So you want to be a VC. Well, it's a game not everyone can play - sorry. Because VC is more an art than a science. I have been saying this for a decade now. VC cannot be taught - it just comes to you if you have the right philosophy and business acumen. So the question is how do you feel it, who typically feels it and when do you feel it. Here's my list of top 10 qualifiers on why you should consider a profession in venture capital. Some of these might be harsh but such is reality.- You are a Former Entrepreneur: with a successful raise and exit and have pitched to most people on Winter St in Waltham, MA or Sandhill Road in CA. You know and understand the rules of engagement and what floats the VC boat. Yuo are either too tired or too rich or are looking for your next challenge but don't know the path yet. But you know you belong in innovating ideas and building successful companies. You have had more than 1 start-up before the age of 30.
- You have a passion for innovation: and have an uncanny ability to filter dead weed from the super-stars. Business is in your DNA and you have subject matter expertise, experience and the network to back you up. You like ideas, especially disruptive ones and executing on them. You create something out of nothing all the time. Above all, you are a born leader and an evangelist with a vision.
- You have an MBA from an Ivy league: Private Equity and entrepreneurship is sold to you the day you get into HBS, Sloan, Yale, Stanford, etc. These universities train next generation leaders. They don't expect you to get into a job and die there. They expect you to change the world, make a difference or at least try. There is enough buzz on campus about the VC world that you are likely to engage yourself with this domain one way or another. Sorry but till date, most non-ivy leagers have done a not so good job with this space (Babson College being an exception).
- You are/were a CEO/CFO/CIO of a Fortune 500 Company: but are now tired of the corporate rut, want to actually bring some of your ideas to life and want to see them get to market. You also had a fat pay-check all these years and would like to continue with the same (or higher levels of compensation). You have several successes under your belt and you know most key private equity folks in the industry because your wife bakes cookies with the VC's wife or you play golf with them. You have also had several M&A deals with the VC's in the past.
- You are brilliant in the work that you have done in the past as a scientist or a physician: and want to see some of your work in the industry take life. You are also one of those few people who understand business outside of a lab and are able to interpret profitable sustainable models from crappy ones.
- Your father is/was a senator or a prominent angel investor: and you've been groomed to be in this space since you were a kid. You know the VC's, their family and played with their children in an overpriced private school in Massachusetts. You are 5th generation lineage and your great-great-grandfather ran the Port of Manchester, NH. You are in your Sophomore year and get a call from your father's squash buddy to "drop by" your fathers friend's office and "check out what they do".
- You have a lot of money: and the right connections, knowledge of the space and like the start-up scene. You don't want to retire and have yet a lot to contribute to business. You also hate commercial (rather don't know "how it all works") and prefer sticking to Netjets or equivalent. Aunt Hilda the widow living on the Cape also has a lot of money but she sticks to martinis and all inclusive cruises than head up to Waltham.
- You are/were an iBanker or a Hedge Fund Manager: and know your numbers. You are clueless about real business but will learn while on the job. You know how to get deals done at obscene valuations and you know the right people for the job. You have been in the exit play all your life.
- You worked in a start-up: that is currently in the top 25 deals in the country and were one of their first 10 employees. You helped conceptualized many key products that we see with the start-up. You built their brand, helped raised capital in several millions and also swept the office floor. You have a sizable equity stake in that start-up and plan to exercise your options and be on the other side of the table.
- You want to change the world: No matter who you are, what you are, whether you have done anything yet or not - there is always a start. You want to defy the odds in business and life and are willing to work as hard as it takes to make a difference. You are extremely passionate when you speak, you are articulate, when you talk - people listen, you have deep knowledge about some of your ideas and you know your market. You are Type A - aggressive, assertive and very professional. You are sophisticated in your approach and can feed VC's what they want. You have a network deck unlike any other.
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At times I meet people who talk at length about something that looks and feels like this Windows error message. Why do people, especially in business - where life is supposed to be structured - talk like they landed from Mars? Today was a frustrating day. It seemed like anyone and everyone talking to me was speaking an alien language. I had to literally decipher through their gibberish speech to make sense of what they were even thinking.
I thought about this a little bit and realized that most people talk like that. E.g. in the professional world, if you ask someone casually about their projects, you either get inane replies like " . . working on some data stuff" or "I am busy tying loose ends with the network" or "strategic planning" or how about "I am gauging risk modalities on execution parameters for a value add process". I myself am guilty of such communication.This is also true in our personal lives. "How are you doing? - Oh you know . . . . " or "Hey how's the week-end looking? - tied up", "That's a nice pair of shoes you have on - really?, "What's the mileage on your car? - Its up and down but I sometimes average xx miles per gallon" . . . . . . think about these for a few mins.
