Our investment thesis on healthcare

A few months ago we started spending more time on the healthcare vertical and got extremely excited about the amount of innovation that we were seeing. It felt like the healthcare industry was at a similar tipping point than education a few years ago.

Yesterday we published a guest post on VentureBeat outlining our investment thesis for the health care vertical. At the core, we believe that “consumerization” – the direct adoption of  innovative software products by health care professionals and patients – will be driving the future healthcare delivery:

The “consumerization of healthcare” will help move data and conversations from the doctor’s office into the cloud, where they are now visible and useful to countless other healthcare professionals working on similar cases.

The right collaborative tools will bring together professionals, as well as patients, to generate faster and more effective diagnoses. Solutions will include platforms that enable the secure sharing of medical records, as well as large public knowledge-bases that can crowdsource symptom diagnosis and treatment.

Based on this thesis, we think that some of the big winners in this space will include companies that can unlock this data and knowledge in large networks of users:

The companies that will win big in this space are those who can successfully connect people (doctor-doctor, patient-patient, doctor-patient) in a large, secure, and regulatory-compliant network. In addition to unlocking data, platforms will incorporate analytics and machine learning in the backend in order to add actionable insights and predictions to the data dump.

We recently announced our first healthcare investment (Figure1, a safe photo-sharing app for healthcare professionals) and we are looking forward to making more investments in this space in the upcoming years.

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Growth versus capital efficiency

I often see two entrepreneurs executing on similar opportunities, but with two very different capital efficiencies. First, there’s the aggressive one who spends money very quickly, building a large team, buying early growth through aggressive marketing and sales, and hoping for a large upround in the next financing round. Then, there’s the bootstrapping entrepreneur who hires carefully (sometimes too little, too late), trying to get as much runway with the current money as possible and build a “real” business.

Finding the right balance between investing in growth and focusing on capital efficiency is one of the toughest challenges for entrepreneurs and early-stage start-ups. It can be particularly tricky as investors are usually looking for growth and evaluating start-ups as defined by growth.

Here are a few observations and pieces of advice to help you navigate which spending model is best for your start-up:

1. Don’t invest in marketing and sales until you have found product-market fit:

Marc Andreesen once categorized start-ups as before product-market fit (BPMF) and after product-market fit (APMF). When you are BPMF, you should be doing everything you can to get to product-market fit…whether that’s changing out your people, tweaking the product, moving to a different market. However, there’s no point in spending on marketing and sales at this point; until you’ve found the right product for your market, you’d simply be wasting your money.

2. Revisit product-market fit from time to time:

Don’t assume that what worked in the early days will continue to work for years to come. External changes in the market can impact your product-market fit, as may your own growth path. For example, as a SaaS company scales and targets larger enterprise customers, its initial product-market fit may no longer be as strong.

3. Evaluate your market: is it winner-takes-it-all?

If you’re targeting a winner-takes-it-all (or almost all) market, then focusing on saving money makes no sense. You’d be sacrificing market leadership. Think about it. Nobody remembers Ryze, or Spoke as early LinkedIn competitors. But if you’re operating in e-commerce or other non winner-takes-it-all markets, then you don’t have to be overly aggressive in the early stages. In this case, you can take your time to fine-tune your model before aggressively scaling up.

4. Get your metrics under control:

Putting the “pedal to the metal” makes the most sense if you understand your LTV (lifetime value) per customer and CAC (customer acquisition costs). As you scale, you should also have early warning systems in place to see if your new customers and acquisition channels are performing at least as well as the previous ones (weekly LTV/CAC cohorts are the best measure for this).

Final thoughts

As an investor, nothing is more impressive than meeting an entrepreneur that has built a great business in a short amount of time and with very little money. Being frugal and knowing how to spend money is one of the most important entrepreneurial traits – as long as it doesn’t come at the expense of growth. Jeff Bezos/Amazon is probably the best example where the right balance of frugality and growth is engrained in their DNA.

 

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New investment: Figure 1, a healthcare photo sharing app

Over the years, we’ve seen web and mobile technology disrupt business, education, legal and many other fields as professionals adopt products that help them work more effectively and efficiently.  While the healthcare industry has always been more conservative, it is now primed for change.

At Version One, we have been looking intensely for investment opportunities in healthcare, believing that the leaders of this disruption will be companies that are able to connect people (doctor-doctor, patient-patient, doctor-patient) in a large, secure, and regulatory-compliant network in order to democratize medical knowledge and increase access to care.

Today, we are thrilled to announce our first investment in this space:  Figure 1, a safe photo sharing app for medical professionals.  The product is a mobile, crowdsourced platform where healthcare professionals can upload, tag and discuss images (for example, images of surgical procedures or rare medical conditions).

Doctors may already share images with one another while in the same office or medical facility, but Figure 1 now offers the medical community a way to collaborate and communicate around images, no matter where they’re located. It breaks down traditional information silos which is key to improving patient care and medical education.  The app already has users across Canada, the US, and the UK.

Figure 1 was founded in early 2013 by a super talented team:  Joshua Landy, a critical care physician; Richard Penner, a mobile developer; and Gregory Levey, a JD/MBA. We are co-leading this investment with Rho Canada Ventures and are joined by several angel investors.  We are really excited to be a part of Figure 1’s journey going forward!

To learn more, visit figure1.com or follow @figure1app on Twitter.

