Russ: Hi I’m Russ Capper and this is The BusinessMakers Show here today with Tobin Arthur, the Founder and CEO of angelMD; Tobin, welcome to The BusinessMakers Show.
Tobin: Thank you very much we’re glad to be here.
Russ: Tell us about angelMD.
Tobin: angelMD is the largest crowd funding site in existence for healthcare. Specifically we connect medical startups from all over the world with investors, physicians and industry to create better outcomes for everybody.
Russ: Okay, when you say connect them with investors and physicians and others are the physicians sometimes the investors?
Tobin: Correct. Sometimes investors can invest but they can also help to advise these companies. They’re referring companies into the network they might be involved with, sometimes as Founders, sometimes already as investors. There’s a whole variety of roles they can play and many of them just come to our network to learn about cutting edge technologies and business in general.
Russ: The innovation that’s taken place in health and wellness and medicine is mind-boggling and exciting at the same time, you agree?
Tobin: Oh absolutely. One of the fun things about this role is that we see incredible things every day. Companies apply to our site and we’re thinking how did somebody think of this? And it’s fun to find the most promising of these companies and make sure they’ve got the capital to get into the market and ultimately get into the hands of patients to solve those problems.
Russ: Do you have to do anything, any sort of outbound marketing to find them? Or are they finding you?
Tobin: We’ve done very little outbound marketing to date. Now that’s about to change, and when I say a little bit we’ve done some. We primed the pump initially by reaching out to university transfer programs, certainly physicians we knew who sent in companies as well as incubators from around the country that are great consolidators of these companies. So certainly by some outreach to those groups we began to build the pipeline but we’re going to begin applying a lot of marketing to not only to expand the startup side of the network – we’re already the largest network in the world on that side – but to very aggressively build the investor side because the larger that group of folks get the more powerful this network becomes.
Russ: How big is the startup group now?
Tobin: It’s over 850 companies. We track over 5,000 additional companies and we’re incrementally bringing them in network so it’s a large swath of companies. And on the investor side the member side’s about 2300 to date and we’re going to get that to well over 10,000 by the end of this year.
Russ: Impressive, so on the 850 startups,– but I mean are they grouped in categories?
Tobin: There is a lot of content there and we really bucket them first into 3 primary buckets; software – digital health – secondly in device and third in biotech. So just in those 3 buckets it’s kind of a simple start, within each of those there’s lots of specialties of course. It’s about 50% of the site are software oriented as you might expect and device next and biotech third, but as folks come into the site, they can search by location. So for example if you want all of the companies from Houston or the Texas area you can do that easily or if you want to do specific to Cardiology or to Neurology you can do that as well.
Russ: So how did you build the investor side? I mean do they just sort of come? You built it and they came?
Tobin: Somewhat, that’s right. We initially started inviting friends of ours that were angel investors, many of whom were physicians, and primed the pump and word spread and a lot of word of mouth. As we’ve funded companies, which we began doing a little over a year ago, and executing investments word also began to get out. We would put out a press release as an investment got completed and we’d get a whole new inflow of new members. But in the meantime we also built a database of 650,000 physicians in the United States, about 85% of the market. And so we’ll begin incrementally marketing to that audience to invite them to come in and participate in the network which is what will drive a lot of that growth.
Russ: Of the physicians that you have today what percentage of them are actually either investors or intend to be investors?
Tobin: That’s a great question. It’s hard to say exactly but what we’ve found over the last year of the investments we executed there’s about 150 to 160 distinct investors in those companies and what’s been really refreshing as each deal has been introduced that group is widening. So in other words it’s not the same people reinvesting, it’s new people participating and we expected that out of the gate. A lot of people come to our network really just out of curiosity; they’re intellectually curious about entrepreneurship and innovation, they may not necessarily be coming intending to invest. Part of the reducing the barrier entry is a lot of these deals have minimums of $5,000 so that makes it very easy for somebody to say this seems really interesting, let me give this a try and see if it’s legit, see if it works out well.
Russ: But you have had startups that have been receiving funding through the program.
