Welcome to the Health Tech Podcast. Here we talk about everything healthcare and technology, and I'm your host, James Summeru. Hey everybody, delighted this week to be joined by my friend, peer, health tech OG, Ash Patel, Managing Director of the Capital Markets Group at... hoolahan loki or hl for short he's going to tell us all about what that means um but ash welcome back four years ago wasn't it
If we've got anywhere, the idea that you and I could be peers is I'm looking up at a giant right now. Oh, come on. Straight up. he's good looking i'm charming that's the difference dude i don't even understand i don't even understand what your job title means so i mean i'm i'm the one that's intimidated here you're you're the you're the guy in the suit for those of you that aren't watching on youtube ash wears suits all the time i wear t-shirts all the time
So yeah, it's relatively intimidating talking to you, man, like using the financial language that you've become accustomed to. But obviously, doctor to begin with, fellow anaesthetist or fellow recovering anaesthetist. um spent time at babylon did loads of stuff in vc and now at whatever managing director of capital markets at hoolahan loki means but we'll get into that but mate yeah how are you it's been uh it's been four years although we have obviously spoken since but
Yeah. Four years since you've been last on. It's been, it's been, I've been enjoying the podcast series and also it's been a bit of a whirlwind, I think for everyone in that time, right? Like the world has changed quite a lot. Yeah. Hugely, hugely. There's so much that's happened. I mean.
Somex has gone from zero to hero in that time. And you've, you just keep moving on up in the, in the financial world, which is quite interesting. So I remember, I remember way back when, when it was, you were at Babylon and
and ali parcel was obviously your boss and you just speaking to ali about what you wanted to do next and him i remember you saying like him actually being incredibly helpful in getting you your start in vc and providing these introductions for you and this that and the other and then you taking this like world and and running with it essentially and doing everything you did your first place in Mercia and obviously now what you're now what you're doing but
Yeah, I'm interested, man. What's that journey been like since obviously entering VC and I guess getting later and later stage and looking at bigger and bigger things? terms that i definitely don't understand now in the size of stuff that you do but yeah it's interesting it's interesting like as the i mean like i started off as you say i was like founding team of babylon hell
spent a bunch of time in early-stage VC with Mercia and then with Optum Ventures when that was first set up in London. So kind of the investment health group. And then moved into, I guess, investment banking on the advisory side.
about three four years ago now um and it's interesting kind of as the industry has matured i've kind of been on that kind of parallel journey as well just looking at the thing i get most interested about is actually how do you finance something that needs to exist like that's that's the bit about my job i really like and it's the bit about my job i've always really liked going into finance i'm i i'm not a founder um but i have a huge respect for that community and so
I want to figure out how do you be as helpful as possible to people building something really important. And so if you then think about the types of money you need to build something really important. VC is one flavor of it, and for sure, super important components. But I also spend increasing amounts of time now with private equity firms who are able to provide different types of capital, structured hybrid capital groups, debt providers.
And actually, it turns out that the VC universe is a pocket of the financial markets. There are lots of similar pockets, even bigger pockets that can finance some of these businesses. And so I spend more and more of my time these days talking to founders about... What is it you actually want to achieve with your business? And therefore, what sort of money might be the best type of money to help you achieve that objective? Because all different types of cash come with different requirements.
from the people supplying the capital and ultimately it's for the founder and the board to decide is this the right kind of capital we're taking on so i've become more interested in how do you put together deal terms that work best for companies what are the different types of money that you can use to help create these companies.
I love that, man. I absolutely love that phrase. How do you finance something that needs to exist? And that's what your interest is like. That's wonderful. And there's so much that's baked into that because. what's right for the business, what's right for the founder, and just practically how. And I think...
What's probably useful today is if we actually go into some of this, because you mentioned VC, you mentioned private equity, PE, i.e. businesses buying other businesses is probably the simplest way to describe that. And debt, simply... borrowing money to do a thing that you pay back later and obviously VC which is selling off equity in your company for often
huge amount of huge amounts of cash and obviously the lower end of that being being angel funding angel investments so i think we can talk about all those different types of funding and what that means and i guess your journey through it as well going from earlier to later stage but the first the first thing i want to ask you is How should it feel for a founder when they first do this deal? Because I see you see the champagne popping.
