We have the idea, the place, and the workforce. We just need the money to get it rolling.
February 14, 2011 6:44 AM Subscribe
Through my work I've become aware of a gaping hole in available high-dollar products. I've got access to all the personnel I need to make this A Really Big Deal, what I don't know is how to go about funding it.
I'll try to be as specific as possible while being as vague as possible. Anyway, the work I do (easily enough searched in my history) has put me in direct contact with manufacturers, end-of-line suppliers, and consumers for a HUGE industry where the normal rules of supply-and-demand-pricing don't apply. Read: guaranteed federal dollars once the product meets specification.
Anyway, working with the consumers of these (very expensive) items (Typically $5,000-$40,000 each) has led me to realize that the technology available to consumers is nowhere near on par with the actual pace of technology, not to mention that this is an area where closed-source, manufacturer-specific systems are a major hinderance. We will Open-Source and modularize construction.
We've put together a very basic business plan outlining how we'll enter this market, we've got some real advantages that will make us extremely competitive out of the gate. (Major incentives towards physical plant and employee operations from the state and federal gov'ts, the fact that none of the current manufacturers are US based, etc.) I've got engineers (civil, mechanical, electrical, and computer) ready to jump on board. I've even got legal and permitting under control on a local and federal level.
I have previously started 2 non-profit commercial projects, both of which succeeded tremendously, and I run a successful small business on the side of my "Professional Career." (We are probably not going to make this a Non-Profit, because I think I prefer the idea of shareholders to a board in this particular market.) I've written several business plans that have been met with approval. The better of the Non-Profits makes about .5M/year.
What I've never had to do is come up with Venture Capital---and that's what I need now to make this a reality. We really don't want to go SBA, because we're nothing like what you'd expect SBA to do. Who do we talk to? What do we put together? What is realistic? I don't have solid numbers on what kind of money we'll need, but we've got a significant amount of R&D and testing to get through before we'll ever sell a product. I could have this number in a couple days, we're probably in the $1.5M-2M range initially.
The TL;DR version of this question:
We have the opportunity to subvert the dominant paradigm of a HUGE industry to the benefit of its consumers while enjoying a very healthy profit margin. Where do we get the venture capital to go forward?
I'll try to be as specific as possible while being as vague as possible. Anyway, the work I do (easily enough searched in my history) has put me in direct contact with manufacturers, end-of-line suppliers, and consumers for a HUGE industry where the normal rules of supply-and-demand-pricing don't apply. Read: guaranteed federal dollars once the product meets specification.
Anyway, working with the consumers of these (very expensive) items (Typically $5,000-$40,000 each) has led me to realize that the technology available to consumers is nowhere near on par with the actual pace of technology, not to mention that this is an area where closed-source, manufacturer-specific systems are a major hinderance. We will Open-Source and modularize construction.
We've put together a very basic business plan outlining how we'll enter this market, we've got some real advantages that will make us extremely competitive out of the gate. (Major incentives towards physical plant and employee operations from the state and federal gov'ts, the fact that none of the current manufacturers are US based, etc.) I've got engineers (civil, mechanical, electrical, and computer) ready to jump on board. I've even got legal and permitting under control on a local and federal level.
I have previously started 2 non-profit commercial projects, both of which succeeded tremendously, and I run a successful small business on the side of my "Professional Career." (We are probably not going to make this a Non-Profit, because I think I prefer the idea of shareholders to a board in this particular market.) I've written several business plans that have been met with approval. The better of the Non-Profits makes about .5M/year.
What I've never had to do is come up with Venture Capital---and that's what I need now to make this a reality. We really don't want to go SBA, because we're nothing like what you'd expect SBA to do. Who do we talk to? What do we put together? What is realistic? I don't have solid numbers on what kind of money we'll need, but we've got a significant amount of R&D and testing to get through before we'll ever sell a product. I could have this number in a couple days, we're probably in the $1.5M-2M range initially.
The TL;DR version of this question:
We have the opportunity to subvert the dominant paradigm of a HUGE industry to the benefit of its consumers while enjoying a very healthy profit margin. Where do we get the venture capital to go forward?
