Transcription
Hi guys, I'm Alberto and I'm here with my co-founder, Cash Ship. We're here today to talk about fundraising for health tech and med tech startups. We started Raise Health because, at least on my side, right Cash, you may join here and share what you think, but on my side, I've been looking over and over again for the past 15 years. We raise, we can't believe the majority of investors are left hanging, valuations are skyrocketing, dividend recaps are happening, SAFEs are no longer there. And so, ultimately, I believe that the whole process of fundraising needs to go back into a science rather than just an art. But, you know, I think today this is the topic and to help our audience as they're going through their journey on fundraising, how they should be looking at this.
Yeah, thanks for setting the context and exactly. I think to concur with some of the points, right? And the macro scope right now of how VC itself is there, the VC startups, I think we hear all the time, one, the valuations are, you know, rocketed, but the exits are not happening, returns aren't happening. So I think from the last four or five years after the pandemic, I think the expectations are mismatched between founders' expected values and how, I think, the rounds are happening. Like, I think the seed to, you know, Series A, and I think that's where I think we saw together, right? How could we probably help this, solving the problem from the founders' point of view, also from the lens of a VC as well, because setting right expectations on founders as well and how they do it. And a lot of that can probably be solved by just seeing both sides. I think your background and experience in helping several health tech and med startups raise for the last several years is also quite helpful. And my background is more on the founder side of building things, operator side, and I think it's a great space that probably deserves a very honest approach.
So, in your opinion, why are most founders not successful in their fundraise? Is it a product problem? What do you think the problem is? We always hear the same answer come back, when you're a little bit more mature, right? And then founders are like, "How can I get more mature if I don't have capital?" Like, is the proverbial chicken and egg problem? How should you look at this?
Great question, right? So I think you, you should also probably, you would agree with this, but a lot of founders, I was speaking to one just yesterday, like a brilliant guy from Harvard, building something in the SMD space, software as a medical device. They have brilliant clinical science, they have a great product and innovation, but I don't think they articulate well enough on what is in it for the investors. So most of the med and healthcare, at least the state-of-the-art guys that do brilliant innovations, but they fail to actually see how they make money. Either they kind of don't understand the business models, or they kind of have a wrong approach that completely kind of doesn't work with investors, that doesn't sit well with investors. So I think a lot of metric founders, kudos to them, that they actually have a great idea, but then unfortunately, they're not investable because they cannot yet prove why they're investable, right? That is probably what I think we see all the time.
What do you mean by "prove the investment"? Like, if I put my operator CL hat, um, let's say I'm a researcher and an expert in the field for the last couple years, and I, and I legitimately see the problem, right? Majority of time is, as a physician, a provider, a researcher, a PhD, and I'm like, I have hands-on problem. I see patients. I see that this is a true problem for me. Um, so when I hear investors saying that they don't really agree the problem or the way I'm looking, it's kind of, um, it's a little sad and enraging, right? Enraging because in my head, I'm like, "What the heck do you think you know about what I'm trying to solve?"
True. I think founders do have that ego, right? I mean, so brilliant science. I mean, again, to, you know, the typical founders spend most of their time building. They don't really spend enough time really networking, understanding their product, what does the product do, even before fundraising, right? I mean, the critical aspect of how do you know the key stakeholders? How do you know you have the right networks, right? I mean, that's a huge part of your entire story. The right team, like right advisory board, auditing, like who's in my network? How can I get them on my board? How does it change my optics when I go to an investor? So founders undermine the value of this. And this often is seen if you see a pattern of the most successful startups. I think a lot of these optics usually have a very high advantage of having probably the best of optics. When you go to an investor, it's like, "Hey, this is my team. These are the advisors." And then you again go to the right investor, right? That is a science by itself. It's not just a coincidence that you just land into some investor just because they're good investors, but there's again a lot of science and art into identifying why they are the best fit. And that's also the reason why I think what we probably are doing at Raise Health is so different than the current approach in the market.
