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StartUp Health Masterclass with Lee Shapiro: How Founders Should Navigate Fundraising in 2024 · StartUp Health NOW Podcast

• 0:00
  Welcome back to Startup Health Now, the podcast where we celebrate the entrepreneurs and the innovators who are transforming health. I'm Logan Plaster.
• 0:07
  [gentle music] On today's episode, I'm bringing you an excerpt from a recent master class that we hosted, which featured Lee Shapiro, a managing partner at Seven Wire Ventures.
• 0:17
  Very few people, if any, have the experience and market understanding that Lee Shapiro has. As we get into in the conversation, he's been an investor as well as an operator, guiding Allscripts and then Livongo.
• 0:31
  More than that industry expertise, however, I appreciate Lee's ability to put work and life in perspective.
• 0:37
  He is a real sage, and in this master class, he shares wisdom on how to thrive and grow even when the markets are constrained.
• 0:45
  The master class was held in front of a live virtual audience of around forty founders from the Startup Health community.
• 0:51
  Towards the end of the class, we opened up the line for questions, so you'll get to hear Lee's practical feedback to founders who are working in the trenches.
• 0:59
  This session was so rich with insights and takeaways that we turned it into a video and a blog post as well. The video breaks down Lee's twenty-one top insights from the session.
• 1:09
  So if you wanna skim through those, head over to our YouTube channel. With that, let's get into the conversation. [upbeat music] Lee Shapiro, Seven Wire Ventures, thank you for taking time.
• 1:22
  You were CFO at Livongo, guiding it through its IPO. You were president at Allscripts before that. Uh, you pride yourself in being an operator, not just an investor.
• 1:33
  What's one experience you had as an operator that shaped how you invest today? Um, one is, you know, one of the worst things that I ever had to do as an operator was to downsize some of our teams.
• 1:47
  And letting people go is something that you can sit in a boardroom and someone will say, "Boy, you've got to watch your burn. You need to shrink the size of the team."
• 1:57
  But for those of you sitting in an operating chair, those are people you hired. Those are families you've met.
• 2:04
  Um, these are people that when you talk to them and say, "The business isn't going the way we planned, and we need to save money, and we're sorry, but we have to let you go," they're gonna cry, and you might cry with them.
• 2:15
  And I had some of those tears, and it's the type of thing where we say, "You know what? Hire, hire
• 2:22
  slowly," because better to work a little harder and to have a few gaps that you need to be filled than to hire too many people and find yourself in a position where you're laying people off because you're dealing with people's lives.
• 2:36
  You've been in this industry, and so I want to get some of your perspective on twenty twenty-four, how we should be thinking about twenty twenty-four.
• 2:45
  We have boom years, we have tough years, and it is important for someone who's in the trenches to have a bit of perspective. So how do you think founders on this call should be thinking about this year?
• 2:55
  And I've been through a number of different market cycles. Um, you know, many of you who are founders on this call, um, haven't seen some of these cycles before.
• 3:06
  Um, it was, uh, you know, some time we had a unprecedented run of close to ten years where capital was, was very inexpensive.
• 3:16
  Um, people think that things are expensive now and interest rates, you know, hovering in the six, seven percent range.
• 3:23
  Um, when I bought my first condominium, I was lucky to get a loan at twenty-one percent, um, and then refinance it as things went down.
• 3:33
  That was nineteen eighty, um, just to, to date myself, um, in the early years of the Reagan administration. Um, but, you know, interest rates hovering at these levels are actually closer to normal than one might think.
• 3:46
  Um, and so that means that there's competition for capital.
• 3:50
  Um, there are alternative investment vehicles that, um, that capital will chase when they start thinking about returns and risk in terms of the return that they're getting.
• 4:01
  And so those of you who are Seed series A, i-it's a risky investment for investors.
• 4:08
  And when you think about where capital is going to be allocated, oftentimes that risk requires a level of compensation that's set at a benchmark in terms of, well, what could I make leaving that money in the bank or putting that money into bonds or, or the stock market, other alternatives?
• 4:27
  Um, we're also facing a time where there is less capital available. So I call it the tourists have left the island.