You will need to figure out who the VCs are that invest in your sort of business. If your plan is as slam dunk awesome as you think it is, investors familiar with the space should see the value too. I would first figure out who might give you money, then work through your network and find a connection that can get you 20 minutes over coffee with somebody to pitch your idea.
posted by COD at 7:08 AM on February 14, 2011
posted by COD at 7:08 AM on February 14, 2011
Best answer: Post this question to quora. Lots of VCs hang out there. Not too many on AskMe.
posted by dfriedman at 7:11 AM on February 14, 2011 [2 favorites]
posted by dfriedman at 7:11 AM on February 14, 2011 [2 favorites]
Response by poster: COD-That's the problem. I don't know nothin' 'bout no VC's.
posted by TomMelee at 7:23 AM on February 14, 2011
posted by TomMelee at 7:23 AM on February 14, 2011
Every outside dollar you beg borrow or steal means less and less freedom to execute your vision. Why choose a VC? Why not an Angel? Why not Friends and Family? Why not bootstrap?
To show people you are serious, you need to invest your own money at first. Figure out how to roll out your product incrementally, and use the initial increments to finance the operation. Read Crossing the Chasm.
posted by KokuRyu at 7:29 AM on February 14, 2011
To show people you are serious, you need to invest your own money at first. Figure out how to roll out your product incrementally, and use the initial increments to finance the operation. Read Crossing the Chasm.
posted by KokuRyu at 7:29 AM on February 14, 2011
guaranteed federal dollars once the product meets specification
You are probably going to need to hook up with a DC based lobbyist who specializes in your area.
posted by shothotbot at 7:37 AM on February 14, 2011
You are probably going to need to hook up with a DC based lobbyist who specializes in your area.
posted by shothotbot at 7:37 AM on February 14, 2011
Best answer: The first thing any investor will ask you is, "Who is your customer and why should they care?" Your product is a better technology? A Ferrari is better made than my Toyota, but it doesn't mean I'd buy one even if I had the money.
I noticed this point missing from your question; I don't know how much research you've done in this regard. But I would start there -- get a customer -- before getting any VC money.
posted by Cool Papa Bell at 8:05 AM on February 14, 2011
I noticed this point missing from your question; I don't know how much research you've done in this regard. But I would start there -- get a customer -- before getting any VC money.
posted by Cool Papa Bell at 8:05 AM on February 14, 2011
Response by poster: I guess nobody can help me without knowing more about what we're looking at. We're looking at Assistive Technologies for people with disabilities. Things like (but not limited to) wheelchairs.
The way that Medicare/Medicaid pays for these things is really convoluted and weird, but basically they set a ceiling price and pay anything up-to that price for "approved" items with a scrip from an approved patient. People have some degree of freedom within the price cap. Our super basic plan is to provide a better product for the same or lower price----which really, really, really won't be hard. The markup on these items (especially high-end power chairs) is completely disgusting. The biggest portion of the actual cost-per-item is in insurance and certification. I have simplified this greatly for this audience, but I am very familiar with these processes.
I really don't want to give a whole lot of detail, but the greater portion of the people onboard with the project are professionals with disabilities. Some of our incentives here are those provided to employ people with disabilities at all levels of production, as well as to construct accessible facilities....and in this state, to construct anything at all.
There's more to this story, I just really can't make the interwebs sign an NDA.
So...abbreviated version: WHERE DO I FIND VC's?
posted by TomMelee at 8:22 AM on February 14, 2011
The way that Medicare/Medicaid pays for these things is really convoluted and weird, but basically they set a ceiling price and pay anything up-to that price for "approved" items with a scrip from an approved patient. People have some degree of freedom within the price cap. Our super basic plan is to provide a better product for the same or lower price----which really, really, really won't be hard. The markup on these items (especially high-end power chairs) is completely disgusting. The biggest portion of the actual cost-per-item is in insurance and certification. I have simplified this greatly for this audience, but I am very familiar with these processes.
