Category Archive For "Investing"
AngelMD is building a new, quantitative model for early-stage healthcare investing. Our model involves democratizing the investment process to create distinct informational advantages for both individuals and syndicate leaders when evaluating startups at volume.
AngelMD’s process ranks companies with a proven rubric, so you can prioritize your time and investments for the best opportunities and leverage the power of the crowd to invest with the most advantageous terms in place.
Syndicate leaders are an integral part of a successful startup funding plan. Syndicate leaders share their network, and expertise, and receive additional financial benefits.
Whoah! Syndicate leaders? What the heck is that?
Think part-time fund manager. Think someone with subject matter expertise but not necessarily investment or fund expertise. Physicians, members of angel investment groups…professionals…all can participate. No longer does fund management need to be limited to full time venture capitalists. You can get in the game and build a managed portfolio.
Why Would I Do This?
Lots of angel investors help startups raise capital in addition to their own investment. It’s a way to support the company while ensuring their own money is “de-risked.” The problem is that most people don’t have a system for doing this and they certainly don’t get compensated. Through AngelMD they have both. Syndicate leaders are investors in a company who help expose the investment opportunity to their own networks and advise the company going forward. In exchange for this advisory work, they receive “carried interest”* in the investment. This function helps the company progress, gives new circles of people visibility to the investment opportunity and compensates the syndicate leaders for their work.
What’s Involved in Syndicate Leadership?
Almost everyone serving as a syndicate leader on AngelMD is a busy professional. As a result, the process is designed to take less than 10 hours pre-investment and a few hours a year of advisory work. The first step is to serve as a liaison between the startup and AngelMD to help get evaluations of the company conducted (due diligence) and marketing materials ready for distribution. This includes participating in a 1 hour webinar in which the management team of the startup presents their story. So far we are a few hours of total effort into the process.
Next, the syndicate leaders send out information on their participation to friends and colleagues inviting them to get to know the company. Beyond the email communications, the conversations are directed to the startup. Some startups may elect to host a live event for investors….depending on the location of the syndicate leaders, they may elect to join in a meeting of this type.
Once the investment closes, syndicate leaders will join the startup on an advisory call twice a year. The startups provides updates and shares any challenges they have in which the advisors may be able to help.
The response from syndicate leaders has been that the process is interesting and gets them more involved in activist investing. Most choose to get involved in more syndicates after their initial experience, though there is no obligation.
AngelMD conducts a webinar exclusively for prospective syndicate leaders each month. To learn more about this opportunity, sign up for the next session HERE.
*”Carried Interest” is a stake in the upside of an investment. It looks a little like equity in the sense that it only converts to value if there is a profitable exit for the startup. Typically a venture firm works with an 80-20 carried interest split with investors in their fund. Once principal is returned to investors, the VC receives 20% of the “profit” while investors receive the balance. Syndicate leaders on AngelMD do very little work relative to a VC, but the mechanics of carried interest are the same.
Larry Lawson started his healthcare career in 1970, working for Johnson & Johnson. Over the decades that followed, he spent time both behind a desk and in the trenches, finding new and better ways to run everything from manufacturing to emergency rooms. It’s no surprise then that his experience is a testament to investing in what you know.
We recently had the chance to speak with Larry about his investments, the advice that he’d give, and what excites him every day.
Why Did You Start Investing?
It wasn’t the money. I got into investing because I understand the business. I’ve done everything there is to do on the business side of medical devices, from manufacturing to import/export of devices and products, and I can draw on those experiences.
It just made sense to invest, particularly after I sold several companies through the years. It does have something to do with the money, but it has more to do with that I understand the business and it made sense.
What Would You Do Differently?
It seems like I’ve learned just about everything, but I know that I haven’t. So I’d have done everything I could to go to Harvard and earn an MBA before pursuing what I do now. I think I would be much further ahead.
It’s the level of people that you become acquainted with through an MBA program as much as anything else. Then, if you’re in the right industry and you’re doing the right things, all the rest can just fall together. I’m still doing business with a lot of these East coast schools, but it would have helped had I gone to one.
What Gets You Excited About a Deal?
First off it’s the opportunity. You have to see opportunity and the potential of the deal. But beyond that, it’s the management of the company. Once I get past the opportunity, potential, and profitability, then I really look at the management. Then last but not least is the exit opportunity.
