Russ: Hi, I’m Russ Capper and this is BusinessMakers USA, brought to you by Insperity, inspiring business performance. Coming to you today in Seattle, and I’m very pleased to have as my guest, Tobin Arthur, Founder and CEO of angelMD. Tobin, welcome to the show.
Tobin: Russ, great to see you. Welcome to Seattle.
Russ: You bet. Tell us about angelMD.
Tobin: angelMD is a platform and a marketplace that connects the largest network of medical startups in the world, with a large network of investors, thousands of investors, about 85% of which are physicians. The goal is better outcomes to get technology into the hands of patients more efficiently and allow investors to do well in the process.
Russ: Wow, seems like it could be real powerful to have, particularly, physicians as investors looking at medical, so much going on in the medical and health world.
Tobin: It’s unbelievable. It’s a rapidly growing space, incredible technology, and really our belief is that we don’t predict winners, we make winners. And the difference is, when you’ve got investors who are subject matter experts, physicians in our case, they’re not only important helping to analyze and determine the best investments on the front end, but to help support these companies after the investment to get to successful outcomes.
Russ: So how many companies are there today?
Tobin: About 850 companies published on the platform. We’ve got another 5,000 companies that we’re tracking and incrementally inviting onto the network. And then onto the other side of the equation, about 3,500 members investors.
Russ: My goodness. How does one even sort of navigate with that many? I mean, do you divide them up into categories, or how do you do it?
Tobin: We do. We have basically three categories: digital health is the largest of those categories, followed by medical device, and then biotech or drugs. And we’ve got a very rigorous and systematic process where each month, as 50 to 100 new companies, at this point, are coming in and applying on our website, we have a process to review those, analyze those, allow them to start creating updates, show momentum. We’ve got a proprietary scoring system that allows us to filter out what we consider the top 10% of those companies which is where we begin to put our real efforts in.
Russ: It seems like supply and demand always comes into play in everything. What do you have more of now, companies or investors?
Tobin: That’s a great question. In marketplaces that is always the trick; there’s a catch-22, and really we started with the supply side, the startup side if you will, and it began growing very quickly. The investor side is now growing very quickly and starting to catch up. But that’s always the more difficult and the more important side because if you don’t have the fuel in the tank the car is going nowhere. So, we really focus most of our efforts on supporting investors, and with that, we believe we then invariably support the best of the startups.
Russ: How in the world did you, initially, at least, attract investors?
Tobin: By having content, by having supply. And that’s why we started with the startups, and as we began to find very interesting companies from all over the world, it attracted investors. It’s a growing, it’s an incremental process. At first it was just a few early adopters, and then they saw they’re finding things that they’re not going to find on their own in the proverbial angel group or just in their own efforts. And really, we’re trying to take early stage investing out of being a very amateur endeavor, an analog endeavor, and turn it into a legitimate asset class informed by data, the law of big numbers, and part of that is just seeing large pipelines. So now, investors in our platform, if they’re investing in healthcare, are seeing the largest pipeline in the world.
Russ: So, on the investor side, I mean, what do they have, do they have to apply to be an investor? Do they have to pay? Is it a rigorous process?
Tobin: it’s not. We make it very easy. Investors just apply, they certainly fill out a basic registration, there’s no cost to join. We have a freemium premium model where everybody can come in and do some basic things for free, investors can see the network of startups. We’re about to launch a new version of our software over the next month. On the startup side also, they can apply at no cost and begin to showcase their story. And then we begin to show them more and more things and opportunities, events, and there’s some premium fees that they can pay if they want to do some of those things. But at the start, very simple to get in.
Russ: You’ve already said that companies can go in and update their profile, so I assume the investors, did they have to be registered on that particular account to get the updates or does everybody get everything?
Tobin: That’s a good question. Once they’ve registered and they find either categories or specific companies that they’re interested in, they can follow those, and if they’re following them, what that means is if there’s an update provided, they automatically get sent that update. And so, if I’m following a particular drug company or device company and they send an update, they’ve got a new board member, maybe they’ve raised some money or they’ve got a new key customer, I get that notification on my email. If I’m following a hundred companies, I can have those bundled into a digest, whether a daily digest or a weekly digest.
Russ: How old is the company?
Tobin: The company is about three and a half years old.
Russ: What triggered the idea that it is today?
Tobin: It was really two things. The first of which was, if we look at all other industries, retail, travel, they’re getting disruptive significantly by technology. These are industries that were traditionally very analog industries. And I looked at healthcare and innovation and the way that those companies are funded and thought this is not going to be the same way in the next five or ten years, it’s going to be informed by technology. And so, the first idea was, let’s make a more efficient marketplace or place for investors, and in doing that, lets help get the best medical innovation to market quicker. And it was really just the combination of those two ideas that were the inspiration. There was also some significant changes in the law. The JOBS Act passed, which was the largest change in securities law since the 1930s. So that gave us some tailwinds to help get this done as well.
Russ: I mean that’s also what brought on crowdfunding too, right?
Tobin: Absolutely. In fact, we oftentimes are called a crowdfunding site, although it’s a very curated and hybrid version of that, but certainly we take advantage of some of these…
Russ: You have a very sophisticated crowd out there, too, right? But, it’s not just physicians, right?
