueCross BlueShield Venture Partners Change Healthcare http://www.bcbsvp.comBluff Point Associates DocuTAP http://bluffpt.comCharter Life Sciences Health Fidelity http://www.charterls.comCHV Capital PerfectServe http://chvcapital.comDraper Triangle Ventures OnShift http://drapertriangle.comEarly Stage Partners OnShift http://www.esplp.comEaston Capital TigerText http://www.eastoncapital.comEmerald Stage2 Ventures Halfpenny Technologies http://www.s2vc.comFirst Round Capital Truveris http://www.firstround.comFrontier Capital Healthx http://www.frontiercapital.comGalen Partners Sharecare http://www.galen.comGlengary OnShift http://www.glengaryllc.comHLM Venture Partners Silverlink Communications http://www.hlmvp.comInsight Venture Partners Kinnser Software http://www.insightpartners.comiRobot InTouch Health http://www.irobot.comLORE Associates Halfpenny Technologies http://www.thresholdpartners.comHLM Venture Partners MedVentive, RedBrick, AventuraHQ, Teladoc http://www.hlmvp.comCardinal Partners Awarepoint Corporation, Teladoc, lifeIMAGE http://www.cardinalpartners.comChrysalis Ventures Intervention Insights, meQuilibrium, MyHealthDIRECT http://www.chrysalisventures.comFounders Fund 100Plus, Practice Fusion http://www.foundersfund.comInnovation Endeavors HealthTap, PharmaSecure http://innovationendeavors.comKleiner Perkins Caufield & Byers RedBrick, Teladoc, Awarepoint Corporation http://www.kpcb.comCHV Capital MedVentive http://chvcapital.comVersant Ventures Advanced ICU Care, RedBrick http://www.versantventures.com 7
  8. Buyer Hot Buttons Barriers to Entry Growth Rate & Market Size & Outlook Share Intellectual Competition Property Audience Capture Value Management Drivers Multi-Channel Business Model Distribution Maturity Geographic Potential for Markets Acquisitions Customer Brand Strength Concentration 8
  9. Writing a Business Plan – Pitching Potential Investors 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 9
  10. Software Revenue Models 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). 10
  11. The Dynamics of the Sales Process Key Factors Valuation – Closing – Probability – Confidentiality – Business Disruption – Negotiating Leverage Negotiated Approach Targeted Auction Broad Auction A carefully selected group of buyers are A limited group of highly qualified buyers are Indications of interest are solicited from a broadprioritized according to their acquisition interest contacted and offered the opportunity to spectrum of potential buyers with the goal of & ability, and are contacted one at a time evaluate the Company creating a highly competitive auctionAdvantages Advantages Advantages Highest degree of confidentiality  Promotes competition among a select  Creates maximum competition Best control over information group of prequalified buyers  Asserts pressure on buyers to submit Seller can terminate process easily  Confines information distribution to a fully financed bids relatively small group  Maximizes likelihood that all viable Minimal possibility for information to leak outside small group  Some flexibility to cancel the process buyers will be contacted without contaminating the market  Most likely to achieve the full value of Least business disruption  Effective approach when there are the asset Leaves opportunity to conduct clearly identifiable buyers another transaction process at a later  Provides early insight on buyer date  Allows for a faster time-schedule than perspectives on value, structure and a broad auction issuesConcerns Concerns Lack of competition typically will not  Information is broadly distributed result in the highest value being  Can attract tire-kickers achieved  More difficult to unwind the process; Negotiating position is weak risk of contaminating the market Can take a long period of time  Significant interaction between Process lacks urgency greater number of buyers and the Company  Two-step approach extends process 11
  12. Targeted Auction Process Overview Preparation Marketing Selling Closing 2 – 4 weeks 1 – 3 weeks 4 – 6 weeks 4 – 5 weeks Initiation Phase Qualification & Outreach Demonstrate Value Execution Review sequence and  Finalize prospective  Receive and analyze  Select winning bidder timing buyers list indications of interest  Facilitate confirmatory Complete internal due  Contact potential buyers  Select second round due diligence diligence and negotiate CAs participants  Negotiate and finalize Develop financial model  Distribute information  Conduct management terms of Purchase memorandums presentations Agreement Gather market data  Assemble data room  Manage data room  Sign Agreement Refine positioning and access investment  Conduct listen-only  Closing considerations management  Facilitate buyer due presentation diligence Compile buyers list  Prepare and rehearse  Manage interactions management between management & presentations buyers  Finalize draft Purchase Agreement  Solicit final bids  Evaluate bids and/or contract mark-ups 12
  13. Advice to Potential Sellers  Determine key objectives to be achieved in a transaction, such as strategic and access-to- Understand capital advantages Sale Objectives  Agree on importance of buyer characteristics like tax status, commitment to seller’s mission, market position and reputation Manage Internal  Involve only critical staff required for due diligence, decision making; limit morale impact Communication  Minimize market disruption and buyer leverage with limited external communication  Compile internal information on financial, operational, legal, and market matters Perform Rigorous  Resolve any identified contractual or regulatory issues (e.g. assignability of contracts, etc.)Internal Due Diligence  Define key value drivers and prepare supporting evidence  Take advantage of higher pricing environments and natural market cyclicality Time Market Entry  Negotiate from the strongest financial position through early market entry Move Quickly &  Avoid the potential of negative changes to organizational profile and local/national market Decisively  Hire a transaction advisor when ready to actively pursue options  Maintain leverage with a dynamic, systematic simultaneous buyer search; avoid sequential exploration Involve Multiple  Run an iterative bidding process to identify highest bids, best terms and best strategic fits Potential Buyers  Negotiate comprehensive terms with multiple bidders to avoid re-trades  Explore breakup fees for bidders demanding exclusivity 13
  14. Stay In Touch!Lora LindseyHealthcare Information & MediaPassionate about connecting People and Ideasin Health Information & Media (HIM)™Email LLindsey03@gsb.columbia.eduMobile 646.734.8375Skype Lora.Lindsey1Twitter @HIMBankerLinkedIn www.linkedin.com/pub/lora-lindsey/0/185/225Pinterest www.pinterest.com/HIMBankerCrunchbase www.crunchbase.com/

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