Building Billion Dollar Businesses-Full Transcript

Is there a formula to forming unicorns?

At the StartUp Health Festival, panelists Ruchita Sinha of GE Ventures, Casey Silver of Arsenal Venture Partners, Matt Karls of Cambia Health Solutions, and Asif Khan of Caremerge, join host Jay Sullivan of DLA Piper to discuss the capital raising process and the challenges and benefits of bringing in diverse investors to create a billion dollar business.

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Key takeaways from this episode of StartUp Health NOW can be found here.

[0:00] Chime

[0:04] Intro Music

[0:42] Katya Hancock: At StartUp Health, as many of you know, we work with companies for multiple years as they’re on their journey to build great companies. Because of that model, we work with them through multiple capital raises as they progress from seed to series A, to B.

[0:59] Katya Hancock: Increasingly becomes more important to pick the right investors. They’re not just writing checks. They become your advisors, your distribution channels, board members, maybe even your friends, hopefully; people that you spend a lot of time with. We’re going to have a panel today, featuring a StartUp Health company.

[1:17] Katya Hancock: Asif Khan is the founder of Caremerge, put together a really great syndicate of investors, both strategic and VCs last year.

[1:27] Katya Hancock: The panel is going to be moderated by Jay Sullivan, a partner at DLA Piper, one of our great event sponsors. Jay, if you want to come on up. We have Matt Karls from Cambia Health, Casey Silver from Arsenal Venture Partners.

[1:42] Katya Hancock: Ruchita Sinha from GE Ventures, our long term partner and good friend. Of course, we have Asif, trailblazer going down the middle, making his own path. With that, I’ll hand it over to Jay, to kick off the panel.

[2:00] Jay Sullivan: Excellent, thank you very much.

[2:02] [applause]

[2:06] Jay: We’re thrilled to be here from DLA Piper, I’m a Partner in our corporate group, we do a lot of work with healthcare companies and investors of various shapes and sizes. It’s a great pleasure to have this panel here today and to be part of the StartUp Health Festival here at J.P. Morgan week, in San Francisco.

[2:20] Jay: The thesis for this discussion is, thinking back several months, we were trying to decide what we wanted to talk about. Before I even knew the tagline for the conference, it aligned very well, it’s “Where moonshots begin and transformation happens.”

[2:32] Jay: It’s all about bringing together a great set of partners to build incredible digital healthcare companies. We believe, ideally and otherwise, that if you have a great, strong emerging digital health company, and you combine blue chip financial investors along with creative and bold strategic partners and investors, then really great things can happen.

[2:56] Jay: It’s not just, to echo Steve and Unity. It’s not to say that it’s an easy road. There will be many stumbles along the way, and we’d love to explore that journey a bit more through the lens of Caremerge. With that, maybe I’ll start with Asif, and we could go down the line with brief intros. I’d love to hear a little bit more about Caremerge for the group.

[3:11] Jay: For the investors and partners, I’d love to hear what brought you to StartUp Health, and then we’ll get into details with Caremerge.

[3:18] Asif Khan: Thank you. First of all, I’m very humbled to be here with everybody. Caremerge is a care management and care coordination platform. We are focused on higher acuity patients, seniors, in post‑acute care, so senior living facilities, and home care.

[3:36] Asif: What we found is everybody who is worried about these patients, these high‑risk patients, are the stakeholders, your health systems for avoiding re‑admissions, to payers who are managing risks, or bundled payment, or ACOs. They’re all concerned about these high‑risk patients. The problem is once the patient leaves, you don’t know what happens.

[4:00] Asif: We provide the senior living providers with simple tools so they can capture data within Caremerge, or re‑ingest it from their EHRs, or devices, or what have you. We have these protocols that the providers or payers can build. You have CHF patient that gained five pounds over the next 24 hours.

[4:18] Asif: “Oh. Send a notification to the hospitalist to do this, home care to do that, and primary care physician to do something else, and let the family know or something.” You can create these protocols, and so it brings everybody together on an exception base.

[4:31] Asif: This allows people to focus on doing their job, and not do their job and try to communicate and tell people what to do. They just focus on doing their job, and we extract the necessary information, and bring everybody together. That’s in a nutshell what Caremerge is.

[4:48] Jay: Excellent. Thank you. There’s just one other thought. When we were speaking a couple of months back about the panel, I know you spoke about this virality.

[4:56] Jay: One concept that really took hold with me was that every one of us in this room are tethered to devices non stop, and we all have very busy lives. It was the focus of the business that was trying not to change necessarily physician behavior or provider behavior, but to work within that platform. That was really an interesting point to me. Ruchita?

[5:17] Ruchita Sinha: Good afternoon everyone. My name is Ruchita Sinha, and I am with GE Ventures. We’re the corporate venture arm of General Electric.

[5:26] Ruchita: At GE Ventures, we have four pillars towards fostering innovation. The first is equity investing which we invest in healthcare, energy, software, and manufacturing.

[5:38] Ruchita: The next is incubations, which is starting new businesses from scratch. The third is licensing, and the fourth is our thought leadership arm called Healthymagination.

[5:48] Ruchita: Within healthcare, we invest in medical devices, diagnostics, and genomics, and healthcare IT and services/digital health.

[5:59] Ruchita: When we first started getting interested in digital health ‑‑ this was back three years ago, right as we were formed as an organization and a venture fund ‑‑ we wanted to start looking at this new and emerging space with a trusted partner. That’s when we got introduced to Steve and Unity. It’s been a tremendous experience over the last three years with them.