So, I think fundraising, it's hard because before fundraising, you actually have to do, uh, proof of sales. It's not just proof of product working, but it's like, can you sell to the market? How connected are you to the sales distribution channels? That's also a part of fundraising. And so investors want to see how you are the best guy to sell it. Uh, how are you placed? Do you have the right team? Do you have the right channels? Do you have the right networks? Can people open doors to you? So these are all those kind of things that I think founders usually don't think. And they think they have invented something. They have a science. They have a great clinic, you know. So that's probably what we hear all the time, right?
I'd like to, again, you and I, we're both engineers. So I like to look at this problem from a kind of like a Japanese perspective, right? Like instead of building the right product and say, "You can have any colors you want as long as it's black." From a Ford perspective, right? Versus a Toyota type of build, "Whatever the customer wants," and then you get into like the product design, the lean, lean approach. So, so when I look at all this noise like saying, "You don't have the right business model, you don't have the right team, you don't have the prototype, BF," all those things for me, ultimately is because as long as health tech and medtech exists, majority of the way it works is, "I got an idea, I take a bunch of grants, I make sure I have a prototype, and then I try to go to the market and see if that's going to like splash," right? And for me, we should be approaching the opposite. And it's almost like, "You got to look first, talk to your sales guy," to make sure this will actually have some sort of interest on the market.
Yeah. And then, and and that's just the tip of the iceberg. Because then the second thing is, every time we go into competitor analysis like slide, and they say, "Johnson & Johnson's doing this, Medtronic's doing this. I'm going to beat the crap out of them because mine is much better." But what I think entrepreneurs don't really understand is, you're not competing against Johnson & Johnson. You're competing with the next great idea because it's going to take five years for your stuff to go out there, right?
Yeah. So, so that's why you need to have a great team, you know, because if you don't have the great team, you have the wrong information, you have the wrong execution, wrong leverage. And then so then, and if you go back and look, like having a great idea because I'm the KL, uh, doesn't necessarily mean that much, right? Like look at our world. It's broken, and yet a lot of companies make a ton of money. So it's not having the best products, not having the greatest idea. Um, in the end, it's finance. Can you generate sales or not? Right?
Yeah. Absolutely. And when you talk to a sales rep, I don't know if hospitals before, but every new product that comes in requires so much certification and training from the staff. That's at least a six to a year project just for onboarding before you can even make it standard. And we're not even talking about whether you have a procedure reimbursement code or whatever. And so sometimes when you're so complicated, the sales rep doesn't really want to teach the doc about your stuff. He wants to go in, get his orders, and come out. Like, so ultimately, when the investor talks about, "You don't have the right team," I think as a CEO, you got to understand you have to backtrack everything. How do I actually make sales? And understand all these questions so that I can go design my product. And it's not, you know, "Get a great design product, then go find a sales rep to go sell your stuff, right?" And I, and I think that ultimately, because of this process is broken, that's why it's getting harder to find capital in health like a metric, because money goes in, money doesn't come out.
True. True. I think these are money guzzlers, right? I mean, products are not cheap. I think you made some excellent points. So before you would even build a product, I think it's a very good idea to validate whether you can sell it, right? So I think you're in the AI era. You don't need to really spend too much money to even validate. I think the smartest founders that we are seeing are the ones who are actually kind of smart enough to know whether there's a demand per product before even they would make a lot of investment, raise that pre-seed money and all of that. And even when you raise a pre-seed, I think there's a lot of assumptions I think that you go to market with. I think how smart are you? How unbiased are you to validate those assumptions before you go to market? And that's where I think, you know, most people don't have a very rigorous framework to actually validate. I, I think in the discovery phase, they make a lot of mistakes talking to customers. They think usually they have a cognitive bias. Founders only listen what they want to validate. It's like a confirmatory bias that they have. And due to which, I think a lot of their processes in terms of validation are pretty weak. That's the difference between founders that are very successful. They also have good data rooms. I mean, talking of data rooms, that's a whole phase, right? I mean, it's the most important aspect of having a data room. So, yeah, I mean, you are very seasoned in that, right? So do you want to share any context of how, what's like a data room that you see in a startup? Then in different phases, of course, pre-seed ones and seed ones, they don't really have a data room to speak of, though it's a nice to have for them. But when you're more matured, I think it's expected that you do have a data room. And it also shows a lot of professionalism at which you have done every stage, every step of your company, right? Even though you may be a small startup, I think it shows a lot on your commitment. It gives a strong signal to an investor.
