Latest / StartUp Health NOW Podcast / Build Relationships First: Drew Schiller’s M&A Lessons From 15 Years at Validic

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Build Relationships First: Drew Schiller’s M&A Lessons From 15 Years at Validic · StartUp Health NOW Podcast

• 0:00
  If you're looking at getting acquired sometime, especially sometime soon, you should have already been building your network.
• 0:06
  Building your network is one of the things that's been most impactful for me personally, and building those networks and the communities around that, first of all, I learned that I have a seat at the table.
• 0:17
  Like, as an entrepreneur, you don't always feel like you do, but you have really strong ideas and questions and curiosity that folks who come from big companies, they bring their resources, but they don't necessarily bring the same curiosity, so they're fortunate to have you at the table.
• 0:31
  But second is that I built really strong professional, and sometimes personal, relationships that end up paying dividends in terms of partnerships, in terms of commercial relationships, and ultimately in terms of potential M&A transactions.
• 0:44
  And so it's really important to get started early building your network and building yourself up as a leader in the industry. [upbeat music] Welcome, everybody.
• 1:01
  It's great to see some familiar faces, a couple new faces. We run these fireside chats almost on a weekly basis, bringing in some of the top minds in health innovation today, and today is no exception.
• 1:13
  I'm Logan Plaster, the managing director at StartUp Health, and it is my pleasure, honor to be leading this session. We have an amazing guest for you today in Drew Schiller.
• 1:23
  He's, in my opinion, one of the sharpest minds in digital health today. Someone who pulls no punches, so prepare your questions now because he's someone who you wanna get an opinion from and get some advice from.
• 1:35
  All right. With no further ado, let's welcome our guest, Drew Schiller.
• 1:39
  Drew co-founded Valitic in 2010 and built it over 15 years into a category leading platform that connected 700 plus healthcare devices and apps for use in the health systems, for use with payers, and with digital health companies.
• 1:56
  This year, Valitic was acquired by ChartSpan, where Drew now serves as the chief development officer and is on the board.
• 2:03
  Uh, Drew is also active in policy advocacy work in Washington, DC, where he has worked with the CTA on digital health regulations.
• 2:12
  He's able to speak on a variety of topics and, as I mentioned, he speaks the truth and he's willing to talk about the good and the bad. And so Drew, we welcome you today. Thank you for joining us at StartUp Health.
• 2:23
  Awesome. Really glad to be here. Thanks, Logan. So I'm gonna jump right into the action because you were just acquired.
• 2:30
  15 years of sticking it out, highs, lows, doing the tough work, and just in 2026 your company was acquired by ChartSpan. And so, and by your own account, this was not the first time you tried to get acquired.
• 2:44
  So you've gone through this process and you had multiple attempts that didn't work, and so now you got it across the line. So what made this attempt different?
• 2:53
  And maybe you could outline a little bit of what you learned over the last, you know, s- seven or eight months. Yeah, absolutely. Yeah. So yeah, thanks for that and really great to, to be with you all today.
• 3:04
  I will say that getting a company acquired is really hard because several things have to go right for a long time.
• 3:10
  So first and foremost, you have to have the right stakeholder s- or stakeholders at the organization you're working with fully engaged. It has to remain a top priority for that organization for the period of time.
• 3:23
  The broader macroeconomics have to hold for the whole entire time you're talking.
• 3:28
  And also there can't be any sort of black swan type of events, which is a word you'll sometimes hear when referring to M&A, which is like something always happens that kind of throws things off, and it happened in, in this deal, it's happened in other deals that I had.
• 3:45
  We acquired a company a few years ago, it happened there too. There's always something that either kills the deal or almost kills the deal, like almost universally [laughs].
• 3:54
  It's hard enough to build a company worth being acquired. That is really difficult and rare. One, build a company worth being acquired, that is really hard to do, and step two is actually getting acquired.
• 4:06
  It's actually also very difficult. Uh- Did you have a black swan event with this acquisition? Was there anything you had to navigate? Did. Yeah. Yeah.
• 4:14
  There was the SaaSpocalypse happened [laughs] in one where all of a sudden the bottom fell out of SaaS companies. Everyone was like, "Wait, are these even worth anything anymore?"
• 4:24
  Like while I'm arguing for a higher valuation. So yeah, that was, that was tough as a healthcare SaaS company [laughs].
• 4:30
  I can't share certain details, but we were under LOI to be acquired in early 2020 when COVID hit, and that was something where the, the acquirer was materially impacted by COVID.
