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July 17, 2012

10 Tips from a Healthcare VC

 

 

 

 

 

 

 

 

This past Thursday, Rock Boston hosted its fifth Rock Session as part of the summer incubation program at Harvard Medical School. Bob Higgins and Robbie Greenglass of Highland Capital Partners (HCP) paid us a special visit, leading a candid discussion with our startups. HCP has made several investments in successful digital health companies, like Redbrick Health and Kryuus.  Here are 10 pieces of advice that emerged from the dialogue:

  • Solve your problem, not theirs. If you are a startup seeking funding, remember that there are different funding and development paths for everyone. You do not want to raise money from VCs without explicit value enhancement .  You should constantly be asking yourself whether taking money is solving your problem or the VC’s problem.
  • Be creative in “raising” money. Find industrious ways to get customers and credibility without raising VC funds. If you can, it is best to bootstrap. The best amount to raise is “zero”—instead, focus on customer financing. eClinicalWorks, with revenues over $200M, is a great example of a digital health company that has never raised a dollar.
  • VCs invest in the team. When evaluating companies, VCs look at the team, the market, the product, and the deal. The team is by far the most revealing and important component of that evaluation.
  • Demonstrate traction. Do you have a pilot? Customers? Evidence? Find a way to show market and/or clinical traction prior to pitching to VCs. Not every pilot has to be unpaid—customers are willing to pay for valuable services and an unpaid pilot can quickly be turned into a paid pilot once the value demonstration is clear.
  • Find the gatekeepers. If you are looking for ways to integrate into the health care system, particularly with mobile health technologies, the gatekeepers to self-insured employers are often the benefits consultants. You have to connect with them and incentivize them to help you sell.
  • Follow the money. A consumer focus doesn’t always lead to money. In healthcare, it can be difficult to locate your actual customer. Ask yourself, where is the nearly $3 trillion in health care expenditures going to flow, particularly as the market shifts towards the delivery system bearing risk and having their own wallet to manage. This is the key to developing your business model.
  • Technology is not a substitute for a business model. In healthcare, it is easy to focus on innovative new technologies. VCs are moving away from investing in interesting technologies and moving towards investing in new business models. Be clear about the applications of your technology and ensure customers agree that it solves an important problem.
  • It’s never too early to have good advisors. Most of the mistakes companies make, especially in the early stages, are legal and IP related. Make sure to conduct an IP review, recruit the right advisers, and get the right board together. An ideal board is comprised of 2 VC representatives, 2 outsiders (who everyone trusts), and the CEO.
  • VCs should prove that they are helpful. A good investor is someone who does his/her due diligence, provides introductions, and sells their services. A good VC has already helped the startup before making an investment by listening closely to their needs. A good VC remembers that money is a commodity.
  • “Look back but don’t stare.” Whether you’re a VC or an entrepreneur, manage your regret. If you miss a funding opportunity, acknowledge it, own it, and then move fiercely forward.