A Framework for Value Investing

To implement any sound investment strategy, you can save a lot of time by learning from the best and using their strategies that are already battle tested.  Fortunately, Bruce Greenwald’s framework for value investing is an excellent starting place to act as your initial criterion:

  • Search: your plan to source qualified deals
  • Valuation: determining the worth of a company and the potential returns
  • Review (due-diligence): analysis of an investment’s key materials to understand your biases, understand the risks and identify opportunities.
  • Risk Management: management of the understood risks to remove or reduce the impact if that risk occurs

At AngelMD, we also would add a fifth to the list which is:

  • Post-Investment Influence: your ability to influence successful outcomes by assisting the executives in reaching their goals through introductions, resources or your expertise.

As you can see, these are fairly weighted to the upfront process of finding and evaluating deals. AngelMD is certainly geared toward helping make smart decisions on the front end while believing returns are built by support after the investment.

Given this is a framework, you’ll be able to customize this to your own investment style; and by following a more rigid approach, you’ll be able to reduce your bias and make better decisions over time.

In future articles, we’ll provide you with more tools to use in your own process, but for now, we’ll go into each of these in a little more detail.


This is more or less how you find deals. This is where you can leverage creative sources, but the secret here is finding a few sources that produce qualified deals to save you time. Investors can spend an inordinate amount of time attending events, making phone calls and meeting with startups directly, but the research shows this doesn’t necessarily mean better decisions and its very time-consuming.  A better approach is letting others do the legwork which reduces the noise and ultimately helps you focus.

  • Build your network in the sector you’re investing and continue to nurture those relationships. You’ll be able to get “pocket” deals that may not even be made available to the broader public.
  • If you have the expertise, you can apply to be an expert analyst. This is a great way to get early looks. AngelMD has a deep physician evaluation group called the Scientific Advisory Board. See our website for more information.
  • Attend pitch nights and innovation events at local incubators and universities.
  • Utilize AngelMD to crowdsource winners.
  • Follow institutional investors like GE, J&J or Kaiser, who have tons of resources to find deals.


This one is pretty straightforward, but the secret to success is in building a personal formula or algorithm and building up your industry/sector knowledge. The algorithm should give you a sense of whether or not a company is over or undervalued and your potential returns within minutes. With a small amount of information, you should be to able plug in the variables and decide whether or not to move forward with due diligence. This saves a ton of time and you’ll be able to refine your formula to make better decisions based on your results. Most people don’t have the background and information with which to really analyze valuation. In most cases, this is best left to trusted resources who do have the expertise and resources.

The other variable is your overall knowledge. You can build this into your formula, but ultimately, you’ll develop an instinctual sense of which companies are leading in a sector and which ones are likely to exit. This is a critical skill to develop over time and you can learn a lot from your colleagues and mentors.

  • Build your own valuation spreadsheet and use it to review deals quickly.
  • Form a mastermind group to evaluate deals and compare notes.
  • Set a goal to evaluate 50, 100, or 300 deals. You will learn a lot!
  • Read industry newsletters and articles daily.
  • Follow national media for macro trends.

Review (Due Diligence)

The secret to due diligence is following a checklist, and following it every time! The other secret is finding other larger networks or companies that are doing due diligence for you.  The point of due diligence is to find opportunities and identify risks, but it can also be used to negotiate better terms as an investor. A lot of times it’s hard to get great terms unless you can invest substantial amounts in a deal. If you are investing $15K in a $5M round, you don’t have much leverage. If you are the main investor, you can set your terms.

  • Develop a checklist and use it
  • Find larger companies or investors and follow them to invest.
  • Understand your ideal terms and get those in an investment document you provide to the CEO. A lot of times CEOs won’t have this ready, so it’s an opportunity to give them YOUR best terms. At AngelMD, we get our investors great terms up front, so that is another reason to utilize the network.

Risk Management

Traditional risk is pretty easily defined by the likelihood a risk will happen and the scope of impact if it does happen. Ideally, you will eliminate a risk entirely, but if you can’t do that, you should reduce the likelihood or impact if it does occur. With investing, you will have losses, part of mitigating that is diversification, but also it’s important to have your peers be able to see things you might have missed.