• 4:44
  They had physical locations and they were forced to shut down. They didn't even know if they were gonna still be in business.
• 4:49
  Rock Health did a study that showed that on average, digital health companies last about nine and a half years, and we would've...
• 4:56
  We were, like, at the nine and a half year mark [laughs] when, when that came, and I was like, "Nailed it," right?
• 5:02
  But it turns out because COVID, total black swan event, they had to call it off and that was a material impact on their business, which then ultimately impacted us.
• 5:12
  And because big companies are big companies, they had a reorg in the months ensuing and the h- the head of the healthcare group was no longer there, and it was his strategy that was acquiring us, so when they brought the new person in, like, the new person's not like, "Well, let's run the playbook from the old person," right?
• 5:28
  So, so that opportunity didn't come back. We had another opportunity in '22 of another very large strategic that was looking really great. This was in Q1 of '22, and it had actually gone...
• 5:41
  We'd gone through diligence, we were up through investment committee, everybody on the investment committee, including the CEO, said, "Yes, we're doing this."
• 5:48
  And this was a company that only grew through acquisitions, like that was their primary growth engine. They had acquired a company on a, like one company a month on average for, you know...
• 5:58
  And we were the first one that they were like- We can't do this because the CFO was like, "Hey, listen, guys, like, we have..." They had a, what's called a materially adverse event.
• 6:08
  In, in M&A language, it means, like, something really bad happened [laughs] on their side that caused them to have to shift the way they do business.
• 6:18
  And so that happened with this organization, and the CFO was like, "This is gonna be way worse than any of you guys realize. We need our cash for it to handle this deal."
• 6:29
  And they actually still, to this day, have not acquired a company now four years later.
• 6:33
  [laughs] Like, we, we were the lucky enough ones to be the first ones they didn't acquire, I guess, but they still have not gone back and acquired a company after that.
• 6:41
  And, and it made sense for them to do so based on what was happening in their business and kinda what was happening in the broader market, but s- didn't make it things any easier.
• 6:50
  So then here we are now, you know, gosh, four years later, and about 12 months ago or so, we had inbound strategic interest, and we, we started to look at, you know, is this something that we...
• 7:03
  We had some theses around different kinds of companies that would be interested in acquiring us who, you know, that would help us further our mission, and this company fit into it. We actually engaged a banker.
• 7:13
  We went through a mini process and talked to a lot of different companies, and this ended up being the best outcome, both from a strategic perspective as well as a valuation and continuation perspective.
• 7:25
  And then honestly, the deal was dead at one point. Like, the SaaSpocalypse, et cetera. They needed to... This is a pretty typical growth equity, private equity move. The company that acquired us is growth equity backed.
• 7:38
  They needed to borrow money in order to finance the transactions. Pretty typical.
• 7:42
  And they were challenged to raise money from investors and borrow money based on, you know, kinda SaaSpocalypse and what was going on and all of that, right? It was a, it was a challenge for us. Yeah.
• 7:55
  And so they called off the deal at one point, and then we got the deal back on the rails [laughs] and ended up completing it. But yeah, it's, it, it is, it is a challenge to get a deal over the line.
• 8:06
  Tell our folks a little bit more about the macro landscape that you bumped up against. I mean, you've been in it for a couple years. You found a good buyer, but you also dealt with, you know, running your process.
• 8:16
  You dealt with other folks that were maybe did not have your best interest in mind. What is that macro environment right now for digital health companies that might want to find and acquire? Yeah. It's really tough.
• 8:27
  I mean, digital health in general... So when you go to sell a company, you always look at market comps, and market comps means other companies kinda like yours, and either public or private.
• 8:38
  Public, where you know what the multiples they're trading at, or private, where you know roughly what the multiples were for those private deals.
• 8:45
  And so you always wanna look at market comps, and it's really tricky 'cause you always wanna use the market comps that put you in the most favorable light, and the buyer always wants to use the market comps that, that are most favorable for them to help get them the best deal.
• 8:58
  But right now in digital health in general, it's getting better now, but especially in the '23 timeline or timeframe, it was... Like, the market comps were down. It was a really tough time.
• 9:09
  It's why we didn't actually go back out to market during 2023, '24. Like, the market's just not good. This is not a good time, um, to be selling.
• 9:18
  I would say right now the market is coming back for digital health companies, but with a caveat that it's coming back for digital health companies with really strong business fundamentals or with, like, really wild AI aspirations.
