From Founding to Series A in Six Months

That title sounds catchy, but it doesn’t paint a totally accurate or complete picture. Our current endeavor — the one that went from founding to Series A in six months — is the third startup this founding team has launched over the last several years.

The first, AccessMobile, ended up focused on global health with paying customers in Africa, but without a truly scalable business model. The second, Share.MD, was focused on physician collaboration, profiles, education, and communications. We pitched at Health 2.0, ran pilots at three academic centers, and had many discussions on Sand Hill Road in Palo Alto with "interested" investors before ultimately deciding that we were creating something that we weren’t positioned to distribute and solving a problem we weren’t passionate enough about.

Our current startup, Catalyze, is the product of what we learned over the last several years in our previous startups and through countless discussions with people in the industry. Catalyze is a new venture, but we started it with the benefit of learnings from an infinite number of mistakes made over the last few years. I wouldn’t call it a pivot, but it’s not a totally "new" idea either.

Ironically, many of the things we are building and selling now are things that we wish we had with our previous startups. They are the cloud-based services that would have made it much faster and easier to launch those other startups. We saw this opportunity and discussed it over the last several years, but didn’t pursue it until last spring.

We founded Catalyze in April of this year with a vague and lofty goal — to simplify the process of building modern health technology. We knew the major challenges we had personally encountered in building health apps, namely around cloud-based compliance / security and data (access, models, interfaces), were areas we were targeting. We set out to build the compliant infrastructure that we wish we’d had in our previous startups, with tons of ideas for apps and solutions we want to build on our infrastructure in time.

We also knew when we started Catalyze that cloud infrastructure outside of healthcare had been created to provide specific tools for mobile and web developers. Those tools had been successful; so we had good analogs and comparables (more on this later.)

We started by building APIs so that any app developer can add compliant cloud services (users, authentication, access controls, file and custom object storage, structured patient data storage mapped to existing exchange standards, PHI-flagging) without touching a server or database. We provide developers with hosted infrastructure that includes end-to-end encryption, complete redundancy, dedicated encrypted logging (who accessed what and when and from what source), uptime monitoring, disaster recovery, archiving, and proactive correction of issues. We provide all of this in an environment that has undergone a third-party HIPAA assessment, meaning we follow all aspects of HIPAA — technical, policy, and administrative. There are major differences between us and other compliant hosting providers, but that’s not the point of this post.

That’s all well and good, but it’s a hard sell because (1) infrastructure doesn’t demo well; (2) most investors outside of the bay area (at least the ones we talked to) don’t understand technology well enough to understand and appreciate different layers of infrastructure; and (3) health tech is a bit like a black box to a lot of investors once you say "no, we’re not an EMR." (this is legitimate given the lack of good comparisons other than iTriage and maybe ZocDoc and HealthTap).

Selling a platform when you’re getting started, whether to investors or customers, is hard. Our experience with large funds was that the healthcare people mostly knew life sciences (meds and devices) and the technical people didn’t really know healthcare. This wasn’t universally true, but it seemed like a major challenge for health IT startups that don’t fit nicely in a predefined bucket. There are funds and firms that are focused on health IT, but there are lots of others that don’t have that experience yet.

To be completely honest, at the start we didn’t dig deep enough into the specifics of the solutions and apps we were enabling. W didn’t have concrete or tangible apps in mind at the start. That’s changed a lot as we’ve discovered that early enterprise customers are interested in engagement, or more broadly, digital engagement strategy and the technology to accomplish that strategy.

Digital patient or member engagement is at least a little more specific than just "health apps." From that specificity, targeted admin functionality, data access and analytics capabilities, and dashboards fall out pretty fast. Those are easier to demo and sell to customers and to investors.

Back to fundraising. Since we’re located in Wisconsin, we focused most of our investment efforts in the Midwest and met probably every fund and angel group from Chicago to Minneapolis. We met and spoke with others, both large and small, in Nashville, Boston, Los Angeles, Austin, Florida, New York, Ohio, Nebraska, and Palo Alto. I don’t have the exact number of funds we talked to, but it was probably 35-40, along with at least that number of angel investors.

