What is Impact Investing?

There is a definite buzz around the term “impact investing”, and it’s only gotten louder over the past few years. The idea behind impact investing is that, as investors, we should put our money into projects that we believe have a net positive impact in the world around us. The idea itself isn’t new, but it has certainly gained traction.

One prominent example of impact investing emerged in 2016. The Rise Fund was started at an exclusive gathering held at Richard Branson’s Necker Island. The event was hosted by Jeff Skill, eBay’s first employee. The conference held a simple agenda — to define big ideas to save the world. The Rise Fund was one such idea. The premise behind The Rise Fund is that it would invest profitably, but would only do so while having positive social and environmental impact. Two years later, parent company TPG is looking to raise $3 billion for its second Rise Fund.

It is a generally-accepted idea that, in impact investing, the expectation of financial return is relaxed in order to allow for investments that have greater impact. That said, at AngelMD, we believe that you can still have a significant impact without having to sacrifice alpha. In fact, we branded our annual meeting for physicians and investors as The Alpha Conference for that very reason.

While we understand that newer investors may be focusing less on impact than returns, we’d like to challenge that way of thinking. For example, look at this list of problems:

  • Inoperable brain cancers
  • Scoliosis impacting young children
  • DNA-specific medical treatments
  • Global vaccine delivery
  • Concussions in sports and in combat
  • Drug delivery for the ears and eyes
  • Oxygenation monitoring in preterm neonates

It doesn’t take a stretch to say that these are impactful solutions to big problems. But what do they all have in common? They’ve all been sourced and funded by AngelMD.

One lingering problem with impact investing is that it will reach into investment classes for which there is very little data. AngelMD is matching the leading startups in the world with physicians and investors to help de-risk these ventures and accelerate their path to market.

The market for healthcare innovation is highly fragmented, and lacks the structure required to optimize for speed. Innovators often find themselves spending too much time and energy chasing capital instead of developing and commercializing their products. By getting the right physicians and advisors involved early in the process, AngelMD helps to accelerate progress, avoid roadblocks, and thus maximize investment returns.

Our goal at AngelMD is to provide better returns for investors. But ultimately this requires that we provide better economics, results, and a better quality of life for patients.

There are painfully few areas in life where you can have your cake and eat it too. We have taken great care to provide a way for investors to not only have an impact, but also realize returns that any investor would be happy to see.

Continue reading

The Roadmap to an Exit

There are, generally speaking, two types of startups in the world — those that want to build the next hundred-year company and those that are building with the intent to find an exit. There are arguments for both cases, but more often than not the former ends up switching over to the latter. There could be any number of reasons why the change occurs. It’s not uncommon, however, for the weight of repaying Angel and VC funding to rank near the top of the list.

With that fact in mind, one of our strong recommendations at AngelMD is that startups form an early roadmap toward an exit. We aren’t alone in this strategy. Renowned investment banker, Angel investor, and author Basil Peters shares the sentiment:

“I would suggest that the exit strategy is simply the play for the business, the entire business, and like all good plans it should start at the end with the goal. Every company should have a clearly articulated, regularly reviewed exit strategy.”

There are several steps to plotting out your company’s roadmap to an exit. In each of these, bear in mind that your answers today may not look like your answers six months or even six weeks from now. As Basil recommends, the plan strategy should be regularly-reviewed and that will mean changes. We would go a step further to say that one of your reviewers should be someone outside of your organization, who might offer viewpoints that you would have missed yourself.

Find Your Targets – You should identify the category and names of potential acquirers for your company. This needs to be specific.

Use The Data – There is a wealth of publicly-available data that can help you understand the acquisition strategies of the companies that you have identified. Document how your company aligns with those strategies.

Show Momentum – Your product, your achievements, and even your roadmap should all show activity within your company. This momentum needs to be clear not only to the market, but also to investors and potential acquiring companies.

Build Fans – Whenever possible, try to target employees of your acquisition targets who can implement your product. This helps to make your company a “household” name, and in some cases can give you guidance on what real users will need your product to do for them.

Find the Leaders – This goes along with the previous point, but expands it a bit. Develop a relationship with the business unit leaders at the potential acquiring organizations. In many cases, you will build these relationships while getting your product into use at the company, but other times it will be important to build rapport above the front-line employee who uses your product.

