Entries Written By Tobin J Arthur
Over the past few months, you’ve probably seen us talking about AngelMD Premium. It is a program designed specifically for AngelMD physicians and investors. To answer the inevitable questions about AngelMD Premium, I wanted to take a few minutes to explain each of the benefits, and why we chose them.
Premium members are given the first opportunity to invest (and to lead investments) on the AngelMD network. We know how important deal flow is to the success of every investor, so AngelMD Premium ensures the best possible deal flow in the world of healthcare startup investing.
AngelMD Insights Reports
In order to make sure that AngelMD members see the most promising startups, we spend time reviewing each one that signs up to the network. As a byproduct of this work, we are able to spot trends that not only impact the population of AngelMD, but also the healthcare landscape as a whole. Our Insights Reports are a listing of key findings when they are most relevant.
Investor Insider Webinar
Each month, you’ll be invited to our Investor Insider webinar. The AngelMD team will spotlight startups that are capturing the most feedback on the network, as well as companies that are about to enter the syndicate investment process. It’s your chance to get a “heads up” on what’s coming into the pipeline, and ask questions directly to AngelMD’s Investment Operations staff as well as the startup CEOs.
Quarterly Healthcare Investment Report
In Q1 of 2018, there were nearly 700 individual Form D investment filings submitted to the SEC. The AngelMD team distilled these filings, surfacing the trends, categories, and investment sizes that made the most impact so far this year. Each quarter AngelMD Premium members get full access to our Healthcare Investment Reports, helping them to stay informed so that they can make data-driven investment decisions.
Starup Insider Podcast
Each month AngelMD interviews entrepreneurs, giving our Premium members a recorded program that showcases innovation while addressing funding and other challenges associated with starting a new company.
Alpha Conference Discounts
AngelMD Premium also provides a steep discount to Alpha Conference, our unique gathering of healthcare innovators, inventors, and entrepreneurs focused on early-stage medical startups. The next event will be held in Monterey, CA on January 3rd, just prior to the JP Morgan Health Care Conference. The conference fee is $1,250 but discounted to $375 for AngelMD Premium members that register early. Premium members also receive a highly discounted companion pass.
AngelMD’s website, newsletter, and blog will stay free for investors, physicians, and startups. These elements are focused on helping our members learn how to be better angel investors, and how they can impact healthcare beyond their practice through advising and investing in promising companies that they believe in. AngelMD Premium is our offering to help offset the costs associated with producing detailed, extensive reports and insights that our most serious member-investors have requested.
Thanks for reading, and I look forward to hearing your feedback.
AngelMD Premium is for Physicians and Investors
Years ago Mark Cuban made the following statement about investing in stocks and gambling:
“It’s not unusual to hear people refer to trading stocks as no different than going to Vegas. They are right. Gambling is gambling… Unlike the stock market, you know the [Casino] rules exactly. You know without question that the house is going to play by the rules. The gaming commission appears to actually enforce rules of play, unlike the SEC… A sports or blackjack or poker bet doesn’t have value beyond that game or hand. In that respect it’s just like the hundred of millions, if not billions, of options that are traded, but never converted on stocks, commodities, and other assets around the world.”
On principle one could counter that gambling is generally a zero sum game (or worse if you factor in the house cut). Investing, on the other hand, expands market liquidity and capital, facilitating economic growth. Let’s set these fundamental differences aside for a moment and focus on the act of placing bets…whether in the form of investments or card games in Las Vegas.
In her new book “Thinking in Bets: Making Smart Decisions When You Don’t Have All the Facts”, Annie Duke lays out a case for a better decision making framework in life, in business and indeed in gambling. Annie was a professional poker player who presents a strong case that we are making decisions throughout our day based on partial information. Life moves too fast not to. At the most fundamental level life depends on this skill. When someone dwelling in the forest hears rustling of bushes that sounds like a large animal, they don’t necessarily have the luxury of fully investigating this sound…they get out of Dodge. When someone is making an investment, they are always doing so with partial information. Of course the information they can reasonably gather, the better the decision they can make.
AngelMD VP of Clinical Investment Operations Dr. Orrin Ailloni-Charas describes the decision making process taught to and employed by physicians:
“We are taught to be skeptics. We gather as much information as possible while looking for patterns.”
Doctors are taught to evaluate, diagnose, treat, and assess in a constant loop. In gathering information and looking for patterns, we hope to make the best decisions for our patients. However, as we learn more and see the effect of our choices, we integrate the new information and sometimes change course. We learn the necessary confidence to make difficult decisions in part knowing that no decision has to be an endpoint.
The AngelMD platform and community exist to help people generate better investment outcomes. This starts with learning. We are a learning community that presents webinars, blog posts and live events throughout the year so we can collectively learn from experts and one another.
We layer on top of being better educated, the importance of being better informed. We gather information on companies so investors are getting clear looks at investment opportunities being presented. We package the investments into syndicates that ensure optimal terms, pricing, reporting and compliance.
Finally, we live by the mantra that we don’t pick winners, we build them. Engaging a network of thousands of physicians and subject matter experts post-investment ensures that once we place our bets, we work to de-risk those bets. We do this by providing startups with advisers, product feedback, introductions, capital access, and industry engagement.