You also see communication in print media, television media, applications we use, etc where you are left scratching your head. I conducted a crude little experiment based on my generalization and went around asking people various straight forward questions - 10 people in all. People whom I know well. The result: except one person, I could not really understand the rest. Questions were simple: "How was lunch, What's up for this evening, How are your kids, etc". It maybe that they are deliberately vague - but hard to believe that for 9 out of 10.
So what's the point of telling you this? For starters, add a functional context to what you speak out loud. In the error message above (1st image), you have functions but no context. Meaning, you are given actionable choices but you have no idea how to proceed because you don't understand why you are getting the error message.
E.g. If I ask you why you think your market is $X Billion for self-injectibles, don't give me an answer like " . . . because its a huge opportunity and all the big pharmas want to get into this space" or " according to Forrester/Gartner or some random industry report, this space is about to explode". This is meaningless for me or anyone trying to make sense off of a number. I want to know different delivery methods for medications and why injectibles are better in comparison, I want to know how many injectible meds are in 510(k) / FDA approval process to becoming non-injectibles (like inhalers, pills, transdermal patches), I want to know the rate of new drugs being developed that can only be served as injectibles and their target market, I want to know number of disease states that have established an increasing rate of prevalence in the age range where people can self-inject without any alternatives, I want to know the cost of alternative meds to your proposal in this era of increasing costs, etc. Presenting data is trivial, interpreting data is difficult, adjudicating data sources even more difficult and putting data in perspective of your question/answer - rare! So I have functions: [a] Write a check, [b] throw you out, [c] refer you you to a fellow VC but I have no idea what I should choose because I am left scratching my head.
Context also means applying science behind what you say. If you present a fact or an analogy, derive that answer, tell a story! Make your arguments dynamic. I want to be engaged in what you say. Make me ask you an intelligent question - not "What does that mean Mr Entrepreneur?". I want to ask "How many product lines does your invention allow me to diversify?". This could also relate to casual conversations. Instead of just replying meaningless waste, include a context. E.g. What're you doing this week-end? - Will be home resting for the week ahead (or something like that) instead of "Nothing . . will be around getting some stuff done". That is a meaningless statement in my opinion.
Assess interest! Most people ask you questions in a social setting to be friendly or out of courtesy. "Hello, how're you doing" does not usually mean you need to talk to person about your aching back or your mother. No one cares! But its common. If it's a mere pass by in a hallway, just say "Fine or Good". Don't tell me you are "Fantastic, wonderful, awesome, Jesus" or any of those exaggerated adjectives or stories about your traffic woes. You will be surprised how often I get such replies when in fact I don't care! Find a friend if you want to vent or be praised.
Create interest. Communication is all about engaging - which means we go back and forth with questions and answers occasionally agreeing with each other. Now kick it up a notch and make your communication richer. "Why did you think up of this idea as your business?" Most common answer to this question is "Level of opportunity, I saw a gap, unmet need, etc". While all that might be true, by the millionth time - those words hold no meaning for me. Instead ask me "How often have you tried to remind your ailing mother to take her meds?" or "Have you ever wondered if your cell phone could be used to control your TV or your heating system?" or "What's the 1st thing you do when you go to your doctors office?" . . . and so on. Essentially, you are making me answer my own questions and/or including me in your plan that makes me want to know more.
Finally, ask to share. If someone tells you they don't understand you or they don't care about an opinion or that your idea is useless in the real-world - ask them about their science behind the answers. Even casually, if someone retorts "Hey I had an awful time skiing in Vermont yesterday" - ask them why instead of just saying "Sorry I feel bad" - chances are you don't care. By asking someone why they feel a certain way - often answers the question that is lacking. Maybe he stayed at the wrong hotel and you have a better recommendation, maybe his skis were not appropriate for the kind of snow and you know more about it, maybe he paid too much and you have an alternative option or a discount code, maybe he went during the wrong time of the season and you can advice him on a better time frame. By "giving" someone a chance - you essentially allowed the other person to open up. Sounds like common sense - but again - ask yourself how often do people think and talk like this?
This may be way too over analyzing a simple topic but I think it's important to be aware of what you say, how you say it, when you say it and for what. You want to be seen as a resource, a friend, an ally, etc the next time. You don't want to be seen as opinionated, incompassionate, random next door guy, etc. Or maybe you do! ;)
Once upon a time, there was an immigrant living in Massachusetts. He had big dreams. He was brought up in India and grew up in a place where money was valued and people lived within their means. There were no credit cards, loans or mortgages that he knew of. People bought stuff and cherished it for many years. People fixed things. This immigrant came to America, the land of plenty. He understood the people, the culture and the attitudes. While in college, he often wondered how a 20 year old drove Lexus's and Mercedes not bought by their parents, neither did these kids have any jobs. He wondered how 16 year olds had credit cards under their name with limits up to $10,0000. He also wondered why was it necessary to own 40 pairs of shoes, 10 pairs of jeans and a 'walk-in' closet. A concept foreign to this poor immigrant.