[6:24] Ruchita: We first selected 15 companies into our portfolio, and have not only grown with the companies, but learned a tremendous amount and invested in those companies like Caremerge. Since then, we’ve announced a 2.0 version of our program, because we couldn’t get enough of the team at StartUp Health.

[6:42] Ruchita: We just announced, back in the fall, a second program where we are going to select 10 more companies into our program.

[6:50] Casey Silver: Hello, everybody. My name is Casey Silver. I’m with Arsenal Venture Partners. Arsenal has been venture investing for about 15 years. We’re based in Florida, but we have offices here in Palo Alto, and then two in the Midwest.

[7:01] Casey: I think what’s different about Arsenal is we have this mix of funds, and two out of the three funds are what we call strategic venture funds. We’re partnered with different Federal agencies on there.

[7:09] Casey: We manage the Department of Defense’s one and only venture fund. We’ve had that for about 12 years. As most of you know, the DoD is one of the biggest payers and providers of healthcare in the country.

[7:19] Casey: We manage a fund for the state of Florida and the Department of the Treasury as well. We also have a traditional fund, as defined by ROP base.

[7:28] Casey: We’ve known StartUp Health for about two years now, about as long as we’ve been involved with Caremerge. We’re really impressed with the StartUp Health team. We had been tracking their portfolio for a while before we got formally introduced, and now sometimes we talk weekly, monthly, depending on what’s going on, participate in the network access sessions.

[7:45] Casey: StartUp Health is this really cool startup in itself. This is the second year now, I guess, that they’ve done something around J.P. Morgan, and they’ve put on an event that competes with J.P. Morgan. They’ve been doing it for 33 or 34 years. Thanks to StartUp Health for including Arsenal. It’s good to be here.

[8:01] Matt Karls: Hi, everybody. Matt Karls, with Cambia Health. Cambia is a strategic and cause‑driven healthcare investor.

[8:08] Matt: We have a family of companies based primarily in the Pacific Northwest. We have all‑around healthcare, and we have specifically, significant scale, given our affiliation with four Blue Cross Blue Shield affiliated health plans and other health plan lines of business.

[8:25] Matt: We were the lead investor in Caremerge, and we’ve been working with StartUp Health and their team for several years now. It’s been a great relationship, because we often seek to develop co‑investment relationships and sourcing relationships where we have access to really sharp people, a broad network, and people who are at the forefront of the transformative companies that will go a long way in shaping what healthcare looks like in the future.

[8:49] Matt: They’ve brought us a lot of potential deal flow. They’ve introduced us to a lot of entrepreneurs, and they’ve helped add a lot of value to the companies that we’re allowed through this relationship to get to know before making a smarter investment decision.

[9:01] Jay: Excellent. Inherent in this panel is that everyone else other than me knows each other rather well.

[9:06] Jay: With that in mind, I’d love to hear more about ‑‑ and Matt stole my next question ‑‑ he was first to the table in the investment, but I’d love to know why Caremerge for Cambia, and then also for the other investors and partners, what about Caremerge, or what made you come in subsequent?

[9:27] Matt: Sure, so to start, what was really interesting, the first thing that hit us is we are starting to work with Asif and hearing and better understanding the dynamics around the need in senior living, and understanding from previous investments and our experience in the space about the challenges with care coordination, the challenges with engaging patients, residents, their families, and certainly can see the scope and the direction of the need.

[9:52] Matt: For us, as a cause‑driven investor, we’re looking for solutions that will help shape the healthcare industry and pull costs out of the system, making it more economically sustainable and centered around the individual person.

[10:04] Matt: The Caremerge story, in that respect, is very strong. You have the ability to really capture the needs, clinical and non‑clinical of a resident, and translate those into the workflows that will result in them getting better care and getting better interaction with their family when they need it.

[10:21] Matt: That story is very strong, and we certainly, as spending all of our time in the healthcare space, understand how difficult that can be to actually translate that into the workflows in a way that goes far beyond just, “I’ve created an app for that.”

[10:34] Casey: I’ll talk about how we got to the table. We actually tried to be first to the table, but Matt beat us out here.

[10:41] [laughter]

[10:42] Casey: We did have competing terms sheets with Cambia. We didn’t know it at the time, and when we found out that we’d lost, we, of course, were disappointed, but when we found out that is was Cambia and it was Matt, we were really encouraged about the strategics that Asif had started to build around the company.

[10:57] Casey: Caremerge is the second healthcare IT investment that we’ve done. At the time we were aware of these care coordination shops in the market where you have a population that has two, three, four chronic diseases, two, three, or four doctors, on top of caregivers and family members that really want to take care of that patient.

[11:14] Casey: We thought the platform that Asif was building and where he was dropping that in, and the partners that he had been able to create was pretty impressive.

[11:21] Casey: The other thing that really got us hooked was Asif. We loved his background, and what he had done on a relatively little amount of capital was pretty impressive.

[11:31] Casey: He had three or four products at the time. He’d implemented a couple hundred facilities. He had a big pipeline, so we thought with Asif at the helm of this, and we really liked what was going on in the market, that this would be a good deal to get into, and then couple that with all the strategics, we were more than happy to follow and participate.

[11:50] Ruchita: I’d like to say we were the first to the table, because we found these guys along with StartUp Health three years ago. We were insiders in a lot of ways, because we did invest in the company when we accepted them into the program.

[12:03] Ruchita: It was good to sit back and watch these guys duke it out, right?