You see the announcements, the media announcements. You know, this is the world I'm in. The media love it. So-and-so has raised this amount of money. I remember watching you deliver a presentation once where you gave this like, just reality check and i was just in the audience for this like group of poor early stage founders that have just raised like a million quid and you you just
gave them this reality check. So I'm just going to ask you the question openly, how should a founder feel when they raise money? And you just feel free to deliver that however you want to deliver it. And I'm not sure there is like a right answer. Just what I've observed of the founders who I'm kind of holding the highest regard and just how they operate. There's a sense of relief because it's a stressful process raising capital and at times uncertain. And I think it's fair to say like.
It's a win when it does happen. Someone has believed in the story enough to be able to give you resourcing to get to the next stage. But it's almost like a flash of excitement and then straight back down to work again. Because in reality, what's often happened is, is that particularly raise equity financing, you have made a commitment as a company to a set of shareholders as to what you're going to deliver. And actually, the focus now needs to be on delivering against those milestones.
tighter capital markets as we're experiencing now versus say two, three years ago, interest rates were a lot lower. The need to deliver has never been more pressing. And I think many founders... They have their first kind of board meeting with their new shareholders. And it's almost like it can be a bit nerve wracking, actually. I've noticed for many and I don't blame them at all. Having been on the board to direct the company myself as a new incoming investor director, you know.
We've done the dance, we've deployed the capital, the business is now resourced. What are you going to get done with the resources that you now have? And how are we going to create value for the shareholders and for the stakeholders in the business, the employees?
people that use the product, like how do we build something sustainable here? So it is a moment of excitement, a moment of relief, but then it is back down to business. And I think the companies that don't get back down to business are the ones who run out of money.
without hitting their milestones and then get in a really tight spot where unfortunately it's just it's harder to raise capital than it has been and if you haven't delivered what you said you're going to deliver it's harder still when you say tighter capital markets and you reference interest rates there there'll be people listening that do understand that there'll be people listening that don't necessarily understand that so what does that practically
mean when you say tighter capital markets i'm assuming there's less money around there's less money in the system therefore it's harder to get it or and how does that you know how are interest rates affected who sets those what does that actually mean There's never been more money in the system than ever before. The system is flush with cash. The question is, where does that cash go? Money doesn't sit still. It needs to find a home. And it usually tries to find...
the area of the market where it can generate the most amount of return for less amount of risk. Broadly speaking, if you could say to somebody, I've got an absolute sure bet on this amount of cash, delivering this kind of return, people will look at that as an option. So if you think about why does money end up in venture capital, which is an important source of funding for many startups, it ends up in venture capital when people are willing to...
invest money in exchange for a very big long-term payoff. So no one's expecting the company to generate returns for the investors, generate a return for that money investment immediately. But in a few years' time... this money if we're patient could end up becoming worth a hell of a lot more and get really really big so why would you choose that over different options if you've got a pot of money to invest
So in an environment where interest rates are lower, near term, your options are to go and lend that money to somebody and then an interest rate back again. If interest rates are low, you're not going to earn very much. So it's not very attractive. to lend the money out. So it becomes more attractive to invest the money in what we call equities and shares of companies because you don't need the money back immediately and those shares can go up massively.
versus earning a guaranteed fixed return of a small amount of value now. When interest rates become higher, you can earn more on the fixed portion because the rates are now higher. Instead of earning a 1% yield, you can earn 10% yield for argument's sake. And so the question therefore becomes, well, is that trade-off worth it to take the risk of the big upside from being in shares instead of being in debt? So that's the first thing around how money...
find its home between debt and equity, broadly speaking. And then within equity, within shares of companies, what is the probability of you getting that payoff? And how long is it going to take becomes the next question. For example, can I invest in a company which will make a return the next two to three years versus one that's going to take 15 years to get to an outcome?