What Are Potential Warning Signs?
Of course I look at management and financials, but first, you have to go to revenues and profitability. If there are any warning signs, they will exist in those areas for sure. Beyond that, since I’m a sales and marketing guy, I always have to evaluate the strength of their product sales and marketing. That’s a secondary key, but it’s still a key area.
What Attributes Should Exist in an Entrepreneur?
I want to see commitment and compassion for what they’re doing. But beyond that, they have to have a positive attitude and previous success. I want to see that they’ve been successful elsewhere before I’ll look hard into them.
What Other Advice do You Have for New Investors?
If I were someone who just had money to invest and didn’t know what I wanted to invest in, I’d partner with those who know the industry that they want to invest in. That partnership can be through universities or platforms like AngelMD. Ideally, they need to know every aspect of the industry.
What 3 Things Excite You Right Now?
When I wake up every morning, I guess first of all I think about my boat in San Diego [laughs] but then it quickly turns to business. What I really get excited about is technology and medical devices. I just love technology.
Right now I’m doing projects with drones and 3D printing, as well as funding startups in AI. I am just mesmerized by the opportunities with AI and robotics — particularly micro-robotics. I’ve seen some products that are not yet in the market for microsurgical procedures that really excite me.
I’ve been in Texas Heart, and they’ll print a heart at night with 3D printing and then the next day they’ll put in a calf in the animal medical lab. I’m working in areas of artificial hearts and LVADs with The Cleveland Clinic, so that’s an area that I’m highly interested in.
What Was the Last Book You Recommended?
The last book I recommended to someone was one of my new business partners. It’s named The Business of Healthcare Innovation by Lawton Burns. I believe it’s in its second printing, and it’s just a darn good book.
Because I’ve been in the business for so long and I’ve done just about everything in it, I really relate to this book. It’s an analysis of the business trends in the manufacturing segment in the healthcare industry. It covers every aspect, from pharma to biotech, devices, and even IT. It’s a study on the revenue models, regulatory concerns, market structure, and even compensation — all the things you need to consider related to the economics of starting a company from scratch.
Dr. Fred Duffy is a board-certified plastic surgeon in private practice in Dallas, Texas. His practice focus is on breast reconstruction following mastectomy, particularly microsurgical breast reconstruction. Both Fred and his partner, Dr. Wendy Whittington, serve as Regional Medical Directors for AngelMD. He and Wendy are both passionate investors, with Fred having recently served as co-lead Investor for the Fibralign Syndicate.
What Got You Into Investing?
I do follow the principle that you should invest in what you know. As a plastic surgeon, I make a decent living that allows me the flexibility to do some different types of investing. I have done really well over the years in real estate investing. Before my involvement with AngelMD, the only other medical investing I had made was nearly 10 years ago. For me, the answer to “why” is simply that I invest in what I know because there’s real power there.
But beyond that, in my case, I like to invest in technologies that can actually help my patients as well. For instance, I invested in Fibralign because they have developed a matrix that may improve lymphedema. I have a lot of patients who struggle with lymphedema. To be able to invest in something that might help my patients one day? That’s a wonderful side benefit.
What Have You Learned?
Looking back, any time that I have had an unsuccessful investment, it’s always been because I had a friend who said: “this will be a great thing.” The only time I’ve had a significant loss was when I invested in a friend’s company. This taught me the biggest lesson I’ve learned with high-risk investments — get as much information as you can. This is where AngelMD comes in.
I haven’t lost a penny in real estate, but in healthcare I don’t know the space as well. I live in the space, but I don’t know it. It’s important to me to be able to get a lot of information in advance. I’m amazed by the fact that we can get so much information about the companies on the AngelMD platform, and that this information can lead to better investment decisions.
For example, with Fibralign, I had an initial investment in the company and I had considered increasing the investment based on what I knew about the company. With the help of AngelMD, I found out that they had secured a $3 million grant through the National Institutes of Health. I thought, “you know what? I need to put more in because the NIH is not going to give them a grant if they don’t have promising data and a promising product.”
With AngelMD, we get so much more information about these companies before we make the initial investment, and then as you go along there’s the opportunity to potentially put more money in, with additional information that you don’t get from any other platform that I’ve ever used.
What Gets You Excited About an Investment?
I think that there’s something to knowing the management team. Before I invested anything in Fibralign, I had the opportunity to call the CEO and talk to him, as well as the CMO. So I like to see an experienced team, along with a novel approach.