[12:07] [laughter]

[12:08] Ruchita: I would say three things that were really impressive, really, really impressive, when Asif came around in his fundraise.

[12:18] Ruchita: The first was there’s been a lot of noise, at that time at least, about care coordination. All sorts of companies coming up with all types of solutions. What was super impressive is the application in terms of the market that Asif had pinpointed, a really underserved market in the senior care space.

[12:36] Ruchita: It was hard to believe that in a world where technology was so advanced, how does this entire market just deal with pen and paper? How does that work in today’s world? That was the interesting application of the market. That was number one that impressed us really a lot.

[12:52] Ruchita: Second, to what Casey said, Asif, he’s built an amazing team around himself. Eighty percent of the investment you make is in the team, so that was really impressive.

[13:02] Ruchita: Number three, just the laser focus these guys have on customer, and making customers happy. These guys don’t lose customers. They don’t. Customers don’t want to leave these guys.

[13:13] Ruchita: It was amazing, in this competitive space of IT to be able to have that level of customer retention. It was super impressive.

[13:21] Asif: I want to say one thing. You guys are all calling my name. I am really nobody besides my team, so just to make sure, Fahad is back there. He’s in the back. He’s built a fantastic technology platform. I’m really nobody without this team, so it’s important to recognize that.

[13:38] Jay: Absolutely. I think that’s something that’s going to come up again and again, is the team is key.

[13:44] Jay: I like the dynamic here that each of the investors that are now backing you want to be first to the table, and each other own story how they were, but I imagine there were others in the hunt. It was a successful company when you were in the capital‑raising process. One, how did you manage that process, and what really let these folks rise to the top?

[14:05] Jay: I think the key thing was these organizations that came in the round. It was oversubscribed round. It was a small amount, but it was an oversubscribed round, and these companies that came in, they understand the problem.

[14:20] Jay: Insurance, GE Healthcare, Department of Defense, and we also have Ziegler, LinkAge, and Formation Capital, which are really focused on senior care. They’re not here, but all these guys, all these companies, they really experienced it every single day, and they could understand what we’re trying to do, and what we’re trying to figure out.

[14:41] Jay: I think those were some of the reasons why we gravitated towards each other, all of us, and it kind of worked out really amazingly at the end.

[14:49] Jay: That’s great. The very first time that Asif was at the Cleveland Clinic at the StartUp Health showcase a couple of years back, right around the time that, I think, the first financing was coming together, I was doing my best to go out and meet companies in the room.

[15:04] Jay: Asif was very, very focused and saying, “I’d love to talk further, but we’re really right on the edge of getting something done, so just please leave me alone, and let’s move on down the road.”

[15:13] [laughter]

[15:14] Jay: It was a very polite…It was actually the right answer from the lawyer’s point of view. “Get your deal done, and then talk later.”

[15:20] Jay: With that in mind, it’s still a challenging process, even with a very amicable group of investors and people who want to back you. Is there any advice that you have for the entrepreneurs in the crowd of how to manage this process of bringing different investors to the table, and anything you would do differently? Not necessarily from the partner level, but just process level?

[15:38] Asif: Yeah, I think the key thing is, in healthcare, there are so many different pieces. There are so many different providers, payers, devices, pharmaceutical, the list goes on. I think that if you’re a startup, you really need to understand who could be a good partner, could be a good channel, could be a good mentor for you and your company and help you grow in the right direction.

[16:01] Asif: The amount of research and the amount of knowledge that these people have, I can even go try to buy it, and I’d probably raise capital just for that, right? [laughs] Just having an ability to call Ruchita or Matt ‑‑ Casey’s introducing us to some senior living ‑‑ you can’t. There’s really no price tag you put on that value.

[16:22] Asif: I think it’s important to understand who it is. Money is definitely important. Capital you need to raise, but if you have a choice, find the ones that can understand you and can help you. I think that’s very important. Then just focus on explaining to them your traction and your value, and I think things can come together.

[16:44] Jay: I’m sure you had a preconceived notion of how this would happen once the investment was done, and you would start to build your network collectively, but have there been any unanticipated, really significant value‑adds that you didn’t see coming that the team brought to the table?

[17:00] Asif: No, absolutely. I think there is the general guidance on a regular basis, so all of these guys are on our board. We continue to listen to them and look at it. We have a fairly transparent process.

[17:13] Asif: We have pipeline reviews. Who’s coming in? What are the clients? What the pipeline looks like, so I think making it transparent is obviously very helpful. I think it has been a really wonderful experience.

[17:27] Asif: From an unanticipated or something unplanned, it has been really a pleasant experience, at least from our side, because we have, for example, the Ziegler folks who are not here, we have a bi‑weekly call with their head of investment, who looks at our pipeline and says, “Oh, let me send an email to this guy. Let me send an email to that guy. Let me call this person,” while we’re actually on a call reviewing our pipeline.

[17:50] Asif: This is just incredible. The same list, same things, same process goes with all of these guys. I attended several of GE’s sessions, and Ruchita is always out, too, connecting me with people in China who are trying to figure this out, to all kinds of opportunities.

[18:07] Asif: Only I think it becomes sometimes so overwhelming that you’re like, “I don’t know where to go,” kind of thing, so you need to get down to business and say, “OK, what do I need to do today? What do I need to focus on? What is my target market? How am I penetrating it? How am I getting traction on it?”

[18:23] Asif: All these things are actually important, and you’ve got to get your feelers out and don’t have a closed mindset, but just keep them on the outer bounds, and you’ll get there when you get there. Just heads down and execute on what you need to do.