I genuinely liked probably 95 percent of the investors I met. Even when saying "no," most of them were courteous and thoughtful about it. Some investors knew almost nothing about healthcare. while others knew a lot. I discovered that it isn’t necessary to know healthcare to ask good questions and provide good feedback.

The hardest part about raising money in the Midwest — and the big reason it’s so much easier in Northern California — is the proximity to investors. In the bay area, you can easily do six or more meetings in a day, all with real funds that can write checks quickly. In the Midwest, we tried to package our days in places like Chicago, but it’s still a significant effort and eats a lot of time, especially when it comes to doing follow-up meetings.

The other issue most people cite for raising in California is the high valuations startups get there. This is a valid argument. Angelist has very nice visuals for valuations if you’re interested. In the end, valuation wasn’t an issue for us, but I know other founders in the Midwest that raised money on very low valuations. It’s almost a running joke in startup circles in the Midwest.

We started talking to funds in late July. Those last two weeks in July were mostly warm up, refining our pitch, learning where the holes were, and more importantly learning how to ask for and get a direct answer about investment. Investors can waste a lot of your time if you don’t just ask them directly if they want to invest or what they’d need to see to invest. Closing a pitch with "email me if you’re interested" doesn’t work. We just asked if they wanted to invest. If they hedged or said they needed time, we asked when we would have an answer. If investors said no, we simply asked why not. Getting a "no" with a reason is much more valuable than dragging out the conversation without an answer.

We started fundraising in earnest in August. At that time, we were targeting a seed round of $700,000 and thought it would be smaller funds and angels filling it. We got commitments but no term sheets from a few angels and a smallish Wisconsin fund for a large part of our raise by the end of August. We pushed for term sheets, but it just took a bit of time.

We had a few larger funds that we’d met that we really wanted as investors. We targeted them with follow-up each time we got a new commitment from an investor. Those funds had all said no to us in August because we were too early stage, so we pestered them in a very nice way. We also updated those funds on product and revenue status whenever we had something we thought was material. We signed two new enterprise contracts at the end of August and those helped us a lot in engaging investors.

At the end of August, we pitched at the demo day for Gener8tor, the accelerator program in which we participated. After the pitch, one of the larger funds we’d been targeting approached us and said they wanted to lead our round, except $700,000 wasn’t enough for what we were trying to do and they would like to raise that number considerably. That was a conversation I’ll probably never forget. Thankfully I already had a beer in my hand so I didn’t have to go far to celebrate.

The following day I had coffee with one of the partners of another one of the funds we wanted. They also committed to leading a larger round. A couple of days after that, we got a call from a third large, strategic fund that wanted to co-lead. In the end, we got the three funds to co-lead the round together and commit the full Series A. The funny part is we started getting calls and emails immediately from funds that had previously said no but now wanted to invest.

All of a sudden – miraculously, almost — the barriers to investing had been lifted. It was a surreal saying no to investors asking to put in money and to say no to increasing the size of our round. We really didn’t want to raise more money than we needed. A few of those conversations were painful because I had grown to like the investors personally.

We signed term sheets on September 17 and finally closed the round about eight weeks later. If you had asked me in September (right around signing the term sheet) what I thought of the fundraising process, I would have said it’s exhausting but not so bad. The people are nice and you learn a lot about how people interpret your message. We were happy with what we raised, the terms we raised it on, and the funds that invested.

If you asked me the same question in the beginning of November (right before we closed the round), I would have told you fundraising was the absolute worst part of my experience in startups. The legal and administrative process, document signing, and on and on and on was incredibly painful and distracting. It just dragged on and there always seemed to be one more document to sign or person to track down or approval to get. On a bright note, the new DocuSign interface is pretty sweet, so that made using it every day a little less painful. Hopefully if we ever raise money again we’ll have more internal resources to spread the admin load around.

