NYVCA & CTA 2016 Keynote: Surprising Fundraising Lessons Healthcare Startups Fail to Learn

Surprising Fundraising Lessons Most
Companies Fail to Learn
Avoiding Key Fundraising Blunders
Shahid N. Shah, CEO

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www.netspective.com 2
This and many of my other presentations are available at
http://www.SpeakerDeck.com/shah
@ShahidNShah
[email protected]

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@ShahidNShah
www.netspective.com www.ShahidShah.com 3
Who is Shahid?
• Serial entrepreneur with multiple externally funded
startups including exits.
• Angel investor, board member, in several digital
health and Internet startups.
• 20+ years of software engineering and multi-site
healthcare system deployment experience in
Fortune 50 and Government sectors.
• 12+ years of healthcare IT and medical devices
experience (blog at http://healthcareguy.com)
• 15+ years of technology management experience
(government, non-profit, commercial)
• 10+ years as architect, engineer, and
implementation manager on various EMR and EHR
initiatives (commercial and non-profit)
Entrepreneur, investor,
contributing author, blogger,
engineer, and healthcare
futurist

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@ShahidNShah
www.netspective.com www.ShahidShah.com
What’s this talk about?
Questions answered
• What are the most common
fundraising mistakes most make
again and again and how can
you avoid them?
• What kinds of BS can healthcare
investor and customers detect?
• What innovations can you help
customers deploy?
• Where are the major
opportunities to grow your
business?
Key takeaways
• Go narrow, specialize, dive deep – talk
about what’s important to your
customers.
– Revenue, profit, and growth matters to
them too
• Understand PBU: Payer vs. Benefiter
vs. User
• Understand why healthcare businesses
buy stuff so you can serve them in
ways they find you indispensable
• The key issues/problems you’ll need to
address that most fail to understand or
prepare for.

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Healthcare investors have great BS
detectors
The opportunities are real and achievable but…

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@ShahidNShah
Investors are getting better
Many more have done 2 or more deals

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@ShahidNShah
Investors are gaining experience

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@ShahidNShah
Rounds got bigger & riskier

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@ShahidNShah
No, you will not disrupt healthcare…
This is $1 Trillion and the
Healthcare Market is about
$3 Trillion
This is $1 Billion

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@ShahidNShah
Because path to payment is not easy

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Nothing you do matters to the
healthcare “industry”.
But a lot of what you do
could matter to specific
stakeholders

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No, your big data, telehealth, or
mobile ideas will not change
healthcare.
But if you can use them to add or extract value
from the existing system, you’ll do just fine.

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No, your EHR/PHR or app will not
be used by enough doctors or
patients to matter.
But if you can get even a fraction of them
to use your software, you’ll do just fine.

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No, your new genomics, diagnostics,
or medications will not easily be
accepted by permissions-oriented
“eminence driven” institutions.
Find customers with a problem-solving culture
willing to share risks and reward failures.

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No, your offerings will not be
easily integrated into regulated
device-focused clinical workflows.
Incumbent vendors will not entertain the potential of
new legal liabilities without someone to share it with or
new competition without direct compensation.

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No, your projection of the Total
Addressable Market (TAM) is not
really the market you can reach.
Complexity of the industry means that total spending of
a TAM is not really something you can achieve even at
scale. Focus on total reachable market (TRM) instead.

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No, I do not believe you when
you say you have no competition.
Staying with the “status quo” or indirect competition
from entrenched workflows and slow-changing business
models are huge competitors.

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@ShahidNShah
You have made the job of
identifying, diagnosing,
treating, or curing
diseases demonstrably
faster, better, or cheaper
for clinicians through the
use of technology or
business models.
You have made the job of
self-diagnosing, self-
treating, or preventing
diseases and improving
overall wellness of
patients through the use
of new incentives,
business models, or tech.
You must be selling “actionable innovation”
You can help your customers achieve practical, relevant, actionable solutions

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@ShahidNShah
The fundraising environment

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Understand how investors evaluate risk
To succeed in healthcare fund raising you need to…

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@ShahidNShah
Venture phases are de-risking gates
Ideation Risk
Who’s the payer & what
problem are you solving
for them?
Who are the users and
what JTBDs are you
helping them with?
Can you properly
describe the solution for
each kind of user
persona?
Can you build the
solution?
Product Risk (Seed)
Is the payer real and are
you solving the right
problems?
Do the users really have
JTBDs that need your
solution?
Can you enhance and
pilot the solution you’ve
built?
Are there regulatory
risks to consider?
What liability risks will
arise through use of
solution?
Market Fit Risk (Angel)
Are there enough other
payers that have the
same problems?
Do other buyers’ users
have same JTBDs?
What marketing plan is
in place to generate
demand?
How well have the users’
pilots gone?
Can you deploy the
current solution into
production usage?
Is there a path to
profitability?
Sales Risk (Series A+)
Can you sell the same
solution to multiple
payers?
Can you adapt and
enhance the solution for
new users with different
JTBDs quickly enough to
sustain growth?
Is there evidence for a
single or multiple paths
to profitability?
Can you scale sales into
profitability?
Is there buzz and are
influencers promoting
you?
Question: will I get nX return within y months with this team and their idea that I have some passion around?
Example: will I get 10X return in 5 years with Shahid’s team and this imaging analytics idea?