• 4:34
  Uh, twenty twenty, twenty twenty-one, a little bit in twenty twenty-two, you had funds that were chasing series A's, maybe even early-stage deals that were novice investors in this space.
• 4:49
  They were a lot of late-stage investors, private equity, even some hedge funds that were writing checks, and they'd say, "Look, we'll close in a week. We're valuation insensitive. We just want exposure to this sector."
• 5:02
  Um, and exposure they got, and many of them are now in the situation of trying to unwind some of those investments that they'd made then.
• 5:09
  Um, and, and with valuations being where they were, a number of the companies that had raised money in later stages at really high valuations are finding it hard to justify where those valuations are and therefore now are finding themselves
• 5:25
  dealing with circumstances where they have to raise at much lower valuations. Um, there's less money available for seed, pre-seed deals, uh, than probably there was before.
• 5:37
  Um, but having said that, because you're starting businesses in this environment, um, the good news is, is that, um, the valuation issues that others face, you don't face.
• 5:50
  And there are a number of vehicles that will invest in early-stage opportunities, um, because they want to be there on the ground floor working with you to help you get started.
• 6:01
  And so there's a benefit in terms of being earlier stage than later stage right now, but there is competition for capital.Maybe one final point just to mention, um, there was hope that we would see, um, interest rates come down earlier this year.
• 6:17
  Um, that would have helped in a variety of ways because with lower interest rates, the likelihood that we would see the IPO market open, um, would be higher.
• 6:30
  But with the IPO market generally having been closed, I mean, you didn't see any IPOs in this sector last year of like when the timing is right this year.
• 6:40
  As we get later into the year, the uncertainty in the markets will start to kick in around the election.
• 6:48
  Um, and markets don't like uncertainty, and so that hesitation will be in place irrespective of, of which party wins.
• 6:57
  Um, there'll be uncertainty that will probably dampen, um, enthusiasm for additional investment and the IPO market until after the election clears.
• 7:07
  So I think it's gonna be a choppy year, um, in terms of capital raising, and that translates into what happens in the venture capital sector.
• 7:15
  So recognize that limited partners who are making investments in really big funds, those are endowments and sovereign wealth funds that are looking really strongly at, at alternative investments.
• 7:29
  Um, funds like ours, we're getting, um, our money from strategic investors, uh, so typically health plans, health systems that want exposure to the sector, um, as well as like sciences companies that want exposure to the sector, and then family offices, high net worth individuals who are looking for diversification.
• 7:49
  Um, but when the market is uncertain like this, um, people tend to hold back on, on the amount of capital commitments they'll make.
• 7:57
  Or even if they made commitments, they're expecting that the partners of the venture fund won't call their capital so quickly until some of that uncertainty clears. Things are choppy.
• 8:07
  Risk profiles have shifted, yet there's opportunities for early stage. Now is our chance to get really, uh, practical, strategic. Folks on the call are smart founders. They've got great platforms, great products.
• 8:20
  They need to raise no matter really whatever the macro conditions are. So it's like, okay, uh, what do I do now?
• 8:28
  So I wanna, I wanna get into strategies for fundraising in this market, and I wanna start by breaking it, having you break it into, uh, the, the mindsets that are necessary and then the practical steps.
• 8:40
  So let's start m- first with kind of your, your pattern recognition around how CEOs and founders need to think in an environment like this in order to be successful. You know, one is
• 8:54
  you need to build relationships, um, with the venture community. Um, get them to know you, get them to know your story, get them to know and understand the company. Um, and building relationships takes time.
• 9:08
  Um, it's, you know, a little bit l- you know, like, uh, like dating. We won't invest in a company unless we've gone out, um, with a founder at, at least once, if not multiple times for a meal.
• 9:21
  You know, just to kind of sit down and, and break bread together and get to know one another. O- oftentimes we ask for others on the leadership team, or sometimes it may be a,
• 9:32
  a significant other of the founder that we wanna bring to the table to not only get to know them, but to see what they're like, you know? And, and so in order to do that, you need to be attending conferences.