Years went by, confusion still reigning on him about the standard of living vs. incomes compared to everywhere else in the world. He often questioned his near and loved ones, who were Americans, as to what was he doing wrong. It always seemed like the other guy had a better car, better house and a bigger TV, no matter how hard the immigrant worked. He could never justify such spending. He also wondered that most of these people made far less than him. He once asked a 'bagger' from a local store as to what car he owned - "a Hummer of course" - the bagger replied as if this immigrant was foolish to even ask him or assume anything less. This bagger must have been no older than 21. Baggers made minimum wage!
Few more years went by, and all his fellow immigrant friends bought into the American dream of owning monstrous cars, big houses and a plush 'Bloomingdales' lifestyle - while he continued to save. Ads like 'No credit, bad credit, no money down - sign and leave . . . . " used to make him feel really dazed in amazement.
One day, he woke up, only to find himself listening to the housing 'crises' and the credit crunch and big banks going under and companies announcing lay-offs and financial scams. "Viola . . " he exclaimed! "Here we go. I have my answer".
Few months went by and things started to go really awry around Christmas of 2008. " . . people have stopped buying" the media said bullishly. Did that mean people were roaming around without clothes or shoes . . . no! It purely meant people are not going to buy 5 cashmere sweaters this year and that 6th scarf they don't need. Neither are they hoaring plastic junk to fill their over sized house.
This immigrant needed a car - a much needed purchase he hadn't made since his college days. His confusion was clarified even more. The car dealer dropped $6000 in the first 3 mins of the conversation. What do you know - the dealer even verified where the immigrant worked and checked his credit history. The car dealer was more than pleased that he sold a car that day.
The immigrant collected credit card offers since many years. He went home and saw that companies like Chase, Citibank, BoA & others had offered him over $4 Million in credit over the past many years, without verifying his income or otherwise. They had after all "pre-qualified" him! He looked at those ads and was thankful that he had only saved them to make a 'shredding project' for his son. The immigrant used to get at least 1 offer every 2-4 days.
The story has only begun . . . . . and will continue to get interesting as weeks, months & years go by. Tune in every now and then . . . you never know what the next sequel of "Adventures in Credit - An Immigrants Tale" might bring.
Meanwhile, the immigrant is trying to find jobs for people who used to give away money to others by the millions and helping friends get rid of crap they bought at stores like Sharper Image, Circuit City & Brookstone.
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A lot of these parameters have changed, are changing and will change in the near future. It's good to look back at the golden years of VC's:
- You drive a $80,000 4th car
- You haven't travelled economy (or commercial) since you left college
- Your office as a $4,000 expresso machine and food imported from different countries and is available to the entire staff for free
- You golf because you "have to" but only with people who have high net worth. You stop playing with them if they are no longer considered high net worth.
- Your kids all go to private school
- You are in 3 different states in 24 hours
- You use terms like 'leverage', 'monitization', 'revenue path', 'term sheet', 'valuation' and 'exit' at least dozen times a day
- You are considered obnoxious, brutally direct and an egoistic elitist by all - until they need your money.
- You work 90 gazillion hours a day
- You plan to retire in 10 years (at whatever stage you are at right now). You get the point! ;)
- You know CEO's of most major Fortune 500 companies and some of them are your high-school or college buddies
- You only hire people from Ivy league or former successful entrepreneurs
- You live in Massachusetts or California
- You invest in the person with the idea than the idea itself, however good
- You are surrounded by lawyers
- The only reading you do is business plans
- You plan company outings to Italy or France.
- Your bonus is bigger than most CEO salaries
- Your 'plan' in life is to sail the world, own a country club, fly a jet, travel in space or own an Italian sports car(s).
- You think everything in life needs a spread-sheet and a 'bell curve'
- You think a $100 Million fund is small
- You think your next fund should be at least $1 Billion
- You are looking for a job! :))
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10 years in Massachusetts does this to you . . . . :)
- 30 degree F (-1 Degree centigrade) is 'balmy', 50 degrees is warm, 80 degrees and above is 'dangerously hot'
- 6" of snowfall in a few hours no big deal, rather a mere 'dusting'
- 90 min commute for a 20 mile stretch is your average day
- Cutting lanes, changing lanes and taking exists at 80 miles w/o your indicator light is normal
- You get out of the house 20 mins before your commute to 'de-ice' your car
- You don't pronounce your 'R's
- You name your kids and/or pets after Red Sox, Patriots, Celtics or Bruins players.
- You dress old school and believe that it is because of you that America came about. In fact you expect others to be thankful to you.
- You know that the interstate highway (I-95) cuts itself and 2 other national & State highways (I-93 & 128) and actually understand your way around
- You don't need street names to navigate your way around (cuz there are no street names. Ask Google. They're still having a tough time directing you :)
- Most all cars have dents
- You believe pedestrians have no rights and should not exist on the road
- Everyone going slower than you is an idiot and everyone going faster than is a moron and it is OK to shout and scream profanities at any hour. In fact, anywhere else in the country - you would definately be arrested.
