Last updated: 1/19/18
Every January, JP Morgan conducts a world-class conference focusing on investment in healthcare. It’s an impressive gathering of investors, healthcare leaders and innovators, ranging from services to life sciences to information technology. Participation far exceeds those who actually attend the conference, since this gathering provides a great opportunity to network. It can be a very efficient, if exhausting, way to scan the overall environment and get a sense of what’s hot, what’s not and who’s investing in what.
For companies like Sansoro Health, it also provides a high-impact opportunity to “speed date” with investors, entrepreneurs and industry leaders. For example, in January 2017, we attended dozens of meetings over three days. Our meeting schedule for 2018 was similar and provided an excellent opportunity to update interested parties on our 2017 progress and share plans for the coming year. Leveraging this kind of “watering hole” event makes eminent sense when the alternative is to make multiple trips to numerous cities over many months to achieve the same results.
Based on our conversations with multiple attendees over the course of three days, several consistent themes emerged related to future optimism, the flood of investments into healthcare and concerns about geopolitics.
Healthcare is ripe for transformation and innovation. There is an interesting Tale of Two Cities aspect to this belief. It’s the worst of times in terms of value reflected by the cost, quality and satisfaction produced by the current healthcare system. It’s the best of times in terms of the opportunity to improve as reflected by the potential of new payment models, technology, and an influx of new players and ideas.
Investing in healthcare is “hot.” Globally across all industries, 2017 was a record setting year for total capital invested. Interestingly, the number of deals declined while the average deal size increased.
In healthcare, this increase in volume has been accompanied by a large influx of new investors. This makes sense when you consider the potentially large returns versus the current, rather paltry returns from other types of investment. But not all investors are the same. Seasoned investors bring not only their wallets, but deep expertise, experience, wisdom and a robust network to bear when making investment decisions and in supporting portfolio companies after the deal is done. In contrast, investors that are new to healthcare may have less to offer. They can write checks, but their ability to conduct solid due diligence, assess value and support their portfolio companies with advice and introductions may be limited. But make no mistake, these new investors are having a big impact. All this money chasing the same number of opportunities drives up valuations to the point where more experienced investors will pass on a deal out of concern they will never see a decent return.
This creates a set of interesting paradoxes for companies seeking funding. High valuations mean they can get more money while giving up less equity. But, this can also be a trap. Unrealistically high valuations lead to unrealistically high expectations for performance that stress the company and, when missed, make everyone unhappy.
Geopolitical risk is on everyone’s mind. While folks are generally optimistic about the potential in healthcare and the currently sound economic fundamentals, there is genuine concern about world events in general, and specific concerns about Washington. More than once we heard statements like, “I think we will be successful and the underlying trends are positive…unless we stumble into war or the stock market melts down.”
Wisdom from our favorite VC advisors. We have been fortunate to work with or be advised by terrific investors over the years. Here are some of the “best nuggets of wisdom” they have shared with us:
Tell a story. Minimize the use of presentations. Tell your story and have a conversation. This changes the power dynamic and makes you stand out from the crowd that normally relies heavily on PowerPoint. You will also get a better feel for the personality and fit of the investor with you and your company.
Technology. Team. Traction. Organize your pitch around these three themes and in this order. What does your technology (or service) do? Who is your team and why are they qualified? What traction are you getting in the marketplace?
“Friend raising” is as important as fund raising. Establish and maintain relationships with a robust group of investors. In addition to positioning your company for a future “ask,” this helps create buzz and keeps you on their radar. You will also learn a lot about your own company and get new insights about the industry. Remember, the healthcare VC world is relatively small. They talk with each other, so even if you don’t think a particular investor is a match, they can still be part of your learning and marketing efforts.
Be crystal clear about who is the customer. The customer is the one who writes the checks. We’ve seen lots of great ideas that are going nowhere because they are not realistic about who the customer is and why they would write a check. A pitch based on the vague belief that everyone will rush to buy your thing because “it will make healthcare better” is not a pitch. It is wishful thinking. Savvy investors know if you can’t point to a strong motivator like financial return or avoiding a calamity like a security breach, you are not going to improve traction.
For investors, innovators, healthcare providers and many other stakeholders, the JP Morgan Healthcare Conference has become a “must attend” event. The fact that it is held in beautiful San Francisco helps too. We look forward to returning to JPM 2019…after we recover from 2018!
Jeremy Edes Pierotti is the CEO for Sansoro Health with over 25 of years of healthcare executive experience. Jeremy focuses on strategically guiding organizations strengthening operations and driving successful teams. Prior to Sansoro, Jeremy served as the CIO for Leidos Health and co-owner of Validus Consulting. You can follow him on @jeremy_ep or email Jeremy.Pierotti@SansoroHealth.com.
Dave Levin, MD is the Chief Medical Officer for Sansoro Health where he focuses on bringing true interoperability to healthcare. Dave is a nationally recognized speaker, author and the former CMIO for the Cleveland Clinic. He has served in a variety of leadership and advisory roles for Health IT companies, health systems and investors. You can follow him @DaveLevinMD or email Dave.Levin@SansoroHealth.com.