Cracking the code of the venture capitalists’ vault of money is one of the enduring enigmas for about every entrepreneur at some stage of their existence. For many, the stress involved in securing funding can be completely overwhelming and many falter when they finally get some time in front of a VC. An evolving part of my work is helping to prepare start-ups for VCs as well as helping VCs to assess healthcare start-ups so today I’m going to share my top five tidbits of knowledge for health entrepreneurs to better understand venture capitalists. So let’s get going!
1.They’re Human Too!
They might not be entrepreneurs necessarily like you but they are businesses like you. They want to minimise their risk and enhance their opportunity to make a profit. It might sound like common sense but many start-ups treat VCs as judge, jury and executioner. Always remember that they guys sitting opposite you work for a business that has bills to pay, debts to fulfill and investors to satisfy. Does what you do make their lives easier?
2. Whose Money is it Anyway?
If you’re talking to a venture capitalist from a large firm often unless they’re senior execs then that person probably isn’t going to be investing their own cash into your company. The way VC funds work is that they’re made up of two sets of players: A. General Partners & B. Limited Partners.
It’s the limited partners who are investing the vast majority of the money and they tend to be on behalf of very sophisticated institutions in their own rights such as investment banks, funds of funds, pension plan managers and the odd ‘super-rich’ or technically speaking high net worth individual. Why’s that important? Well, because these guys are involved in dictating the terms of how and where VCs invest the fund money. There can be limitations which simply mean that VCs can’t meet your desires and that it takes considerable growth and profitability on behalf of the startup to make sure that the VCs get a healthy return since most of capital gains and profits will go to the limited partners.
3. You Can Choose Too…
When a venture capital fund invests in you it’s in their interests to make sure you have every opportunity to grow and become extremely profitable since they now have a stake in you. They’re incentivised and will often take a position on your board.
If you’re pitching remember that these people are going to become your partners for perhaps 5-10 years and beyond and that’s a major new partner to be dealing with. You need to make sure this partnership work’s in your interests too so do your research and ask them about the resources they can commit to you whether its a network of experts, investors or office space. Make sure you know all the possible opportunities and benefits. Have they invested in healthcare before?Why now? Who have they invested in before and what happened to them? How did they help them? Do they have any links to the healthcare community? Make sure you prepare your questions.
4. Prove It.
When it comes to healthcare and by that I mean any product or service that effects the way doctors practise medicine or the way patients interact with them and their interventions then you better have some supportive data. And no I don’t mean forecasts or extrapolations or crystal ball predictions. You need some facts to support your claims but it doesn’t have to be a large scale double-blind, randomised controlled trial. Talk to some local community or hospital doctors ask them to pilot and give their honest opinions. Talk to patients and get them to do the same thing. If you get as few as ten of each to try your product or service for a sustained period of time then that’s a good place to start from and will show your commitment to reducing uncertainty for VCs.
5. Back Yourself
You’ve prepared your financials, spoken to the doctors, the patients, the payors and the providers. You’re a technical expert and you know your product inside out. You’ve got a business plan and a business model mapped out and you know you have an answer to a real problem. Well then, now it’s about finding the right guys who can work with you to make sure it becomes reality!
Remember what happens in a given meeting isn’t necessarily a damning verdict of what you’re doing since there are so many unseen issues to deal with in the back-rooms of VC firms. Sometimes, their hands are tied because of their limited partners and they can’t help you even if they want to! There are always options maybe an accelerator’s in your destiny but more about them next week as well as part 2 of my guide to becoming a health entrepreneur…
Got a question or comment? Tweet me @Saif_Abed
Dr Saif Abed Founding Partner AbedGraham Healthcare Strategies Ltd www.abedgraham.com