- Going 90 miles/Hr (150 Kms/Hr) during rush hour for 200 meters is normal
- You pay half a million dollars for a 40 yr old house without a yard 50 miles out west and drive 2+ hours in town and call it a bargain.
- You know what the 'Green Monster' is
- Paying $30 for parking for a couple of hours is a deal
- You get on the local train (the 'T') to find that the person sitting left to you is a genetic scientist, the one sitting right to you is a CEO of a Fortune 500 company, the one standing is a VC, and the one behind you is has a double PhD in Molecular Engineering & Biochem. And you are an entrepreneur about to change the world.
- You hate tourists, especially people with cars from Maine, Vermont & New Hampshire.
- You know where North End is and can actually find it.
- You know at least 1 person from your circle who went to Harvard or MIT
- You love driving around rotaries
- You feel everyone else around the entire country has lower IQ than you
- You have Roman numerals after your name
- You never leave Massachusetts
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For those trying to change careers or looking for new jobs/careers or entering schools, here are some areas, I believe, will have the biggest growth potential for jobs in the next 5-10 years. Please don't kid yourself and think that the place you enter will be the same domain you will be working with 10 years from now. The rate of change in skills is faster and the cycle time to improve / change sills shorter.- Network Engineer: So the folks who thought networking was dead need to think again. Key word here is 'convergence'. Everybody talked about it 10 years ago and finally we have managed to show meaning behind this jargon. Every consumer electronic item, automobiles and kids toys are connected. Media gets richer, cross-compatibility between devices gets more and more pervasive, supported platforms get wider, bandwidth needs get bigger, need for performance gets push and security cannot be ignored.
- Storage: Face it, humans like to hoard! We save everything. It makes us feel secure. Our ability to generate content gets easier and richer. Buying a 10 MP camera under $200 is no big deal anymore as is buying Full HD hard drive based tiny hand held cameras. Amount of music being sold w/o DRM is getting commonplace with Apple's recent announcement. Many may argue about cloud computing or SoA driving content push to devices but somewhere somehow this needs to be stored, managed and delivered. And let's not forget Life Sciences. Do you know the amount of data generated from just 1 DNA strand or a Head CT Scan?
- IT Project Managers: If you can code, talk business & finance, manage people and get things done politically - you're the man! Problem is, people who write code don't understand balance-sheets or manage budgets and people who manage people can't code . . . and so on. It's a tough find. You will be paid top dollars if you have these skills. Also think about all the initiatives in place today - especially with the Government, Healthcare ($75 Billion proposed for EMR implementations in the US by Obama), Transport, etc . . . think outside your traditional indusry of finance, media, tech, etc. This is traditionally a 1st step towards a CIO.
- Primary Care: Have you tired to get an appt. with your doc recently? Access to care, quality of care and ability to receive pro-active care are major issues in care delivery for US. If you want a guaranteed job that pays above $120k annually, suck it up and go to med school. You will save the world, make people happy and have a job. Period!
- Nurses & PA (Physician Assistants): Need for medical care is ever expanding. Look around you and tell me the ratio of older folks vs. younger folks. The baby boomers are coming guys! They will be sicker and will demand attention than your grandfather. They WILL ask you to give them their meds and follow-up over the Internet with their nurse.
- Defense: We need our army more than ever right now. West Point requires you to give at least 5 years of service after you graduate. The % of active enlistees from west point has gone down over 50% in the past few years. This is not just the army, navy & air-force. I am talking about counter terrorism (think Jack Bauer from 24), intelligence gathering and everything in between. FBI's recent announcement to hire 2000 personal was just the start. If you are in this sector, you will again - save the world (or try and make it a better place) and serve your country and have a job for life.
- Car Tech: I opened the hood of my new car of 2 weeks - it looked like a HP Proaliant rack-server to me, not a car. I spoke to a friend I went to grad school with who works at the Toyota plant in Japan and another friend working with Hyundai Motors in Korea. Their current models pack less than 5% computer equipment. 2010 and beyond release plans engage over 30% of the car managed by computers, on-board and in-engine. This information can't be more fresh! If you are a car mechanic, you are easily looking at pulling $80 - $120k a year.
- Environmental Tech: Global warming or not, we have seen more natural disasters with greater severity in the past 5 years than we had in the past 2 decades. There's got to be some God damned reason for it. Extreme weather conditions will continue and we need people who can prevent loss of life, property & create an ability for early warning systems. Problem is - we have very few of these folks. So can someone please go to school for this. I hate when the Boston Globe misdirects me with their weather forecast and I land up spending 4 hours on the road. Look at incidents in Indonesia, Japan, China, etc in the past 24 months. You will see what I mean.