The one other thing that shocked me (and still does) about the fundraising process is the cost of legal work to get to closing. Being well represented is essential in the process, but the amount of legal time and cost is substantial. By the time we paid both law firms — our own firm and the firm representing our investor syndicate — we could have paid a full-time developer for a year. I like our attorneys and they were a huge help, but they certainly weren’t cheap.

What got us to "yes" at a much higher number and valuation than we originally set out to raise is that early-stage investors are betting on a formula. That formula is some variation of market size and opportunity, team to execute, and early traction. There are some intangibles in this as well, but by and large, that’s the formula. If you need to fundraise — and not every startup does or should — then building messaging around that formula is extremely helpful. If you’ve seen any of the YCombinator demo day pitches, they all follow this formula.

Our pitch mapped exactly to that formula. Stepwise, it went like this: (1) healthcare is broken and massive changes are coming; (2) a hole exists to help build the tools needed for those changes; (3) healthcare is a multi-trillion dollar industry; (4) we have an experienced team to fill the hole; and (5) we have customers already using us. I hope the actual pitch was more interesting than that, but you could boil the message down to those points.

I’m betting almost every health startup raising money has the same #1 and #3 above, probably with variations of the same values and charts. Those seem to be a necessary part of the story but almost every investor I talked to, already gets those.

#2, the specific problem being solved, will be unique to each startup and will need to be defendable when questioned. For us, the most effective way to explain and defend our specific problem was to make comparables to other successful hosted services and companies outside of healthcare. There aren’t any perfect analogs for us, but there has been a ton of activity in the API infrastructure industry over the last few years. From an investor perspective, a lot of the activity has been acquisition activity. That helped us a lot to tell the story of what was missing in healthcare, defending our #2 point above.

But I believe getting a health startup funded is all about #4 and #5 — team and traction. You need a team and you need to show real interest and demand from the industry. Starting with our team. It helped us to know health and health IT well enough to answer a broad range of questions about the industry. We can go broad and deep when it comes to health. It also helped give us technical credibility to have commitments from technical people with brand name backgrounds and experience building production technology. We built our team to cover industry, enterprise sales, and technology, the three main areas we felt were required for success. Just like with selling, we pre-hired and got commitments before we got funding.

Last but not least is traction. If you have any customers, and especially if you have any real revenue, then you prove your #2 about the problem. You also prove #4, the team, because you are already selling. Customers are key. It’s hard to build anything for free, which is largely why we took seed investment from an accelerator. That seed funding of $50,000 enabled us to get a prototype and pre-sell a couple of early enterprise pilots. That got us funded.

It was exceptionally painful at the end getting to closing, so I’m grateful for my friends and family that put up with my lack of being present and my constant grumpiness. We have a very long way to go from here, but we’re happy with where we are. We’re incredibly excited about our new investors and partners joining us.

Funding, despite all the press and attention we give it, is not a great measure of success. Revenue and happy customers are the real metrics that count. Now we have real accountability on those metrics — a board, professional directors, and monthly investor updates.


Travis Good is an MD/MBA and co-founder of Catalyze. More about me.

  • senorvicente

    Congratulations, Travis! I wish you and your team the best of luck and I look forward to seeing the exciting and critical improvements I know you’ll bring to healthcare. Be well and have a wonderful holiday season. 🙂

  • travisjgood

    Thanks Vicente! I appreciate the kind words.

  • Well deserved congrats… and great explanation of the process for those who may be either in the midst or planning on it in the future. Fundraising can be a full time job at times, and can swing from exhilarating to frustrating very quickly… but is always informative and educational!

  • Mike Gordon Ryan

    Congratulations Travis. Excellent documentation and insights into your startup ‘ s funding success. BRAVO! Much continued success as you grow Catalyze.

  • Mobile Man

    Thank you for the insight. And congratulations!

  • travisjgood

    Thank you!

  • travisjgood

    Great point! The swings from awesome to wanting to pull your hair out are very fast.

  • travisjgood

    Thanks Mike!

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