The Ethics of Investing as a Physician

The past decade has seen a stark increase in the number of private equity firms that are investing in healthcare. On the other side of that same coin are singular investors — or groups of investors — who are looking to diversify their portfolios by investing in healthcare. It only stands to reason that, by investing in what they know best, physicians stand a better chance to beat the odds. But the practice is not without its potential pitfalls, and it is important to know how to avoid them.

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The Rise of the Family Office as an Investor

Three main drivers for macro-economic growth for any country’s economy include accumulation/deployment of capital, increase in labor outputs, and technology advancement. AngelMD is focused on driving healthcare growth by both unlocking access to capital and supporting the very best healthcare technology advancements.

Family offices today are playing an increasing role in deployment of capital on a global scale. In 2008, an estimated 1,000 single-family offices were in the world. Less than a decade later,  Ernst & Young reports the number has grown to more than 10,000 family offices globally. Family Office Exchange says that, while most estimates peg the current number of family offices in the United States to somewhere between 3-5,000, the real figure could be closer to 6,000.  

Research conducted by Dominic Samuelson, CEO of Campden Wealth, suggests family offices currently hold assets in excess of $4 trillion. Family offices are now capable of making transactions that were traditionally reserved for big companies or large venture and private-equity firms, therefore making them a notable force in the marketplace.  

The Global Family Office Report shows more than a quarter of family offices (28%) report being engaged in impact investing (i.e. investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.) Two-fifths plan to increase their allocations this coming year, a push largely attributed to ethically-minded millennials moving up through the family ranks.

A major trend affecting future growth of family offices is to balance changing investment strategies for increased emphasis on direct minority-stake investments, yet more active participation in the strategic management of these investments versus rising operational costs and the need for specialist, more scarce talent.   

Impact investing by Family Offices is a natural fit on the AngelMD platform. Rather than building up staff to evaluate healthcare investment alternatives, Family Offices can rely upon the AngelMD network to source, evaluate and deploy capital to the best healthcare impact investments.

The JOBS Act created the regulatory framework for AngelMD’s syndicated investment model for accredited individuals. To be considered accredited, an investor must have a net worth of $1,000,000, excluding the value of their primary residence, or income of $200,000 each year for the past two years. In just over 24 months, AngelMD has been able to leverage our digital platform and network of accredited investors to execute 30 syndicate investments in leading healthcare startups.  

AngelMD physicians are able to play a key role in our syndicate investment vehicle by sourcing, vetting, scoring, and advising the best healthcare startups. A portion of the AngelMD physician membership also participates as investors and leaders in syndicate opportunities. This proven model, however, is materially enhanced when complemented by funds that are available to precede and/or follow-on to syndicated investments. This rationale underlies the creation of AngelMD’s Catalyst family of Funds.  

The Catalyst I LP fund leverages the network as an input to investment decisions made by each Fund Manager. Rather than investing in individual syndicates, family offices, institutional investors, and sovereign funds view AngelMD funds as the more efficient model for capital deployment. Over time, AngelMD will create a number of thematic funds that will deploy significantly more capital than our syndication model.

The AngelMD network of family office membership will continue to grow as they seek platforms that provide returns while simultaneously providing societal impact. Over time, we believe that the majority of our deployable capital will come through those relationships.

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New Startups on AngelMD – March 2019

The following companies joined the AngelMD platform in March of 2019. Follow companies in the Innovation Categories of your choosing to stay up to date.

Consumer App

Reviews from Friends

Consumer Product

As Directed Plus
Sleep BioLogics, Inc.
HealthMe Technology

Artificial Intelligence

riskLD

Diagnostics

DICOM Director

Patient Care

SaRA Health

Pharmaceutical

Calici Therapeutics Inc.
Icell Kealex Therapeutics

Medical Device

Nephron Technologies LLC
Addinex Technologies Inc

Mobile Health

ListenMD

Telemedicine

SurgTime

Oncology

Thompson Oncology Devices

EHR

INvaryant Inc.

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Multi-Sided Platforms: The Future of AngelMD

A multi-sided market is one in which two or more distinct companies benefit each other by the presence of a common customer. Diners Club is a prime example of this type of business. Diners Club provided a charge card which could be used to charge meals at a network of restaurants. The restaurants benefited by having access to Diners Club members, and Diners Club benefited by having customers that paid to use the card. As technology has overtaken much of our daily lives, multi-sided markets have expanded dramatically.

Today we interact with multi-sided digital platforms that enable transactions at a scale previously not thought possible. When we order an obscure product from Amazon, it ships from a seller that we might not have known about otherwise. Posting your resume to LinkedIn allows employers to find you, while helping to grow the active user base of the LinkedIn network. ln most of these cases, we would refer to these companies as B2B2C, though there are exceptions such as AngelMD in which there are many parties involved.

For example, AngelMD connects startups, physicians, investors, and advisors. In our early days, it was important to grow both the “buy” and “sell” side of our network to make it viable.  In just over 24 months from digital launch, we have over 10K physician/investors connected to over 1,200 startups resulting in over 42 investments.

Over the next year, our focus  is on scaling the network. One goal within this focus is to gather 100,000 physicians. Physicians add scale to the network by sourcing early stage startups, scoring the best companies, supporting the investment syndication process, and advising the startups post-investment.  