- Genetic Counselors: I can get my DNA mapped for $399. Problem is, my doc can't interpret the results neither do I know what to do with it. The report states you could be at 40% risk for diabetes by age 50. Well - so what can I do . . . . that's where a Genetic Counselor comes in. These folks will be in demand as much as nurses or PA's in the coming years.
- Entrepreneur: I will always state this - if you can work for yourself, do it. There's always money if you know where to look for it. And sometimes you don't need a heck of a lot of it to execute your idea. Entrepreneurship will never die because our spirit to face odds will never die.
I am sure there are others in this list but I wanted to communicate my top 10. Notice I deliberately skipped finance! That's a separate conversation and maybe I will address it someday when I am feeling generous. Till then, get to work.
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2009 Toyota Corolla LE Review
I love consistency and reliability, given I drive in one of the most challanging weather and road conditions in North America. Months of below freezing weather, heavy snowfall, freezing rain, blizzard conditions, slush, ice storms, black ice, greim and salt, monstrous traffic jams and some jaw breaking pot holes are a part of everyday life. I can't be fooling around with an arm candy (like you folks down in Florida).
I also like style, power and uniqueness in an automobile, given I grew up with a German car and never knew any better as a kid. But as it is in college, money did not come easy and I needed a vehicle and decided to get a 'cheap Japanese car'. But I soon learnt to appreciate that this car had a lot more behind it than it initially seemed given I moved my entire apartment from Boston to Miami and back and put over 140,000 miles in 9 years. And the fact that I am a Bostonian of 10+ years who learnt to drive in Bombay. People with this mix rival rally drivers and I am often referred to as 'spirited'. But the car finally gave way with some major repairs on the horizon. Woefully thinking I could have treated my car better, I was forced to be in the market for a new one.
It was given, that I would go back to my roots to be German in my choice of a car. But people change, priorities change and I made a decision to go Toyota yet once again. I also felt responsible and good about myself that I would be doing justice to the environment in my little lame way. The '09 Corolla brags 40 miles a gallon on the highway and they were not kidding! It has been 72 hours and I have been closely watching that AVG counter consistently giving me around 39 miles a gallon. I do plan to do some analysis on a spreadsheet at the end of the quarter.
The car is SIGNIFICANTLY quieter compared to previous models. The engine is super smooth and you cannot hear it on low speeds (<45>
Audio options are decent, nothing exciting! You have your standard equipment with 
MP3/WMA/MPEG4 playback capability with a AUX port for MP3 players. The sound volume can adjust according to ambient noise so you are not constantly moving the volume up or down - which is a welcome change. There is an obnoxiously expensive option for XM with Navigation which in my opinion, makes very little financial sense ($600 for an XM receiver + $15/Month for XM + $4000 for factory installed navigation). Let's all just wait for internet radio to come to cars (which it already has in Europe) and I can buy a Garmin for $100 so there. There is no Bluetooth option in the LE model and those who have it told me it sucked.
Electronics have nothing introduced new since 2000. I was disappointed that the driver seat is still manually controls. All other Toyota LE class models have power seat adjustments. The only 'cool' factor was that the side mirrors are heated. The dashboard is below average. I was expecting more out of it. I don't see a point of an RPM clock. It does not do anything for a car like Corolla so why display information that is meaningless to performance or driving patterns. Some driving stats are displayed in a monochrome LCD (not eaasily visible in the sun). The clock is embedded in the dashboard so other than the driver, no one else can see the time.
The drive is tight. Feels like a Civic Sport in some ways. I took exists off the highway with sharp angles at 60 Miles/Hr effortlessley curving the yellow line with only one hand on the steering wheel, without feeling unsafe. The car also feels heavy at slower speeds - given Toyota has added an extra 150 lbs or so to the chasis. It has improved suspension which is not sporty if thats what you're looking for. It absorbs some pot holes better and the ride is smoother even on uneven roads but that's it. This car came with front and rear chasis strut bars which holds the body of the car really well.
There is no acceleration - period! It drives flat. You have to sloooooooooooowly incease the speeds. I did not expect much at 130 hp. It has the exact same engine capacity as its 2000 model. I do plan to drop a K&N air filter, and performance oil filters and spark plugs to start with which might make a small yet marked improvement in the torque.
Interiors are roomy. Especially the back seat. It can comfortably accomodate 3 average sized American adults. But the driver side seat has some annoyances. Like the sun visor, which is so small and useless, it has been bugging the hell out of me. I honestly don't see a point to that feature. It was an annoying feature 10 years ago and it has become worse. I cannot rest my left arm on the door handle panel while driving as this panel is at 
a 45 degree angle, slanting downwards. VERY frustrating! I used to hold the steering wheel in the 'bottom-middle' part of the wheel surface. But that's no longer possible as the middle surface is now covered. I am sure this is a personal preference but still!