I really don't want to give a whole lot of detail, but the greater portion of the people onboard with the project are professionals with disabilities. Some of our incentives here are those provided to employ people with disabilities at all levels of production, as well as to construct accessible facilities....and in this state, to construct anything at all.
There's more to this story, I just really can't make the interwebs sign an NDA.
So...abbreviated version: WHERE DO I FIND VC's?
posted by TomMelee at 8:22 AM on February 14, 2011
Do you have any contacts with universities, especially those with business schools? Even just having an alumni as part of your management team would help. Contact the university and ask if there are any associated VC groups. For example, here's one focused on University of Chicago, but interested in any midwest-based business.
If your description is accurate you should be fairly well received by any of these VCs. You're experienced in the industry and have experience operating in a cash constrained environment.
posted by true at 8:39 AM on February 14, 2011
If your description is accurate you should be fairly well received by any of these VCs. You're experienced in the industry and have experience operating in a cash constrained environment.
posted by true at 8:39 AM on February 14, 2011
Where? Google.
I know that's a bit of a flip answer, but honestly it's the best starting place most people can likely give, unless they're already hooked into the VC network.
Now the VCs I'm familiar with don't fund investments in medical research, otherwise I'd pass along a couple of names, but there must be some out there who make the news. Those are the ones to look up first.
This is one very high up hit on Google. It mentions a VC by name, in this case Spring Bay Ventures. Now even if Spring Bay doesn't finance exactly the type of project you're doing, people at Spring Bay likely know other investors who would be more closely alligned with your vision.
This link gives up this description: "Venture capital (VC) investor North Castle Partners LLC (NCP), which describes itself as
“the leading private equity firm focused exclusively on consumer businesses dedicated to Healthy Living & Aging." Is North Castle still around and still investing? I have no idea, but it's a starting point.
There also seem to be a lot of Linked-In hits relating to venture capital in your desired area.
Additionally, a lot of geographical regions have angel investor groups or start-up business groups that put people in touch with investors. I don't know where you are so I don't know if you have one in your area.
The long and short answer is either you're going to have to do this type of legwork and keyboard digging yourself or you're going to have to hire somebody to do basic research for you.
posted by sardonyx at 9:04 AM on February 14, 2011
I know that's a bit of a flip answer, but honestly it's the best starting place most people can likely give, unless they're already hooked into the VC network.
Now the VCs I'm familiar with don't fund investments in medical research, otherwise I'd pass along a couple of names, but there must be some out there who make the news. Those are the ones to look up first.
This is one very high up hit on Google. It mentions a VC by name, in this case Spring Bay Ventures. Now even if Spring Bay doesn't finance exactly the type of project you're doing, people at Spring Bay likely know other investors who would be more closely alligned with your vision.
This link gives up this description: "Venture capital (VC) investor North Castle Partners LLC (NCP), which describes itself as
“the leading private equity firm focused exclusively on consumer businesses dedicated to Healthy Living & Aging." Is North Castle still around and still investing? I have no idea, but it's a starting point.
There also seem to be a lot of Linked-In hits relating to venture capital in your desired area.
Additionally, a lot of geographical regions have angel investor groups or start-up business groups that put people in touch with investors. I don't know where you are so I don't know if you have one in your area.
The long and short answer is either you're going to have to do this type of legwork and keyboard digging yourself or you're going to have to hire somebody to do basic research for you.
posted by sardonyx at 9:04 AM on February 14, 2011
I know you're not trying to say too much, but if I understand your followup, your idea is to distribute powerchairs (or similar) the same as everyone else, but you're just billing the government less for them? Therefore your business plan somehow justifies reducing profit margins as a path to VC success? If this is anywhere close to the truth, I'd save my VC effort and pennies and use drop-shipping to start a small retailer.