Gather Advisors – Building an advisory board of physicians that have professional and personal relationships within the industry can offer incredible insight. For extra credit, find advisors that hold roles within the companies that might acquire yours.

Share Your Findings – Publish outcome studies that show the efficacy of your solution. Send these studies to contacts at the potential acquiring organizations, and ask for their feedback or insight.

Gather Investors – While this is more for later-stage rounds, it’s still something that should go into your roadmap. Have your investment banker solicit the potential acquiring organizations for participation in your rounds. Not only does this give the company a vested interest in your success, but it could lead to a greater interest in acquiring your company as well.

While there is no tried-and-true method for getting your company acquired, it’s safe to say that chance favors the prepared. By starting your exit plan early, and building the resources that will help gather interest in your company, you are paving a pathway toward success.

Continue reading

AngelMD’s Q4 2018 Healthcare Funding Report

Each quarter, AngelMD produces a report that details what’s been happening in the world of private healthcare investment. This Q4 report, rounding out 2018, comes from our individual evaluation of over 500 SEC Form D filings. We have eliminated filings that were not directly involved with healthcare, filings from large, public companies, and those related to private equity buyouts.

The State of Healthcare Funding

As is typical, Q4 saw fewer overall deals than the rest of the year. That said, the total size of all deals grew by nearly $400 million. The median deal size more than doubled from Q1, to $3.77 million. AngelMD analysts believe that, given the market conditions, 2019 is sizing up to be a formidable year for healthcare investment.

A New Challenger

It’s not uncommon to see oncology, bio-pharma, or genomics take the lead for the amount of money raised each quarter. But Q4 brought about quite the surprise. Dermatology and plastics, with a combined total of $563 million, was the sub-specialty with the largest total raise.

Notably, oncology is still the second largest raise in the bio-pharma category, with a total of $547 million. As we delve deeper into CRISPR and other genome areas, we’re also seeing significant numbers from from genome editing, cell therapy, and medical genetics.

AngelMD’s 2018 Story

AngelMD members continued to show strong interest in a wide variety of investments through 2918. As you might expect, California and Texas had the largest number of raises, which coordinates to the number of AngelMD members in those states. Interestingly, neurology was the speciality with the largest amount of money raised in the year.

We look forward to even more investment activity in 2019, and helping to shape the future of healthcare. The full Q4 investment report is available to all members, who are following AngelMD, through their activity feed.

Not a member? Join AngelMD today.

Continue reading

Investing in What You Know – Expanding Knowledge

One of the subjects that we cover quite often is the idea that you should invest in what you know. For physicians, this often means that their first investments are within their specific specialty. But as time moves on, investors can find themselves eager to branch out. How do you get there, without branching out from what you know? The solution stems from expanding knowledge of the areas around you.

Advising & Consulting

The beauty of investing, and especially so within a network, is that you will be able to branch out your areas of expertise. The Warren Buffett method, often referred to as value investing, relies on understanding intrinsic values so that you can spot a good deal with the time comes. This level of understanding will come with your work expertise in some areas, but you will develop it in others over time.

One way to further develop your base of knowledge is to get directly involved with companies that are operating a step away from your current comfort zone. For instance, a radiologist could lend their expertise to a company that focuses on EHRs. Their first-hand experience in using EHRs could provide valuable insight to the company trying to build something new.

Often times, the best way to branch out is through advising or consulting for young startups. Advisory and consultancy roles are similar, but functionally different. The advisor could be seen as a mentor, likely familiar with a broad scope of the business. A consultant, on the other hand, is usually someone who fills a functional role such as a radiologist who helps to design the imaging portion of a new EHR.

The Network Effect

The AngelMD difference happens because of the network. But it’s not only a matter of pairing startups with investors. It’s important to follow startups that you find interesting. This allows you to connect with those companies, follow their progress, and be notified when they have needs to be met.

AngelMD provides the network of investors, and as you grow in your own role you will help by contributing more to the network. Angel investing is always risky, but there are ways to mitigate that risk. Build a diverse portfolio, invest with a group, do rigorous due diligence, never stop learning. Above all else, AngelMD’s strongest points of advice is to invest in what you know.

Continue reading

Investor Spotlight – Dr. Jeffrey Ross

Dr. Jeffrey Ross is a physician with a penchant for investing. He entered into private practice in 2008, and until 2017 he worked as an Interventional Radiologist. We recently had the opportunity to talk with Dr. Ross about his clinical work, his mindset as an investor, and now his new role as the Senior Vice President of Clinical Investment Operations at AngelMD.