[18:38] Matt: One of those things that kind of interesting here is when we first started talking with Asif and his team, about building what a potential syndicate might look like, what we ended up with was kind of an experiment in that, Cambia is used co‑investing along solid syndicate partner names and a lot of that.

[18:55] Matt: We looked for partners to bring things to the table, that’s more than capital, but candidly, this is a much bigger syndicate than we’re typically accustomed, particularly relative to the size of the raise.

[19:07] Matt: But in a series of Saturday conversations, walking around the house, writing notes and texting pictures to each other, we started talking about, what does an ideal syndicate look like and how do you find partners that are going to bring things to the table and fill out the specific gaps you’re trying to anticipate what your needs are to be in the next couple of years.

[19:26] Matt: We looked for people that bring relationships that are different. We looked for people who we trust and we wanted to make sure that we understood how different teams were incented and what their guiding philosophies are.

[19:38] Matt: I would just say that for anyone building a syndicate of co‑investors that something that’s really, really important is understanding how the individual partner and understanding how the organization thinks about their strategic investing function and I think a special look into the 2016 and understanding who is going to be there if things start to dry out, who’s going to be there when times are tough, and who’s going to really deeply engaged or take the time to get to understand your business.

[20:01] Matt: These have been great partners but they were deliberately chosen and then there were certainly other names that we could’ve filled in, and people that would have generated headlines, but this was a deliberate process.

[20:15] Jay: Thank you. So we’ve talked the big picture. I want to talk a lot more about the network and what each partner brings to the table for you and that’s highlighting, but during the actual deal, in getting the deal done, were there any obstacles for anyone that came up that you had to get over somehow or another, either from the company side, from a diligence perspective, or from your investor thesis coming in?

[20:39] Asif: From my side, I think from our side, I think the terms that Cambia put out were really fair and really great. I think everybody looked at it and were like, “Oh, you know?” I think there were maybe few questions. I don’t know from your perspective, we can talk more, but I think it was very streamlined process surprisingly, but…

[20:59] Casey: Yes, I said from our side. I mean Cambia did a lot of work in terms of the structure the deal, put the deal together by the time we got it and we had a couple of questions but nothing really material.

[21:10] Casey: I would say as it relates to our diligence this was Asif’s first time being a founder and we’ve backed a number of first‑time founders.

[21:17] Casey: As part of that, we always try to get a feel for how is the first‑time founder thinking about building out the infrastructure of the company, building out the sales strategy, where is this company headed. After a meeting or two to with Asif, we were immediately comfortable with how he had thought about their market.

[21:30] Casey: I think by that point he had spent almost a year or more in an assisted living facility. He clearly understood the space. He came from GE Healthcare. That was one question mark that we wanted to get answered quickly and we were able to and we were very enthusiastic about backing him as a first‑time founder.

[21:46] Ruchita: For us, it was one of the fastest moving deal processes. We surprised ourselves, we could move so fast. But I think just having Cambia lead and thorough diligence they had done was really helpful for us.

[22:01] Ruchita: As GE, we are not super familiar with the senior living market and so that was one of the things that we had to learn and just partnering with Matt on that was super helpful and bringing up to speed because he’s got a ton of expertise in that area.

[22:15] Matt: I appreciative that. It was a great process. I think part of is how philosophically we tried to dig our heels in way before we put our term sheet out. We think it’s bad practice to put term sheets out and then find things, the “gotcha’s”, just that you really should have known going in. What that allows is, it results in a little bit of a delay to get to a deal.

[22:36] Matt: But once you’re there, the focus of diligence shifts and so there’s a certain amount of understanding what it is that you’ve got yourself into. But the other thing is that we really spent a lot of time trying to understand and assess the team dynamic because there’s nothing more important I think than that because that’s ultimately what you’re putting your money behind.

[22:54] Matt: Then understanding what are the things, especially when you have a really capital efficient management team that’s been doing what they can to get by to the point where they’re raising a structured financing to say, OK. Now where are the sacrifices that they’ve made that you know have to go back and address, so that this company can scale once you put dollars behind it.

[23:13] Matt: It’s lot of really simple things but really important things like, are you using a bunch of free tools but now it’s time to get sales force and time to get reporting trouble ticket systems.

[23:22] Matt: I mean they’re the right decision at the time and then it’s right decision when you have a ten‑thousand dollar MRR revenue business and then maybe like it went up to a half a million.

[23:33] Matt: But once you’ve start to develop real scale, you don’t want to be trying to implement something and catch up, especially when it impacts customers and their customer focus was so off the charts phenomenal that you want to make sure that stayed.

[23:48] Jay: What was the time to close? What’s the relative timing between each investment? Was it a short period of months, weeks, days?

[23:56] Asif: I think we’ll get to the first time and got all the due diligence out ‑‑ four months, five months?

[24:04] Matt: I think what was unique here, I think another thing we were really tested is we pushed management to say, are you raising the right amount, are you structuring it the right way and we tried to structure things in a way that makes sense for the company and we went back and forth on that. I don’t recall what the actual time to close was.

[24:23] Matt: Once we got our term sheet locked in though and we dealt with several other the definitive docs and things, it wasn’t unreasonable.

[24:31] Asif: I think it was maybe a couple of months when we had the term sheet, because once we had the term sheet, we shared it with the rest of the syndicate partners and everybody were like, “Oh, it’s Cambia. OK. Great. And who else is involved.” I think it was a very smooth process afterwards.

