CareCloud: A Good Investment?

This past week, while applying for the InSITE Fellows program, I had to prepare a quick analysis of CareCloud (a healthcare IT company) based on a venture beat article that can be found here. Now that the application cycle is over, I thought I’d share my response and some general thoughts on the company. Admittedly, I know very little about healthcare companies but the industry is intriguing and very much ripe for disruption. Here is a first attempt at evaluating the company from an investment perspective.

In assessing CareCloud as a potential investment, I examined three core areas: the market, the technology and the team. While the technology is very sound and the team is promising, I would likely not invest in the company due to several significant issues in the electronic medical record (EMR) market.

The Technology

CareCloud’s medical practice management software is a great solution to a clear pain point in the market—namely that legacy vendor’s provide systems that are too bulky, inefficient and costly. Built on a nimble Ruby on Rails platform, CareCloud’s elegant design and user-friendly interface has been well received by physicians and other users. The product is completely cloud based making it easy for physicians to update and stay on top of complex regulations and compliance mandates. It also focuses on providing users with the flexibility to pick and choose components of the software rather than being forced to adopt an entire platform and abandon existing software. All these features result in a lowered cost to the physician and a better way to manage their practices.

The Team

The management team at CareCloud is also very strong—comprised of industry veterans and individuals who are experts at the given function they lead. This of course starts at the top with Albert Santalo—the founder and CEO of the company. Santalo has spent the last 12 years working in healthcare. He is a successful serial entrepreneur having co-founded and grown Avisena into one of the largest providers of revenue cycle management software and services for physician practices in the world. The rest of the team is likewise very strong and experienced. This is a team that has experienced a lot of success prior to starting CareCloud and in the first 4 years of the company have continued to be successful.

The Market

The biggest challenge with CareCloud is the market. At a high level, things look pretty good. Healthcare is the largest sector in the U.S. economy and set to grow from a $2 trillion dollar market to a $4 trillion dollar market in the next 10 years. In particular there are mounting cost pressures stemming from an aging U.S. population that will grow from 12% who are 65+ to 17% who are 65+ in the next 10 years. Those over the age of 65 tend to spend 4X as much on healthcare as the rest of the population. Against this backdrop, the EMR market is estimated to be a $6-10 billion dollar market—which would appear to be large enough to invest in.

However, the big problems with the market are the regulatory environment in the industry and the plethora of competition CareCloud faces. Regulations and mandates imposed by the federal government could easily destroy the industry and put CareCloud out of business—particularly since so much data is stored in the cloud where it is more susceptible to compromise. In terms of the competition, legacy vendors like Allscripts, Epic, GE and Siemens already control at least 75% of the market and almost all large hospitals use them because of the subsidies from the government—CareCloud is unlikely to take any of this market share away. The remaining niche of 25% or $1.5-2.5 billion of the original market is comprised of pysichians operating in small clinics with over 300 electronic vendors, including well established companies like Practice Fusion and AthenaHealth, competing for their business. Even if we assumed that CareCloud could capture 25% of that market (which it almost assuredly won’t), that would only be a total share of $375-$625m, which is too small to invest in especially since the company has already taken in $54 million in total venture funding and we are only at the Series B level. There is a lot of pressure to have a very high exit in situations like this. Because of these challenges in the market, I would be very hesitant to invest in CareCloud.

Additional Questions

Some additional questions I have that would be useful to know when investing include:

  • What was the pre-money valuation before the Series B round of financing?
  • What do the actual revenue and customer acquisition numbers look like?
  • What are the terms of the deal—what sort of exit size do we need to make a good return?

 

Market Sizing: How big is online video advertising?

Television advertising still dominates the scene when it comes to advertising revenue. Yet in the last 5 years, Internet advertising has nearly doubled proving that there is little doubt that advertising is increasingly going online. Within Internet advertising, the video advertising component, while still relatively small, has been growing steadily resulting in a tremendous opportunity for innovative entrepreneurs disrupting this emerging market.