If the outcome is going to be the same in both scenarios, you would just pick the two to three years because you're going to get a return in two to three years versus waiting 15 years. For many venture capital-backed businesses, the question therefore becomes,
Can you deliver an outcome in 10 to 15 years, which is way bigger than anything you could hope to get in the next two to three years? And so these are the kind of conversations you now see asset allocators, the people who sit behind the VCs who give them the money to be able to invest in companies.
now having, where should we put our cash? Should we put more of it into lending it through debt? Should we put more of it into private equity, which is kind of giving it out into investments, but over a shorter time horizon and a lower risk profile?
Or do we need a portion still in venture capital, which is a longer time horizon, higher risk profile, higher return potential? And that's why... changes in the interest rates affect how those people think about where the money needs to float which then affects the availability of money for founders right at the end of their value chain that's a beautiful explanation so
What is happening right now then? It's interesting. I think what we learned in the markets over the last couple of years is it's not necessarily the absolute level of interest rates that necessarily matter. It's the volatility and not knowing.
what's going to come around the corner. So we had a period of time in the UK and in the US where rates were changing quite a lot. And so people were being a bit more cautious because they wanted to understand how things are going to shake out. I think a lot of that has now been
well understood and digested by the market so people actually understand or have a good understanding of where things are likely to sit and that means they can start to have pragmatic conversations about where do we put money to work. I think for the venture capital ecosystem, which you and I have been in a while and both huge fans of, the reality is that...
Many people would say that during a period of exuberance in 2000 and 2001 and maybe 2021 and maybe 2022, there was a market exuberance, which then led to... people making investments which are not necessarily going to generate returns, or at least not the kind of returns we were expecting, and in some cases, no returns at all. And that's causing people to be a bit more cautious. And what we're finding is just taking their time around.
how to diligence a company, asking more probing questions, just going a little bit further to ask questions. So pragmatically for founders, fundraisings are taking longer than they have historically taken, something that used to get done in... Two to three months might take six months now, for example. And that's meaningful if you've got a cash runway and you're trying to balance everything in the business at the same time. The second question is what sort of outcome are we aiming for?
If you're aiming to build a, if you're raising money, like you're aiming to build a massive multi tens of billions of revenue unicorn type company. And by that, I mean, you're raising money at a very high valuation. with a large amount of cash going in very early in your journey, then the question is being asked is, is it realistic that you're going to build tens of billions of dollars of revenue and profits in future? Or are you building a business that could do...
hundreds of millions of revenue and profits in future, which is an order of magnitude smaller, but still pretty big by most people's standards. And therefore, do you need less capital to get to the end point? Or is it tens of millions of revenues and profits? in which case you need you know you can justify less capital still and the reason i think that matters to founders is to think about you know what is it what is a good outcome for me for my my employees for my my shareholders
Is this really a business that's going to become a billion dollars? And some will, and that's awesome. Or is this a business that's going to be worth tens of millions of pounds, euros, dollars, hundreds of millions of pounds, euros, dollars? In which case, should we be thinking about building our company a slightly different way? And should we use a different type of capital to build that company? Because if you're bringing in somebody whose expectation is...
Guys, it's going to be worth $10 billion or it's just no point for us. That's kind of misaligned with somebody who wants to build a company worth $100 million, for example. Yes. And so getting that alignment is really important.
So a couple of questions I want to ask. So why might someone think about alternative sources of funding than VC? Let's say they've done their... 100k for 10 20 percent they've done that they've got uh mvp they've made a few sales they've got some early traction they're going out for what would be the usual Series A VC raise. It might be between 1 and 5 or 1 and 10 mil, something in that range.
it's sort of given as standard i think in our world now or it seems to be the amount of time i've been in the world that like this this is almost like a conveyor belt it's almost like a
a tried and tested system that you just go through. You do that one, you get to MVP, you make a few sales, you did it. And then you go to series A and did it. And all of the same VCs are getting all the same types of emails. And it's, it's become quite a. it's almost like an ossifying system isn't it of like that's just the way it's done which is at odds with innovation full stop which is why this is interesting to me because
I'm, as somewhat of a contrarian and always wanting to be like, well, if everyone's doing that, I'm going to go my own direction, try something different. You know, what might make someone... not necessarily find that the best route for them like should all founders at that point actually start having the conversation like do we want to take on debt do we simply want to borrow the money do we want to
are we a lower risk thing? Do we have some other bricks and mortar or something that makes us low risk? Could we target other types of investors? What do the VCs actually want? It's an interesting inflection point. So what might... influence someone taking a different direction other than VC at that point? So the first point I would say is that is a really sensible conversation to have. And I would encourage any founder at that point to just pause.
