This was a presentation made at the Conference on 'Finance Management and Accounting in Hospitals' at Bangalore attended by Hospital Management Professionals and Hospital owners/ promoters

1. FUNDRIASING IN HEALTHCARE
WHAT YOU SHOULD KNOW
N J Gowri Shankar
28TH FEBRUARY ‘15, BENGULURU

2. 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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3. 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 !
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4. TOPIC IN FOCUS
Hospital Fundraising - Principles & Techniques
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5. 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
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6. 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
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7. 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
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8. 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
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9. 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
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10. 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
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11. WHAT INVESTORS LOOK FOR
Crystal Gazing
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12. 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
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13. 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
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14. 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?
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15. 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
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16. 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%
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17. 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
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18. 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
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19. THANK YOU
N J Gowri Shankar
HSB Consulting
Mobile: +91-98410-04496
Email: gowri@hsbconsulting.biz
Twitter: @gowrinj
Blog: http://gowrishankarnj.wordpress.com
43rd Presentation
2006 - 2014
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