• 9:45
  Uh, StartUp Health just had a great forum at Vive where, you know, many of you may have been, um, where hopefully you were socializing with investors, um, getting introductions from connections, mutual connections, other companies.
• 10:00
  And you should be-- even before you come to market for a raise, you should be sending out updates about things that you're doing, even if your product hasn't been released yet. Where are you in the development cycle?
• 10:13
  Um, there's a lot of great les- lessons to be learned from StartUp Health about how great they are at, at PR and, and marketing, and this is one of the areas where I think you can all be doing work right now, planting the seeds to find out who's interested.
• 10:28
  Who's responding to those messages? What are the types of things that they're interested in? Um, I also think you have to be smart about how you're establishing those relationships.
• 10:38
  Um, you know, if you're not a biotech company, you shouldn't be talking to biotech funds.
• 10:43
  Um, if you're a company that's focused on, you know, working on solutions that are focused on helping health systems, a number of health systems have VC funds.
• 10:53
  You should be targeting them to say, you know, we've got a new revenue cycle solution that you might be interested in, um, we're gonna help you collect money from Change Healthcare.
• 11:03
  Um, that might be a really interesting thing to health systems today. So know who your audience is and try to build relationships where it's gonna be fruitful for you to spend your time.
• 11:14
  Lee, could I pause you one, one second and talk about those, uh, investor updates, okay? 'Cause I get a lot of questions from founders about, uh, at what point should they start sending out these updates.
• 11:25
  Let's say, you just mentioned you might be early, you might be pre-product, you're still working on things, and yet there's a value to telling your story. Um, what would-- what do you like to see in those updates?
• 11:36
  Uh, how often is too often? Any other sort of granular advice?
• 11:42
  Um, you know, when you're starting your company, um, and you're ready to do kind of a reveal, um, whether it's through a blog post or using a forum like Medium or, um, making sure that you're finding an audience that you believe is gonna be able to find a place to follow you through StartUp Health or otherwise.
• 12:02
  But getting your founding story out there, what's motivating you? Why are you doing this? Um, how are you approaching the problem? What is it that you're gonna be building to solve it?
• 12:11
  And then, you know, you're gonna provide an update to, say, to the community.I think that quarterly is a good pace.
• 12:19
  Um, I, I think that it's challenging to do it on a monthly basis 'cause there may not be enough to report.
• 12:25
  But as you're building out product, um, some of you may be doing work in terms of, of end user analysis, whether it's with consumers or with patients, and, and trying some things.
• 12:37
  Talking about if you're doing a study, we've enrolled X number of people in this study, here are some of the early things that we've been hearing. This is what people have liked.
• 12:45
  By the way, here's a couple of things that we learned that we're gonna be fixing as we go forward.
• 12:50
  Um, it-- to the extent that it's a product company and it's something that's being actually built, um, we've seen companies that are providing some updates with regard to their prototypes or sharing some of the design features and, and giving some insights in terms of some of the things that they've been finding from some of their early development work.
• 13:12
  So I think all those things create interest, um, and are gonna generate some enthusiasm as you continue to come out to market. I'm sure everyone on this call would love to be able to buy you dinner.
• 13:22
  It's easier said than done to sort of build those relationships. Uh, sending out a quarterly email does not get you into a, you know, a meal invite either. Neither does going to a conference.
• 13:34
  Uh, all those things obviously are part of the macro strategy.
• 13:39
  Any other sort of, you know, in twenty twenty-four, all the tools at our disposal, any other sort of tricks and, uh, suggestions for how to get your foot in the door, build those valuable relationships with VCs?
• 13:53
  It's networking, but it also may come through, interestingly enough, it may come through your customers.
• 13:59
  Um, and so to the extent that you're working with a health system, um, you know, they may have more credibility in terms of making an introduction for you because they're a known quantity y-you're working with.
• 14:12
  You know, I'll, I'll-- Those folks may be able to introduce you to someone, or they might be able to create a forum to say, "Hey, we're gonna invite, um, some venture firms to come to a get-together, um, where you'll have the opportunity to have some drinks with them and to get a chance to meet and socialize."