This really becomes the next step in the due diligence process where you make your list of positives and negatives for an investment and understand what you can do to manage them.  As a tip, for impact you should also understand what is the best and worst case scenario. Sometimes if the worst case is negligible, you can just accept it and move on.

  • Diversify your investments relative to your overall investable capital. (I.e. if you have $300K to invest, invest in 8 to 10 companies at approx $30K instead of making one single investment.)
  • Specialize in a sector or industry that you know.
  • Be the lead investor.  AngelMD has some great programs to support you up as a lead investor (a position we call Syndicate Leader). Leads typically get first looks and have the ability to work hand in hand with the executives. They also build lots of credibility as an influencer in the community. Want to be a lead? Fill out this form.

Post-Investment Influence

This final one is where we like to focus a lot of time. Once you’ve invested you should be able to influence success through your connections and expertise depending on what the company needs. You don’t want to be the pain in the ass investor calling the CEO daily, but you can be an advocate and help when it’s needed. If a company needs sales, maybe you can introduce them to your procurement manager at your hospital.  Maybe you could demo their product to other colleagues in your field, so they can see the benefit firsthand.

  • Ask for a quarterly report and a list of their ongoing needs.
  • Ensure you have rights to invest in future rounds.
  • Try to do one to two things to help your invested companies per year.
  • Bring in your colleagues and friends to invest by being a syndicate leader. If it’s a cardiac device and you have 20 to 30 cardiac surgeons investing, you can make a huge difference in validating that company making it a target for acquisition.

Overall, each of these criterion is an entire topic on their own, but this should give you a great starting point to start to understand how you make investment decisions and to get your framework down on paper.  Let us know how we can help.

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Specialization and Diversification – The Keys to Great Investing Returns

In the previous value investing post, I discussed the importance of specialization in early-stage angel investing. By specializing you can dramatically increase the effectiveness of value investing in your own decision making.

For value investing to work its magic, the other factor is the notion of diversification. As economists like to say, “risk mitigation through diversification is the only free lunch in economics.” In other words, it costs you nothing to lower the risk of your portfolio by adding a broader selection of assets. It’s simply improving the odds.

Modern Portfolio Theory was a concept introduced in the 1950s by a Nobel-winning economist named Harry Markowitz. The theory holds that investors can match their risk and return profile by balancing the mix of investments they hold. The whole method is somewhat complicated, so unless you are going to get your CFA, you don’t need to spend a lot of time trying to understand the model.

Just remember the key point to managing risk for the average person is by maintaining a diverse combination of investments within your portfolio and using the advantage of specialization in a sector and specializing across an industry is even better.  Diversification gives you better odds of positive returns and specialization gives you a distinct informational advantage through understanding subtle trends and indicators.

Some years ago, Mark Cuban — billionaire Shark Tank celebrity and the owner of the Dallas Mavericks said, “diversification, that’s for idiots.” He found himself in a public debate with famous investor Jack Bogle who responded that diversification might not make as much sense for a sophisticated investor and billionaire like Cuban, but for the rest of the mortal world, it’s an absolute must.

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Warren Buffet also has a take on the matter and believes that most people will make around twenty crucial investment decisions in their entire life. In other words, he is a fan of concentration within an economic sector. If you track his investment patterns, he selects his targets and goes deep to find which companies are undervalued to make investments with a higher likelihood of substantial returns.

So, if you are an average angel investor — what’s the right tactic for early-stage investing? Currently, the best data suggests that one needs to invest in at least eight companies for the volatility to level out. The more angel investments one makes, the higher the likelihood there will be positive returns in the portfolio.

Looking at the math, if you are going to invest $300K over a three year period, you are most likely better off making approximately ten $30K investments than making three $100K investments.

Why not make thirty $10K investments? The problem with the smaller investment is that you don’t have a significant enough position in any one company to get a large enough return to offset the losses.  Statistically, fewer companies will succeed than fail, so it’s essential to find the sweet spot of potential gains to the number of companies that you can manage in your portfolio.

One of the primary investment principles we follow at AngelMD is specialization paired with expert insights.  If you don’t have expertise in a sector, you are merely speculating and losing your advantage. Furthermore, in an industry like healthcare, we can diversify across sectors/ specialties like medical devices or bio-pharma.