But exactly how big is the online video advertising market? Applying a bottoms-up approach yields the following results:

Total # of Video Ad Views = U.S. Pop. X Average # of Video Ads viewed per person
Total # of Unique Video Ad Views = 315mm X *840
Total # of Unique Video Ad Views = 265B

Average Price per View =  CPM / 1000
Average Price per View =  $15 / 1000
Average Price per View = .015

Central Equation
Video Ad Market Size = Total # of Unique Video Ad Views X Average $ per View
Video Ad Market Size = 265,000,000,000 X .015
Video Ad Market Size = $4B

U.S. Market Size = ~$4B
**Global Market Size = ~$16B

*Based on ComScore 2012 U.S. data, market sizing estimates
**Applied a multiplier of 4 to get the global market size.

Doing a quick search through the Wall Street Journal – it appears that they agree with this market size of $4B for the U.S. market.

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It is important to note two trends in the video ad market that matter and will significantly impact the size of the market.

1)   Contraction Force: The average price per video ad is decreasing. In 2011 at top tier sites ads were in the $17-$25 range. In 2012 that range fell to $15-$20. The WSJ argued that this price will only decrease further from here.

2)   Expansion Force: Video advertising may only be a $4B market as of 2012, but it is an increasing segment of the overall $42.5B digital media market—a market which is growing in size itself.

The net effect of these two forces is hard to determine as they act in opposite directions, but the overall affect will likely be an increase in the market size in the next 5 years, especially as the internet plays an increasingly important role vis a vis the television.

Google Glass

Since the beginning of the computing industry, it has been the case that hardware platforms produce software innovation. A single innovation in hardware can provide the base for a multitude of software applications. In the process, thousands of companies are created, millions of customers are acquired and billions of dollars in revenues are generated.

Hardware innovation in the 1970s and 1980s by IBM around the personal computer led to software innovation by now Fortune 500 companies like Microsoft, Oracle, Adobe, Symantec and SAP. In the mid 2000s, hardware innovation by Apple on the iPhone led to many of today’s rising stars: Twitter, Instagram, Flipboard and Waze are all built on mobile platforms.

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It is still too early to tell whether Google Glass will be the next ubiquitously used hardware platform spurring software innovation. It looks like the product development teams have a ways to go to iron out some of the kinks and lower production costs to get the price down to what consumers would be willing to pay In fact, last week Forrester Report published survey results showing that only 12% or approximately 21.6 million U.S. online consumer would use Google Glass on an everyday basis.

Yet, if we looked back in time, I don’t think the early adoption numbers for the personal computer or iPhone would be all that different, especially pre-launch. Nonetheless here we are in 2013 and I can count on one hand how many people I know who don’t have a smartphone or a personal computer.

If Glass is able to capture broad consumer appeal, you can count on another big wave of software innovation. Already, Google has released parts of its developer API and the applications are limitless—everything from education to health to advertising. Smart entrepreneurs and VCs will already start thinking about software applications Glass could enable. It’s a great time for innovation.

Metamorphic Ventures

This past week, I started a pre-MBA internship at Metamorphic Ventures—an early stage venture capital firm that focuses on investing in transactional media companies. More specifically MV likes to invest in companies with the potential to disrupt the digital media and commerce space.

The full list of portfolio companies, which includes companies as diverse as IndieGoGo, Songza, Tapad and Moveable Ink, can be found here. But broadly speaking, MV is looking for companies that are going for a seed or Series A round, focused on B2B products/services and have the ability to use a small injection of capital to scale quickly.

In my first week as a Summer Associate with the firm I have been able to get a quick glimpse of the world of VC. Admittedly I haven’t even scratched the surface here, but what I have seen has impressed upon me the uniqueness of the business. It’s been said by many before that you really can’t learn about VC by reading a textbook or taking a class—not that those aren’t perfectly acceptable foundations from which to build. But in order to really learn the industry and get good at identifying promising companies, you need to view any junior level role as an apprenticeship. Find people who know what they’re doing, who have been in the business for a while and try to learn as much as possible from them.

