Surprising Fundraising Lessons Most Healthcare Companies Fail to Learn

Keynote from Life Sciences Venture Forum at NYVCA in March 2016. Focused on:

• Avoiding Key Fundraising Blunders: Fundraising mistakes most make again and again and how to avoid them
• What No One Will Tell You, But You Need to Know: The key issues/problems you’ll need to address that most fail to understand or prepare for.

Transcript

1. Surprising Fundraising Lessons Most Companies Fail to Learn Avoiding Key Fundraising Blunders Shahid N. Shah, CEO
2. www.netspective.com 2 This and many of my other presentations are available at http://www.SpeakerDeck.com/shah @ShahidNShah shahid@shah.org
3. @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
4. 4 @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.
5. Healthcare investors have great BS detectors The opportunities are real and achievable but…
6. 6 @ShahidNShah www.netspective.com www.ShahidShah.com Investors are getting better Many more have done 2 or more deals
7. @ShahidNShah www.netspective.com www.ShahidShah.com 7 Investors are gaining experience
8. @ShahidNShah www.netspective.com www.ShahidShah.com 8 Rounds got bigger & riskier
9. @ShahidNShah www.netspective.com www.ShahidShah.com 9 No, you will not disrupt healthcare… This is $1 Trillion and the Healthcare Market is about $3 Trillion This is $1 Billion
10. www.netspective.com 10
11. @ShahidNShah www.netspective.com www.ShahidShah.com 11 Because path to payment is not easy
12. www.netspective.com 12 Nothing you do matters to the healthcare “industry”. But a lot of what you do could matter to specific stakeholders
13. www.netspective.com 13 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.
14. www.netspective.com 14 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.
15. www.netspective.com 15 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.
16. www.netspective.com 16 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.
17. www.netspective.com 17 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.
18. www.netspective.com 18 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.
19. 19 @ShahidNShah www.netspective.com www.ShahidShah.com 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
20. @ShahidNShah www.netspective.com www.ShahidShah.com 20 The fundraising environment
21. @ShahidNShah www.netspective.com www.ShahidShah.com 21 The fundraising environment
22. Understand how investors evaluate risk To succeed in healthcare fund raising you need to…
23. @ShahidNShah www.netspective.com www.ShahidShah.com 23 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?
24. @ShahidNShah www.netspective.com www.ShahidShah.com 24 Traction proof is not easy
25. 25 @ShahidNShah www.netspective.com www.ShahidShah.com 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.
26. 26 @ShahidNShah www.netspective.com www.ShahidShah.com 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
27. 27 @ShahidNShah www.netspective.com www.ShahidShah.com 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
28. @ShahidNShah www.netspective.com www.ShahidShah.com 28 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
29. 29 @ShahidNShah www.netspective.com www.ShahidShah.com 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.
30. 30 @ShahidNShah www.netspective.com www.ShahidShah.com 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
31. 31 @ShahidNShah www.netspective.com www.ShahidShah.com 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
32. Act like a regulated entity, narrow your focus, and concentrate on workflows To succeed in healthcare you need to…
33. @ShahidNShah www.netspective.com www.ShahidShah.com 33 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
34. 34 @ShahidNShah www.netspective.com www.ShahidShah.com 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
35. 35 @ShahidNShah www.netspective.com www.ShahidShah.com 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
36. Thank You Visit http://www.netspective.com http://www.healthcareguy.com E-mail shahid.shah@netspective.com Follow @ShahidNShah Call 202-713-5409