• 14:30
  And many of us do that, um, a number of times during the course of the year, uh, to make sure that we're available to some of those key partners because they provide us with deal flow, and in some cases, they're even investors with us.
• 14:43
  So we talked about mindsets, we talked about some of those macro conditions.
• 14:46
  Now let's get into more, uh, strategic, um, suggestions for how folks can raise this year, how they should be thinking about different types of money, different types of funds and, and alternative funding strategies.
• 15:00
  What you think these founders should be focusing on who are-- folks who are raising a pre-seed or a Series A right now. There are investors who are supposed to be taking risk.
• 15:10
  Um, in some respects, there's some risk aversion that's going on in the market. Many more people are saying, "Show me," um, as opposed to saying, "Look, I'm willing to wait and be shown something down the road."
• 15:25
  So w-- I think it's around, uh, making sure that you focus on fundamentals. Um, so you've told your story, you're addressing a need, um, and you're gonna talk about how it is that you're addressing that need.
• 15:38
  I think you have to be pretty clear in terms of where that's gonna fit in the healthcare ecosystem and who your buyer is going to be. And to be able to share with the venture firm that you're approaching
• 15:54
  some proof point of interest a-around, uh, whether there are, as we say, dogs willing to eat the dog food. Um, that there's a customer that says, "You know, this is an area that we have a significant need in.
• 16:07
  We're looking for solutions here. We're excited about what you're doing. We're not sure we would necessarily be a customer," but at least that's a proof point to a venture firm to say, "Okay, we get it.
• 16:17
  Now we understand that it's not enough that you've just shown us there's a need, but you have some validation in the marketplace."
• 16:24
  And I've heard many companies come forward and say, uh, "Well, we think that doctors will use this because it's just practicing better medicine."
• 16:34
  And that may be the case, and it may be better for all of us as patients to have your solution used.
• 16:42
  But if you don't have an understanding of reimbursement, how doctors are paid, um, what it takes to get integrated into a practice, um, integrated into workflow.
• 16:52
  Um, and so you need to make sure that you've done that homework, because otherwise any investor who's worked in this space is gonna know to ask you those questions.
• 17:02
  And if the answers aren't crisp, then you're probably gonna be left waiting until you get those answers in a better form before that investor's willing to work with you again.
• 17:13
  Um, and then, you know, understanding no one is gonna expect you as a pre-seed or seed company, uh, certainly not us, um, to be demonstrating profitability. You know, that comes a little bit at later stage.
• 17:27
  But I think understanding what it's gonna take if you prove out your premise and if you think that this price point will hold, recognizing that things change, how long will it be before you get to profitability?
• 17:40
  Because too long, it's probably gonna scare some folks away.
• 17:43
  If you said, you know, uh, "We will-- Fifteen years from now, you know, we will cross over into profitability and start making money," that, that's probably too long a time horizon for most venture funds who are looking to get returns back to their investors if their fund life is seven years or ten years.
• 18:02
  Some like ours are longer, um, because we invest early. But net-net, you can't have a time horizon that says you really have to do a lot of praying for a number of years before we start to see any promise.
• 18:15
  So I wonder if you have any suggestions for a small team wanting to make sort of stronger financial statements and analysis for their business.
• 18:23
  Um, I have never seen a deckCome in for a seed or pre-seed company, Series A company that doesn't show a slope like this. You know, it's kind of always up and to the right.
• 18:36
  And, you know, we recognize that it's going to be slower, and it's going to be a little lumpy, and it's going to take some time before it gets there.
• 18:45
  So at this stage, especially pre-revenue, um, there's a recognition by most investors that there's still a lot to be figured out, and there's some pivots to be made. Mm.
• 18:56
  I think it's about having a good compass and being able to say, "Here's the sense of direction that we're going to be taking. Here's the things that we're going to go out and prove in the market.
• 19:06
  This is what we've done to try and validate our price point. Um, here's some comparables that we think or corollaries that we think we might be able to leverage in terms of where we are in the market."
• 19:17
  And to show up in terms of being able to say, "Here's what we think the revenue model could look like," in order to provide something that is testable as an assumption so that the investor that you're working with is able to put some, um, analysis behind that themselves and use their pattern recognition to say, "Well, based on other companies that we've invested in, that looks plausible or implausible," and, and to be able to discuss that with you.
