The Money Meets Medicine Podcast

How to Get Into Venture Capitalism

Envision yourself in a high-stakes poker game, where every chip represents an innovative concept that could alter the course of lives. That’s venture capitalism for you – intense, strategic, and brimming with possibilities. My first foray into venture capitalism involved trading in pre-operative evaluations for investor calls. It felt like swapping out an old reliable car for a spaceship.

You see, stepping into this world from medicine isn’t just about money moves; it’s about unlocking doors to innovations that revolutionizes businesses of all kinds from health care to financial technology companies.

If you have ever thought about founding a company – whether healthcare related or not – this post will walk you through some of the lessons I learned while founding a venture capital backed start-up.

Table Of Contents:

Venturing into Venture Capitalism as a Physician

Venture capitalism is a bit like general surgery. It is high-paced and can be stressful.  It is entrepreneurship on steroids. For that reason, people are often given the same advice about the VC world that they are about choosing surgery in training.  “If you can do anything else and be happy, do that. That said, if you are meant to be in VC, you can run from it as much as you want, but eventually you’ll end up choosing it.” Just like general surgery if that is what you are destined to do with your career.

Despite what you may think, switching from scrubs to suits, physicians are uniquely positioned to shake up the venture capital world. With your fingers on the pulse of healthcare’s latest innovations, doctors can spot the next breakthrough opportunity before outsiders.

Why Should Physicians Consider Venture Capitalism?

If you’re considering adding ‘founder’ to your MD title, its important to recognize that venture capital isn’t just deep pockets chasing “unicorns” (what they call companies valued at $1 Billion or more) in Silicon Valley.

When I took my first step into the FinTech world for physicians, it was a brand new world to me.  It required market analysis, learning that “moats” aren’t just for castles, and learning a foreign language.

So why should your stethoscope meet spreadsheets?

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Because doctors have a unique perspective that could allow for drastic changes in the healthcare landscape. From changing the ways electronic medical records integrate with artificial intelligence to using algorithms to determine best cancer treatments.  More on that below.

Founding a Venture Capital Backed Start-Up

There are really two main routes for physicians to become a founder of a start-up.

The first is to become a founder (or co-founder) of a company from the get-go. Once you have seen some success or suggestions that you will, then you might pitch it to venture capital investors like you would on shark tank.  In this model, you own 100% of the equity as a founder.For example, say an investor values your company at $1 million and wants 10% of the company. They would pay you $100,000 for their 10%.  The founder(s) would be left with 90% equity in the company.  With each additional round of investing, the founders would get diluted, but from a much higher starting equity.

The draw back to founding a company from ground zero?  You have no support starting out and have to “bootstrap” until you have something worth an investor’s money. The hard truth is that many start-ups aren’t profitable for multiple years.

Enter incubations.

In an incubation, the VC firm starts the company. In a way, they are one of the founders. In this model, they bring in industry experts and leaders to run the company.  Given the amount of initial support provided, the co-founders will have less equity (the main drawback). However, they also have less of a hill to climb to get started and more inertia from the get-go.

[If you are entirely disinterested in founding a start-up, then the other way to get your foot in the door of the VC world is to join a start-up in an advisor role.  Equity will be offered, though a fraction of a founder’s equity.  However, your role will be minimal (e.g. quarterly meetings, jumping on occasional calls, etc).]

The Importance of Product-Market Fit

Let’s say you decide to become a founder.  The most important goal of any early stage product is building something people need and want.  This is called product market fit.

Think about a glove in winter; if it fits perfectly, you’re warm and comfy. But get it wrong? You’ve got cold hands and no buyers. For startups, this is do-or-die territory. Without product market fit, no one will invest.  And the company will run out of cash.

As a founder, before you start spending big, make sure that your product is in front of customers.  What do they want? What features could be better?  Would they actually use your product/company? On this front, word to the wise, the best way to test something is to get it out there.  You can hypothesize in your mind about what people want all day long, but until you see it first hand in front of a customer/client… you will never know.