speak to your existing investors or existing board directors with friends from the ecosystem, people like myself. Right. And like, and actually ask like, what are my, my options here? And not assume that the. conveyor belt is necessarily the right option to go down. You would be surprised how often people think because they've taken angel investor capital or seed capital that that's what they have to do. But when they go and speak to those investors, they say, you know what?
What we've learned in the last couple of years is that X, Y, and Z, and maybe you raising hundreds of millions isn't necessarily the best thing for this business, or that isn't going to get an outcome which actually makes a return. So like it's worthwhile just pausing and it's not an admission of defeat in any way. Far from it. I think it's a really smart tactical move because the end objective is to build a sustainable, profitable, growing business. That's kind of if we take that as our.
as our ground truth as to what we want to achieve investor capital is one way of doing that what else can be done so you know there are some sectors where it The answer is you just need to be on the conveyor belt because the amount of capital required to get to the point where you're profitable and self-sustaining is so large that that has the only way in which we're going to get there. And that's cool. That's like, that's part of it.
There are some businesses, and we've got clients like that right now, where actually having raised relatively modest amounts of capital, they've got a profitable business. And so it's a conversation to be had. Do we need to... pour more fuel onto the fire and really go for growth and therefore hopefully have a massively profitable business in call it five seven ten years time from now or
Can we grow this with lower risk forms of capital, be it private equity capital or debt capital, or even other investors who are aligned around the idea that this isn't going to be like a multi-billion dollar business? But it's still going to be a business that could get to high tens, just under 100 million of revenue and 20, 30 million of profits and maybe over a five-year time period. And that is going to be a really valuable business for us to own because we'll learn more of it.
if we've given away less, is that an interesting business for us to go build? And just to take a view on it. And look, like I said, like for some, the answer is no, to get to where we need to get to, we need to invest in...
AI infrastructure or sales team in the US or whatever it is that's super expensive. And without doing those things, we'll just never get to the point where we're going to be profitable enough for this to be worthwhile. In which case, you've got your answer. You need to go and raise venture capital. high risk capital, which delivers a high return potential for the people deploying it. Or for some of the answer is actually, you know what, we could be profitable in a year or two.
And maybe that would be a good time to sell the business. Maybe for you as a founder, that is a great personal outcome. You know, there are plenty of people who would, if they, if they put 5 million, 10 million in their back pocket at the end of a five year stint, you know. That's a pretty good outcome. I wouldn't say no to an extra five or 10 minutes. So that's a pretty good outcome. And it doesn't necessarily fit with the VC narrative of like,
raise and go really, really big, you know, be a billionaire, but it's got a pretty good outcome. And so like, and I'm not, and look, for a living, I help people raise large amounts of capital from VCs and others. other investors. So I'm not trying to put people off that at all, far from it. But what I'm saying is that it's a nuanced conversation. And I think particularly as investors are getting more selective and there's more nuance on the investor side.
it would make sense for founders to be that little bit more thoughtful from the outset and just think, is this the right path or not? I love that. I love that as an answer because...
He used the word nuance and used the word pausing. And I think it's so important to just have all the information and not... be forced down one route because you're right the other side of this is you talked about personal outcome the situation where you take a decision that doesn't necessarily bring on the highest risk investors for the highest possible growth because actually you as the owner of the business look at it and go
Well, I don't need that personally. And the media will tell you that, you know, if you own a tech startup, you're going to do da-da-da-da-da-da-da-da, series A, B, C, D, E, and then join the elite. And that's what you should want. You should want to be this megalomaniac founder. that's got all these things and all the rest of it but you're right like actually considering hold on a minute what does let's model this what does this mean for me at the end of this and
You're also right in saying that part of this always has to go back to the ground truth. You want to create a business that brings something into the world that you think needs to exist. you want that as a founder you guys want that as investors but you're right there's there's not one necessarily right way of doing it or indeed the right way of doing it might be different than the normal route my final question on this little bit would be
I think debt is a word that isn't used too much in the startup world at all. And it was used the other day when I was chatting to someone of like, oh, we've done a mixture of equity and debt. And I was like, oh. I actually don't know what to ask at this point. And I sort of, I was like, oh, I've, you know, borrowed money from a friend once and given them five quid back. Like I know debt, I know what debt means in that regard.