I am interested in any product that solves one of the many issues that we have in healthcare right now. Wendy and I make a good team here because she’s on the technology side of medicine. She’s taught me a lot in our time together about the inefficiencies of the market, and the different approaches to improving these inefficiencies and patient care at the same time.
There’s so much money to be made by saving money or improving these deficiencies. Healthcare is a $3.3 trillion market and some studies suggest we waste forty cents of every dollar that we spend. So we get really excited to invest in products that improve patient care while saving money. For example, I’ve been a plastic surgeon for twenty years. I’ve seen so much money wasted in wound care. So I’ll tell you right now that if I see a novel product that comes down the pipeline to improve the outcome of wound care or open wounds, I’d be all in.
What About Warning Signs?
Duplicity. The benefit for me is that I know the marketplace, so the warning signs for me are when I have to ask whether a product is going to reimburse. Is this something that the hospital will include in their global fee, or charge for separately? If it’s something that gets included in the global fee, that’s not something that I’m going to invest in. Hospitals are under the gun already and you’re going to really have to have a compelling argument to have that product used and make money.
What Attributes Do You Look For in a Founder?
Honesty. You want honesty and that can be hard to assess. You want to look at their track record. You want to be able to talk to them directly. To be able to talk to someone, look them in the eye, and have a sense of where the company is going is powerful. I read people well, and I always have. You can get a good feeling, but it’s great to have a history as well.
This is where the network comes in. Do you have someone in your network who might know this person? It’s a simple fact that every time you invest, your network will grow. We’re having so much fun doing this, but that network is key. AngelMD provides an immediate network of smart, experienced, engaged people you can rely on.
What Are 3 Things that Excite You?
Wendy and I believe we should help those less fortunate than ourselves. We have recently adopted two great young men from Colombia and we are super excited about bringing these boys into our lives. I have two older boys of my own and Wendy has four of her own, so we now have eight kids between us. So what I am excited about is that David and Alexis are now Duffy boys!
What really jazzes me is trying new things, and one of the things I’m most excited about right now is AngelMD and being a Regional Medical Director. I am meeting incredible people and expanding my own network and teaching others about the power of investing with the AngelMD platform.
One of my other big passions in my life is my work in Haiti where I spend a fair amount of time operating and teaching plastic surgery. I am hoping to have a wonderful return from some of my investments, that I can then use to expand our efforts in Haiti.
We’re making progress. I went down to Haiti when I was in college, and I’ve been going down since the earthquake with a group out of Boston. We’re trying to build plastic surgical capacity. The country has ten million people, and it has one plastic surgeon. So we’re trying to gradually get a training program going in Haiti. We face huge challenges there but the work is very exciting and rewarding.
What Was the Last Book You Recommended to Someone?
There’s a wonderful book called All the Light We Cannot See, by Anthony Doerr. It’s an amazing book about the human spirit. It’s written by a guy that I heard speak in Dallas. It’s another one of those World War II novels, but it’s one of the most profoundly moving books that I’ve read about the perseverance of the human spirit.
Windpact has big ambitions: to become the most advanced impact protection company in the world.
Before starting Windpact, CEO Shawn Springs had seen countless injuries during his NFL career, where the players were outfitted in what should have been the best gear available. But when Springs totaled his car in an accident, his children walked away with only scratches because of the impact technology in their car seats. What if he could translate that level of protection into helmet technology for use across a variety of sports?
I recently had the chance to speak with Shawn Springs, Windpact’s Founder and Chief Executive Officer. As the company ramps up for its syndicate funding round through angelMD, he had some valuable insight into the genesis of the company, and what it plans to do next.
Windpact is taking a unique approach to building a brand that is solving all types of impacts, from football helmets to race cars. Rather than building its own equipment and end products, the company partners with top brands to integrate its Crash Cloud system into their products. This holds the potential to scale quickly and spread their life-saving technology to more hands, across a variety of fields, with less cost and overhead.
First thing’s first – How does Windpact make money?
We don’t sell ski helmets or shoulder pads or race car seats; we partner with great brands to make their existing ones better. We call this our hybrid go-to-market approach. In some ways, we look just like a component supplier: we get paid on delivery of our padding systems to the host brand. But at the same time, we are a core brand partner to those companies, and work to market the Windpact brand inside other products. Think of us like the Gore-Tex(R) of impact protection.