Yeah, I think this is a great segue to what I'm hoping this video to be. It's almost like a cheat sheet on what is that, uh, a CEO must do before they start fundraising, right? And as you're talking about data room, let's go there. This is not like a thing that you do to show somebody, right? This is your own personal investment-ready assessment. If we can break it down, let's say there's like seven points to a data room, and let's talk about how an investor would look at it, understand it, right? Because everyone talks about what is the right pitch deck and all these things, but if you break down a data room into seven steps, then you're going to notice that a pitch deck is just like a tiny fraction of the whole context. So if we can break it down, let's say there's a company overview and business plan, corporate structure, governance, product and IP, regulatory, clinical evidence, commercial go to market, and then your financial valuation and cap table and everything. But let's start with the basics. So when an investor or a consultant will tell you, "I'll help you draft the best pitch decker," because in the end, it's all about the narrative. What is it really important? What should we look in? How does an investor look at a pitch deck or even a business plan from your perspective?
I think one of the first things in terms of optics for any founder is your deck. It has to be obviously the most compelling thing, right? So most VCs, I think they look at the same decks. I mean, typically a VC looks at like 20, 30 decks a day. So I think a deck has to be purposeful. It's not expected to be very long. But there is, of course, a classic way of doing the Guy Kawasaki's 10/20/30 rule, and depending on the stage, kind of audience that you're sending it to. So the messaging varies, but I think there are some best practices. If your team is your superpower, it's always good to start with the team, right? There's a way in which you can show, "Hey, these are the people behind it," rather than showing them in the very end. Team slide probably just communicates essentially who's behind it. It gives a certain confidence to people to actually listen to the rest of the story. So a deck is a story, essentially. You're narrating a story or creating an impression to a stranger, mostly. And sometimes, if you're lucky, and this is probably also an important aspect of fundraising, is warm connections and introductions. Probably you would touch upon that sometime later. But I think in terms of a deck, I think there are the most basics. Again, looks at how, at least some level of confidence of your business model, the way you make money. I think that misses in a lot of decks. Too much of science, too much of product selling, too much of product, and too little of what is in it for the investors, and not clear on the ask. The ask is very unstructured, not knowing the fund utilization plan, where the milestones are, why are these milestones important? Why should they achieve those milestones? And that is probably the most critical things that investors look at. I mean, as an investor, I would see, "Hey, what do they want? Why do they want it? Why are the right people to do it? Can they do it?" Right? I mean, these are the most important questions that you would ask.
So, the way I look at this is elevator pitch. People tend to overcomplicate their slides by wanting to show exactly how the stat will work in the heart. And I don't think this is it. If I can get a couple tips, here's how I look. Superman is only Superman because of the right context.
That's a good example. Yeah.
Like, like Superman being ultra-powerful if he were to live in a quote-unquote ethical, righteous, almost Buddhist type society where everyone understands about cause and consequences. So what is the purpose of having a super strong being with X-ray vision? And there's no purpose, right?
Dude.
And so, so in elevator pitch, the first thing you have to do, in my understanding, is set up the context.
Mmm.
So the context is the most important thing. The investor will ask because his most important question is, "Why now?" And if your context is not there, it doesn't matter what problem you're solving, whether you have a blue shoot or not, because he's still going to ask, "Why now?" And so you have to backtrack through context, what is really happening right now so that your problem becomes exacerbated, and therefore your delivery, your product, or your value proposition will actually be understood. Right? If I come and say, "In a society, everything works," I'm going to be the first Superman. People are going to ask, "Why?"
Yeah.
Right?
Great. And then the last piece, I think we should go next. You said about teams, right?
Yeah.
So, what is the purpose of a team for a startup? You see all these decks with amazing, you know, logos for lack of better word, right? Like Harvard, MIT, Carnegie.
Yeah.
