Ms. Lee Rauch, founding member of HealthTech Capital, an angel investment group formed to mentor and fund early stage companies talked about Angel View on Investing, at http://www.bio2deviecegroup.org event. HealthTech Capital focuses on companies that apply innovative information technologies that can reduce healthcare costs and improve quality.
There are roughly 225K active angel investors in the US, about 12k participate in angel groups. Compared to VC firms, angels tend to make smaller investments. Angel groups are geographically diverse, whereas many VCs are often clustered in specific geographical areas, primarily the West coast and the East coast. Angel groups are also more flexible, consider early stage investments, and are also likely to be motivated to build communities and mentor young entrepreneurs. Angels typically invest their own money.
HealthTech Capital looks at investing in companies standing at the intersection of healthcare, IT & consumer products. It’s membership covers a broad range of expertise. HealthTech Capital is somewhat newer Angel group on the block having started in mid 2010. They stress high value added technologies that are end user product driven, look at solving problems, and require minimal or no FDA approval. They also prefer companies that are not trying to go for new reimbursement codes from Medicare and Medicaid. Some of the examples of companies funded by HealthTech Capital include, Cadence (has a device that can help in walking for people with severe mobility impairment), Pharma Science (provides code imprints on prescription drug packages that patient can look up to verify they are getting the right stuff), Care in Sync (has software product that physicians, case managers and nurses can use to coordinate care transition plans for hospital patients, Wellness FX (provides tools for patients to help them collect, manage and interpret their own health data), and My Health Teams (social networking company for patients and caregivers to connect with others like them in order to share experiences and identify resources.
So what would make a company a good candidate? To be funded by HealthTech, a company must be focused on solving a problem, with new, innovative, and high growth technology. Ideally, it should be generating $20-50M in revenues and must have a significant earnings potential in the next 3-7 years, with potential for 10X-20X return for the investors. It is preferred that they have completed some development, with a developed or at near completion prototype, with existing customers or potentially committed customers who may be willing advocates, and have a road map for likely liquidity within 3 to 7 years from the time of investment. It is also desired that the founders and owners have their own cash and sweat equity investment, are flexible and willing to give up some amount of ownership and control in exchange for financing, and are open to advice from the investors.
Rauch explained the breakdown with specific numbers in various scenarios and then proceeded to explain the presentation process. She recommended that companies do their homework, follow tips and guidelines posted on the website, and approach the Angels through their network. They need to have clarity regarding their needs, milestones, and how the money will be used, and must acknowledge the gaps. Typical process at HealthTech Capital begins with the partners commenting upon and rating candidate companies on their online rating system. During their monthly pre-screening meetings, they select 4-5 companies, each month, which are invited to come and make a presentation. About a total of 25 companies are selected annually to make more detailed presentation at the dinner meetings, followed by blind voting by the partners. Companies with high votes advance to due diligence. About 80% of the companies advanced to due diligence are likely to get funded. Their due diligence includes thorough and detailed information about the value proposition, the business model, the problem the company is seeking to solve, information regarding total and target markets, information on who the decision makers are, cost to establish the market presence, estimated sales cycles, technology, barriers to competitors, company’s secret sauce and what would keep the competitors from replicating it, potential acquirers, and a plan to address any regulation and reimbursement issues.
The presentation was followed by Q&A.