Trunk space is better in the '09 model. But I promise I don't plan to move my entire house half way accross the country! The rear seats fold in well to accomodate additional storage space.
Finally, I realized today that the Corolla is a high car. I also learnt that this was the 'New England' model to accomodate for the white stuff we drive over 5-6 months a year. The '09 model is higher than even the new Camry and the Ford. I could see my car stick out amongst most cars parked in the office lot.
Overall, a marked improvement in noise reduction, smoothness, safety (it has 6 air bags) and tightness in ride. Everything else is noise and nothing to talk about. It is a solid, reliable car with almost no maintainence needed other than oil change and your scheduled maintainence. I used Penzoil Full Synthetic in my previous Corolla and changed oil every 10k miles. The car also runs smoother and better acceleration with full synthetic.
Everyone can build a performance car and charge you 50 gazillion dollars for owning and maintainig it. Few can make a car that runs endlessly for thousands of miles. The mantra for the coming decade is 'doing more with less'.
I would recomend buying this car for anyone. It's not the acquisition costs that matter, its the cost of ownership. Imagine having to invest in a data center and just having it run on its own for 10 years. Imagine investing in a company just once without much follow-ons and that company gives you a return year after year for a decade or more. That's what I am talking about!
2009 Venture Capital Outlook
So it's that time of the year where we put on a cloak and sound like we know what we are doing. I am not trying to predict anything neither am I giving any pixie-dust suggestions to people. These are some views I think will get established in 2009 and is my personal viewpoint.- Early State Funding Gets Harder: Does not matter what industry you are in, funding your start-up will get tougher. Majority of deals in this stage are funded by angels, grants and from personal sources. But as we all already know, portfolios have been hurt bad and angels are not going to shell out that $100,000 - that easily and that fast. There is still money available, but only for solid business plans lead by experinced teams with a clear path to subsequent investment rounds on a realistic exit strategy. This might be good as well as bad for institutional folks as more deals get channeled towards them, the trick as always, will be to attract the right deals. Getting in early with any deal is a good thing for institutional folks as it gets cheaper for them to raise the bets and manage their fund's risk. This should continue into Q2 2010. Most Angel groups in the Boston are funding fewer deals compared to past years and independant angels I know plan to stay-put through the year. I don't know how direct I can get here.
- Institutional Folks Raise The Stakes: as leverage from banks and other traditional financial sources gets tougher to get. For an existing deal (i.e. someone you have already invested in), VC's are anticipating getting into more expensive and additional subsequent rounds than they had originally anticipated. For new deals, VC's want to know upfront how much money you will need, how soon and what you plan to do with it. They will expect you to run a lean organization and will expect faster rate of returns. Thus, your spending plan will need to be tighter than ever before as will your revenue model. They want better assurance on future valuations. Realistically, as mentioned in several of my posts before, it is impossible to assess correct valuations even 2 years ahead, let alone 3 and 5 year predictions on your EBTDA. But go with the game plan as these guys are the ones that will fund your idea - not your accountant or your lawyer or your mother.
- IP Commercialization Slows Down: Most VC's I know don't have time to 'create' companies now-a-days. They're too focused on existing investments making sure they don't go under. I am not going to spend 6 months making sense of an idea from a lab when I have millions tied into investments I should never have made in the first place. I either need to get out or sustain for the next 2 years to make a return. Face it - patents are useless. Unless it's the next Google. Problem is, I don't think any VC on Sand Hill Road identified Google as a good company to invest in when they were trying to raise money. :)
- Life Sciences Gets More Attention: Not saying this just because I am in life sciences. But look around you - healthcare in the US is a royal mess. In crises come opportunities! Delivering, sustaining and receiving healthcare is getting unaffordable on all angels. I know people with no health problems, making $250k a year as indepedant consultants, unable to afford health insurance for their family. Just 10 years ago, they were full covered. Access to care, medication adherence and management, health maintainence, concierge care, home care, self care and self reporting devices and tools (e.g. injectibles, monitoring devices, HealthPortals, etc) are all areas that need significant improvement. Forget nanotech, genetics, semantic web, and telemedicine for now. Let's get the basics right and focus on the infrastructure that we will need in the future, before things start getting ugly. I am not ignoring R&D, trials & epidemiology for new procedures, drugs and therapies; I am sure these will continue with Obama & Co's aggressive healthcare agenda and pharma's seeking new revenue lines. I am talking about business plans that will have short term operational impact and will allow us to execute care on a better playing field.
- Fund of Funds - A Dying Breed?: Questioning the rationale behind FoF here, even for bigger firms ($1B+). Caught between scandals and massive market volatility, newer funds may decide to reiterate their strategy and focus more on direct investments rather than trying to play the market or trust others on their direct investments (I am not giving my money to another venture fund - yes, this does happen). I am no expert in managing FoF structures for any fund, but I think this is a hedge strategy to mitigate return risks decided by firm and its investors. Besides, the Hedge Funds goons and non-traditional private equity funds are in a trouble of their own.