[24:47] Ruchita: I think once the allocations were decided, it was a matter of weeks.

[24:54] Jay: How about that allocation division? Was that a hot company like Caremerge and a lot of investor interest that can be a challenge I think for everyone to balance?

[25:02] Ruchita: Oh, it got ugly.

[25:03] Jay: Yeah. [laughs] Well, you’ve moved past it and everyone’s up here today, because you’re all in, but I’m sure there may be others who may have a different opinion.

[25:10] Jay: But I had a question for Arsenal specifically. Digging a little bit deeper into building networks but from a higher view rather than Caremerge. If you had the choice between partnering with say a pure financial investor who you have a track record with or a key strategic partner call it Cambia or GE or otherwise. How do you weigh those alternatives and which is…?

[25:34] Casey: That’s a great question. Arsenal especially our of our DoD fund, we think we’re a strategic investor and out of a fund that we’ve invested in Caremerge with. That’s a traditional fund. I think that from the healthcare perspective, we like to have both.

[25:49] Casey: GE or Cambia they bring a lot of strategic leverage to the deal. They really know healthcare. They’ve a lot of domain expertise that we don’t have.

[2557] Casey: That’s so critical at the formative stages of the company. Who were the right customers? Who were the right stakeholders? How do you approach them? How do think about that? That’s really important, an insight that we necessarily can’t bring.

[26:10] Casey: But I think I’ve to speak broadly about traditional investors. I think for a venture firm that’s been investing for 15, 20 years, they’ve also seen a lot. They’ve seen right ways to build a company, wrong ways to build a company. While healthcare is a complex and a very interesting industry, outside perspectives, I think, do add value.

[26:31] Casey: In terms of how to build the company, how to build out the infrastructure, I think when you have strategics and traditional VCs, you have diversity of thought, which is important building a business. I think in an ideal situation we have both, which we have in this deal, which we’re excited about.

[26:47] Jay: Excellent. Spinning it around a little bit for GE and Cambia, if there’s another strategic at the table and an investment they’re looking at, there’s certainly different types of strategic investors and partners in the market, whether it’s payors, providers or otherwise. Does it change your calculus regarding who those strategic partners are, by category, or is there any preference from others around the table that works better for you?

[27:10] Ruchita: I think there is no hard and fast rule. Obviously, things get a little weird if you’re on the table with a direct competitor in that space. There have been cases like that for us as well. But we try to avoid situations like that.

[27:24] Ruchita: But I’d say, generally, there are no hard and fast rules, but one of the things that is such a great ratification of a company is when customers want to invest in you, be it a current customers or be it future customers, and that was one of the things we saw in this round where be it the DoD or be it the Signature or Cambia. They were customers, potential customers who wanted to invest in this company and there’s no better ratification of how valuable our technology is than that.

[27:53] Ruchita: We’ll take any number of strategics alongside in the syndicate as long as they’re customers, but also other strategics as long as they bring something different from us to the table, because you don’t want two people who bring the exact same thing and trying to fight it out.

[28:11] Matt: We evaluate everything in a case‑by‑case basis. We build relationships. We look for people and teams that have integrity. We look for the people that are going to be around? We look for what strategic investors are going to bring? But it’s largely about, like you find who your friends are when you have a flat tire. You think about who were the people who are going to be there.

[28:33] Matt: These companies, there’s such a high when you go and make the investment and there’s a temptation, a wave a banner in the air and celebrate and that’s not the time to celebrate. That’s when the hard work begins. You know there’ll be some really great trajectory, exciting times ahead. But there will be tough times and you need to find out who is actually going to earn their keep at that point.

[28:59] Jay: So we sit here in San Francisco during J.P. Morgan week at Startup Health Festival. There are an amazing number of companies here in this room and beyond. For the investors, how does a company differentiate itself from the crowd and the noise? In the case of Caremerge, obviously, Asif and team pulled it off, but there are a lot of other great companies that may be flying below our radar and need a little lift. How do they do that?

[29:25] Casey: I’ll take a start on that. I was thinking about this a little bit. At the start of the morning there are so many companies here and there are lot of investors and there’s so much going on. But I think it’s important if you’re a startup to not get distracted or worried about all the noise, especially in this week and it’s focused on your swimlane or your sector.

[29:44] Casey: Knowing who the investors are, have they invested in your space before? What does their portfolio look like? Who were the right customers? What do I know about them? Do I have a solution that might solve their problem? Who were the right partners? Just not worrying about the 500 or 1,000 companies that are already here. I would say focus on your sector, your swimlane and not get distracted by the rest of the noise this week.

[30:07] Ruchita: A thing to build on that. Have a very clear strategy of why you’re here as a startup? What are you trying to do? Are you here to talk to customers? Are you here to fundraise and talk to investors? Don’t mix the two, because then it just gets confusing in your own head, what you’re trying to do.

[30:26] Ruchita: Also don’t fundraise until you fundraise. Don’t fundraise until you need the money because, I’ve spoken to so many companies that are just, I call it fundraising tourism. It’s just they talk to investors just to talk to investors, and after a while, there’s a certain amount of fatigue. I’ve spoken to this company how many times?

[30:45] Ruchita: There’s still nothing actionable here. They haven’t gone out and officially launched a fundraising campaign. Just keep that in mind. Don’t fundraise until you actually need the money and then go out full blast.

[30:59] Matt: I think that’s excellent advice. The only other thing I’d just offer is, from the investor’s perspective as they’re hopping from meeting to meeting. Just keep in mind that from their perspective, I would hold a little tight on the pitch because they’re getting overwhelmed. Investors get overwhelmed by everybody trying to shove a card at them indiscriminately.