• 19:47
  But I don't think that you need to have a detailed financial analysis available in terms of how it is that you're going to be approaching the market.
• 19:57
  Um, rather, you, you need to be able to talk to what your financial model and, and business model is going to look like.
• 20:05
  Let's pause on this and go to the phones, as they say, and get a couple of questions from the audience. We'll start with Ole Nielsen from Gopan. Ole, can you come off mute? My name is, uh, Ole Nielsen. I'm from Gopan.
• 20:17
  We are a startup company funded by the European Union and are, um, right now submitting the last pieces, uh, to the FDA for the first affordable insulin pen.
• 20:31
  One of the things that we have been looking at is when you are discussing with
• 20:36
  funds of different sizes, they come back and then, uh, say to, to me, "Yeah, we can only manage a certain number of investments in our portfolio, in our fund."
• 20:47
  They're mission aligned, they have everything, but the, the ticket size, we don't have the ticket size that they're, they're looking for.
• 20:55
  You know, if you're in the pre-seed stage, there are a number of funds that are fifty million or less, um, that are looking at writing seed stage checks, you know, half a million up to a million dollars.
• 21:07
  Um, there are some funds that are also willing to write million-dollar checks, maybe in that fifty to a hundred mil- Mm. million dollar up to a hundred million dollar range.
• 21:16
  Um, I, I think that there's work that you can be doing in terms of qualifying the type of fund that you speak to. Um, you wouldn't go to a Francisco Partners or a General Atlantic, um, for a seed stage check.
• 21:30
  They're large private equity investors.
• 21:32
  And so this is something where even the fund that you met with who said, "Love what you're doing, mission aligned," you might be able to get references from them in terms of what funds do you work with- Mm.
• 21:45
  that are bringing you deals at a later stage, and who do you recommend that we speak with? Um- That's a good idea.
• 21:51
  You know, we have a number of relationships at SevenWire with funds that follow on and write checks into investments that we make at the seed and Series A stage that love to follow on with us, that send us deal flow all the time.
• 22:07
  Uh, we've got a number of questions here. I'm gonna jump over to Jeremy Weigel from Pellex. In terms of-- uh, having spoken to a bunch of VCs already, gotten a ton of no's, uh, a couple of yeses.
• 22:19
  The, um, the, the, the question always remains is like how fruitful are cold, sort of cold calls basically, and like how many of your cold intros, meaning someone who just sort of walks up at, to you at an, an investor event and says, "Hello, my name is Jeremy," ends up being a formal meeting, ends up being an investment versus ones that are actual warm intros.
• 22:44
  Um, you know, a cold call followed by, you know, "Hey, you know, love to talk to you because I'm raising money," um, is a little bit more challenging for any firm to be addressing.
• 22:56
  I think if they know about you, they've been tracking you, you had some introductions, and there was a little bit of warmth there, it's, it feels like less of a blind date, um, you know, situation and, and something where you're getting to meet them.
• 23:10
  I, I'd say that the circumstances of someone, you know, going in at a cocktail reception, meeting someone and, and, you know, following up,
• 23:20
  you know, shortly for a meeting, that can certainly happen if you find someone who has, you know, interest in what it is you're doing. It's far better to do research to see, you know, who's invested in women's health.
• 23:33
  Um, and there's a number of funds that are focused on women's health, and you would target them. And before you even talk to them about money, just say, "Love to talk to you about our idea.
• 23:44
  Love to kind of share a little bit about what we're, we're doing. You've got experience in the space, and really would just love to get some feedback from you."
• 23:52
  And not make it, you know, necessarily about raising, but more about the mission.
• 23:58
  Um, sometimes there's, you know, more urgency than that in terms of needing the raise, but if you have the flexibility to be able to do that, and, and you have to start before you need the money.
• 24:08
  Um, you know, this is something that you, you should be doing from the minute you got pencil to paper on the business plan, and you're saying, "Okay, I'm gonna quit my job. I'm gonna go build this.