My hope is that as the summer progresses, I’ll have the opportunity to write more about this experience and what I’ve learned about early stage tech investing from the leadership at MV. For now, however, here’s a glimpse at some of the projects I’m working on.

1)   Deal Flow: MV gets a large volume of deals each week coming through the pipeline. Part of what I’ve been working on is creating an internal system to best manage the deal flow and track companies that come our way. Along with this, I’ve been helping write initial memos of companies based on preliminary research, conversations the partners have had with the entrepreneurs and any company materials they’ve sent our way.

2)   Portfolio Company Support: Several of MV’s companies have projects that they would love to pursue but simply don’t have the time for this summer. One of my hopes is to get involved in more of an operational role with some of these companies. To start off with, I’ll be sitting down with Songza next week to discuss a competitor analysis project that they need some help with. More on that as the summer progresses.

3)   Internal Projects: There are a number of research projects and industry analysis reports that need to be done this summer. The goal here is to collect and analyze data that will help the firm make better investment decisions as well as grow the amount of shared knowledge for the MV community.

All in all, it’s shaping up to be a pretty interesting summer experience that will definitely provide valuable insight into the VC/Tech world. Looking forward to writing more soon.

Customer Acquisition Challenges for Location-based Startups

Location-based startups seem to be pretty popular these days. Some of the most successful location based startups (i.e. Foursquare, Shopkick, Yelp, etc.,) have received multiple rounds of funding, achieved nice exits and set a high bar for others to follow. Nonetheless, many location-based start-ups still face a number of challenges when it comes to growth – particularly in the area of customer acquisition. This post seeks to dig a little further into the issue of customer acquisition for location-based apps. Here are some steps startups can take to address challenges they face in acquiring new customers. 

  • Performance Measurement: It’s important to first take a step back and reflect on the existing product and existing customers. Some questions to ask include: Who are the customers? Are there different segments? How are the current customers using the product? Are there differences in the ways various segments use the product? How is the product performing among various customer segments? An understanding of these questions will allow the portfolio company to better target its strategy—whether that is to strengthen its position in a current market or pivot a little and go after a different set of customers.
  • Product Differentiation: Startups looking to acquire customers should differentiate their product from the competition and make the value-add very clear. That way, from a customer’s perspective, there is a clear reason for switching to the new product. Product differentiation can build customer loyalty and allow the startup to monetize its partnerships with advertisers or other 3rd party vendors. Mobile represents a huge opportunity to creatively differentiate across a range of platforms. Startups should find unique ways to combine location-based data with mobile platforms to provide users with useful information. Foursquare’s check-in rewards system seems to have championed this strategy.    
  • Personalization/Segmentation: Location-based startups should also focus on personalizing as much as possible when trying to acquire new customers. This means offering a different type of service for different customer segments. LinkedIn has done a great job of this. There is a free service for the 80% of customers who only use the platform a few times a year. Another 15% of the customer segment, who use the product monthly or weekly, pay for a slight business upgrade. The final 5% who use the service daily pay for the most expensive “executive” version—with expanded product features. But personalization should move beyond product lines to also include targeted marketing and sales campaigns so that potential users are finding out about the product through channels that appeal to them most.   
  • Focus on Branding: Location-based startups can also attract customers by building a really strong brand. Brand loyalty seems to be mostly based on three things: differentiation, relevance and emotion. Some examples: Apple has built an incredible brand around the concept of aesthetics and beautiful design. Etsy has built a brand around homemade/vintage goods.  Focusing on the above 3 keys to build a really strong brand can, in turn, attract customers.
  • Customer Service: One way to really attract customers (and to also differentiate from the competition) is to provide strong customer service. This entails providing a high quality service or product experience, showing support for customers during and after the sales process, developing customer loyalty programs and creating a customer service team with a 100% focus on customer satisfaction.

2013: Startups on the Rise

This is definitely a bit over due, but here are my thoughts on the up-and-coming start-ups to keep an eye on in 2013. Some of these have already built quite a bit of traction, others have been lurking for a while waiting for the right time and others were started less than a year ago. I’ll have to do a follow up post at the end of the year to see how they end up doing.