[31:17] Matt: Make sure that your messaging is this tight and keeping in mind that everybody has a slide about how they lower re‑admissions and you see it.

[31:25] Matt: I know how big the market is for CCM. It’s conveying that you’re the team that’s going to execute, that it’s really important and try to push as much of the follow‑up for afterwards. Do it in a strategic way, not just a shotgun blast, trying to hit everybody that you can because it’s going to be a whole ton of wasted time for everybody.

[31:48] Jay: Asif, for you, picking up on Ruchita’s comment. In terms of that fundraising cycle, fundraising really can be another full‑time job for a management team, and it can be exhausting. How do you balance that versus running the business, growing the business? Is it easy to tell when it’s time to raise the money?

[32:08] Asif: I think that these guys said it really clearly, especially Ruchita. If you need the money, you need to organize yourselves to accomplish that. It’s challenging. I know you have clients to support and you’re bootstrapping. I think the way we thought about it is …we keep our heads down, bootstrap, get to clients, get to post revenue.

[32:39] Asif: At least have something tangible to show. To say here is what was first quarter, second quarter, third quarter. Look, it’s working. As you kind of moving that along, you got to really make sure you get really best people in your team because if you’re the founder or one of the co‑founders and raising capital, you can drop the ball on the business.

[33:00] Asif: It’s very challenging. You really need to make sure you focus on it at the right time, and then you have at least some base that you can say, “OK, for maybe three, four months, I’m not as involved,” and understanding it’s a very small team but we just got to get this done.

[33:20] Asif: Then focus on it. Announce it in the market. I think lots of people… [laughs] so funny is it. Fundraising tourism or something like that. It was really funny. Just focus on, then book meetings, and just go at it. Just go and get it done.

[33:36] Asif: You have to meet a lot of people, but start from a list of, OK, these are the people who invest in healthcare. These are the strategics. These are the traditionals. These are some other whatever. Segment them just like you’re going after your market.

[33:50] Asif: Focus on the most important ones. Try to get to them through relationships like StartUp Health and other partners that you have or other entrepreneurs. We all introduce each other. Just hit it really hard.

[34:04] Asif: You would have to probably do like 40, 50, 60 meetings with different VCs before you finally find few that are really nice match from culture and all these other reasons.

[34:17] Asif: Then you pull the trigger and hopefully get a couple of term sheets. Focus. I think in startups, you just focus with your clients, then it’s time to raise capital. You have limited resources, which is your time, so really need to focus on and a specific time what your focus is and how you execute.

[34:35] Jay: What is the earliest that any of you will back a company? If you’re stepping out, perhaps out of your typical threshold of investment, is there a hook that you would move down in stage to investing?

[34:50] [crosstalk]

[34:51] Casey: Sure, I’ll take it. We’ve done a couple C deals, one or two. I think the common denominator then has been overweight relevant experience by the founder, meaning they’ve started two, three, or four companies in that space, so they have an understanding of what the financial requirements are, who the customers are. They’ve already sold them, they already have these relationships. I think that’s definitely a wow factor that kind of mitigates some of that early stage risk.

[35:18] Casey: The second thing would be, especially from a healthcare perspective, if you’re an early stage company, maybe you’re a spin‑out of a larger healthcare strategic or stakeholder, having large partnerships with some of these organizations, whether that’s financial or strategic or both. That’s helpful too for us to get over the hump, because we typically like to see companies that have a product, it’s out in the market, customers are representative of the broader market, those types of things. But we will go earlier if some of those factors are there.

[35:48] Matt: Cambia’s model allows us to be stage agnostic. We’ve done small check sizes, we’ve backed a Y Combinator company that’s slightly outside of healthcare in a six‑figure check and all the way up to we were an investor with a nine‑figure exit recently.

[36:04] Matt: I think because our model is that we deeply engage with the entrepreneurs and the management teams, it’s difficult to find an investment where it makes sense that we will ever get a return based on that threshold.

[36:16] Matt: We are looking for really extraordinary circumstances. I think candidly will be probably doing some things to kind of shift up how we approach seed stage investing, so that we can still reach the really transformative, innovative companies in a way that makes sense.

[36:30] Ruchita: I think we do most of our seed stage investing with StartUp Health, because we trust these guys more than we trust ourselves at that stage. There are a few cases where we’ve done it on our own. I think it’s a couple of different things that catches our attention.

[36:46] Ruchita: A, it’s a team. It’s a repeat entrepreneur that we’ve backed before and things have turned out really well, so in that case we will go at it very early stage with the entrepreneur. If it’s something that’s super strategic to GE, we’ll go super early.

[37:03] Ruchita: Sometimes it’s a very unique situation, either a unique market opportunity that we believe in, unique business model ‑‑ something that we want to be in at the early stage to be able to learn from it along with the company. Those probably are a couple of cases where we’ve done it outside of StartUp Health.

[37:22] Jay: I’m sure that everything has gone incredibly smoothly and swimmingly from the very first day you launched the company. But just in case it hasn’t, were there any significant pivots you’ve had to manage through within the business or as you go forward?

[37:36] Jay: Then also from the investor perspective, both within Caremerge and beyond, I’d love to hear whether that sort of fundamental pivot is something you expect in an investment as you approach it, or whether you hope that that’s happened before you come in.