As a healthcare insider, you will have a much easier time assessing investment potential and risk when you stick to your expertise. Just within your day-to-day work and network of colleagues, you are likely to find opportunities that you know will have immediate value to your practice.

As a member of the AngelMD community, you are a part of a network of 10K+ experts that draw upon their collective experience to find the best investments in healthcare, evaluate them and then influence successful outcomes post-investment.  As you embark or continue on your investment journey, use AngelMD’s power of the crowd to give you the advantage of diversification and specialization by investing in what you know.

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Value Investing — The Secrets of Warren Buffett’s Success

AngelMD’s investment success is built, in part, on the power of specialization. That said, there are always lessons to be learned from other investing approaches. One approach that I want to investigate with the AngelMD community is “Value Investing.” It is the term that has become synonymous with the investment strategy popularized Warren Buffet, but it was created by his mentor, Benjamin Graham, starting back in the 1920s.

The strategy of Value Investing is simple in principle — buy assets (stocks) substantially below their intrinsic value and hold onto them. As the market becomes more rational, the value of the stock will normalize, and the investor will make substantial returns. Of course, no one purposefully buys high and sells low, yet most investors (at best) eventually regress to the mean. This happens because they become emotional and sacrifice long-term returns for smaller short-term profits or to minimize perceived losses.

Last week I was fortunate to attend lectures by renowned economist and professor Bruce Greenwald. In fact, the lectures were his final after a tremendous career teaching at Harvard and Columbia. Through his intellect and clear communication, Bruce helped evolve and teach the mechanics of value investing.

It’s important to note that investing in private equities is not directly comparable to true stock value investing. Value investing is a zero-sum game in which there is a buyer of a stock and a seller and is reliant on pricing discrepancies. One is going to be right, and the other will be wrong. Being right is contingent on your ability to time the market — a skill which frequently eludes even the best analysts.

Investing in private equity assets has far less to do with price and more to do with technological advantages, overall management, and the macro trends evolving within the industry. That’s not to say, however, that there are no lessons to be learned by making comparisons to value investing.

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Over a series of articles, I will attempt to distill critical elements of value investing as taught by Greenwald and Graham and practiced by Buffett. We will then discuss how they can be applied to private equity/angel investing.Central to successful value investing is having a disciplined strategy. There are multiple strategies an investor might deploy such as “net-net,” a favorite of Benjamin Graham. Net-net is the practice of buying a stock for substantially less than the value of a company’s current assets minus its liabilities. However, this and many other such strategies made popular by Graham are simply not as viable in the modern era where far more value investors are searching for similar characteristics, or the value isn’t as outwardly tangible, such as the example of technology companies.

Greenwald suggests that all good investing begins with a “search strategy.” An investor must have a plan, and criteria, for determining investments that contain elements critical to success. Also, an investor needs to build into their strategy mechanisms to overcome their biases, so as not to construct a portfolio of companies they like for arbitrary rationale. Investors are also wise to leverage the expertise of others in this process and to think more like a technical investor, who lets the algorithm make their choices instead of more subjective emotion, or gut instinct.

Also, core to a robust search strategy is the concept of specialization. Investors that are successful over the long term tend to stick to a narrow lane of investments that leverage their expertise, allowing them to see industry trends and outliers more clearly. For example, take Warren Buffett, who is recognized as one of the most successful investors in the world, with endless resources at his disposal. His most successful investments fall into narrow fields:

  • Geographic specialization (Companies based in the Omaha area)
  • Financial services (ex. Wells Fargo)
  • Consumer goods. (ex. Sees, Helzberg)

He rarely deviates, and when he has his record returns the mean as we highlighted above.

On our AngelMD platform and community, specialization is at the heart of everything we do. AngelMD not only focuses exclusively on medical technology (drugs, devices, and software), but it leverages specialized knowledge from our physician membership to systematically evaluate startups and to advise portfolio companies towards success post-investment.

Given that finding an intrinsic value can be a difficult task with early-stage companies, the process of specialization and applying the knowledge of an expert network to investing helps to ensure the success of all parties involved.

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Mazama Spine Summit 2018 – A Recap

Mazama Spine Summit held another successful installment of an event Richard Wohns, MD, JD, MBA began 18 years ago. Held at the Sun Mountain Lodge in Winthrop, WA, the event attracted spine surgeons and affiliated clinicians from all over the country. Despite sporadic weather challenges on the mountain passes, most attendees were able to make the trek and the event had record attendance.