But so what? In the end, comes out with all these great logos. He'll still go like, "Pitch to whoever he can," because he's desperate. You know, when you heard all, "I really need is one good introduction, and I'll do it the rest, right?" Like, you need to turn this serendipitous situation into a process, right? You can't expect everyone to be nice enough to point you to the right door just because they want to see you succeed. It's sort of ludicrous. We do live in a world where everyone's looking out for their own belly. Unfortunately, that's what business is. You got to win. Someone else is competing with you. And so, how do you turn that into a process? So, you have to understand that early on, a startup doesn't really have capital to acquire customers. So what do you do? You start building your board, your advisory board, your board of directors. And so the most important thing when you bring an investor is really not so much about the capital. It's how many doors that person can open for you. Right? Makes sense.
Absolutely. Yeah. Absolutely. To add to that, I think you really touched upon probably the most nuanced field of being an entrepreneur, which nobody really talks about. Everybody talks about the power of networks. They say like, "Network is net worth," and things like that, at a very high level. But how do you really, really, as a founder, right, really tap those networks to create a value? So a value that can kind of be felt and seen before you can raise a lot of money. As you said, I think it comes with a very systematic and disciplined way in which you build connections. And it doesn't happen overnight. So the hard things of being a founder is, how do you build friendships? Like, don't call them connections, because sometimes connections are transactional. You want to build a community. You want to build true friendships. People want to work with you not because of the idea, because of who you are, right? So that's also one more layer, I believe, in as a founder, is you need to attract people with the vision, why you're building it. You know, the Simon Sinek, the power of Y, the Golden Circles, right? So if people like the Y, then you can attract really great talent, really great people to be your advisors. But you have to go out there shamelessly, talk to people, ask them for help. A lot of people don't ask for help, right? If you don't ask for help, nobody's going to do anything. You said people may have like great logos, right? MIT, Harvard, Stanford. And sometimes it helps because you can ask help, people are around, right? If people don't have those connections, then you got to really do the hard things. It's basically like LinkedIn outreach. You got to be not taking help of others, but maybe use your friends. Say, "Hey, can you introduce me to this guy?" And that's how you build your critical mass of the right people. You may not use every person in some way, but then it's important to maintain these connections because that's how you get lucky. The serendipity that you mentioned, you get serendipitous because you have knocked the right doors, you have used the right warm introductions from your friends that really can vouch for you. Because if you don't have these people that vouch for you, then you're looking at probably an infinite amount of time, right, that you get lucky. You want to get lucky quickly, then you need to have a recipe on how you know the right doors. You know that these are the right fit for my company, and these are the right kind of people for different roles. As a founder, I think that should be your superpower. The superpower is to know who exactly is needed in the team to really make this work, and that itself is a superpower of a good CEO.
I actually want to go a little deeper of what the heck a networking means and explain a little bit of what health is doing with network analysis, but I don't want to touch a point here. So, you know, I also teach entrepreneurship at University of Texas in San Antonio. And I probably will get fired for doing this analogy because my students are asking the same thing, you know.
Yeah.
And I said that when you look at investor, it's almost like dating. There's many ways you can score. You can buy someone a drink in a bar. You can go to Tinder. You can go to Bumble. You can meet them in class, right? But ultimately, what is really your objective? Is it scoring your objective? Like in the knowledge of investor is just getting the capital. How many of us know that if you have a one-night stand, and next day you may regret having that one-night stand, right? Like you go to a bar, you're kind of drunk, you're that person, everything seems to work, and the next day you're like, "Oh my god, I don't think I should have done that." And the opposite's the same. If you go to a date and you tell that person, "You're going to be the future partner of my life. I love you. You don't understand this." On on date number one, that other person's going to feel uncomfortable. Even if you're both the right, and if you come out that aggressive, then it's probably not going to work out. Like if you tell your future wife, "She's going to be the mother of your kids," on date one, she's like, "Even though I want kids, I don't really sure about this." Cuz you know, like, it, we are humans, and our self-defense is going to jump in. And it doesn't matter how great the future could look like, but now I just don't feel comfortable. And so that art of how do you hunt for investors, Arch, how do you build relationships? When is the right time to do the ask, right? You're in Silicon Valley, and that's where you are. I, I tend to not like the way the approach of like, "Go to Y Combinator. It's going to have a demo day, and you're all investors are going to be there, and you're going to pitch, and you're going to get like your first cap." So that may work for Silicon Valley, and it's slowly like dying as well, right?
Yeah.
So, that being said, yeah, go for it.