But talking about debt to equity ratios and all this sort of stuff was not familiar to me. And so I didn't quite know how to go about that conversation. But I guess my question is like, what role does debt play in the startup ecosystem? What is it? What does it mean? And who should be considering that? Why would debt become a good idea? I think debt is an incredibly useful tool.
You've got to think about all these things as just tools in the toolbox. And you've got to think, what is the right tool for the job that I need to get done? So if you... If you think about why does venture capital exist, before venture capital as an industry really kicked off, which was kind of in the 70s in West Coast US, people were lending money has been around since like forever, right? That's just always been a thing.
But people found that certain business ventures were deemed too risky for someone to lend you money because it was uncertain when you'd ever be able to pay them back. It was uncertain whether you could make yearly interest repayments. And many of the kind of venture capital-backed businesses that we have in today, they're just not in a position to pay out money to debt providers. And so venture capital rose as a way of saying, well, me as an investor, I can make my money by not getting back.
interest repayments on your debt but by owning a bit of your company and that's how i make my money instead then you fast forward now to the modern day and actually debt still exists and interestingly there's been a whole um a new group type of debt that's emerged called venture debt. And some of them are more what we call hybrid investors. And so just taking venture debt as an example, these are people that lend money to high-risk ventures.
I mean, there are plenty of these guys around. I'm just picking names around them. Krios Capital, for example, IPF in Switzerland. They lend money to high-risk companies in order to help fuel growth.
ask for a percentage interest rate on their money. They may not need it back immediately, but they will aim to make a return on the cash invested via the way in which any lender does, a bit like how your bank lends you money for a mortgage. They'll be lending you money in a similar kind of thought process. And they often will ask for a little bit of equity as an upside kicker. So they do capture the upside of the business as well. But that's quite a sophisticated type of capital.
which you're often being seen written into rounds at the moment. And then I'd say the hybrid investors, which is typically for admittedly large businesses, but where they can say, look, what if we owned a mixture of... the equity, the shares in the company and the debt in the company as well. And so we can think about our returns, not just from one of those instruments, but from a package of these kinds of different types of investments.
And that can be super useful for companies that are in that fast scaling phase. And actually, they don't really want to sell 25% of their business, 30% of their business straight away. Maybe they'd like to sell 10 and borrow the rest if they can. That topic of nuance definitely becomes super important. Again, it's actually how do you explore what the right ratio is? How do you figure out how much you should be borrowing? And some of it comes down to just what are you doing with the cash?
Like if you are using that money to undertake super high risk new ventures, it probably needs to be difficult for a lender to see how they're going to get their money back on a...
predictable fashion because tech guys don't often intend to lose money on their portfolio. So maybe it is more on the shares on the equity side. And if they are going to But if you're doing something pretty predictable, you've been doing it for a while, you kind of know how the business runs, and you're fairly confident you know how that money is going to come back in once you spend it in the business.
then it's worthwhile considering actually, do I need to sell shares in my company? And would it be cheaper for me to take some debt on instead? The typical high street lenders and...
Not going to do too much. We don't often see them play. So going to your bank manager, it's worthwhile having a conversation, but in truth, they're looking for more everyday businesses, your local cafe or a butcher or something like that. You know, worthwhile for everyday businesses, which don't have the same risk profile.
But there do exist pockets of the market that will do what we call venture debt. And so that venture debt is definitely worthwhile engaging with because it can help you to balance out just what is the right type of money to take. It's fascinating. Let's talk about the health tech and I'm going to include biotech worlds in this as well, because it's a side of the world that I know that you know quite well and increasingly so.