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@ShahidNShah
Traction proof is not easy

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@ShahidNShah
PIBU: Payer vs. Influencer vs. Benefiter vs. User
Payer
Benefiter
Influencer
User
If you don’t understand the exact interplay between PIBU your sale will fail
The payer is the
person/entity
that writes the
check for your
product.
The person or group
that benefits most
from the use of the
product.
Or the person or
group who
influences the users.
The person or group that
actually uses the product.

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@ShahidNShah
Why selling into healthcare is hard
Easy sell (e.g. iPhones, tablets, pagers)
Physician Pays
Physician
Benefits
Physician
Uses
Hard sell (e.g. medical devices / EHRs)
Institution
Pays
Gov’t
Benefits
Physician
Uses

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@ShahidNShah
What kinds of customers are your buyers targeting?
You need to know not just your own segments but your buyers’ customer segments
• Obesity Management
• Wellness Management
• Assessment – HRA
• Stratification
• Dietary
• Physical Activity
• Physician Coordination
• Social Network
• Behavior Modification
• Education
• Health Promotions
• Healthy Lifestyle Choices
• Health Risk Assessment
• Diabetes
• COPD
• CHF
• Stratification & Enrollment
• Disease Management
• Care Coordination
• MD Pay-for-Performance
• Patient Coaching
• Physicians Office
• Hospital
• Other sites
• Pharmacology
• Catastrophic Case
Management
• Utilization Management
• Care Coordination
• Co-morbidities
Prevention Management
26% of Population
4% of Costs
35% of Population
22% of Costs
35% of Population
37% of Costs
4% of Population
36% of Costs
Source: Amir Jafri, PrescribeWell

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@ShahidNShah
How will you choose to compete?
Share risk with
buyers
Promise top-line
revenue growth
Improve free cash
flow
Promise Bottom-line
or margins
enhancement
Promise cost
containment
Provide enhanced
technology not
available elsewhere
Create MSPs to take
over management
of multiple JTBDs

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@ShahidNShah
The best ways to share risk
1. Top-line revenue growth: companies
that help grow revenue for their clients
are always welcome. There are fewer
competitors when you’re selling solutions
that grow revenue.
2. Free cash flow improvement: if you can
help healthcare companies improve cash
flows, you’re going to have a much easier
time than companies that don’t.
3. Bottom-line or margins enhancement:
companies that can show how they can
grow their customers’ margins will skip to
the front of the line when setting
appointments with their clients.
4. Cost containment: if a solutions provider
can clearly show how they can help
contain costs, they will see many
competitors but will still have a good
story that can help differentiate them.
5. Managed services: taking over major
areas of your customers’ workloads
makes sense
6. Technology: being “just” a tech partner is
now table stakes, and it will be very
difficult to compete.

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@ShahidNShah
The business needs
• Quality and performance
metrics
• Patient stratification
• Care coordination
• Population management
• Surveys and other direct-
from-patient data collection
• Evidence-based surveillance
The technology strategy
• Aggregated patient registries
• Data warehouse / repository
• Rules engines
• Expert systems
• Reporting tools
• Dashboarding engines
• Remote monitoring
• Social engagement portal for
patient/family
Do you have ideas in payment design?
Payment models going fee for service to outcomes-driven care

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@ShahidNShah
How will your customers get paid for your stuff?
Direct Payment
• Your best option
• Very few truly disruptive
technologies can be
directly paid for by
providers within the USA
• Limited adoption of
‘traditional’ pay for service
reimbursement for next
generation technology
Direct Reimbursement
• Second best option
• Improvements in
technology are outpacing
payer adoption
• Reimbursement will come
but its time consuming and
difficult
Indirect Reimbursement
• Emerging option
• Payer requirements for
improved quality and
efficiency are creating
indirect incentives to adopt
innovative solutions
• Solutions targeting new
value-based
reimbursement incentives
are highly useful to medical
providers
If you haven’t figured it out for them, customers will not figure it out for themselves

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Act like a regulated entity, narrow your
focus, and concentrate on workflows
To succeed in healthcare you need to…

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@ShahidNShah
Your customers’ innovation fit determines your opportunities
Therapies
Therapeutic
Tools
Diagnostic
Tools
Patient
Administration
Patient
Education
Most Regulation
Least Regulation
Be aware of regulations, don’t fear them, use them as
a competitive advantage

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@ShahidNShah
How to best identify your buyers (not users)
FFS vs. VBC?
Target health
sector?
Number of
employees?
Annual sales
volume?
Geography?
Number of
hospital beds?
Number of
patients?
Type of
patients?
The list goes on
and on…be
specific!
Help them stay away from market segmentation, focus on identifying PBU particpants
Identifying your
customers will depend
on helping your
customers identify theirs

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@ShahidNShah
Problems your customers looking to solve
Improve
medical
science?
Improve access
to care?
Reduce costs?
Improve
therapies?
Improve
diagnostics?
Improve drug
design?
Improve drug
delivery?
Create better
payment
models?
Focus on jobs that customers need to be done, not what you want to build

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Thank You
Visit
http://www.netspective.com
http://www.healthcareguy.com
E-mail [email protected]
Follow @ShahidNShah
Call 202-713-5409

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NYVCA & CTA 2016 Keynote: Surprising Fundraising Lessons Healthcare Startups Fail to Learn

NYVCA & CTA 2016 Keynote: Surprising Fundraising Lessons Healthcare Startups Fail to Learn

Shahid N. Shah

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