So, there I was hanging out in Denver airport again, reading the back-and-forth between Ben Horowitz and Fred Wilson on fat versus thin startups. They’re both cats that I respect and I think they both make carefully reasoned, nuanced arguments that have far more depth than a quick summary can articulate. But all this talk of heft got me thinking about the Body Mass Index. Those hip to the BMI calculation know that it's a measure of weight relative to height. Doctors tend to be fans because it's a decent indicator of body fat which correlates with increased risk of morbidity and mortality. And BMI tends to work pretty well, except when it doesn't. For example, serious athletes tend to have more muscle per unit of height than the rest of us and thus have unusually high BMIs: Arnold Schwarzenegger's BMI clocks in at 33 (the "ideal weight range" runs from 18.5 to 24.9). Even George Clooney clocks in at 29, just shy of the "obese" cutoff of 29.9. The beauty of muscle, though, is that it's so much more metabolically active than fat. That's why one can be heavy, but fit; the two are not mutually exclusive. And neither, necessarily, are capital efficiency and cash abundance in the startup world. Indeed, while I do find myself more firmly in Fred's "lean" camp, I am sympathetic to the notion that sometimes a company with a lot of dollars on hand can pivot more quickly as business conditions change, or scale faster to discourage new entrants or build competitive advantages that give them a leg up on existing rivals. Companies can be well-funded but hungry. I get it.
M&A deals look a lot different today than they did 10 to 20 years ago. For most of the 1990s, a typical sale of a venture-backed private company involved a small-to-mid cap public company acquirer, in which the merger consideration was the acquirer’s stock and the deal was structured as a tax-free, pooling-of-interests merger. Fast-forward a decade and the structure has changed dramatically. The typical deal today involves a large public acquirer that is paying cash but is holding back some portion of the payment until after the deal officially closes to account for possible working capital adjustments, earnouts or other unforeseen issues.
I think that this bill, without analyzing every line on every page, will have some positive effect on healthcare investing and finance. 1. The removal of uncertainty is good. Now that there is at least some idea of what the new rules will be, investors, and strategic participants in the business can react. Some of the investment press has already suggested that healthcare will be a good place to be - the WSJ had a pretty good article this morning about winners and losers. Hopefully some of the prospective buyers and sellers of healthcare businesses who have been on the sidelines for awhile will now be back in the game. 2. Healthcare investing, both public and private, has historically been compared to a swinging pendulum. Time the swing right, and you make money. This phenomenon has been reinforced by healthcare entrepreneurs, particularly on the services side, who have a knack for sorting out government regulation and other business impediments. When the government changes the rules, they scramble and figure out how to make money in the new game, and when they pendulum swings, they win. Of course after the commercial interests have mastered the new rules, the government takes notice of all the money being made, and changes the rules again. The game starts over. Entrepreneurs will look at the new rules and go to work.
It seems lately like every new deal announcement that comes across the wire somehow involves a healthcare company. Perhaps it is just one out of every ten transactions that actually does involve a healthcare industry business; nevertheless, I cannot get over the fact that there just seems to be an influx in activity within this segment of the markets lately. Just within the past month, we’ve practically seen every kind of possible transaction that we can imagine involving medical companies, from buyouts of UK-based home health companies to HCA’s $1.75 billion special dividend, for which it received a significant amount of criticism from the financial media. And it seems like everyone is trying to get a seat on the healthcare value train, including Richard Branson’s Virgin Media and The Kroger Company, both of which have announced recent deals acquiring healthcare services companies.
I mentioned in my last post that I decided to write a book about venture capital and entrepreneurship, which is coming out next month (see http://bit.ly/mstrVC). In this post, I wanted to answer the question: "Who did you interview?" Selecting interviewees was a tricky process. The purpose of the book is to be a helpful guide for entrepreneurs as they navigate the process of building their companies in partnership with VCs, so I wanted to capture the voices and insights of both entrepreneurs and VCs. In particular, I wanted to capture a diverse group - diversity in terms of geography, industry focus, gender and age.
I’ve been working on a blog post called the Epistemology of Investing for about the past year. Now, epistemology is a ten-dollar word that those — like me — with five dollar brains rarely sling around, but sometimes I think investing could be called applied epistemology. As investors — specifically, investors in opaque, illiquid markets — […]
Since the Great Equity Meltdown, Landmark Partners has noticed an increasing focus on liquidity among leading institutional investors. In the past, most investors used a variety of asset allocation models to optimize their risk-adjusted returns. For some investors with successful alternative investment programs, this led to substantial commitments to illiquid assets. Although the asset allocations […]
The Colorado legislature recently passed a bill (Colorado Bill HB 10-1193) that basically seeks to improve the state’s ability to collect use tax on internet sales. This is a tax that most buyers of the covered products technically should be paying anyway but are rarely collected. Most people think those things they buy online are […]
"I've decided to write a book," I told my wife over a year ago. She gave me that what-the-bleep-are-you-talking-about look. You may be familiar with your spouse. "You've what?" "I've decided to write a book," I repeated, slightly less confidently. "On what?" "Venture capital and entreneurship." "Why?" "Well, when I was an entrepreneur, I couldn't find any good books on how this mysterious capital-raising process worked and how to harness the resources and knowledge of the VC industry to help build my start-up. Now that I've seen it from the other side, I want to explain to entrepreneurs how it all works to help them be successful. There are good blogs out there, but no good books that pull it all together."
Recently an entrepreneur extraordinaire I admire by the name of Chris Dixon touched on the two general paradigms people/institutions can adopt towards one another when conducting business. He first referenced the transactional/legalistic approach wherein labor is exchanged for money in the form of a contract that is enforced by organizations, (especially the legal system). The other approach is one based on trust, verbal agreements, reputation and is "enforced" (so to speak) by the community. As Dixon points out, the world of startups is overwhelmingly governed by the trust/reputation/community approach. Let's just juxtapose these very different paradigms against the backdrop of the modern American university. As we've established in earlier posts in this series, it has now become fashionable and accepted for universities and their tech transfer offices to engage in the practice of spinning-off companies based on their intellectual property and know-how. In fact, according to AUTM statistics, over 600 university startups are created every year based on federally funded R&D.