• 9:31
  Like, those are the two different things. Like, if you're just a standard digital health company that's not, like, a AI native business and you are losing money, like, that's a really tough place to be.
• 9:42
  But if you have, you know, really strong business fundamentals and/or a really strong AI story on how you're going to reinvent healthcare, I think that that's, those are two things that are gonna do really well in the market at this time.
• 9:56
  O- one of the, one of the refrains that we often come back to is this is preparing for an M&A or an acquisition is not something you should be thinking about, you know, 15 years later.
• 10:05
  It's something that should be kind of in your thought process and DNA early on in the life of the business, building your company towards this end with this end in mind.
• 10:14
  So what's some advice you might give to a founder that thinks, you know, "24 months from now, that's where I want to be"? Yeah.
• 10:21
  "I wanna start working on some of the fundamentals now, building some of the foundational elements, some of the pieces that are gonna make that go better two years from now." Yeah.
• 10:30
  I mean, honestly, I'd say two years is even probably maybe not long enough. Like [laughs]
• 10:36
  you need to be thinking about it all along, and the reason is that ultimately, in my experience, what ends up helping get a company acquired is relationships.
• 10:46
  And I got involved with the Consumer Technology Association really early on in my company's history and met a lot of great companies through that, made a lot of great executive contacts, and ultimately ended up being able to navigate some of those organizations which were really helpful in M&A conversations which didn't obviously go through.
• 11:07
  But those are really, really helpful relationships as you're having the conversation and just even if they don't end up being the acquirer, just being able to create some competitive tension and be able to create some other interest is really, really valuable.
• 11:20
  So just being an executive in the industry, even though you're a startup, like, you have a C title, right? Be a thought leader.
• 11:28
  You bring something to the table that the, the, the folks sitting in large companies don't, which is innovation and curiosity and the ability to ask, "Well, why are things like this?"
• 11:38
  Whereas their skill set is more around, like, "Well, I have a lot of resources at my disposal." Like, your strongest resource is your mind and your entrepreneurial curiosity.
• 11:48
  And so you definitely have a seat at the table, and those organizations in your industry or in your specific vertical are, are really desperate for your thoughts. And so by being in those organizations...
• 12:00
  I mean, number one- It's helpful for customer conversations. Like, I ended up having lots and lots of customers through different organizations that I volunteered with, et cetera.
• 12:10
  But then also just raising the profile and being able to reach out to folks, and they know who your company is, they know who you are. You're a known commodity.
• 12:17
  You can reach out to somebody who knows somebody, and it's a warm intro instead of a cold intro. There's a lot of value there.
• 12:23
  So that's something that I always put a focus on early on and it paid dividends going forward and, and as we entered the M&A conversations.
• 12:32
  The few things is you really think about preparing for, like, okay, what is a sale process going to look like? First and foremost is that now more than ever, expenses are really looked at.
• 12:45
  So if you're thinking about going through an M&A process in the future, look at your revenue and look at your expenses.
• 12:51
  And if you can do a few things here or there, and unfortunately sometimes that means, you know, some sort of RIF or restructure, [laughs] but if you can do a few things to reduce your expenses and burn and/or, you know, run the company more efficiently, grow into a point where you're, you know, reaching EBITDA positive or, you know, cash flow neutral, those are two really important signals.
• 13:13
  And so start thinking about that now.
• 13:15
  Even if it's not, you're not there, but you're, like, on a path and it's very clear that you're gonna be there, that's gonna matter right now to an acquirer way more than it would've a few years ago.
• 13:24
  If you don't have audited financials and all of your ducks in a row on that side of things, having that is really critical because your numbers are gonna be scrutinized every which way, and being able to stand behind them is really important.
• 13:39
  And then also same actually with your operations side. Like, I was fortunate to have a really, really strong COO and a really, really strong CFO, and they ran most of the diligence. And it, like, the process of, of...
• 13:54
  There's kind of three legs of the stool of, of running a sale process. One leg is the storytelling, which is the founder, and for me, the CEO. But as the founder CEO, like, your job really is the storytelling.
• 14:06
  And it's not just the storytelling of your company. It's also the storytelling of how your business is going to actually impact their business and what the combination is going to do together.
• 14:17
  Sometimes you have to give [laughs] a potential buyer that story 'cause they don't necessarily quite see it, and you can paint a bigger vision than what they're thinking.