The conversation about capital availability for startups is often completely mis-framed. The argument usually centers around the notion that startups are desperate for capital; and the conclusion is that more venture firms are needed. This was the central thesis of a Houston Chronicle article from June 6 entitled “Houston startup community struggles to attract venture capital” It cites a study that listed a single semi-recent Houston-based startup that raised venture capital and went on to go public.
Does Success Mean Going Public?
In the past 20 years the number of publicly traded companies in the US has dropped from roughly 4,000 to approximately 2,000. IPOs used to exceed 500 a year and now hover in the 100 per year range.
Why the resistance to public markets? Too much regulation!
Sarbanes Oxley, Graham Dodd, and other complex matrices of rules have created a massive disincentive to go public. Further, the JOBs Act opened up a more favorable framework to remain private. The number of shareholders allowed in a private company was raised from 500 to over 2,000 and the ability to raise larger amounts of capital in the private markets has become a more viable option than years past.
Additionally, the venture model has viability issues. Aside from the math that in a given year approximately 50,000 companies seek venture capital and only about 1,000 receive it, the lens of the investor is even more important.
Almost half of venture funds don’t even return investor principal. Almost all profits in venture capital are realized by less than 5 percent of the firms. If you are a savvy investor you don’t like that math. After fees, the likelihood that you are going to come out ahead is not good.
The Road Less Traveled
Ok, so the IPO and VC combo is not exactly healthy. So what’s the alternative? It’s the community. It’s the tidal wave in the finance community referred to as crowd funding.
Investors looking for upside in their portfolios are flocking to alternative investments over the tumultuous public markets. They are seeking what investment professionals call “Alpha” or better than average returns.
With the passage of the JOBs Act, members of the community can now participate in early stage private investing often referred to as angel investing. It’s the democratization of investing in which individuals can leverage the availability of information formerly only available to brokers and investment houses.
Take Houston as a perfect example. Specifically, we’re going to look at healthcare startups. Programs like TMCx are attracting and building a startup pipeline that is growing each year. Reliance on venture capital funding has not, and will not, supply the capital needed to support the most promising startups out of this program.
But one mile from the TMCx facility are thousands of physicians and scientists who have expertise and small amounts of capital to put to work. Individuals from the energy and real estate sectors are learning they too can participate in the growing healthcare startup ecosystem as they seek to diversify their portfolios. The result? Houston will never need another dime of venture capital money from Palo Alto or Boston.
The ability to effectively grow and finance startups at home and ensure that their windfalls remain at home is growing. The more the community learns about this opportunity the more powerful it becomes.
The NFL and TMCx accelerator (Texas Medical Center) joined forces on Saturday to produce the second annual 1st and Future startup pitch event. Members of the angelMD team had the opportunity to participate helping to prepare the startups for the big event and attending the event itself. The venue was TMCx where angelMD has a growing Houston office.
The event featured 9 companies competing in 3 categories. Texas Governor Greg Abbott introduced the event with a speech that demonstrated his commitment to healthcare innovation in Texas and a command of the Texas Medical Center operations specifically.
Xconomy provides a nice recap of 1st and Future HERE.
Meanwhile, across town the NFL Players Association was hosting another startup pitch event where players are able to view and invest in startups. This provides another great opportunity for startups to gain investors who can help guide and support the company. The coalition formed to create this deal flow is called OneTeamCollective and a recap of their event can be found HERE.
“The essence of investment management is the management of risks not the management of returns.”
Benjamin Graham (mentor to Warren Buffet)
“Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”
The management of risk begins with information. We cannot manage what we do not know…so the unknown poses the greatest risk. Said another way, the foundation of investing is information. (as Buffet remarks, information related to other people’s investing behavior is a poor signal.)
Let me use a simplified real estate example to illustrate. If you purchase a property for investment purposes, you do so because you believe the property will increase in value. You believe it will increase in value for some specific or collection of reasons. In an efficient marketplace, when there is a discrepancy between the price of something and the value of that something, then the market will correct this inefficiency sooner or later. In this example, you are taking advantage of a potential gap between the actual value and the current price. You believe you have an information edge.
Startup investing presents the greatest opportunity for investment returns. Why? There are lots of unknowns intrinsic to the present valuation of the company.
When Howard Schultz was raising money to acquire Starbucks, most potential investors rejected the idea. Hundreds actually. They did not understand his vision for the market potential of gourmet coffee. The information they factored into their decision making did not allow them to perceive the opportunity. Those few that did perceive the opportunity, including a physician who invested $250K, experienced life changing returns. In the rear view mirror we are all geniuses.
Part 1 of this article laid out the fact that investing is moving from an analog world to an increasingly digital world. One of the primary drivers behind this is the ability of computers to organize, analyze and present information in ways that did not exist even 10 years ago. Given that investing is largely about information discovery and analysis, we begin to see why entirely analog investing is not long for this world.
The angelMD business model was designed with the idea that early stage investing can be far more effective. We can invest with better information. While angelMD spends a great deal of time focused on supporting companies post investment, we believe technology can help us better collect information, identify patterns and present the information in ways that helps investors make more informed decisions.
The larger the network gets, the better the information we have available. The larger the network gets, the more effective we can be in supporting startups post investment. This will accelerate medical innovation. It will transform a multi billion-dollar industry… shifting it from an analog world to an increasingly digital world. It will result in better financial returns.