Uber: This mobile app takes much of the hassle out of finding a cab to get around town in. The app allows you to request a cab at any time, let’s you know how far away the cab is, texts you when your cab has arrived and then allows you to pay for the cab using the app. It’s a very convenient way of getting around. I’m hoping the Uber team can work out some of the product kinks (in NYC for example there are many restriction around the black cabs that Uber works with), so that the service can go more mainstream as it’s currently a much-needed service. Once these challenges are resolved, I think this app can have much success in most major metropolitan hubs.

MoviePass: As a movie theater subscription service, MoviePass is building something very new to the movie industry—the ability for viewers to go see an unlimited amount of movies each month for a flat fee rather than paying for each individual movie. It’s kind of like the concept of having season tickets to a sporting event. This will be particularly useful for avid moviegoers who see multiple movies each month. Many of my friends who are movie fanatics have already signed up for beta access to MoviePass.

Fab: Many thought that e-commerce was in decline but Etsy and Fab seem to be proving that theory wrong. Of particular importance Fab, with its focus on “everyday design”, has been an innovator in social commerce—seamlessly integrating with facebook and twitter. Fab also has created better mobile apps than any other e-commerce platform making it easier to make purchases regardless of location.

2U (formerly 2tor): 2U is disrupting education by providing high quality online learning environments. 2U partners with top-tier universities to deliver rigorous, and selective graduate degree and undergraduate for-credit programs online. Some of the universities currently using the 2U platform include: USC, UNC, Georgetown and Washington University in St. Louis. As a recent college grad, former teacher and soon-to-be graduate student, 2U’s approach seems to be the future of education and is already disrupting the way in which many universities think about education technology.

Stamped: Stamped is already becoming popular in several of my various friend circles. Now acquired by Yahoo, Stamp is a mobile app that lets you recommend and share your favorite things like: movies, books and restaurants. One of the best features is the ability to receive recommendations from friends and other reliable sources (rather than anonymous online reviews). The ideas behind this could disrupt the way online reviews and recommendation systems currently operate.

Media Cause

The Product

Media Cause is a marketing company that focuses on helping non-profits increase awareness for their programs, raise more money online, and better engage with their supporters. The startup provides marketing and social media advertising support to non-profits of a wide range of sizes and budgets.

This is accomplished primarily through the creation of a large and engaged volunteer community. Non-profits start the process by signing up for Media Cause and requesting services from volunteers that match their specific needs. SEO requests, Google Grants, digital advertising campaigns and social media initiatives are separated into smaller projects called “challenges” that are then completed by anyone in the volunteer community. In exchange for the marketing and advertising support they provide, volunteers are then recognized publicly through facebook posts, tweets, blog posts and LinkedIn recommendations.

The Market

With 1.8 million 501(c)3 non-profits in the US and many more non-profits around the world there is a large, yet predominantly untapped market for the marketing and advertising of all these non-profit organizations. Most non-profit organizations run on tight budgets and focus the vast majority of their efforts on their organization’s mission. They often have little time and few resources to advertise themselves, raise money or increase their online presence. Yet the need to engage in these activities is critical for non-profits to grow and strengthen their impacts. Thus, there is a clear need in the marketing and advertising industry for services that target non-profit organizations. Media Cause is an interesting startup in that it seeks to close the marketing and advertising gap between non-profit organizations and their for-profit peers.

Media Cause is also a particularly attractive company given recent trends in marketing and advertising that seem to be making it easier for non-profits to launch and garner support. To begin with, fundraising has been democratized through crowd funding platforms like Kickstarter. The spread of the Internet from computers to mobile devices has also offered non-profits with the ability to reach more users via different mediums. And finally the availability of large, ease to use social networks like Facebook, Twitter and LinkedIn, has enabled the deployment of cheap, yet effective marketing campaigns—campaigns which once harnessed by expert volunteers through Media Cause’s platform can result in a high payoff for non-profits looking to raise money or spread awareness.