• 24:19
  Now I need to be starting to talk to other people about what I'm doing and to start to build some relationships for down the road."Let's go to Wendy, uh, Y- uh, Johansson from, uh, MiSalud.
• 24:31
  Um, I'm a co-founder of MiSalud Health. We're closing the health equity gap for Spanish speakers in the United States.
• 24:36
  Um, we've got funded first, uh, our five million dollar seed funding in 2021 during the high valuation era. Uh, things have changed a lot [laughs] in funding since then.
• 24:47
  What is your best advice, uh, for a company like ours going into Series A in this economy? One of the things, um, to manage, especially if you've raised funds already, is board expectations.
• 25:00
  And, uh, this goes to kind of another, you know, aspect of how you manage your company and who's on the board and how many folks on the board.
• 25:10
  Um, I think at this stage, you know, seed, Series A, you probably want to keep it relatively small.
• 25:16
  But if you have investors on your board, you know, oftentimes, especially if they've invested at a higher valuation, um, they might be focused on trying to sustain a higher valuation longer because, you know, they'll say, "Well, go back to the market.
• 25:31
  Let's talk to, you know, these other ten, you know, different funds and try that." Um, I, I would tell you that best practices, uh, for investors is, you know, they should recognize that markets are time limited.
• 25:46
  This happens to be a valuation environment where things are lower than what they were in 2021, 2022. Those years were far higher than what we saw before. Um, the pendulum swung a little bit to the low side.
• 26:01
  It will come back to normalcy. And so it's about making sure that you right-size the amount you're trying to raise based on what the circumstances in the market are currently.
• 26:11
  And that means that your investors suffer less dilution.
• 26:16
  Um, and if your investors are smart, they're gonna make sure that, Wendy, you and your colleagues, um, still have enough incentive to build the business, so to make sure that they're awarding some options at the new lower price to keep management engaged.
• 26:30
  Um, investors need to make sure they do that in order to, um, have a motivated management team. And, and if they believe in building the company, they should want to do that.
• 26:40
  So aligning on what that valuation should be, um, with your current board and making sure that you understand, raise what you need, but not too much more.
• 26:52
  Uh, I know it's hard to have that crystal ball, but if you think that, you know, this year may be a little bit choppy, and I would always try to advise you to make sure you have at least eighteen months of runway, um, when you're raising, um, especially at this stage.
• 27:07
  Two years is better. This way you have enough capital to kind of get to the next milestone from the company's standpoint and, and prove out points.
• 27:16
  You had mentioned you had a, a pivot, and so that gives you the time you need in order to demonstrate the pivot is working. Thanks for the question, Wendy. Let's jump to a question from Ronak Vyas from MedCoShare.
• 27:28
  Our next caller from Topeka, Kansas. Exactly. Uh, from Philadelphia, I think. Ronak- Yep... from MedCoShare.
• 27:36
  You know, the recent conversations I've had with investors, it seems to be they're a lot more focused on the short term. Um, I had one investor flat out say, "Are you gonna survive the next year?"
• 27:48
  Uh, so he really wasn't worried about our moonshot idea. So when we were raising in 2021, it was more about the moonshot, what's our vision, what's our long-term goals.
• 27:57
  Um, and recently it seems to be shifted to be a lot more short term. Is that what you're seeing as well, or how should I approach, um, you know, a question like that from, from investors?
• 28:09
  It's an appropriate comment around moonshots because we're here at Startup Health, the home of the moonshot. Um, I, I think it's an investor alignment question.
• 28:18
  Um, honestly, uh, you know, right now for later stage companies, um, there is a lot of focus on profitability, um, and runway, e-especially for companies that have raised meaningful amounts of money.
• 28:33
  Um, for early stage companies, you wouldn't want to find an investor who's focused on what happens for the next year.
• 28:40
  I, I'd say any investor is certainly gonna say to you, um, how long will the money you're raising last you?
• 28:47
  And may give you some advice in terms of saying, you know, it seems like you're probably not raising enough money if you're only raising enough money to last the next six months or twelve months.
• 29:00
  Um, you're gonna want to be able to demonstrate to the investor that they're not gonna be diluted, um, by another round that's coming in in relatively short order.