[37:49] Asif: I’ll go. I think we haven’t seen any significant pivots. I think what we realized is, we were focusing on solving the problem for the higher acuity patients. We knew at some point in time, this will be important for a whole bunch of other people outside, and I’m just glad that it’s starting to work out.

[38:09] Asif: People, their health systems, or payers, or physicians for whatever reasons, they need to know what’s going on with their higher risk patients, and we have a mechanism to get them pulled in the loop. I think now we’re starting to look at how do we leverage our hold in the senior care market, and leverage the health systems and the payers to further go into the same market. Those are now become our channels, so going into it.

[38:36] Asif: We have health systems buying Caremerge to offer it to post‑acute care to say, “Hey, if you want my patients, I want you to keep me informed and then show me exceptions so I can care better and we can work together. You don’t have to pay for this, I paid for it. You just use it if you want my patients.”

[38:52] Asif: It’s really exciting times for us. I don’t see it as a pivot, I think it’s a natural evolution of where we’re at.

[39:00] Matt: In the case of Caremerge, it’s interesting that…not to speak out of turn, but I think what can be equally or even more difficult than trying to pivot in a situation where things are underperforming is how to manage your success.

[39:13] Matt: With Caremerge, we have to have deliberate board level discussions about making priorities with the resources that address different areas of the market where we see real opportunity. The product people have designed a platform that has really strong capabilities around care coordination.

[39:32] Matt: They have developed a platform that really knows how to engage family members, and knows how to match the family members, give them role based access to interact with the people who are delivering care to their family. There’s a social engagement platform that can be used by the residents.

[39:50] Matt: When you have constraints around the number of programming resources, when you have marketing people who can only go after so much, and you’re trying to manage your message and the direction, it can be really tough to not go down one path that looks successful and keep the focus where it needs to be. That’s a good problem to have, but it really is a problem.

[40:12] Casey: I’ll speak to Arsenal’s experience with pivots. We really don’t anticipate a pivot at the stage at which we invest. It certainly happens or it’s happened in healthcare, and it’s tough, frankly. Customers can be different. You often times use more capital. Management teams can be different. It takes a lot of time and resources.

[40:35] Casey: After having done it a few times, we do invest at a point where we think those pivots have already happened, but if we are in a deal and they do need to happen, we work with the board and the investors on what’s the best way to do this pivot, and what’s our role and those types of things.

[40:51] Jay: Excellent. Ruchita, any…?

[40:52] Ruchita: Yeah. I will just build on Matt’s point is in terms of managing your success. Also, how do you continue maintaining the quality of the team? That’s I think one of the big learning experience for all of us. We’re working on it together.

[41:06] Ruchita: As you start scaling, you have to hire a lot of people in a very short period of time to just keep the ramp up. How do you continue to hire the best people who not only fit in with your team, but execute in the way that your company needs to execute? That’s a big hurdle I guess, but it’s a good problem to have. That means you’re scaling your business.

[41:30] Jay: Excellent. I think in any investor group you may have, you may come to the table with different expectations or horizons for investment I think. Everyone in this room likely understands that the sales cycle for healthcare is often more challenging than a lot of other sectors that investors back in tech sector or otherwise.

[41:50] Jay: I expect that everyone on this panel came to this investment and this business with that understanding, but how do you manage the different expectations amongst the group? Is that something that you would discuss ahead of time or manage as you go?

[42:06] Ruchita: I just do what Matt says.

[42:08] [laughter]

[42:08] Ruchita: Just kidding. No, I think it’s…as you can see, just a rapport between us. We have very open lines of communication. If there is something that I want to discuss at the board meeting, I call up Asif or I call up Matt or both of them and say, “Hey, just something to put on the agenda.”

[42:30] Ruchita: It’s just maintaining very clear lines of communication and having that rapport amongst board members and the leadership team to say…We’re not going to hide any issues. We’re not going to hide any problems. We’re going to discuss it and put everything on the table.

[42:46] Jay: Excellent.

[42:47] Matt: Yeah, I think that transparency is super important. I think the other thing that maybe strategics can bring, and I wouldn’t make a blanket statement to say that they do, understanding the time horizon in healthcare.

[42:59] Matt: I think it’s particularly difficult for startup companies that are funded in these cycles, but are selling into health systems and payors that measure these things in months and sometimes in years, you need a different level of patience than I think a lot of the financial or traditional people with a consumer or Internet background can possibly fathom.

[43:18] Matt: You need partners that have a long time horizon, they have a long perspective, and are not looking at things quarter by quarter or LP statement to LP statement in some cases.

[43:30] Casey: Fully agree with that. If you have a group of investors and one isn’t really familiar with healthcare, how long that it takes, that could be challenging just to get them educated and up to speed on sometimes it takes 12 or 18 months to close some of these deals.

[43:45] Casey: We’ve been invested in four or five healthcare companies now, so we think we have a pretty good feel for how they go. Arsenal’s model is kind of built around large organizations. I could tell you that there’s nobody that takes longer to buy anything than the DoD, so we have a good feel for that. We bring that patience that we’ve built over 10‑plus years to help a healthcare company like Caremerge.

[44:09] Jay: For the investors, I think one of the great opportunities and benefits of having a partnership like this here is that there are channels that can be opened up through the investor base into the payer systems. Is that something you’re seeing more of?

[44:22] Jay: Are you seeing generally a greater number of companies looking to find partnerships like these amongst financial and strategic backers? Is the opening up of the customer base through the investor channel something that you’re seeing?