Where are we now? And we talked about the fact that VC is very, very, very well represented in the way that companies and startups are financed. We know that that's... been the model, particularly, I guess, life sciences biotech has been around a lot longer and that model has worked incredibly. well on that side of the world. And I think health tech has tried to sort of adopt it, I guess, as being a close neighbor. What do you see as the differences between the two?
if i can jump to a conclusion that i don't feel like the vc model is it's not a duck to water in health tech as it has been in other places we haven't seen big exits we haven't seen I guess the proof that raising loads of money to build a sophisticated product and get through regulatory is balanced by... almost a guarantee of scale.
that you then need to pay all that back and pay your investors fund back and all the rest of it like it's not been a clean marrying of deploying the money and funds getting these huge returns at least yet
and i'm not saying it's like a guarantee on the life sciences side by any means there's a lot of people that raise fund one fund two and then disappear because you know you mark your own homework for fund two and then when it comes to actually testing performance fund three doesn't get raised so there's a lot of that
However, it's been around a lot longer and we have seen a lot more on the biotech side in terms of successes. There are big buyers with pharma, there are IPOs, there are these things that can happen on that side. How do you see, I guess we talked a lot about VC, but also those other types of capital across health tech and biotech. Where are we and where do you think we're going? And I guess we can spin this towards health tech overall.
Good question. I think on the health tech side, it's a new industry, a relatively new industry. And so it's going through a maturation phase right now. I mean, if you think about... companies that were raising capital in 2012 2013 2014 these companies are now what like 10 11 12 years old now
And so many of them are now trying to figure out how do we return back money to our investors? Do we get bought by somebody? Do we go public? Do we need to do another transaction where perhaps we cash out some early investors to get a new set of shareholders? who can continue to support us for the next stage of the journey. And so I don't think there are any kind of quick or glib answers as to like, you know, how does that work? What I would say is in favor is that...
Increasingly, you see companies that are figuring out their business models a lot earlier and actually perhaps staying away from some of the vanity metrics that the industry can be full of. Partnerships with people that don't really pay any money. That kind of stuff. Getting onto an accelerator program which doesn't really open up any customer access, for example. I'm not going to name names, but we think of a few of them like that.
And actually focusing on how do we build something sustainable, profitable, that's still great. And so as we see more of that, I think we will start to see exits from the VC ecosystem and that will build confidence that this is the right kind of asset class. It's also interesting that the type of companies that are entering the funnel, smart founders are recognizing that this could be an issue later down the line. And they're asking questions of, should I get on that conveyor belt?
Do I need to raise an A, a B, a C, and a D? Or is this a case of raising an A, a B, and then we've got something that's really valuable to the strategic player over there? And maybe the smart thing to do is after you raise the A, is go speak to the strategic to understand what they're going to be looking for. So when you raise the B, you kind of know what specification you're trying to build towards so that you have a business that can be sold and deliver a return from that perspective.
And this is just an ecosystem that's just learning actually what are the different ways to make money. You look at biotech, for example, most biotech companies never print a dollar. of revenue, let alone profits, before they're bought. It's because they figured out how our ecosystem is, big pharma should buy us, big pharma wants the intellectual property.
It wants to know that the clinical results have been proven and that the IP is now de-risked and it does what we say it does. And they will figure out the pricing and the distribution and the money-making side of that machine because that's what they're really good at.
We've just got to make sure the science really works when we show it to them. And so you go to biotech conferences and people are showing, you know, stuff I barely understand with graphs and cell decay curves and all this kind of stuff, because that's what the buyers want to see.
The buyers are scientists often and they want to understand how good is the science and will this actually do for patients what you are saying it could do for mice. That's what they're solving for. I think health tech is kind of having an equivalent movement.
It's now figuring out that people want to see like buyers want to understand how profitable you can make your company. Insurers want to understand how much cost savings you can deliver for them. Clinicians want to understand other patients having a better. better outcome or a better experience. And so it's almost like that criteria of what makes a good company.
is being fleshed out as we speak in the market right now. That's so interesting. And it wasn't the case five or ten years ago. The truth was there'd been no big acquisitions, certainly out of Europe, for health tech companies. But now you're seeing Lumion, which is the company that was on the board of previously, got acquired a few weeks ago. Robbie's a great guy, but you speak to him, he knows his stuff better than anyone. He had a very clear vision of how...
what he wanted to deliver for clinicians and patients, what he wanted to be able to offer insurance companies and providers, how it was all supposed to tie together and make money. And as a result, he raised the right amount of capital, got the business into the shape he needed to get into.