- Few Newer Funds and Shrinking 'Next' Funds: US is facing serious credit access and the amount of leverage corporations and individuals enjoyed in the past 5 years was by far the best we have seen. Unfortunately, good times are often short lived. I am anticipating far fewer newly created funds coming out in the market and existing institutional folks raising smaller funds as their next fund. I am sure there will be exceptions to this arguement but understand how VC funds are created and you will realize why I make this statement.
That's all I have so far in my bag of tricks! Some might agree with me while some might not. I want to talk to people who don't agree with me to understand why. And if you have additional time, click on the links to some key words highlighted to read contexual arguements crediting my analogies.
Happy New Year . . .
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Tom Watson, the Chairman of IBM from 1943 once quoted "I think there is a world market for maybe 5 computers". Similarly, in 1981 Bill Gates said "640kb ought to be enough for any computer".
Were Tom Watson or Bill Gates stupid or ignorant or just plan clueless? The answer is: none of the above.
I see similar predictions all the time. Heck! there are major corporations like Forrester and Gartner who make their living out of predicting stuff and whose papers, people like me buy for thousands of dollars. After all these years of contemplating what works and what does not, I researched predictions in a few areas going back to 2004 and analyzed what experts had to say about upcoming years. As suspected, every single one of these experts was wrong on more than 90% of they had to say 100% of the time. This includes corporations like PWC, Deloitte, McKinsey, E&Y, Microsoft, Google, etc. The truth is, no one has a clue. Not your money manager, no entrepreneur, not any research group neither your dry cleaner about that suspicious stain.
Predictions are made because people see trends and observe behavioral changes based on these trends and ride the happy train of 'business as usual' as far as it takes them. Ever so often there is a goof-up at various levels - say every 10 years or so (as our stupid brains take that long to realize things are going awry) - and markets get back to sane levels in 2-3 years (as we frantically try and fix these issues). This is hardly a perfect system and we are the US, with some of the most sophisticated risk management and predictive analysts tools built by world experts in math and statistics. Yet, there is no simulation model out there that can scientifically state what and where things are going to be in the near future. There is NO accurate insight for any industry - period!
I am not sure what the target audience for these predictions are. Nevertheless, now that I have put my personal views in perspective, let's see what PWC has to say:
"The coming year will be a watershed for healthcare in the United States," said David Chin, MD, PricewaterhouseCoopers' Health Research Institute Leader. I have no clue what this means. Watershed is an agricultural term and using it out of context confuses more than clarifies. But this is exactly how I hear executives from most Fortune 500 companies talk time and again. I guess these execs do not realize that simplicity is key to communication. Maybe that's not their agenda.
PWC Prediction # 1: The Economic Downturn Will Hit Healthcare: This states how drop in insurance enrollment because of high unemployment, cut backs in reimbursements, hospital budgets funded by investment incomes and lower valuations on pharma and device companies will affect access to cash and thus funding of capital projects. Holly crap . . . thanks for this insider PWC! I had no clue this was going to happen. Indeed very useful. Since when did stating facts become predictive knowledge?
PWC Prediction # 2: The Underinsured Will Surpass The Uninsured As Healthcare's Biggest Headache: Ahhh . . . this was just mentioned in # 1 above; cut backs in reimbursement = underinsured. This point states hospitals will pre-qualify patients (not sure for what - are we going to deny service?) and revenue life cycle management tools will become critical to a hospital's workflow. This just means improved billing, collection and service management. Unbelievable PWC! This was great. I bet none of the financial departments in any US hospitals or product companies in the space knew this was coming. Budgets are screwed up because there isn't enough time to respond and change processes, especially in larger institutions. It's rare that something this obvious is an oversight.
PWC Prediction # 3: Big Pharma Turns to M&A to Build The Drug Pipeline: Economic fact 101 - every time the economy churns, the industry vertical with the greatest leverage turns to M&A. Private Equity folks know this, biotech start-ups understand this, investment bankers & lawyers know this, and every pharma company employee awaits this. I don't want to get into reasons why M&A activity will increase for this vertical (as it is a whole different conversation) but PWC may have a different target audience in mind for this point than the category of people I mentioned.