Partnering with large host brands lets us leverage those companies for sales and distribution of the products, as well as marketing to and reaching end consumers.
What were the early days like?
We started to explore the market, and we quickly understood that this was an area that just lacked innovation. We can look at the automobile sector, and cars change every four years. Even tires change every year. For something to go thirty plus years without some big innovation? You know that there’s an opportunity.
In the early days we spent a lot of time working with very smart people – mostly top engineers in our partner engineering firms to unpack the problem and apply this technology as a solution, but also our IP experts and legal to ensure we had a solid foundation for a business.
I will never forget some of the first feedback we got when we put the technology in a football helmet shell and took it down to the Virginia Tech Helmet Lab to see how it would do on their new 5 Star rating scale – which has now become the gold standard for helmet rating. Dr. Stefan Duma, who ran the lab, cautioned me to manage expectations: he said that 96 percent of all new helmet concepts tested in the lab never even make it off the rig, much less earn a star score. At that time, there was only one 5 star helmet. I can still remember the one question he had for me after our prototype helmet received the best score ever tested at the time. He said, “Shawn, how did you do it?”
Talk to me about the Windpact approach.
This is a physics problem. We got a team of engineers together, and we started looking at how the technology worked and how to optimize it for different applications. It wasn’t long before we knew that we had something special. A technology that could improve protection in every sport that required a helmet without losing performance.
Today, when we are solving for a new application, we start with the engineers. They first work to understand the market, what’s being used and what is effective. We analyze the standards and learn how the industry measures a product: hockey glove testing is completely different than a helmet drop test, which is totally different from a military ballistic shell. We demonstrate improved performance using prototype testing pods, and once the client understands the gains, we get to work designing a distinct padding system, consistent with our brand. We want everything we make to be beautiful and effective.
Why not make your own helmets?
We learned a lot about the technology in the early days, but we were also pressure testing the business model and how to bring the tech to market. I knew I didn’t want to raise 50 or 75 million dollars to build a new helmet brand from the ground up and market it to end consumers. I just wanted to solve a problem. Focusing this technology on a single Windpact helmet, by definition, would limit how fast and far we can spread the reach of a critical new tool in the conversation about impact protection.
If you look at brands like Intel, Gore-Tex or BASF, that’s the model that we’re using. We found that there are other implications as well. We can apply the Crash Cloud to military, transportation and even healthcare. The companies who make football helmets? All they make are football helmets because that’s where they’ve sunk all of their marketing and R&D dollars.
We’ve already demonstrated improved performance in the automotive setting, where we were approached by a large US automotive maker to put our Crash Cloud system into specific interior areas of their vehicles. That’s a conversation we couldn’t be having right now if we were just a football helmet company.
Talk about your IP and how it works for the business.
We have an issued patent for our technology in helmets, and have a second application pending that expands that coverage. The key is that our IP is on the Crash Cloud system, not the specific materials. The better foam gets, the deeper our ocean becomes. Contrast that to companies whose core IP is around a certain formulation of a certain material, to build a certain product. That is very limited.
We use off the shelf materials, then we can optimize the system by using different foams or adjusting airflow to build particular products. That’s where things get interesting.
Give me an example of what that looks like.
With a baseball helmet, for example, there is a layer of impact attenuating foam and a layer of comfort foam. We tune our system by adjusting foams, skin thickness and airflow, to provide a pad that is softer than the hard impact foam, but outperforms it at high and low impact.
What about the challenges?
The biggest challenge is getting this tech out as fast as we want to in order to take advantage of the opportunities that exist today. We were surprised, for instance, to hear baseball equipment companies talking about the pressure they feel over the concussion concern. Everyone knows it’s an issue in football and hockey, but we are amazed to see how pervasive the need is for innovation in this area. At times it can be frustrating to balance staying lean and smart, with aggressive fundraising and team building when the opportunities are stacking up.
And how about milestones?
We won the NFL First and Future Startup Challenge at the Texas Medical Center during the Super Bowl, we won the NFL HeadHealth TECH Challenge II, we won the NFLPA-sponsored Leaders Sports Summit in London, we already have a product on the market for women’s lacrosse, and we are working on a number of new products with major brands we hope to be able to announce in the coming weeks and months.