Let’s start out with who are you and what do you do?

I am a diagnostic radiologist and interventional radiologist (IR) by training. I completed my IR fellowship in 2008 and immediately moved to Colorado Springs. I enjoyed being a part of a busy practice for nine and a half years and then officially retired at the end of 2017 from all of my medical work. Why would I give up an enjoyable and lucrative medical career? Well, I have always loved investing. So when I first got out into private practice in 2008, probably within a year or two of that, I started a blog called “JWRoss Investments” to teach people how to invest on their own. I did that for a few years, just for fun and as a hobby. And then I ended up getting picked up or noticed, I guess, by an organization called The Motley Fool.

They actually ended up inviting me out to their headquarters near Washington, D.C., and I met the founders, the Gardner brothers, Dave and Tom–who are great guys. Their people asked if I would be willing to write as one of their health care experts. While I was honored by their request, I declined because I avoided investing in healthcare while I was a practicing physician, so as to not raise any “conflict of interest” flags. I did, however, continue to write some occasional investment advisory articles for them.

Then, somewhere around 2013 or 2014, I switched over and started writing for Seeking Alpha, as well, just to reach a different base of readers. As I was doing that, I had quite a few people say they really liked my investment style and trusted my opinions on things, and they asked if I would be willing to manage their money! I always said, “Oh you know what, I just do this for a hobby, it’s just for fun.” But after a while it started to stick in my head, and I thought, if I could do this [investment advisory] for a living, that would be really fun.

I loved being a doctor, I really did. I loved taking care of patients, working with a team of nurses and techs, and enjoyed the procedures that I did as an interventional radiologist. But there were a lot of things I didn’t care for. I mean the most obvious was being on call every fourth night and the toll it took on me and my family. I wasn’t able to hang out with my kids as much as I would have liked to and do many of the family things that “normal people” get to do. It just stuck in my head enough that I thought, you know what, I might actually try to do this and see what happens.

So I founded a registered investment advisory firm called Vailshire Capital Management, LLC in 2013. Then, in early 2014, I opened up my hedge fund called Vailshire Partners, LP. This is a long-short healthcare and technology-centered hedge fund that’s based out of Colorado Springs. Later, in 2014, I started offering separately managed account services. To date, in addition to my hedge fund clients, I have about 55 client accounts, where I manage their brokerage accounts and IRAs and do anything from conservative to aggressive investing, depending on their style, time horizon, and investment preferences. It is similar to most traditional investment advisors.

So that gets me to the end of 2014. By the end of 2015 I was becoming so busy running Vailshire on the side that I decided to go down to part-time medicine. From 2015 until the end of 2017, I slowly whittled my schedule down as a doctor from three days a week, to two days a week, down to one day a week. Then, I finally decided to take the plunge and give up being a doctor and going all-in with Vailshire. That was the end of 2017, almost a year ago.

Fast forward to the spring/summer of 2018. That’s where I was first introduced to AngelMD and I got to know Mike Raymer and Tobin Arthur. They were talking to me about becoming an investor in AngelMD and told me more about the platform. I met with them a few times and they were, for some reason, impressed with Vailshire and me being a doctor who runs a hedge fund. But I was really impressed with what they were doing! I loved the idea of a physician network that collaborates with startups and helps direct where the future of healthcare technology is going, and was intrigued by the idea of investing in AngelMD as well.

That’s the point where I decided to not only become an investor in the Series A round of AngelMD but to also join their team at the time as a senior advisor. That role has just recently been tweaked into helping them with their clinical investment operations.

So when you look back across your time as an investor, not necessarily as a manager, but your personal investments. What do you know now that you wish you had known when you started?

That’s a great question. I started out as a hard-core traditional value investor, which is the direction that many early investors take. They admire and follow Warren Buffett and his value-oriented techniques. I think that’s a wonderful place for all investors to start. But ironically I used to sit and pine away in jealousy and watch companies like Amazon and Netflix, companies that I knew were fantastic companies, but they just didn’t fit the mold of a value investment. So I never invested in them.