PWC Prediction # 4: From Vaccines to Regulation, Prevention Is On The Rise: This point was stated in # 3 above by stating newer drugs coming in the market. This point further states public policy changes and access to nutritional information will be on the rise empowering greater number of people will relevant health information. My definition of prediction is 'Tell me something I don't know so I can take appropriate steps to mitigate my future' and this point does nothing to that effect. I would term this as an inference derived from series of logical progression in supporting industries. Will someone tell me how I can use this information? PWC Prediction # 5: Genetic Testing Reaching Price Point For The Masses: This topic is of great personal interest and my knowledge in this area may be better than people meant to read it. I see a few gaps. Ability to purchase a complete map of one's DNA is not a reality for 2009. Companies like 23AndMe give you some commonly found bio-markers and expose some generic predispositions to potential risk factors - that's it. Phenotypical to genotype mapping has not yet been achieved, which means we currently do not possess any ability to provide a complete medical intervention with high levels of accuracy. I can't put you on a drug or order a surgical procedure based on mere risk factors.
The statement "... marketing of these tests bypasses traditional clinicians, raising questions about how the information will affect diagnosis and treatment" is ludicrous in my opinion. Most people would interpret this as 'DNA tests will allow you - the patient - to make a choice of who you need to see and for what cause and treatment protocols will depend on your genetic make-up'. You're kidding me, right? Either the person authoring this prediction is underinformed or is really clueless about the industry. He probably picked this up from some marketing exec at a conference. Since when did we start making calls to Cardiologists directly? You think the insurance companies will allow that even if science did otherwise? Come on PWC . . . you can do better than this!
The talk about regulatory evolution is again - a known fact by most in the healthcare IT / Life Sciences industry. I did not have a 'Duh!' moment after I read this point and found these predictions baseless . . . . useless.
PWC Prediction # 6: The Internet and Social Networking Is A Powerful Health Extended: This is really insulting people's intelligence. It's like stating the new Blackberry ad "World's First Touchscreen Blackberry". Is anyone else making a Blackberry? Is Blackberry a noun now? Of course its the worlds first touchscreen Blackberry because you did not make it before neither does anyone else. Its like stating 'worlds first Hummer Hybrid'! This statement is as obvious as it gets.
PWC Prediction # 7: Hospitals Must Perform To Get Paid: I have worked on several pay-for-performance models across various provider organizations and all I have to say is - it never works. This point talks about improvements in processes and hospitals trying to avoid unreimbursed medical errors. In someways, this is controlled by billing which improves reimbursement management at the point-of-care - already talked about in # 2 above while bringing up revenue life-cycle.
Medicare's new Value Based Reporting (I read the damn 104 page report) is a better directive than what we have had in the past, yet our ability to report (data accessibility & reporting capability) on most of the things being discussed is difficult. There is no company I know of, with a compliance engine that can easily plug in these new Medicare rules with any outpatient/inpatient system. So while it is commendable that Medicare wants to do something meaningful, the docs don't have time or easy means of making the most of the new program. It's like buying a Ferrari and trying to drive it in Boston . . you get the point anyhow!
PWC Prediction # 8: Payers and Employees To Give Incentives For Wellness Programs: True, but this is an outcome resulting from a cash crunch. This is one of many no-brainer options employers look at to save cash. "Loose your weight and I will drop your premium by $20/Month" is a better way to incentivize than give out Dunkin Donuts gift certificates. But program enrollment has always been a tough call - a very tough call - even when you give our hundreds of dollars to your employees. I don't want my employer to know that I have issues. This point talks merely about enrollment and not about measuring the enrollment effectiveness. I want to see which employer with an active program has its members staying on board through the length of their tenure at the company, and that, the company actually saving money compared to a similarly sized firm. I think this is a hard measurement to do.
Also realize there there are no immediate benefits to such programs as people don't stop smoking in a day or improve their overall health in 1 pay-cycle.
PWC Prediction # 9: ICD-10 Will Require A Major Resource Investment: This is like saying "Implementing an EMR in a hospital will require a major resource investment". I don't think this report is aimed at a lay person as non-players in this industry will have no clue what ICD-10 stands for. Assuming this is geared towards healthcare professionals, I think any person engaged in any form of hospital system understands that ICD-10 is a far fetched idea, even for 2009 and will not see the light of the day for at least another 2 years.
We can't be thinking about new content when the old content either does not exist or exists with several gaps across disparate silo's. There is no doubt in my mind that the rate of adoption for ICD-10 will be much faster than ICD-9 (lessons learnt). In my opinion, this is no prediction, more like a fact that is being repeated over and over again.
This analysis comes by observation of commonalities between what is happening around me and what would be the most natural line of defense to stay afloat. I am no 30 year veteran in the industry. Predictions are good - it allows people to reassure themselves of a false sense of risk adherence to a pattern - as long as they feel safe enough to make a bet. Many times, predictions are made to actually change behavior. These are but mere hunches!
Now that I have severely undermined PWC's ability to predict trends in Healthcare, the natural question is what I think will be going on this year. I will let you know as soon as I have a clue . . . . :)
There is a fantastic article written by Nor Zahidi back in 2007 titled "The Art of Prediction" which I recommend reading.
Till 2010 then . . . . let's see what happens!
Labels: healthcare, medicare, prediction, pricewaterhouse coopers
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