• 29:10
  So that's gonna be a concern of, of an investor pretty much at an early stage or a later stage, is to understand what your runway is with the dollars. But
• 29:22
  the alignment question is about those who are willing to invest with you to say, "We recognize that it takes at least seven years, if not ten years, to build a business."
• 29:33
  Um, I mean, this, you know, this is tried and true a-across, you know, technology companies. Logan mentioned Livongo before. We invested in 2013.
• 29:44
  Um, we merged with Teladoc in 2020, and so it was, you know, about a seven-year timeframe, and that was pretty quick.
• 29:53
  Um, and we have other companies, you know, who are now achieving their, you know, tenth birthdays and, you know, they're still around to talk about it.
• 30:01
  That's great, and they've matured to a certain level, but it takes time. So I think it's about alignment, um, and, and finding folks who are willing to believe in your dream and are willing to back you for the long haul.
• 30:13
  Let's go to Florida with Warren Marcus at Wink Therapeutics. Now you got me thinking like a radio host, uh, Lee. [laughing] We got Florida man. Let's talk about those Jaguars. [laughs] Or the Dolphins.
• 30:26
  We can, we can talk about the Dolphins. I'm in South Florida. [laughs] But, uh, so thank you. Thank you, Lee. My, my question centered around, um, finding-Uh, I guess leads. I've, I've, I've talked...
• 30:37
  Let's say I, I, the small,
• 30:39
  uh, angel investors and, um, actually, real-really quick, my, my company actually, [chuckles] what we're dealing with is actually type 1 diabetes, so we have a treatment that we believe will be curative for type 1 diabetes.
• 30:50
  And so I, I talked to the angel investors, they're like, "This is really cool. Let us know when you have a lead."
• 30:55
  And then I talked to a little bit the bigger investors and they're like, "Well, you know, you're too early for us." So I'm just trying to figure out, um, you know, is there a way around this?
• 31:04
  Because that's, I keep running into those two things every time now.
• 31:08
  Um, this question of finding a lead is, uh, another one that probably many of you have faced, where, um, you get folks who are saying, "Gee, I'd be willing to invest, but I want to see you have someone who comes in and, you know, writes the big check and, and willing to do the, the work."
• 31:28
  Um, there's two categories of folks who tell you that: the ones who are being polite and don't want to say no, um, and, and the ones who truly don't have the capability to do the diligence, may not understand the sector as well, um, and want someone, uh, with either more experience or some reputation in the space to come in and, and act as your lead.
• 31:53
  Um, and I-I'd say that for you in terms of looking at this, um, you probably want to, again, do the work, the research, and see what investors have invested at an early stage in companies like ours.
• 32:09
  You're in the diabetes space. There's been a lot of investment that's gone into this market. Um, and, um, how did they approach writing those early-stage checks? And are they still active i-in that marketplace?
• 32:23
  Um, are there others that we might be able to go to that would be interesting as leads, maybe even on a non-dilutive basis are willing to make a grant?
• 32:33
  Um, and so can we go to a foundation or one of the charitable organizations that are really interested in this space and use them as the catalyst to drive, uh, making, uh, making your other investors get over the hump?
• 32:49
  So if you said to them that JDRF or ADA are, you know, stepping in and they're gonna be giving you, fill in the blank, X dollars to do this, would you come in along-alongside them?
• 33:01
  That makes the story easier, um, especially at a pre-seed, you know, stage or angel stage.
• 33:08
  And, and so people would want to be viewed as, as following some smart money, and getting someone with reputation in the space would, would be helpful in that regard. I wo- I wonder if
• 33:20
  you have any observations having listened to the last six or seven questions, hearing from the trenches, founders talking about their, where they're at.
• 33:29
  Um, is this what you'd expect to hear, or anything that you're hearing that kind of catches your, your attention?
• 33:36
  Well, one of, one of the things that, uh, you know, it came up, um, in Warren's question that I wanna make sure you all are cognize of, cognizant of is that, um, we're talking about venture, but there's a number of alternative sources of financing,
• 33:52
  uh, to be aware of. And, you know, there's corporate venture capital. Um, so we were joking, uh, with Ole before about Novo, but Novo actually has Novo Ventures and is making investments in the diabetes space.