There are challenges, but it’s fun. Now we are turning a corner and are ready to scale to meet the opportunity. That will bring a new mix of fun and challenge.
What about the NFL HeadHealthTECH Challenge?[Read the story from the NFL here.]
That’s big. It definitely helps when you have a former Pro Bowl athlete because you can get that level of visibility. But the fact that we are being validated in the scientific community is extremely humbling, and not just because of having your CEO be an athlete.
It’s great because the NFL is not just throwing money around; they’re looking for real products and not just research at this point.
What’s the future look like for Windpact?
Our focus today is on building a great company with superior products to help protect people, and we are well on our way. We have a terrific technology and are turning the corner from R&D to putting products on the market. We are excited to see what tomorrow holds for us.
For this week’s Investor Spotlight, I spoke to Dr. J. Michael Bennett, an orthopedic surgeon with years of experience serving the Houston community.
Aside from the potential returns, what made you decide to get started with investing?
Over the years I’ve learned that it is best to diversify as opposed to putting all your eggs in one basket. I’ve always looked at and been involved with a number of different investing opportunities. I’ve been looking at startup healthcare companies for over five years and that’s how I found out about AngelMD.
I got involved with AngelMD two years ago before anyone else in my local region (Houston). I started researching a company named VICIS when I stumbled on AngelMD. I went to the website and learned about the company. I ended up reaching out to AngelMD and talking to CEO Tobin Arthur. I was impressed, so I started introducing physicians to the platform.
Looking back, what have you learned and what would you have done differently?
I don’t have any regrets. I always look forward and learn from my mistakes. If anything, it would have been nice to find out about AngelMD a little earlier. I think that an opportunity like AngelMD to invest in healthcare startups would have been nice to have ten years ago.
What gets you excited about a potential deal?
It has to be something that I think will be a game changer. It has to either benefit the patient or streamline services. It has to be something that’s novel, and something that can be scaled. The company has to have a solid base and team. You can have an okay idea, but if you have a rock-solid team with an exit strategy, then I’m interested.
What warning signs do you look for?
I look for a few things. I look for how long the company has been trying to get funding and how long they have been in existence. Some warnings signs are if the company doesn’t have a reliable timeline and if they don’t have a good exit strategy. I look to see the backgrounds of the team members and the CEO, including how many and the results of the companies they have been involved with.
How much of a role does healthcare play in your portfolio? Do you see that changing?
I try to diversify, but essentially most of what I’m dealing with right now is healthcare related. It all comes down to our motto “Invest in what you know,” and as a healthcare provider, this is what I know.
What attributes do you look for in an entrepreneur?
The first thing I look for is the ability to listen. They need to be adaptable and listen to their staff and advisors. I like it when they are passionate and have a vision, but they need to be able to pivot. The industry can change and you have to have a plan A, B, C and D.
Is there other advice you could offer people who are looking to invest?
Invest in what you know. It’s our motto for a reason. I recommend that everyone do their due diligence when it comes to investments. The more knowledge that you have about trends in the healthcare sector, long-term outlook in the company – the more knowledge you have, the better.
It can be exciting, but you have to be willing to ride out the ups and the downs. It’s never a sure thing, but you can hedge your investment with information and knowledge, and I believe that is what AngelMD is the best at.
What are 3 things you’re really excited about right now?
First, I’m excited about regenerative medicine. There is a lot promise in regards to cartilage regeneration and using biological scaffolds. It’s very early still but I think it is the future of orthopedics.
I’m also very excited in regards to virtual and augmented reality in healthcare. I think the next phase of training surgeons new techniques is through augmented reality and virtual reality.
The third thing is the current interest in artificial intelligence. With big players like Apple and Amazon producing new technologies, it is setting up the infrastructure of a healthcare artificial intelligence database. I can see that being the next big thing in medical management and disease prevention.
What was the last book you recommended to someone?
It’s called Ready Player One. It’s a science fiction novel about a dystopian future where there is no transportation due to a massive oil crisis. The only way people escape their daily realities is through an alternate universe via virtual reality called “The Oasis”. It exemplifies a very scary reality of what could happen if we replace human interaction with technology, something that is not too far fetched. I also recommend “Talk Like TED” which highlights some of the best TED (Technology/Entertainment/Design) talks and looks into why those talks are so profound and how each speaker utilized some key characteristics to take a talk from “great to unforgettable”.