[44:36] Ruchita: To your first question, I think more companies are looking to put together syndicates like this, where they invite multiple strategics. I think the role of strategics in sitting on boards and investing has evolved a lot over the last few years, and there is somewhat of a transformed view on what value strategics can bring to the table.

[45:02] Ruchita: Yes, a lot more companies are looking for that. I think it does open up new channels. One of the things we have been exploring is we have a member on our team who connects our portfolio companies with all our healthcare customers, the big providers and the health systems. Traditionally, that hasn’t been a space that Asif has been selling to, but it does open up that channel, and there has been interesting traction that you’re seeing in that channel.

[45:32] Ruchita: Sometimes just bringing in that perspective does open up new channels and does open up new distribution models and business models that you haven’t thought of.

[45:41] Matt: What’s tough though, understanding…Now that corporate venture capital and strategic investing has become sexy and everybody wants to have a group and everybody wants to offer pilots, but you’re not exactly sure how that happens. I think it’s really tough for people to kind of actually sanity check their potential partners, and when they’re talking to investors who are trying to portray the company line and say, “This is our model. This is what we do.”

[46:03] Matt: To kind of pull the curtain back and say, “OK, let’s see what you’ve done. Let’s see how you’re structured. Let’s see who’s incentivized to actually add the value,” and avoid that letdown that happens after the fact when you go, “OK, so here we go. You said you’d deliver me pilots or you made me promises for introductions or whatever, and you find out that those teams aren’t geared.

[46:23] Matt: It’s not about bad intent, but they’re just not geared to be able to provide the value that they’re promising, or the partners or the people are not incentivized. They don’t have the organizational gumption to be able to deliver on it and be around again for the long term. I think that’s a real danger because it’s creating a lot of noise right now.

[46:45] Ruchita: Just to add to that point, I think something that will be valuable for entrepreneurs is we have to be careful. There are a lot of strategics that bring a lot of value to the table. Just be wary when strategics ask ahead of time for some value tied to a future thing that they want to deliver.

[47:03] Ruchita: If they’re asking for some types of options, warrants, just be super wary of things like that because to Matt’s point, things take a while to come to fruition. Things, as they are promised, things don’t always come true to that. If you’re giving away a certain amount of value in your company based on that, when things go bad and things don’t materialize, then you’re stuck. You still given away that value.

[47:31] Ruchita: Just be wary of strategics who upfront ask for some sort of commitment from you in turn of a future value that they will deliver to you.

[47:39] Asif: I would actually add something to it. There are some strategics that we had in the past and they wanted warrants and all those. We always tie those back to revenue or something from them. We say, “OK, if you want this much of equity, we’ll not just give it away as a pilot. You have to commit x many locations, x many patients, x many…by such and such date and time, otherwise those disappear.”

[48:02] Asif: This kind of helps you as a start up to say, “Look, I’m offering something really valuable here, but you cannot just take it. You have to work for it, and work with me to get to that point.” It just drives up value for everybody.

[48:16] Jay: How many investors do you think you’ve come across in the process of your fundraising? With the focus, I expect it’s a couple.

[48:25] Asif: I think we have at least met between, I would say 50 to 70.

[48:31] Jay: In terms of meetings or discussions you’ve had along the way. So, stay the course.

[48:35] Matt: One final thing. The environment is shifting and I think people can feel it. Nobody knows where it’s going to head. But in your pitches as you’re talking to investors, be really focused on being not just a point solution, and not just something that is…right now, there is so much noise because, especially for digital health companies, it’s so easy to start a company.

[48:57] Matt: Those barriers to entry are so low right now, and when you couple that with the tremendous need, with healthcare reform, with the push to value‑based care and all of these trends, it’s become this perfect storm for digital health gold rush.

[49:12] Matt: A lot of that’s great because you get a lot of excitement built, but now we’re going to go through a time I think where the space is maturing, and that’s a good thing. I think the bar gets higher and you need to be able to articulate better about why you’re going to build a lasting business.

[49:28] Matt: How you’re going to go beyond just providing technology, providing bodies, to build something that actually can integrate in with today’s existing system and how you’re going to get consumer eyeballs and consumers to interact with it. How you’re going to be able to tie back to the existing docs, the existing health systems, the existing payers.

49:48] Matt: I think that the appetite for, “We’re going to figure that out when we get there,” is going to dissipate pretty quickly.

[49:54] Casey: I would totally, totally agree with Matt. Digital health is no longer new. This year, there was four or five billion invested. Last year, there was six or seven billion dollars invested.

[50:04] Casey: I think we’re probably coming to the end of, as Matt said, the point solution and the platforms that provide a lot of value for a lot of different stakeholders and can work well with their partners and really help their end customers on that transition of value, whether it’s an employer, a provider, a payer, others.

[50:21] Casey: I think that’s just going to be critical. Keep that in mind as you’re talking to investors. I fully agree with what Matt said.

[50:27] Ruchita: I think the advice I’ll give is probably very simplistic but very important. You have a lot of stakeholders in your company building process. You have advisors, you have investors, you have your team members, but your most important stakeholder is your customer.

[50:43] Ruchita: Be laser‑focused on your customer. Never, ever compromise in terms of the customer because ultimately, that’s what drives your business.

[50:52] Jay: So, with that, we’re going to wrap, and I would like to thank the panel, and StartUp Health and, hopefully, you can track us all down a little bit afterwards if you’d like to continue the discussion. Thank you.

[51:02] Katya: Thank you so much to the panel. Big round of applause.

[51:04] [applause]

[51:09] Chime

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