• 34:07
  Um, but there are other, you know, investors who do the same thing that are corporate venture.
• 34:12
  Um, strategic partnerships, you might find a company that could be an interesting supplier as your company grows that might be willing to make an early-stage bet on you, uh, to see your company grow.
• 34:24
  Um, there are some government grants, um, that could be available. Um, and, uh, you might be familiar with the work that ARPA-H is doing, um, you know, a government-funded agency.
• 34:36
  Um, there's a new focus on women's health that's coming forward in terms of, of funding that's going to be made available by the government. There's, um, from, um, health and human services, there's CMMI grants.
• 34:51
  So e-exploring some of those options is something that as an early-stage company, uh, you might want to be doing.
• 34:59
  We've seen a number of companies that have done work with Department of Defense, um, that made really great progress, uh, early on with getting funding from them because you were solving a problem for our veterans or our, our military services.
• 35:14
  So consider that as well, and that, you know, is kind of trying to weave into this question of what I do for sourcing? Where do I look? Um, opening the aperture might be helpful there. All right.
• 35:27
  We're gonna jump to Lee Paxman-Clark from Heal.Med. Can you give us your question? We're very new to the investment game. Uh, obviously we're, we're based in the UK, and we are looking to commercialize in the US.
• 35:41
  How do you set the value of your first, uh, investment or your first ticket that you want to aim for?
• 35:49
  What I would, uh, you know, ask you is, um, you came in with a valuation, you know, let's say whether it's ten million or 100 million. Mm-hmm. My question to you would be is, how do you benchmark that?
• 36:02
  And so I think that you should be looking at other companies, um, that are at a similar stage, similar revenue size.
• 36:10
  There's a lot of data that's available that you can utilize because investors will use that as well in terms of assessing, um, you know, what's the sector, how promising is it, et cetera.
• 36:21
  But, you know, I don't want to be an outlier in terms of valuation. Um, I'd want to have a sense of what companies that are generating,
• 36:30
  I'll, I'll make it up, if it's a, a million pounds, um, you know, what, what are companies like that being valued at today?
• 36:37
  And I would look at the data, and that data is available to you as well to compare.And so that probably would give you a good sense of where to peg.
• 36:45
  Um, you know, there used to be this focus that I never really quite understood, um, on revenue multiples. Um, and I- I'm the most boring person at cocktail parties because I am both an accountant and a lawyer.
• 37:01
  I apologize to most of you for that. Um, but you know, no one ever taught me to value anything based on revenue because not every dollar of revenue is the same.
• 37:10
  It's, you know, what's the margin of that dollar of revenue?
• 37:14
  If, if, you know, you're getting a dollar of revenue, but it costs you a dollar ten to provide the service for every person who gets the service, y- why would you value that at the same rate as a dollar of revenue that is generating ninety cents in profit?
• 37:30
  So I, I think that you have to be careful using revenue benchmarks, um, and try to look for companies that are, you know, ones that you can see a path towards saying...
• 37:42
  Since you mentioned that you're already a- able to say you break even, that's gonna be interesting to investors who say, "Well, is this a business that if we put more money into, we can see a way to deliver more revenue at a comparable run rate or even better margins than what they're able to make today?"
• 38:03
  Lee, as always, you're a gentleman and a scholar, and you always bring the goods on these calls. So, uh, I'll, I'll give you the final word. Any, any parting, uh, word of advice to the founders on the call?
• 38:16
  What you're doing is hard. It's, it's hard work. It's a labor of love.
• 38:22
  Um, and yet the world's a better place for each and every one of you, and thank you for what it is you're doing because in your own way, you're all looking to improve health for all of us, and I wish you all much success.
• 38:35
  All right, Lee. We appreciate your time. Uh, thank you all. Thank you for taking the hour with us. And again, thank you, Lee. Thanks, everybody. Thanks, Logan. Good to see you.
• 38:46
  [outro music] Thanks for listening to Starter Health Now. We'll be back again with another episode next week. [outro music]