You'll probably want some cash for TV commercials, too, so you can differentiate yourself from the "just say 'yes' and we'll send you this piece of junk scooter for free!" crowd.
posted by rhizome at 9:40 AM on February 14, 2011
You'll probably want some cash for TV commercials, too, so you can differentiate yourself from the "just say 'yes' and we'll send you this piece of junk scooter for free!" crowd.
posted by rhizome at 9:40 AM on February 14, 2011
Best answer: I know you're asking for how to find VCs, but a word of advice. Don't go spending time researching VC firms to find them until you have a solid pitch - not just oral, but written down/on presentation slides - that goes into detail on the existing model & market and how, specifically you plan to tackle it. Whoever funds you, unless maybe it's friends & family, will want to see that you've done your market research on peers/competitors (where they've succeeded, where they've failed, what you'll do different), you have a clear business plan with some timelines/milestones, a budget, and some theoretical projections for expected revenue from now until, say, 2016.
If you're really looking for investors, you should know exactly how much you are looking to raise and what you will use that money for, what terms you are hoping to get on that money (know what's common in the market, and if you want above-average terms, be prepared to justify why you deserve them!). They will also want to know about you and your company's leadership team. VC groups can have dozens to hundreds of business plans crossing their desks each week. So you want to ensure two things: you want to meet them in person, and you want your plan to be as polished, detailed and well thought out as you can make it. Opportunity isn't enough. You'll need to convey capability.
Note that if you have no money, no product, no other employees, etc., it is unlikely that VC groups will be interested at this stage. Angel groups might be, but more common is to take out a small business loan or find funds from your own personal network to get off the ground. But as long as you're thinking about this, do some reading that takes a critical eye at venture/angel funding to make sure you have a very clear sense of what taking on that investment will mean for you and your theoretical company.
To answer your restated question about finding venture firms, just Google search for venture capital firms who take on healthcare/medical device portfolio companies or look at who has funded similar companies. VentureDeal is a pretty cheap subscription service ($25/mo) that lets you search for publicly-announced fundings by company, investor group, market category or keyword.
(3 years in consulting here, have worked with 4-5 venture-funded firms from $500k-$25M in revenue, all life sciences/medtech. Several presentations to boards of companies w/ seats mostly filled by VCs and a job interview with a VC firm this fall. MeMail me if you want to run another question by me. That said, I'm still very new to this world.)
posted by deludingmyself at 9:44 AM on February 14, 2011 [1 favorite]
If you're really looking for investors, you should know exactly how much you are looking to raise and what you will use that money for, what terms you are hoping to get on that money (know what's common in the market, and if you want above-average terms, be prepared to justify why you deserve them!). They will also want to know about you and your company's leadership team. VC groups can have dozens to hundreds of business plans crossing their desks each week. So you want to ensure two things: you want to meet them in person, and you want your plan to be as polished, detailed and well thought out as you can make it. Opportunity isn't enough. You'll need to convey capability.
Note that if you have no money, no product, no other employees, etc., it is unlikely that VC groups will be interested at this stage. Angel groups might be, but more common is to take out a small business loan or find funds from your own personal network to get off the ground. But as long as you're thinking about this, do some reading that takes a critical eye at venture/angel funding to make sure you have a very clear sense of what taking on that investment will mean for you and your theoretical company.
To answer your restated question about finding venture firms, just Google search for venture capital firms who take on healthcare/medical device portfolio companies or look at who has funded similar companies. VentureDeal is a pretty cheap subscription service ($25/mo) that lets you search for publicly-announced fundings by company, investor group, market category or keyword.
(3 years in consulting here, have worked with 4-5 venture-funded firms from $500k-$25M in revenue, all life sciences/medtech. Several presentations to boards of companies w/ seats mostly filled by VCs and a job interview with a VC firm this fall. MeMail me if you want to run another question by me. That said, I'm still very new to this world.)
posted by deludingmyself at 9:44 AM on February 14, 2011 [1 favorite]
I'll repeat my suggestion of posting this question to quota.com. It is populated with people who can give you extensive advice on business plans, pitches, and finding a VC firm.
posted by dfriedman at 9:59 AM on February 14, 2011
posted by dfriedman at 9:59 AM on February 14, 2011
Best answer: Rereading your question, it sounds like you do at least have some other founders on board. Sorry for missing that.