Lo and behold, a massive publicly listed American company came and bought it up. And it wasn't a straightforward journey. It took time, obviously. But the point was that the business, that's an example of an exit from Europe to a big American buyer, which... without disclosing details of the deal but like hopefully works out well for people right more of those where founders really understand what is it i'm building towards
What are the eventual buyers going to actually want to buy, I think makes a big difference. And again, with all of these things, they just take longer than you'd imagine. And so having conversations early, going to trade conferences and speaking to...
the trade buyers trying to understand where are the gaps in their in their product and what do they get excited about they're just little nuggets of gold that like the best founders just convert into right this is why this is our product this is our product
Like, you know, we know that they have a gap and that's a useful thing for us to build towards. So I, God, man, this is dropping so many nuggets here. This is amazing. One thing that I think is really interesting in finance is the word confidence. What you've just talked to on the biotech side and the life sciences side is that there is a confidence in how to build a company because you're building it with a buyer in mind and a...
target in mind for the assets that are going to make it attractive for that buyer. I think that's really interesting because One thing that if I'm just going to commentate really broadly on the health tech space now, you're right, it's early. We're still relatively early. We don't have that maturation. I think... something that people have been so speculative about is who is the buyer who are the buyers and what
Is it about us as a company that is of value? People have talked about the data play quite broadly. Oh, we'll do a data play and that'll be valuable. Okay.
what does that look like and to whom like oh we'll build this thing and it'll be okay but to whom and why is it valuable you're right i you're right in real time this is being played out because until we've got those things i think there are a lot of early stage founders that are just wanting to put something into the world that they know needs to exist again to use your phrase they know this needs to exist But interestingly, the minutiae of...
how that value is realized into the world is only going to be realized at scale by this sort of marrying of the financial metrics and the real ground floor. device and software combo is helping someone. And I think that's really fascinating that those big systems, those worlds of healthcare. particularly in the uk you mentioned the us buyer we could talk about the uk versus everywhere else in a second but a uk buyer knowing and understanding what they need from it
financially because of what they can then do financially. I think it's, I don't know, would you agree that that's the bit that's not been well defined? Yeah, what I would say is, I mean, if we'd had this conversation six months ago, we would probably even have a different answer than today, and we'll have a different answer again in six months' time. I think that the market really is changing very rapidly.
What's fundamentally true, though, is when you have profits, you have options. You could go ask my granddaddy used to run a shop in Leicester. When you have profits, you have options.
When you don't have profits, you are then at the behest of other people. And so what I would say to any founding team is, if you can get your company into a stage where it becomes profitable... with investor capital as part of that journey you and your investors and it's not a it's not a um competitive conversation it's very collegiate because your interests are all aligned you're all shareholders right you want to work together on this stuff but like figure out
who could be the interesting buyers? I mean, we get, and we didn't talk much about Hoonahan, but HL, it's a U.S. investment bank, and London's our second biggest office outside of the U.S. So we do a lot of sell-side, not myself, my colleagues do a lot of sell-side M&A, where effectively sell businesses mainly to private equity firms. And I get my healthcare colleagues.
who are super pros on selling healthcare companies to healthcare private equity firms, now coming to us the whole time being like, you know, we're getting a lot of demand for healthcare technology companies or health tech companies or digital health tech enabled services companies. The buyers...
want to see these companies. But what they need to see is a company that is not just revenue scale, but a profit scale that can effectively stand on its own two feet as an independent entity and with additional investor support. maybe get bigger from there. So what we kind of call profitable growth versus loss-making growth. I think it's worthwhile if anyone who's at that Series A stage thinking about Series B
figuring out, is this a business which maybe a private equity firm wants to buy one day? And if so, what shape should it have been when that acquisition happens? And again, The best PE firms, a bit like the best VC investors, they like to see stuff early because they want to understand what's in the ecosystem and what's coming down the track two, three years from now. And they want to build their own thesis and their own confidence.