It actually took me many, many years until I could allow myself to invest in these companies that had tons of potential but didn’t meet the value-oriented criteria that I adhered to. After much self-reflection and education, I finally allowed myself to invest in growth companies with great potential. That switch may actually be the primary reason why I am with AngelMD today. Because I was finally able to let go of my deep value roots and start investing in growth companies. I am a natural optimist, as well as a realist. So following my natural optimism and looking at companies that have tons of market potential is fun for me. But you also have to be a believer in the company’s vision and the CEO and the leadership of the company and their products and services in order to actually invest in these companies for the long-haul. I started investing in these growth companies within my hedge fund and for some clients. This optimist/realist mindset has carried over into what I do here at AngelMD.

If  you’re looking at investments as a natural optimist, what else gets you excited about a company?

I just love looking at the potential of a company or product or service. Healthcare is an area that is full of potential, especially in early stage companies and health technology. As a physician, knowing that there’s a tangible need in a certain area and then seeing a company that has a promising product or service that will truly benefit the life of a patient–and ideally millions of patients–that gets me really excited. That’s the kind of thing that lots of other doctors can get on board with and why AngelMD has so much promise itself. We’re actually shaping the future of healthcare, and that really affects everybody, not only in the U.S. but also around the world. That’s very exciting for me.

As you’re well aware, one of the mantras that we have is investing in what you know. And so as a former practicing radiologist, are you still kind of keeping up with the radiology field? And if so, what’s happening there that’s interesting?

Yes, I do follow it a little bit. I’ve always been interested in the application of artificial intelligence in radiology. And I don’t like saying this publicly so much, because I have so many friends and colleagues in the radiology area, but I really think that if there is any field or specialty of medicine that is ripe for disruption, it’s radiology. Because its imaging workflow is almost entirely digital and technology already exists that can do much of the work of a radiologist, that can interpret images. I think that someday artificial intelligence-enhanced software programs will at least partially replace radiologists in accurately and quickly interpreting digital images. An important consequence of this is that it will greatly decrease the cost of healthcare imaging going forward. So that’ll be a benefit to patients. And disrupting radiology will only be the beginning of healthcare disruption, improvement, and cost reduction secondary to up-and-coming healthcare technology.

As the natural optimist, what do you look at as a warning sign of a bad investment?

Well, let’s see. I really trust my gut as far as the quality of the leadership of a company. So if I feel like I’m just being fed a bunch of sales pitches and no substance, I’ll stay away from it. Also, if people have what seems like a great idea but it doesn’t look like there’s much of a market opportunity for it, or if they’re just another player in an industry that’s already full of good ideas or good devices or good services, I’ll stay away from those areas. I really look for true disruptors with visionary leaders–and, ideally, experienced leaders–who can take the product from conception through the design phase and then through production and distribution.

Whether it’s investment or something completely unrelated, what gets you really excited?

Well, I’m mostly excited about the impending disruption and improvement of healthcare. I have been hearing about the problem of how expensive healthcare is and how convoluted and opaque the system is, for as long as I can remember. I think we are truly at an inflection point. Technology has reached a point where it is getting so good that you can do things like basic monitoring of physiology and pathophysiology and have it hooked up to software algorithms that can monitor patient conditions and keep their physicians and other health care providers in the loop on a regular basis.

I think those kind of things are going to actually drive a revolution in health care. Driving costs down. Improving patient care. Freeing up doctors from being so overwhelmed with the busyness that they’re experiencing right now. I think there is really going be a revolution. I have always thought that the revolution isn’t going to come from politicians. It’s certainly not going to come from the incumbent players like the large insurance companies and hospital systems and other entities that really benefit from the current state of health care. So I think technology is coming in to disrupt the system. It is going to be really good for all the players involved. That’s probably what I’m most excited about.

Last question for you. What was the last book that you recommended to someone?

One of my favorite investment books was written by Howard Marks, called The Most Important Thing. He is, I think, one of the wisest investment philosophers of our age. Most people default to Warren Buffett as being the ultimate investment guru. While he has much to offer, I prefer Howard Marks and his mentality. He’s extremely wise about market cycles and how to evaluate and interpret the signs of the time. How to not get overly excited about certain market conditions. When you see people getting overexcited, that’s when it’s time to be cautious and when people aren’t excited and you’re too concerned, that’s when it’s time to actually start investing again. I would recommend this book to any person who wants to become a more serious investor.

Continue reading