Innovative Health Care Companies Tops with Early-Stage Investors

NASHVILLE – Entrepreneurs face challenging times when it comes to capital investment in start-up and early-stage health care companies, but those with proven business models for saving money in the health care system are getting the most attention from venture capitalists and angel investors, according to experts in the field who spoke at a Nashville Health Care Council and Nashville Capital Network panel discussion at the Cool Springs Marriott this week.

The lunchtime event, Investing in Health Care: The Early and Growth-Stage Perspective, drew a crowd of 350 of Nashville’s leading health care executives and entrepreneurs. Moderator Jim Bradford, dean of Vanderbilt University’s Owen Graduate School of Management, led the discussion with panelists John May, author, managing partner with Virginia-based New Vantage Group, and chairman emeritus of the Angel Capital Association; Bob Crutchfield, venture partner with Harbert Management Corporation; Marty Rash, chairman and CEO of RegionalCare Hospital Partners; and David Wilds, managing partner with First Avenue Partners, L.P.

“Fostering a culture of innovation and entrepreneurship is a hallmark of Nashville’s health care industry and the Health Care Council,” said Council President Caroline Young. “This discussion provided valuable insight into the market and what’s on the minds of some of America’s leading angel investor and venture capital groups.”

Panelists agreed that while the outcome of the current health care reform debate remains uncertain, the health care industry remains strong as do opportunities for new ventures, especially those that can introduce savings into the health care system.

“What always seems to come out of uncertainty is innovation,” said First Avenue Partners’ Wilds, who noted that the health care industry is still $2.8 trillion strong. As important as finding willing investors, panelists agreed, is finding investors that also bring an understanding of the business.

“If I’m an entrepreneur out there looking for capital I’m going to be looking for a venture group that will give me more than just money,” Harbert’s Crutchfield said. “I would make sure that they not only understand my business plan but my business and the business I’m in. When you bring in outside investors you are diluting your ownership, but you are also buying influence partners.”

May said it’s important to do the same due diligence with angel investors as one would with a venture capital group. He even suggested getting the names of CEOs of the other companies that angel investors have funded and talk to them about their experiences. RegionalCare’s Rash noted areas of new opportunities for health care entrepreneurs would generally be those that have lower margins and create efficiencies in the system. He believes there are specific opportunities for health care integrators and those who can address the nursing and primary care provider shortage. Others also pointed to wellness and health information technology.

In light of the current economy, panelists said entrepreneurs should continue to turn to friends, family, and personal lines of credit to fund start-up and early-stage companies. May cautioned that the threat of higher capital gains taxes could put further pressure on high-net-worth individuals, potentially making available capital from angel investors even more elusive. May said that as a result, angel investors increasingly are pooling their resources by forming angel groups similar to Nashville Capital Network.

Nashville Capital Network Executive Director Sid Chambless, said “The burden of funding early-stage companies is on angels more than ever, and John’s comments about angels organizing into groups is certainly consistent with our experience here in Nashville. Our group has steadily grown in number of investors over the last two years, which is helping bridge the gap in capital that John and the rest of the panel said exists for today’s early- and growth-stage entrepreneurs.”

Another bright spot in Tennessee, panelists said, is the recently enacted Tennessee Small Business Investment Company Credit Act, which established a gross premium tax credit for insurance companies that invest in investment companies or “TN Investcos.” The legislation creates $120 million in gross premium tax credits that will be allocated among six TN Investcos.

“It’s a great opportunity,” Crutchfield agreed. “Any time you have that kind of money and opportunity you will see some startups.”

About Nashville Capital Network
Nashville Capital Network (NCN) strives to promote entrepreneurial education and economic growth by being the hub for early-stage capital formation in Middle Tennessee. NCN’s mission centers on the simultaneous development of two promising initiatives: advocacy for entrepreneurs and delivering value to a network of investors. Visit www.nashvillecapital.com for more information.

About the Nashville Health Care Council
Founded in 1995 as an affiliate of the Nashville Area Chamber of Commerce, the Nashville Health Care Council is an association of 167 member organizations working together to further establish Nashville’s position as the nation’s health care industry capital. For more information, please visit the Council’s web site at www.healthcarecouncil.com