Yeah. Let me give me a point here. Given that you gave this great analogy of dating and basically scoring in a bar, just to extend the same analogy, right? So Silicon Valley is like this place where VCs judge founders. I mean, you got to be the hot girl in the bar. Everybody wants to talk to good girls, right? So a startup is typically like a hot girl. How does a startup actually get that status of a hot girl is the question? Now, it's the founder's magic, right? I mean, this is where founders, their personal branding, who they know, how are they vouching for this founder. A lot of networking is all about like, "Hey, go to Alberto, right? You can get this done really fast. If you want to design a healthcare plan, go to this guy. If you want to build a great AI product, go to Cash." So, basically, you get referrals, and you get a brand that really resonates with VCs. And VCs look at who's the most talked founder in the town. What are the number of referrals, and how many people are vouching for them, right? If I'm a VC, I just go ask my couple of friends and couple of my founders' friends. Sometimes you go to your founders' friends and you say, "Hey, have you heard of the startup? Do you know this founder?" Those are the first level of things. And that's the importance of actually building connections not just with VCs, but fellow founders as well. Because if you are a founder in healthcare, trust me, the first signal that VCs look at is how many other healthcare founders know this guy, right? And if you have invested in that healthcare fund, I mean, this is a conversation I had just yesterday with one of my VC friends here in the Silicon Valley, and he kind of is very much biased towards this thing that he literally audits a founder's credibility by talking to other founders. That's how it starts. And that's how I think the most critical aspect of fundraising is not actually fundraising, but actually building friendships with other fellow founders. So, yeah.
That's amazing. Let's keep digging deep because I think this is a topic where everyone is trying to figure out, right? So, one of the things that we do here at Raise Health is help you do networking out. Like, if you could explain to people, and I think you're halfway there in the sense that you're explaining about networking out our founders, but what is this concept? Just so people have a little more clarity of what is that we're trying to do and how we can actually help them.
I think when I was a founder, I mean, I'm still am. So, you know, how do I really look at my people network, right? You need to start looking who are you really connected to? At the first level of your personal network audit, is I'm Cash, so I'm connected to say 300 people in a particular area. Now, I may not really be relevant for all those 300 people, right? So you got to really know who are the top 20, 30, 40 people that you can immediately make some friendship with. And then you start like building content, you start building your strategy to start connecting with them. And it's not just enough to just send a cold request on LinkedIn, which is of course a nice-to-do thing. But then it's always good if you can reach out to someone who's a mutual connection and say, "Can you please introduce me to that guy?" And it cannot be done once in a blue moon, but it has to be done religiously. And this is where the difference between founders who are really great in doing this founder-led growth, founder sales, and founder growth, and all of these aspects of go-to-market, because a lot of fundraising is almost go-to-market, right? You're you're doing go-to-market strategy as part of your fundraising, because fundraising is also a GTM strategy, right? You need money because you need to go to market. And people think of GTM as sales. I disagree. I mean, you need to look at GTM much broader. And your strategy to go back to networking, GTM is all about networking. Fundraising is all about networking. I mean, they have a huge role. They have like probably a significant role before you audit the company, you go to due diligence of the data rooms and all of that. Before that, you need to have a credibility in the market. How do you build that credibility? So it's a daily activity, right? I mean, I typically, we look at my network audit, like who's there, start writing emails, start introducing what I'm doing to see if there is some synergy with their company. I know, maybe even if it's 10% chance of synergy, I still reach out because it's friendship because that founder can introduce me to one of the other investors that he knows. So a lot of my founder friends actually are so good because it's a community. We are not expecting anything in return. We just kind of in good faith send a deck and say, "Hey, this is what we're doing, and can you just keep me in mind in case you find something." That's one way of doing it. A better way of doing it, which is more Silicon Valley, is like, "Hey, I saw that you know this guy from XYZ Ventures, and is it possible you introduce?" This is my blur, making it easy for him. This is three-line or two-line kind of message of what we do. If you're interested, I will send a deck. So these are, I think, styles of communication that founders probably need to do to be successful. And if you can do it in a very religious way on a daily basis, it's almost like your chief of staff trying to actually help you to actually do this on a very structured way with 20 to 30 people a week, then you have almost created like a big community of people that know you, that could become your friends, and that could potentially become your partners in the future.