This year AngelMD expanded a pre-conference innovation session started in 2017. Tobin Arthur, AngelMD CEO kicked off the event with an interview of renowned spine surgeon and innovator Stephen Hochschuler, MD.

Four companies were invited to present and spend the weekend networking in a unique and intimate setting with innovative physicians. The four companies were:

  • Minimus Spine: Offers a bridge between epidural steroid injections and discectomy. They developed a Triojection System to facilitate a safe and consistent intradiscal injection of ozone gas to treat herniated discs.
  • NovApproach Spine: Providing patients with scar-free spinal surgery and surgeons with an appealing procedure that helps them grow their practice.
  • Karuna Labs: Developed a software that treats chronic pain using immersive virtual reality therapy.
  • Empirical Spine: The LimiFlex device is an alternative to spinal fusion for patients with instability such as degenerative spondylolisthesis.

After the start-up presentations, Stan Monlux, AngelMD VP of Marketing shared insights gleaned from the 2017 Private Investment in Healthcare Technology Report.

The afternoon event was concluded with a private coffee tasting by award winning Blue Star Coffee Roasters based in Twisp, WA. Owners Meg and Dan Donohue personally presented three coffees including the oldest blend in the world – Moka Java.

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Syndicate Leadership: How You Can Make an Impact

AngelMD is building a new, quantitative model for early-stage healthcare investing. Our model involves democratizing the investment process to create distinct informational advantages for both individuals and syndicate leaders when evaluating startups at volume.

AngelMD’s process ranks companies with a proven rubric, so you can prioritize your time and investments for the best opportunities and leverage the power of the crowd to invest with the most advantageous terms in place.

Syndicate leaders are an integral part of a successful startup funding plan. Syndicate leaders share their network, and expertise, and receive additional financial benefits.

Whoah! Syndicate leaders? What the heck is that?

Think part-time fund manager. Think someone with subject matter expertise but not necessarily investment or fund expertise. Physicians, members of angel investment groups…professionals…all can participate. No longer does fund management need to be limited to full time venture capitalists. You can get in the game and build a managed portfolio.

Why Would I Do This?

Lots of angel investors help startups raise capital in addition to their own investment. It’s a way to support the company while ensuring their own money is “de-risked.” The problem is that most people don’t have a system for doing this and they certainly don’t get compensated. Through AngelMD they have both. Syndicate leaders are investors in a company who help expose the investment opportunity to their own networks and advise the company going forward. In exchange for this advisory work, they receive “carried interest”* in the investment. This function helps the company progress, gives new circles of people visibility to the investment opportunity and compensates the syndicate leaders for their work.

What’s Involved in Syndicate Leadership?

Almost everyone serving as a syndicate leader on AngelMD is a busy professional. As a result, the process is designed to take less than 10 hours pre-investment and a few hours a year of advisory work. The first step is to serve as a liaison between the startup and AngelMD to help get evaluations of the company conducted (due diligence) and marketing materials ready for distribution. This includes participating in a 1 hour webinar in which the management team of the startup presents their story. So far we are a few hours of total effort into the process.

Next, the syndicate leaders send out information on their participation to friends and colleagues inviting them to get to know the company. Beyond the email communications, the conversations are directed to the startup. Some startups may elect to host a live event for investors….depending on the location of the syndicate leaders, they may elect to join in a meeting of this type.

Once the investment closes, syndicate leaders will join the startup on an advisory call twice a year. The startups provides updates and shares any challenges they have in which the advisors may be able to help.

The response from syndicate leaders has been that the process is interesting and gets them more involved in activist investing. Most choose to get involved in more syndicates after their initial experience, though there is no obligation.

AngelMD conducts a webinar exclusively for prospective syndicate leaders each month. To learn more about this opportunity, sign up for the next session HERE.

*”Carried Interest” is a stake in the upside of an investment. It looks a little like equity in the sense that it only converts to value if there is a profitable exit for the startup. Typically a venture firm works with an 80-20 carried interest split with investors in their fund. Once principal is returned to investors, the VC receives 20% of the “profit” while investors receive the balance. Syndicate leaders on AngelMD do very little work relative to a VC, but the mechanics of carried interest are the same.

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