One way that we will help grow the number of physicians on the network is by organizing them into specialty communities. In collaboration with national societies such as the American College of Cardiology, we will be rolling out specialty homepages, online surveys, daily news feed content, and startup deal flow.

To meet the requirements of a multi-sided market, we have to do more than just cater to physicians. In view of this, startups will have access to a wide variety of services that help accelerate their success. In the next few months, the first AngelMD Boot Camp will be held at our new Denver facility. This boot camp will provide access to our new production studio for video pitches, in addition to expert instructors to sharpen the skills of our member CEOs. We are also finalizing an ecosystem of partners for regulatory, compliance, accounting, legal, go-to-market, and strategy development.  The final piece of the puzzle is our annual event that we will hold each fall. This event will provide AngelMD portfolio companies the opportunity to learn, grow, and share best practices.

An area that few people expect is AngelMD’s collaboration with the healthcare industry. Industry players will be able to expand their participation in targeted specialty communities while leveraging our network of experts to score potential acquisition targets. This scoring is further bolstered by access to physician affinity metrics that can be aligned to an industry player’s portfolio strategy. Alpha Conference 2020 will be a prime opportunity for the industry to connect to members of the AngelMD network to build their brand and market reach.

This multi-sided platform enables us to expand our market globally as well. While there are more details to come soon, at this point we will say that we are having conversations with a wide range of geographies about opening up new global markets to the AngelMD marketplace.

This series has covered the transitioning from analog to digital, the wisdom of crowds and the power of multi-sided networks. The next article will focus on leveraging big data and AI (Artificial Intelligence) on our platform.

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The Wisdom of the Crowd?

This is the second in a series of articles where we examine the macro-level trends that support the thesis of our business.

The wisdom of crowds is a well-studied business phenomenon chronicled in a book by James Surowiecki. He makes the case that, under the right circumstances, groups are remarkably intelligent and outperform the smartest individuals in the group. AngelMD believes that our digital network is the best mechanism for identifying the best healthcare innovations.

Not everyone agrees in the power of the crowd. Charles Mackay published a book Extraordinary Popular Delusions and the Madness of Crowds. The book could serve as in strong indictment of Twitter in spite of it being published in 1841. The fact is that groups, when properly organized, can perform at an extraordinary level.

There are a number of examples where the crowd’s wisdom outperformed smart individuals. In 1968, Naval Officer John Carven was responsible determining what happened to the US submarine Scorpion. The vessel disappeared on its way back to Newport News, VA from a tour in the North Atlantic. The Navy started a search in an area 20 miles wide and in water many thousands of feet deep based upon the recommendation of a few experts.

After a fruitless search, Carven assembled a team with wide knowledge including mathematicians, submarine specialists, and salvage experts. He did not allow the group to meet together but rather to provide their best estimate of where the submarine might be based upon limited available knowledge. Carven utilized Baye’s theorem (probability of an event, based on prior knowledge of conditions that might be related to the event) to process the individual recommendations. The group pinpointed the location of the sub within 220 yards of where it was located. No individual in the group had performed to the collective wisdom of the crowd.

A fun example is the old TV show Who Wants to be a Millionaire. A contestant was asked multiple choice questions that got progressively more difficult. If stumped, the contestant could have two answers removed (odds now 50%), call a friend who they had designated as the smartest person they knew, or ask the studio audience. Over time, experts provided the right answer 65% of the time while the audience picked the right answer 91% of the time. Contestants soon learned that the crowd was the best choice for the most challenging questions.

There have been a number of research projects conducted by experts that have validated the power of the crowd. Each of these studies identified that groups performing independently of each other came to the best answer. We also see this played out daily through sporting lines generated by casinos in Las Vegas. The bookmakers publish the initial line for the game and the crowd can then move the line based upon their “individual” wisdom. In the end, the casinos make money because the line evenly divides individual wisdom between winners and losers.

James Surowiecki determined that there are four required elements to form a wise crowd:

  • Diversity of Opinion – Each person should have private information…even if it is just their interpretation of the faces.
  • Independence – People’s opinions aren’t influenced by the opinions of others in the group.
  • Decentralization – People are able to specialize and draw upon local knowledge.
  • Aggregation – Some mechanism exists for turning private judgements into a collective decision.

At AngelMD, we believe in the power of the AngelMD digital network. Our model for evaluating startups closely follows Surowiecki’s recommendations.

  • Diversity of Opinion – AngelMD scores startups in the network by individually polling physicians and experts electronically.  
  • Independence – The scores from AngelMD members are captured independently of one another.
  • Decentralization – The AngelMD members that score companies are geographically disperse and represent a number of healthcare delivery mechanisms including teaching hospitals, community hospitals and physician practices.
  • Aggregation – The AngelMD Metis scoring engine provides the mechanism for turning our member judgements into a collective decision.

AngelMD believes that our network is the best platform to source, score, and finance the best healthcare startups. The most critical role, however, may be the function that our network plays in advising the companies after the investment event. Whether it be providing product feedback, tuning the go-to-market model, or unlocking access to healthcare buyers our members are actively involved in helping startups achieve the best possible outcome for patients, investors and startups.

In our next article, we will discuss the proven power of digital networks and multi-sided markets. Ready to get started? Become a member of AngelMD and impact the trajectory of healthcare by scoring startups in our network.

Recommended reading: The Wisdom of Crowds by James Surowiecki which served as the basis for this article.

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