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Bitcoin: its future as a platform and protocol

The bitcoin logo

The bitcoin logo (Photo credit: Wikipedia)

I recently started to spend some more time on the Bitcoin ecosystem and while I have not yet fully wrapped my head around all of the opportunities and challenges (or even developed an investment thesis), I wanted to write down some early thoughts and observations.

Thoughts on the current ecosystem

The recent Bitcoin rally might be just the tip of the iceberg, as the crypto-currency may rise to even higher prices driven by destabilized national currency systems, greed and speculation, as well as illegal activity (i.e. the best way to get money out of China). Simon Winder has an interesting analysis how high Bitcoin can go.

While the majority of mainstream attention has focused on Bitcoin as a currency, Bitcoin may have a more interesting future as a protocol (see Albert Wenger’s post “Bitcoin as a Protocol”). At its core, Bitcoin provides a digital ledger that’s continually updated and synchronized in real time. Any participant can make an entry in the ledger, recording transactions from one participant to another participant. In this way, Bitcoin provides an unalterable framework for Proof of Ownership that can be used not only as currency, but also in a range of interesting applications like voting, property, contracts, domains, and securities.

It is still very early days for the platform but the two biggest opportunities for Bitcoin seem to be right now:

  1. Disrupting traditional institutions that we used to rely on for trust-related services, such as banks, registrars, etc. The app Proof of Existence uses the Bitcoin network as an ultra-secure notary service. But imagine even broader use cases (as outlined here) such as:
    • A will that automatically unlocks (without attorney intervention) when the heirs agree that the parent has passed away
    • A wire escrow that goes through when any arbiter agrees that the seller sent the goods to the buyer
    • A wallet that is socially secured by friends or family
    • A crowdfunding project that pays out after reaching various milestones, based on the approval of the backers

2. Drive down transaction fees: This infographic compares the cost of sending $1K from the U.S. to Europe (for example, as a down payment for a vacation rental). Here’s the breakdown on transaction costs: Bitcoin – $15, Credit card – $50, and bank wire – $40-80.

The future of Bitcoin

Numerous questions are yet to be answered surrounding Bitcoin’s future as a currency and as a platform. The speculative and volatile nature of Bitcoin currency might be good for the short-term as it has generated tons of awareness in the mainstream media. However, will this volatility ultimately hurt the adoption of the overall Bitcoin platform in the long run? Bitcoin might only succeed if people start using it for daily transactions and a high volatility of the underlying currency would hurt that adoption.

Likewise, will heavy-handed regulation make it hard for Bitcoin start-ups to survive in the U.S. and will there be new Bitcoin ecosystems emerging outside of the Valley? We’ve already seen several new start-ups setting up shop in Canada to escape U.S. regulations, including the world’s first Bitcoin ATM in Vancouver.

I also wonder if the virtual/crypto currency space is a winner-takes-it-all market, or will we see many other alternatives emerge? Already today there’s Litecoin, Peercoin, and Primecoin, to name a few. Will we see numerous virtual currencies co-exist, perhaps segmented along geographical/regional or industry/markets? In a recent post, Simon Winder compared Bitcoin to Friendster – a first mover, but imperfect. The question then is, who will be MySpace, who will be Facebook?

 

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The future of online marketplaces: “complex” transactions

The most successful online marketplaces today facilitate relatively simple transactions. There’s eBay and Etsy for buying/selling goods, AirBnB for short-term accommodations, and Uber for local transportation.

While reputation mechanisms (i.e. user reviews) play an important role on these platforms, the price tags involved are typically low enough that customers are ready to deal with strangers over the web. But, it can be a different story when someone is looking to spend $10,000 vs. $100.

There’s an enormous opportunity for marketplaces to emerge that handle high-value, complex transactions. However, to find success, they’ll need to make customers feel comfortable reducing the high-ticket purchase and/or complex deliverable to a few clicks.

Today, we already see marketplaces for more complex transactions… for example booking a location and photographer for your wedding (www.weddingful.com), hiring a web designer to create your next mobile app (www.ooomf.com), or finding short-term rentals for pop-up stores (www.storefront.com).

However, many of these sites currently work more as a lead generation engine than an actual marketplace and / or the platform needs to act as a hands-on broker to facilitate these transactions between participants. To realize the full potential of the opportunity, marketplaces for complex transactions will need to move virtually all of their transactions online by taking care of a few things:

1. Provide more information upfront: If you’re buying a book online, the ISBN and a rough description of the condition is usually enough information for you to feel comfortable making the purchase. But what about booking a wedding photographer? In this case, you’d want to see his/her portfolio, numerous reviews for previous clients, and possibly a write-up of the photographer’s approach and style.

2. Standardize traditionally unique transactions: Professional services companies are increasingly looking to create boxed offerings that include pre-defined scope, pricing, duration, deliverables, results, and other relevant parameters. The “productization of services” helps speed up traditionally lengthy sales cycles, and enables customers to complete complex transactions in a few clicks.

3. Provide more help to the inexperienced buyer: In many cases, buyers will be considering certain purchases for the very first time. In these cases, a marketplace will need to help guide buyers through the decision-making process. For example, oomf offers a project planner/cost calculator to help first-time buyers understand how much it will cost to make an app.

4. Reduce risk: Just like online retailers have found success via free shipping/free return models, transactional marketplaces also need to reduce risk for the buyer – such as by offering full money-back guarantees with purchase.

We still have a long way to go before complex transactions will completely move online, but I’m optimistic that some savvy companies will figure it out. In the meantime, consumer trust in the Web and online transactions will continue to grow. We don’t know who the major players will be, but this will be an interesting space to watch.

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