While I'm back, another thing to look into would be SBIR grants or other small business funding opportunities through your state. A lot of medtech companies get started on those, and hearing that you'd applied for some nondilutive grant or loan money would be encouraging to VCs or angels as well.
You could also check out some of the partner firms who've made commitments (advisory, grants, etc) to the new Startup America program. I haven't gotten a clear sense of how that's going to work - seems to be mostly an alliances of resources - but there's been a lot of noise around it that could produce a worthwhile connection for you.
posted by deludingmyself at 10:01 AM on February 14, 2011
While I'm back, another thing to look into would be SBIR grants or other small business funding opportunities through your state. A lot of medtech companies get started on those, and hearing that you'd applied for some nondilutive grant or loan money would be encouraging to VCs or angels as well.
You could also check out some of the partner firms who've made commitments (advisory, grants, etc) to the new Startup America program. I haven't gotten a clear sense of how that's going to work - seems to be mostly an alliances of resources - but there's been a lot of noise around it that could produce a worthwhile connection for you.
posted by deludingmyself at 10:01 AM on February 14, 2011
dfriedman, that quora.com site is awesome. Thanks for recommending it. I have a feeling I'm going to learn a ton from there, even though the tech:life science ratio is pretty high. OP, you should take a look.
posted by deludingmyself at 10:07 AM on February 14, 2011
posted by deludingmyself at 10:07 AM on February 14, 2011
Response by poster: Thanks everyone!
Rhizome---no, that's completely incorrect. Not even close, not even remotely correct.
Thanks too to the people sending me memails on the subject. I appreciate it.
posted by TomMelee at 10:12 AM on February 14, 2011
Rhizome---no, that's completely incorrect. Not even close, not even remotely correct.
Thanks too to the people sending me memails on the subject. I appreciate it.
posted by TomMelee at 10:12 AM on February 14, 2011
Quora.com is primarily geared to Silicon Valley-type VCs, but the point is that the information they can present you with regarding creating a business plan and a pitch and searching for VCs applies to these things no matter where you are.
posted by dfriedman at 10:31 AM on February 14, 2011
posted by dfriedman at 10:31 AM on February 14, 2011
Best answer: Angel List might be another place you can look for more information.
You want funding sources that know about your industry/market (so they can be sources of advice and connections in addition to money).
You need a source that invests in your stage of business; you are looking for seed/ A-round type money.
There are a lot of different ways to play the funding game. I would create two financial plans for the firm; one that assumes that everything goes great and another that assumes almost everything is late, you don't have enough customers, and all of your inputs are too expensive. In either plan, see how much money it is going to take you to get through 18-24 months (and figure out where you would like that to be). This is approximately what you want to ask for.
Understand your competitors; _honestly_ assess their strengths and their weaknesses. VC's have pretty good bullshit detectors. The more honest you are with them the better you will do.
posted by milqman at 11:36 AM on February 14, 2011
You want funding sources that know about your industry/market (so they can be sources of advice and connections in addition to money).
You need a source that invests in your stage of business; you are looking for seed/ A-round type money.
There are a lot of different ways to play the funding game. I would create two financial plans for the firm; one that assumes that everything goes great and another that assumes almost everything is late, you don't have enough customers, and all of your inputs are too expensive. In either plan, see how much money it is going to take you to get through 18-24 months (and figure out where you would like that to be). This is approximately what you want to ask for.
Understand your competitors; _honestly_ assess their strengths and their weaknesses. VC's have pretty good bullshit detectors. The more honest you are with them the better you will do.
posted by milqman at 11:36 AM on February 14, 2011
Therefore your business plan somehow justifies reducing profit margins as a path to VC success?