• 14:25
  But then there's also the financial diligence and the operations diligence, and my strong recommendation is that you have people who can help you with those things because you have still a company to run and a board to manage and [laughs], you know, sales calls to get on and everything else.
• 14:41
  And so you gotta make sure you have the right team around you. Yeah.
• 14:44
  I'm gonna shift gears a little bit, talk about product, and talk about how AI is changing the story we tell about the products that we're building, how AI is potentially making, you know, software cheaper and changing the value of things like in-person services, and sort of is shifting the way you might think about how you explain what you do to somebody.
• 15:07
  And so I wonder if you could sort of give us your take on where the industry is there, kind of what, what the appetite is for AI-enabled services, and maybe how AI is shifting how we might tell a story about what we're building.
• 15:21
  Yeah. Absolutely. So I will validate the market is very hungry for AI-enabled services. Like, and that, that's one thing that will never really go away, the human services element.
• 15:31
  There will be certain things that AI can, can do better, but there will be certain things that, at least for a while, will need a human [laughs] interfacing. But a few things.
• 15:43
  One is I've thought a lot about this in relation to software, and the SaaSpocalypse in particular really highlighted a few things for me. One is that
• 15:52
  understandably, companies are questioning large SaaS companies like Salesforce and are like, "Are we really getting full value out of a $1,700 per seat per year license," or whatever [laughs] the cost is.
• 16:04
  Like, pretty high, right? Pretty expensive piece of software. Are we getting full value from that? And the answer might be m- maybe not, but there are other areas where, like, what's your alternative, right?
• 16:16
  My recommendation would be probably don't build a CRM using Claude. My recommendation would probably be, like, go buy a cheaper CRM, right?
• 16:24
  The question I think not enough companies are asking themselves, and I think we could build that, is what business are we in?
• 16:31
  And, like, the business you should not be in is building every single piece of software bespoke for yourself because you still have to manage that, right?
• 16:39
  You still have to act- Like, once you build a product, even if AI did it, you still have to manage the product.
• 16:45
  You still have to, like, you're still gonna have people come in and say, "Well, hey, you know that thing we built? Could it now also do this?" And, like, [laughs] at some point there's a hidden tax on that type of thing.
• 16:55
  And so I think when I talk to customers about this type of thing and they're like, "Well, I could just go turn AI onto building some of these integrations," I'm like, you know, for consumer health devices, I'm like, "Totally, and you could've turned a human being onto that two years ago.
• 17:10
  And the reason why you didn't do that is because it took focus away from what you're actually really trying to do, and you now put the focus on maintaining integrations as opposed to building the value proposition on top of having the data."
• 17:24
  And you saw that same problem with AI.
• 17:26
  The best you can do with AI is catch up to where I am, and that's gonna still take you a long time and a lot of tokens, or you can just sprint today with all of the value that I bring to the table and do something amazing with all of the data, and that'll be far more efficient.
• 17:43
  And if people have, like, a real value proposition in the market, that's usually a much better way to go. So I don't know if I'm answering your question super clearly, Logan, but- It's good. No, that's helpful...
• 17:53
  those are some of the things I'm thinking about. Yeah, no, that's very helpful. I am going to pause my questions and let a couple people get their voice into the room. All right, that brings us up to the top of the hour.
• 18:02
  Drew, thank you so much for joining us. Thanks for being so, so candid and telling us all about your, your experience. I know from the chat everyone really appreciated that.
• 18:12
  Coming up, we've got a couple events in the chat you can see next week, an AI demo day.
• 18:17
  We get together, we share kinda how we're using AI in operations, in the business, and we just get peer-to-peer feedback on those projects. So you can find that in the app.
• 18:27
  And then after that, fireside chat with Venrock's Bob Kocher, and that's gonna be a great conversation, great w- way to meet an investor, ask your questions, get to understand their thesis, how they're thinking about investing right now.
• 18:41
  And this conversation can continue on the member app. So if you are unfamiliar with how to engage, get involved on the app. You can reach out to me or anybody else on the team, and we can help you out there.
• 18:52
  But otherwise, thank you for joining the session. Drew, thank you again for everything that you were able to share with us today. Happy to. It was fun. Thanks, guys.
• 19:02
  [outro music] And finally, an invitation to all of the extraordinary health transformers, whether you are a startup, someone building the future of health, or whether you are an investor, funder, or buyer of the solutions out there in the marketplace, this is an invitation to you to join the StartUp Health member community.
• 19:24
  Learn more at startuphealth.com. Look forward to hopefully seeing you soon. [outro music]