The Profit Potential

Media Cause is an early entrant into the non-profit marketing and advertising space. And while it is true that many of the advertising and marketing mechanisms that exist for for-profit companies are also available to non-profit companies, Media Cause is the only company that is entirely focused on affordable and efficient services for the non-profit niche market. Thus, the startup currently has few competitors and is way ahead of any would-be-competitors.

Interestingly, enough, at the moment, Media Cause is itself a non-profit organization. However, the startup has experimented with a few small revenue models including offering premium online marketing services to larger non-profits. It is entirely feasible for Media Cause to be run as a for-profit company by developing a whole line of services that scale all the way down to smaller non-profits and take more of a strategic consulting role in the marketing and advertising of non-profits rather than simply crowd sourcing much of the work to volunteers. In terms of exit opportunities, Media Cause could very easily be acquired by a larger advertising or marketing company (such as Pulse 360) or become the marketing/advertising arm of a non-profit strategic consulting firm (like Bridgespan).

To sum, Media Cause possesses all of the ingredients of a potentially very successful startup: an innovative product, the right market timing, growing demand, a clear competitive advantage, and feasible exit opportunities. I would love to be a shareholder in the company.

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Multi-weather Energy Generators

Each year millions of people are affected by weather related events like storms, blizzards and hurricanes. Among other challenges, these weather events result in wide spread power outages and damages to electrical infrastructure—requiring repair that often takes weeks to restore. It is estimated that nearly 8 million people on the east coast lost power during Hurricane Sandy and another million people faced power outages this past weekend during Winter Storm Nemo. Many of these people went days if not weeks without power.

To address this I propose the creation of multi-weather energy generators (MEGs). Similar to traditional back-up generators, MEGs would provide an alternative form of energy to power homes and commercial businesses during and in the aftermath of major storms. However, these devices would be multi-faceted and would work throughout the year to continually store and synthesize various forms of energy into some sort of battery format that could then be used on an as needed basis. During the Summer/Spring for example, MEGs would use solar panels to continually convert solar energy into stored electrical energy. During the Fall/Winter, MEGs would use wind turbines to convert and store mechanical energy into electrical energy.

For most of the year the energy created by MEGs would simply sit as stored energy in a battery format. However, during the 2-3 weeks of the year when weather sours and households faced major power outages, MEGs could be drawn on to provide much needed power until the power grid is restored. In designing these devices the focus would be on making them light-weight, low-maintenance and affordable to ensure that consumers would not incur a large cost in terms of money spent and time needed to maintain the devices.

WiTricity: Investment Wishlist

The Technology

Witiricity (short for “wireless electricity”) is an engineering startup based in Watertown, MA that was founded by engineers from MIT and is backed by Stata Ventures, Argonaut Private Equity and Toyota.

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Witricity is developing a line of devices that use a form of wireless energy transfer to provide electrical energy to objects remotely—without the use of wires. The technology is based on strong coupling between electromagnetic resonant objects to transfer energy wirelessly between them.

The Witricity devices are coupled almost entirely with magnetic fields, which makes them safer than resonant energy transfer using electric fields, since most materials couple weakly to magnetic fields. The Witricity devices also are unusual in that they support efficient energy transfer for “mid-range” distances several times larger than the diameter of the resonant objects—meaning devices can receive electrical energy at a further distance from the transmitting source.

An Emerging Market

Witricity is particularly appealing due to the timing of its entrance into the market. In the last 5 years there has been a tremendous amount of innovation in the mobile/portable device space. In the past, consumers used their electronic devices in primarily stationary capacities, now, however, users are utilizing and experiencing technology “on the go.” This makes the market ripe for Witricity as it provides a plethora of compliment goods (such as cell phones, ipads, laptops, etc.,) that currently require plug-in chargers, with new, more convenient ways of powering up.

Witricity could mimic the success of wireless Internet providers. Finding an outlet or carrying around a charger is simply inconvenient for many mobile users. Similar to the wireless Internet, which offers users the ability to connect to the Internet almost anywhere, Witricity will enable users to charge devices anywhere they go. Imagine being able to go to Starbucks and not have to spend 5 minutes hunting around for an outlet but rather settling into a chair and having the ability to have the electricity beamed to your device from one central transmitter that multiple users could get power from at the same time.