By reducing cost and selling for less one can keep the same profit margin per unit. At a lower cost you should increase volume given a similar quality product.
posted by Bonzai at 11:54 AM on February 14, 2011
By reducing cost and selling for less one can keep the same profit margin per unit. At a lower cost you should increase volume given a similar quality product.
posted by Bonzai at 11:54 AM on February 14, 2011
If you're trying to sell to government, be aware that gov't contracts can take YEARS to actualize. They study your offering, they ask for a free setup on their own servers (because of course their data is confidential), they need some mods and support and training, budgets come and go and the timing is not quite right... basically you can expect to put money into them for quite a while before they put money into you, if they ever do. Government contracts are for players of the long game.
posted by L'Estrange Fruit at 12:13 PM on February 14, 2011
posted by L'Estrange Fruit at 12:13 PM on February 14, 2011
Response by poster: Thanks again for all the answers.
We're not exactly selling to government, as I've shared with a few people via MeMail, a big part of this is to make these items more actualized for people OUTSIDE of the traditional Medicare/Medicaid/Private Insurance system.
We're not just going to sell the same products for cheaper, we really actually plan to somewhat completely reengineer some products whose basic principles haven't changed for decades.
I think Quora is going to be a great help---as well as some of the responses here. The chink in the armor here (for me) is that I've done things on shoestring startup capital lines before, always for non-profits (and this project really has some kind of modern-thinking at its core plan, not just maximum profit for smallest outlay, think sort of Jones Cola/Toms Shoes, sort of), and this project cannot possibly survive on a shoestring. It needs Real Capital up front to generate real results in a timely fashion.
Again, thanks. I'd love to hear from anyone in the future with more ideas, specifically folks who currently use assistive technologies. :)
posted by TomMelee at 5:17 PM on February 14, 2011
We're not exactly selling to government, as I've shared with a few people via MeMail, a big part of this is to make these items more actualized for people OUTSIDE of the traditional Medicare/Medicaid/Private Insurance system.
We're not just going to sell the same products for cheaper, we really actually plan to somewhat completely reengineer some products whose basic principles haven't changed for decades.
I think Quora is going to be a great help---as well as some of the responses here. The chink in the armor here (for me) is that I've done things on shoestring startup capital lines before, always for non-profits (and this project really has some kind of modern-thinking at its core plan, not just maximum profit for smallest outlay, think sort of Jones Cola/Toms Shoes, sort of), and this project cannot possibly survive on a shoestring. It needs Real Capital up front to generate real results in a timely fashion.
Again, thanks. I'd love to hear from anyone in the future with more ideas, specifically folks who currently use assistive technologies. :)
posted by TomMelee at 5:17 PM on February 14, 2011
... is that I've done things on shoestring startup capital lines before, always for non-profits (and this project really has some kind of modern-thinking at its core plan, not just maximum profit for smallest outlay, think sort of Jones Cola/Toms Shoes, sort of), and this project cannot possibly survive on a shoestring. It needs Real Capital up front to generate real results in a timely fashion.
I would not consider this a liability. In my MBA program we had an elective discussion class led by a long time VC. He said that his ideal management team has industry centrality and experience operating in a cash-constrained environment. In other words, you're well connected in the industry and have started a company before. While you might not be perfect, you're probably a lot better than most of the people who come pitching business plans. Your experience operating in environments with even less starting capital is going to be an asset, since you'll be able to come in and say "I started X with $Y, and I can tell you that this is going to take $5Y and here's the reason."
With that said, there is always the chance when you go to a VC that they will want to bring in some or all of a new management team (including perhaps a new CEO), so know up front if it's a dealbreaker for you. Not all VCs will want to do that, and you can always negotiate. They will almost certainly structure the board so that they have majority control. While that sounds bad, remember that - at least in theory - they want the company to succeed as much as you do, and that they're investing as much in the management team (i.e. you) as they are in the idea.
Also, if you do go in you should really know as much as possible about common financing terms. The difference between common stock, preferred stock, convertible preferred, ratcheting, warrants set aside for recruiting a management team, etc. Things like this, although I have not read that one closely to know how detailed it is.
posted by true at 8:21 AM on February 15, 2011
This thread is closed to new comments.
posted by heigh-hothederryo at 6:51 AM on February 14, 2011