This is amazing. I, I feel like it's just a lot of work.
Sure, it is. So, it's almost like having an agent or some role. I mean, talking of the agents, think of it like someone who's doing it on your behalf. How nice would that be? It's almost like a full-time role. Fundraising is itself a full-time role, and networking is probably a critical part of that full-time role. I, I remember that's where I learned about the American expression, "burn the midnight oil."
Yeah.
It's like, you have those meetings every day during work hours, and at night, like at dinner, you have to go find lists. You got to figure out who's in, who's doing what. And and that is where I started crying because I mean, the calls and meeting people and talking to people, you know, sometimes that can be like energizing, and then sometimes it's hard. But regardless, there's something happening, right? Like when you're by yourself, you're literally asking like, "Why am I doing this?" You're clicking at one website, looking at, you know, what are the investors looking for? What is their investment size? Are they currently investing? You got to find news. Is it a zombie fund? And so I think that's why for the audience, that's why we created Raise, right? Like, in the end of the day, we're sort of like the ground, and the CEOs are the pilot, right? We're not doing fundraising for them, but we're making sure that that process of understanding which investors they should target. Uh, how do they build that personal brand by connecting with other CEOs, right? And sometimes CEOs will get to me and say, "But that feels like fake where I go to another CEO to ask for them to introduce." I'm like, it's almost like you're in a restaurant. The waiter comes, and the waiter knows you want to eat. But regardless, they have to do a good service, otherwise, you won't dine in there. So that's what investors are. Investors are looking for a good deal. And and there's nothing wrong of going there and say, "Hey, I'm looking to offer you a deal." But as you're connecting with other CEOs, it's the same thing. It's like you're saying, "Hey, I'm doing this."
Yeah.
And I saw that you were invested by this one. I'm actually trying to understand if I'm a good fit. Do you have, you know, 10 minutes to connect with me and give me some pointers to see if that be a good fit or not? Because the other CEO is also in your shoes before. They know that this is a goodwill chain type of thing, right? And if they really like you, they feel like you're legit, they will go out of their way and introduce you. That's how we are. So in the end, that's why we chose to do this, is to help that founder make sure they're not burning that midnight oil and make sure that all details of like, are they investment ready? You know, can they find the time of the investor who they should be networking with? If they want something more, Cash, do you have any final comments where people should come and find you if they're interested in fundraising with Raise Health?
Yeah, they can find us on Raise Health and TPH Ventures, which is a venture studio, which there's also one of the offerings is like fundraising help, right? So I think that's the best place to find. Just a website, raisehealth.co, co, and tphventures.com. So learn more about some of our other offerings as well, in terms of rural health as a fund that we have a small seed fund to help some of the other founders at capital as well, apart from fundraising. But I think to address the point before, I think why we started this on a larger scheme is, I think most founders, the midnight oil part is true. We did that several times. Almost like most founders are burnt, right? A lot of reasons why they're burnt is because I think they do too many things. And as a founder, they're expected to do too many things. But that's where you need a catalyst. You need some help. And a lot of founders fail. Startups fail not because they are doing anything wrong, but they're not able to actually do some of the right things. And most of those things are somehow connected to networking. Somehow being able to build the right connections, right friendships with right people. That's the majority of it. And then all of the other administrative work on documentation to keep everything solid, your data rooms, and all of that. So I think that's precisely why Raise Health exists. And there are startups that are already seeing some value of it and happy to work with more of them with you, Alberto, and also help them not just with fundraising, but D said, we look at fundraising as a GTM strategy. And with your kind of background as well, so in care design, you know, to business model design for other segments, because I think fundraising is a part of it. But again, once you raise money, you have to use the money, you have to show results, you have to actually go to market, you have to make money. That's why people are investing money, right? So look at this like a GTM strategy, and fundraising is a part of the GTM strategy.
Fantastic. I think if people are interested in knowing more, we'll probably have more episodes. And then our next topic, we should be about TPH.
Absolutely. Yeah. Happy. I think this fence.
Yes. We'll leave you guys here and we'll see you next time. And thank you very much, Cash.
Thanks. Thanks, Alberto.