Tobin: That’s right. Increasingly, family offices, other angel investors, we have a lot of athletes now, agents, team owners because we’ve got a lot of sport safety product. And so increasingly we have baseball, football, hockey, participants in those particular marketplaces. So, it’s really a variety. A big reason why they are there is because they know the physicians are involved, again, both pre-investment and post investment, so they’re the key.
Russ: You mentioned already that you started it because you were looking at the healthcare industry. Why were you looking at it? I mean, were you looking at it because you thought this idea might pan out or were you just curious about everything that’s going on?
Tobin: I had spent the last 15 years in the healthcare industry building little technology companies, and so firsthand saw how inefficient it was, first of all. The costs continued to go up, I saw how long it was taking friends of mine who had little startups, whether it was device startups or a software startup, inordinate amounts of time raising capital which then truncates the amount of time it takes, or the ability to get that product into the marketplace.
Russ: Absolutely. So, three and half years though, with what you’ve got today, it seems like, have there been any challenges?
Tobin: Of course. It’s really funny, people think it just happens overnight. Lots of challenges along the way and still we, you know part of our goal is as a team we want to learn every day, which also means make mistakes. We want to continue to push the envelope, but the biggest challenge is inertia. It’s trying to educate a market and get them introduced to this new concept. And so early on it was really going out in hand to hand combat, getting investors to understand what we were doing and seeing how there is more leverage, getting our operations more and more efficient with a small staff. Now that the staff is getting larger, we’ve got a very smart team, those transactions get smoother and faster. As the network gets bigger you’ve got more demand for these deals. And so, things have gotten a little bit easier, but now our goal is to just find new challenges.
Russ: Ok, well it does seem like the whole arrangement is susceptible to groups of investors starting to come together and trying to do something almost like an angel group. Does that happen?
Tobin: It does happen. We got certainly clusters of people that historically invest together and they’re experts in their respective spaces, and so they can use this platform to organize their groups to invest in these deals. So certainly, the mass network doesn’t necessarily invest in mass. There are clusters and cliques, if you will, within the network of people that have particular interests, and we want to serve that, private groups. In fact, we work with angel groups because most companies need to syndicate with other investors. No one is going to typically fund a company 100%, and so angel groups might put in $250,000, for example, into a million-dollar deal, but that means there is $750,000 that needs to be raised. In the current world, the way they complete that is very analog. They start calling other angel groups and other investors, and now with angelMD they can syndicate those deals. They can bring those deals to the platform and allow our network to invest the balance of that $750,000. And we also now have a venture fund that helps to accelerate that too. Our fund can invest alongside those syndicates, just making it more efficient, so that’s another way investors in our platform participate. So, they can invest in individual deals as well as in the fund, and those aren’t mutually exclusive, they can certainly do both.
Russ: The venture fund is managed by angelMD.
Tobin: We have an independent fund manager, but certainly we’re the sponsor of that fund and that fund is able to take advantage of all of the tools that we are building, including the pipeline, the analysis tools, but it is technically an independent fund.
Russ: And the fund has investors that are part of the investor angel network, and others too?
Tobin: That’s right. So, everybody ultimately becomes a member of angelMD, and there’s some regulatory reasons for that, but a lot of the people who have jumped into the fund didn’t start as members of angelMD. They found funds through relationships, but then it’s also something that we have certainly offered to the members and many of them have jumped in and participated.
Russ: So the fund is in existence today?
Tobin: It is.
Russ: Has it made any investments?
Tobin: It has not. It will start making investments in June, so it’s getting close.
Russ: Ok, yeah that’s real close. Still, when you look at the startup world and what it takes to get going, have you, I mean, I assume you have companies that have investments from your organization. Have you had any exits yet?
Tobin: We’ve not. We’ve been making investments for about 15 months or so, so it’s been a pretty short period of time. The great news is we’ve got a great handful of companies that have companies looking to acquire them already. We’ve got several of the companies in the portfolio that have plans to go public in the next 1-2 years, so a lot of things burbling under the hood. It’s going to be a good next 12-18 months as we expect to see some exits, as we continue to even make investments. So, it’s going to be a really good outcome we think.
Russ: Seattle based, but I assume you have companies from all over the nation?
Tobin: All over the world actually. About 10% of the companies are international. Our offices started in Seattle, we now have significant operations in Houston and Denver, and in fact, those are probably two much larger offices for us over time, and there’s a lot of reasons for that, one of which is cost structure. Seattle has become a very expensive city. It’s a great technology city; I live in Seattle, but in places like Denver and in Houston we’ve got incredible talent and a lower cost of doing business, and so those are really attractive markets. Houston, of course, we’ve got the Texas Medical Center, so we’re getting the best of all three of those markets in some ways, which is great for an early stage company.
Russ: Absolutely. Well, Tobin, that sounds like a rocket ship right now, so we might want to come back and have you on the show again sometime.
Tobin: Anytime, Russ.
Russ: Alright, thanks a lot.
Tobin: Thanks for coming.
Russ: You bet. And that wraps up my discussion with Tobin Arthur, the Founder and CEO of angelMD, and this is BusinessMakers USA.
brought to you by