Why do companies need “Angel Investors”?
In case you missed how this story started, please go back and read Why do I angel invest? Part 1.
When we left off in Part 1 of this story, I was trying to understand why companies needed “angel investors”, and the returns that could be made with smart investing. I was just about to tell you about my first few investments.
Before I can explain what drew me to angel investing, I need to spend a little time explaining how I had approached much of life up until recently. I’m a conservative, risk free person by nature. I’m not sure if that’s because us doctors tend to be “type A” personalities, or it’s just me.
This means that I tend to try and control as much of my surroundings as possible, along with having a drive to be successful. This lifestyle works exceptionally well while we’re students, allowing us to generate good grades in school, university, and medical training. The problem with this is that after 5-10 years of spending 40-60 hours/week listening to people complain, medicine can lose some of its allure.
Most weeks I’m struggling with a toxic mix of:
- way too much paperwork
- high patient expectations
- increasing office fixed costs
- relatively fixed or diminishing revenues
So, one coping mechanism is to see more patients per hour to maintain an hourly rate that will sustain the life my family has grown accustomed to. But that means cutting corners, doing less for my patients (i.e. Like cutting them off after they’ve told me their “main reason” for coming to see me today). The patients don’t like it, and somewhere deep down, neither do I.
But if I don’t do that, I have to stay at the office for 1-2 hours after we close catching up on charting or paperwork. For these 1-2 hours I’m still at work, not having dinner with my partner and the kids (which really frustrates me), and too top it off; I’m not being paid for the work I’m doing over this time.
Golden pair of handcuffs
Initially I was ok with this, as the allure of being a doctor was still present, I wasn’t married, and there definitely were no children waiting for me. However, the reality is that after 12 years of working as a physician I no longer enjoy my job to the same extent as I once did. What I felt, naively at age 22 was my calling, morphed into a golden pair of handcuffs. It was that frustration, coupled with seeing a good friend of mine pull up in a brand new ultra-expensive sports car that piqued my interest in angel investing (as this physician friend of mine had invested $100,000 2 years ago and just got a cheque for $1,500,000.
So, after a little research, I felt I was ready to angel invest. The criteria I applied came from a mix of reading self-learning books, studying more about it on the internet, and only investing in angel companies that were being “presented” by a company who has credibility in angel investing.
The first thing I needed to do was get clarity myself on what industries I wanted to invest in. As a physician, I chose healthcare. This was because I knew a lot about the problems in healthcare delivery, and I personally believed that healthcare was finally ready to begin adopting technology to make us more efficient. I have to admit, this new willingness to use technology within healthcare was not being driven by MDs of my generation, but by young, millennials who had grown up with technology permeating all parts of their life except medicine.
Choosing which angel investing group to join?
The final decision was which angel investing group to join. This part is actually very important. I had gone to a couple of angel investing evenings where there were 15-25 “angels” sitting around a board table, and a steady stream of companies coming up and presenting their story (maybe 8-10 over 90 minutes). The expectation was that I would complete all the due diligence on my own before making an investment. The organizers had done nothing more than arrange a date and a location. As such, I learned to seek out organizations/companies/groups (I’ll call these folks the “facilitators” from now on) that had the following characteristics:
- The facilitator organizing the evening had already performed some diligence on the companies that would pitch us. While the responsibility still ultimately rested with me, it was nice to know that the facilitators, folks with more experience at this than me, had performed some diligence before bringing companies forward for me to review.
- The facilitators had a specialty or niche they focused on, and thus, I was getting only the best of the best companies within that niche being brought forward.
- The facilitators had experience in a field that I also had experience in. For me to join a facilitator who specialized in developing better equipment for the mining industry would not be as attractive to me as a facilitator who was focused on healthcare.
- Finally, the facilitator was not bringing out 10-15 companies who were rapidly giving me their pitch. They were bringing forth 1-2 companies, and giving me 30-60 minutes to hear who the people were behind the company, what experience the management team had, and what was the intended liquidity timeline (i.e. When were the founders hoping to either sell or take the company public, so that I could get back my original investment along with my gains).
Finding the right facilitator
With all that information, I now knew that as a physician, I wanted to find a facilitator who had experience in healthcare, who would perform diligence on the companies before they were brought forth, and would not rush a whole batch threw at once, but pick their top 1-2 companies to present whenever we met. Those were the ideal characteristics I needed to have in place before I could feel comfortable investing…as I’m still that risk averse type A person. But I’m so frustrated with my daily grind, that if I could have 1-2 companies become “hits” … well than perhaps I could cut back on the number of days I have to work, and work might even become fun again!
As hard as that was to imagine, I saw it with my other colleagues, and I wanted a shot too. Not only that, but I also learned that the hot industry wasn’t something obscure like gene splicing, or better ways to extract oil from the tar sands. It was technology making healthcare easier for the patient and the doctor. When I heard that this was one of the hottest industries… I knew I had to start investing.
Sanjeev Sharma MD MBA CCFP, Advisory Board Chair, MDXS