Questions Venture Capitalists Ask

Now, let’s say that you have a product.  Great!

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Now you have to pitch venture capitalists to get the funding you need.

Venture capitalists are like gardeners who plant a variety of seeds, knowing not all will blossom. They spread their bets across multiple companies, with the understanding that success often hinges on one or two high performers. Think about it—out of an entire portfolio, typically just a couple hit it big and justify the rest that might just break even or flop.

Venture capitalists are like talent scouts at a high-stakes game—they need to bet on winners early on. They’ll pepper you with questions: Is there enough room in this market? What barriers stop others from copying you? Can this thing grow big… fast? And by “big” they mean, “Can it turn into a company worth $1 Billion?”

This approach is more than throwing darts at a board; it’s strategic diversification at its finest. But why put eggs in so many baskets? Because venture capital is all about balancing risks with potential sky-high returns. Imagine investing in ten startups: some may only simmer while others could be your golden goose—or geese if you’re lucky.

Some Ideas to Get the Juices Flowing

So, maybe you are saying… what sort of things could I consider for a start-up as a physician? How could I contribute to an idea that could change the world based on my experience?  Let me give you a couple of examples to get your creative juices flowing.

Telehealth as a Growing Sector

Many doctors during the pandemic flocked to Telehealth opportunities. Why?  It expanded faster than waistlines on Thanksgiving, and it’s no wonder why—convenience meets necessity in this digital twist to healthcare.

The figures speak volumes; telemedicine is not just trending, it’s revolutionizing patient care with some experts suggesting the market size could skyrocket well beyond current valuations. That means there’s serious cash on the table for physician-led ventures ready to tap into virtual visits or remote monitoring tech.

And telemedicine may not look like what you are thinking right now. Take for example “HIMS” a company that has multiple products, but likely the most well-known is their hair care line for men. Inside their packages is often prescription finasteride. Guess what that requires? A Telehealth “visit” with a physician.

Now, apply that to your potential idea. Is there a way to scale your idea through Telehealth like HIMS?

Painful Pre-Authorization Meets Artificial Intelligence

We have all seen it.  A patient needs a certain prescription, diagnostic modality, or procedure… only to require pre-authorization from the insurance company. As an anesthesiologist, I’ve seen patients show up on day of surgery in the past only to find out that they fasted for no reason. The surgery was canceled due to lack of financial clearance.

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Well that’s why some VC companies are currently working to solve problems like pre-authorization or peer-to-peer calls and having this handled by automated artificial intelligence solutions?

Imagine a world where you no longer have to make those calls or fill out the paperwork.  With a few clicks, its all done for you.  That’s the power of venture capital backed start ups.

Are there opportunities you can think of where artificial intelligence could transform your field?

Crafting a Compelling Pitch

Alright, now that you have your idea, how do you get it in front of potential investors?  The answer is through a pitch. To do this, you have to do your research.

Using our disability insurance example from earlier, many VC investors aren’t going to be familiar with that market.  They aren’t insurance agents, and they aren’t physicians.

Explaining to an investor that physicians form 80% of the disability insurance market can be a game-changer when convincing VCs why they should bet on your healthcare startup. And if we talk numbers – over $2 billion worth – that kind of market size speaks volumes about potential returns.

A compelling pitch goes beyond throwing impressive stats around though. You’ve got to tell a story where pain points turn into profits and solutions sound like the next big thing since sliced bread – only more lucrative. Paint them a picture so vivid they’ll want nothing more than to grab their checkbooks.

Your pitch deck should scream opportunity with each slide because remember: while many startups will fall by the wayside, yours could be one of those rare gems contributing outsized returns in a VC portfolio mix – precisely what savvy investors are hunting for.

Conclusion

So, you’ve navigated the venture capitalism scene with a physician’s precision. You learned that your medical insight is gold in this game, and it can turn scalable ideas into wealth. Dive in with confidence. Know what makes a startup tick. These are vital signs for success. Above all, remember that as a physician you have knowledge and a transferable skill set that is useful in the venture capital space should you ever have interest.

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