Moreover, Witricity is well positioned to be at the forefront of this wireless powering trend. Whereas many of Witricity’s competitors, such as uBeam and Powercast Corp, are still in the research and development stages of the product cycle, Witricity is ahead of the competition in that it already offers a range of fully tested commercial products. Importantly, the products have so far been proven to be safe as the magnetic fields interact very weakly with biological organisms (such as people). High barriers to entry in the form of expensive hardware and patented scientific knowledge prevent smaller startups from emerging. Meanwhile, no large companies (titans like Google, IBM, Microsoft, GE, etc.,) have expressed interests in the wireless electricity industry as they are focused much more on high profile markets like Saas, enterprise, mobile, etc.,

Signs of Profitability

Witricity would be a great company to have in the portfolio if for no other reason than the varied markets it could appeal to and the diverse revenue sources it could garner. Already the automobile industry and public transportation industry have demonstrated interest in alternative forms of energy. In addition, restaurants, coffee shops, malls, parks and other public gathering places would all be perfect places for wireless electricity. If production costs were reduced, Witricity’s product could even be used in the household to power household electronics.

In terms of predicting success, from a leadership point of view, the management team is also very strong and has a previous record of success. There are a large number of MIT scientists who work in various capacitates for the company, ensuring that the technical aspects of the products are well researched and developed. In addition Eric Giler, the CEO, is a successful serial entrepreneur with a track record of leading startups to successful acquisitions.

If successful enough, clear exit opportunities for the startup would be via an IPO or an acquisition by a larger tech company such as Microsoft or GE. To sum, Witricity possesses all of the ingredients of a potentially very successful startup: an innovative product, the right market timing, growing demand, a clear competitive advantage, strong management and feasible exit opportunities. I would be love to be a shareholder in the company.

 

Looking Back at 2012: The Big Winners

Looking back at 2012, there have been a number of startups that have stepped it up. This is my list of 5 big winners from 2012, many of which started off the year as obscure little companies but have since become household names.

Spotify: Music streaming service that provides access to millions of songs. Several things set Spotify apart from its competitors (like Pandora). First, the service is consistently good across a range of platforms including: computer, mobile, tablet and home entertainment system. It is even possible to download songs for when you are offline. Second, Spotify connects you with facebook friends allowing music selection and discovery to be a more social process. Third, Spotify offers different services and prices for different segments of customers allowing flexibility in the choice of a product line. Importantly, I have also found the search feature on Spotify to be far quicker and more accurate than that of its competitors.

Instagram: Since its acquisition by facebook, Instagram continues to be (in my mind) the best photo-sharing application out there. Instagram actually makes taking and sharing photos fun because it is easy to 1) take the photos 2) transform the photos into “works of art” and then 3) share the photos across a range of social platforms including facebook, twitter and tumblr. Instagram is also a case study on how to do mobile the right way.

Flipboard: Flipboard is one of my favorite news source apps because it lets me to read about things that I care about the most. The application aggregates news stories from various sources (everything from major news publications to twitter) and then provides a customized magazine-style interface from which to consume that news. I love how the app allows you to feel like you’re actually reading a physical magazine through its primary design feature—the ability to “flip” to the next page. The app also makes the internet-less subway ride to work everyday more enjoyable.

Pinterest: Pinterest is a fun way to view and share photos and videos from around the Internet in a social setting. The ability to share content via online pinboards also allows people to show their creativity and originality. I run an education-focused nonprofit on the side and while writing entries on our blog is certainly useful, I find collections of photos to be far more effective in communicating the vision behind what we’re doing.

Shazam: Shazam is a great tool for discovering new music. All you have to do is hold your phone up to the music or TV source and within seconds you’ll get more information about the song that is playing, like the name of the track and artist, streaming lyrics, videos and special offers. It’s a really great way to learn about new music, and I use the app all the time while on the go.