Angels in Healthcare

Angel investing is a huge boost to startups. Networks like Angelist and groups of angel investors represent invaluable resources for those trying to get new ventures off the ground. At Heath 2.0 earlier this fall, Startup Health announced the Startup Health Network, which is a little bit like Angelist for healthcare. Several others interesting funding platforms, like MedStartr, have launched this year as well. There are also healthcare specific angel networks and even some in California that are comprised of mostly or all physicians.

All of these networks and crowdfunding vehicles are meant to capitalize on the strong interest and ROI potential in healthcare. The value to startups is that they can more easily find (or be found by) investors interested in health. For investors, it’s a great way to be able to filter and follow new companies and ideas.

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I was excited about the Startup Health Network when I first heard about it. It’s a cool way to filter through organizations and investors. It’s similar to Angelist but newer, so not as mature yet. It does give you a good listing of 200+ angel investors that are interested in healthcare. If you have a startup in healthcare, I’d definitely join, though I’d also join Angelist if you think you might be trying to raise money at any point. I also prescribe to the “join before you need funding” way of thinking because I think fundraising is more ongoing than episodic, sort of like the way healthcare should be delivered.

I’ve read a lot (because everybody seems to write about it) of blog posts and articles recently about what makes a good angel investor. The consensus is money is only one part (I think for a startup on a shoestring, the money isn’t that small of a part). A good angel investor also knows the industry and has a strong network of connections in the industry.

That’s true for all startups and industries, but especially in healthcare, where knowledge and access play a huge role in a company’s success. I think this is where the health incubators can help out a lot. I think Jonathan Baran’s point in his interview earlier this week about health incubators extending the length of their programs would also help with feedback and access for portfolio companies. For startups without connections or access, I’d be curious to hear suggestions from healthcare execs and decision makers about how to get in front of the right people.

An untapped (at least for those who don’t have personal connections) source of angel funding in healthcare is providers themselves, especially physicians. Physicians are high wage earners and most I know — at least those who have been in practice a few years –meet or are close to meeting the requirements to be accredited investors. Physicians know at the very least how healthcare is actually delivered, the pain points associated with the practice, and many times the administration of healthcare. Physicians can also be decision makers in the management of practices and health systems. So they are pretty fantastic investors and there are lots of them, at least relative to the size of angel investor networks (200+ in the Startup Health Network).

I’ve now worked with two startups that raised money from physicians. The first startup, which was a monumental failure, raised money from physicians at an ASC to build tools for ASCs. It made sense. Execution was way off, but the investment brought not only money, but a first pilot. It was a advantage that the startup squandered.

The second startup raised a much smaller amount from a much smaller group of physicians, brought several of those physicians on as advisors, got them as early adopters, and received invaluable feedback during the process of product development.

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That brings me to what triggered writing this post, Rock Health’s recent creation of its Angel Group. The Rock Health Angel Group is something I’m excited about. I think it will be fantastic if it can recruit the right group of doctors. The idea is to have doctors sign up, meet the requirements to become an accredited angel investor, and participate in two Rock Health training sessions put on by well-known physician investors, Beth Seidenberg of Kleiner Perkins Caufield & Byers and Bob Kocher of Venrock.

I love the idea of engaging docs and helping them to formally become angel investors. Obviously some are already investors, but hopefully this program will bring out some who are able to invest and provide access and knowledge, but maybe don’t have the connections to startups. I’m hoping that the Rock Health program can recruit docs from outside California to diversify the funding pool. I imagine the first batch will be mostly or totally California-based, which is fine — it’s where many of the startups are anyway.

I’m excited to see the interest Rock gets with this and what its angel groups looks like once formed. I realize a lot of my writing has focused on funding and valuation lately. I think it’s because we’re in the middle of raising money, so I’m thinking about it and filtering most of what I see through that lens.

TGphoto 

Travis Good is an MD/MBA involved with health IT startups. More about me.

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