Tobin: Yes, we’ve made 12 investments into 10 companies so far and we’ll grow that significantly this year. Partly because of the fact we just launched our first venture fund and so that venture fund adds a second way for capital to get deployed into these companies. So when we drive an investment or introduce an investment to the network we aggregate the members together in what we call a syndicate, it could be 3 people, it could be 30, it doesn’t make any difference to the startup, the benefit is they’re getting one investor. So there’s a fund that’s invested, it’s easy for them to manage. But each month we do 2 or 3 of those and we’re continuing to accelerate that.
Now with the fund, the fund can invest alongside those investors but the fund came along because a lot of our members were saying we love this concept, we don’t have time to look at individual deals, we may not feel comfortable or have the expertise either, could a fund manager spread our investments across 10 or 15 companies? And that’s what the fund is designed to do. We’re also very rigorous about the mathematics of early stage investing. Everybody talks about startups being risky, and in fact they are risky, but that risk can be managed, and the way to primarily manage that is just through math. Willamette University did a study – last year they published a study – that showed that when people make 8, 10, 12 investments in early stage companies that the return is about 24% or better and so we tell investors look, if you’re prepared to make 10 or 12 investments over the years this can be very successful for you.
But if you’re going to come in and dabble and make 2 or 3 investments you’re almost assuredly not going to be successful. We think we can bend that risk curve and be more successful than most because our network is not just making smart decisions, we’re also able to support these companies post-investment. But nonetheless we want to make it accessible for average people, average professionals, to make 8, 10, 12 investments and that’s part of by reducing those minimums and allowing people to spread money over deals.
Russ: So how do these funds come together? I mean do they just automatically happen or are you managing them or encouraging them?
Tobin: So in the syndicates there’s a whole process that we have. There’s a number of steps that include lots of different looks; our Scientific Advisory Board looks at these companies, we have a proprietary scoring system that we apply to these companies. We give them a number of assignments as well. So once they’ve gone through that process we’ll form the legal syndicate and aggregate members of our network. We go out and invite them to look at the company, we host webinars for the company; they present their story to our network. So that’s on the syndicate side.
Russ: So that’s actually a service that angelMD provides to its investors?
Tobin: That’s right, it’s a big service. And then we’ll manage that post investment for the life of that fund. And then the venture fund is much like a standard venture fund where we’ve invited our members to come in and pool their capital together and we have a full time fund manager that manages that.
Russ: Are startups – do they have to sign some sort of exclusivity with angelMD?
Tobin: They don’t to come in and showcase their story. In fact we tell companies forget capital for the initial entry point, they really should use us to get their story circulating amongst this really influential network of professionals. And from there some of the most promising companies will certainly raise capital, but we’ve had dozens and dozens of companies that have raised capital because of the visibility that they got from our network.
Russ: So this is a business show so angelMD how do you – do you take a piece of the company? How do you make money?
Tobin: We make money in a couple of different ways. The first way we take a little bit of equity out of each of those transactions that I described, it’s called carried interest; so we only make money if the company has a successful exit. The second way we make money is we’re very much like LinkedIn in terms of our business model where there’s a Freemium Premium model they call it; everybody can come in and do some basic things for free and then there’s some upgrade paths if they want access to special industry reports or training sessions there’s a premium, a membership, that’s the second way. And the third way we make money is through sponsorships. Because we have a large and rapidly growing network of key opinion leaders, physicians in particular, we’re a great target for industry to sponsor and engage doctors.
Russ: Really cool. So geographically you’re headquartered in Seattle right?
Tobin: We were founded in Seattle but our primary growth in terms of our team is in Houston and in Denver. We’re really making a big bet in the Houston market in particular. We think this is ground zero for healthcare commercialization. And we think this has been an underutilized, undercommercialized market for decades. The story on the West Coast, the story on the East Coast, those are old stories – they’re great stories, they’re great markets – but we’re making a big bet here on the talent. And frankly the cost structure in a market like Houston and in Denver is much more tolerable than we have on the coast.
Russ: Tobin, I really appreciate you sharing your story with us.
Tobin: Well thanks so much.
Russ: You bet. And that wraps up my discussion with Tobin Arthur, the Founder and CEO of angelMD and this is The BusinessMakers Show.
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