in a particular market segment and so i don't think it's ever a waste of a founder's time to go to speak to someone say hey look we're probably not too early for you right now but i would like to get your thoughts on where do you think you'd want to see us build for us to become attractive to an eventual acquirer like you. And just like relatively high level here, what would make a...
company more amenable to a private equity firm? Why would a private equity firm take more of an interest in a startup versus another? I think in fairness, they want to look at it beyond the startup phase.
yeah and it's a scale up phase really and it's scale up when profitable it's probably the the true engagement point and so by that i mean a business that even if it never received any further investor capital or a very small amount of further investment capital relative to often rates previously, can survive.
Like it can be profitable and then continue to reinvest its profits into its own growth and continue to grow on that basis. And really their cash can then come in to help turbocharge that growth. And maybe it's a company which has... the potential to expand by acquiring other companies. So digital health service providers are a great example of that. If you're a digital health service provider in the UK
You probably have a competitor somewhere else in the UK that's eating, nibbling at another bit of the market that you like to go after, but they kind of own that. And as we know, UK healthcare is quite regional, right? You know, you can be the provider for...
making up in North London, but you don't really have any access in South London, or you're the provider for Manchester, you don't really know anyone in Cornwall, you know, to win those contracts down there. And so being able to say to a PE firm, I can be your platform. You want to have an investment in tech-enabled healthcare services in the UK? Invest in me and we will then go collectively to go and buy out all the other smaller players in the market or to...
buy our way into the German market or the French market or the Swiss market or whatever else, we can use your money to acquire companies as well as grow organically. That's quite an interesting proposition for a PE firm because it's a very efficient use of their money.
They can see how if you're a growing business and you are buying other growing businesses, you can see quickly how one plus one is greater than two. If there's synergies between the two and you're able to capture more of the market. So having some thought towards who your competitors are. what shape they're in would they be interesting acquisitions or not and if not why not like you know have an overview both ways i think makes a more compelling proposition for that kind of money
even going together with a competitor to make the offer to a PE firm, potentially. Yeah, and we say it all the time, right? People do that. They say, look, we are both at subcritical mass, but if we're combined...
it would make a ton of sense. Why don't we have a plan to combine and then go raise money from a large investor as a bigger entity? And that requires, again, nuance and thought and just... an honest conversation about how where are we going to get to on our own how much further can we get if we go together yeah fascinating
Because I think one thing that's on people's minds will be probably listening is, so who are the buyers? And I think what's interesting in what you've said is that people might be thinking, okay, who's going to acquire us? Who's going to be the acquihirer and acquire this business, the team, give me an earn out and then I'm off? Who's going to be that? What you're saying is that that private equity firm could turn you into the acquihirer.
that PE firm can basically if you're if you're market leading actually this is now the capital that can come in and turn what you have into that i think that's really interesting because that's that's not That's not you being, you know, acquihired or that's not you IPOing. That's actually something in between the two where you're empowered to become that entity in the market that starts going on the spree. And I think...
What is interesting about that as well is that ultimately founders will always, always, always, always, and I'm starting to really learn this from a personal perspective as well. No matter how much you... expect a founder to just get offered a certain amount of millions to exit their company that they will just take the money and run no matter what. I genuinely believe this, that there is so much tied into that deal of like, what is that founder going to?
ask or they're going to care my point is they're going to care so much what happens to that business going forwards and I think what's really interesting is that if you've spent your life or a big part of your economically active life building something that you thought should exist in the world when someone comes along and says hey do you know what we're going to scale this massively we're going to really make sure that this exists everywhere
I think that's so aligned to what that founder wants to do for like legacy and wanting to make that change. And it's such an interesting alignment. I do suppose we're talking really about something that affects the few here. I mean, this isn't like a big obvious.
to do in health tech or that we've seen yet, but I imagine remarkably common across other sectors in the world. And I'd say to be a health tech founder is an uncommon thing to do in the first place, right? It's totally non-obvious in most cases. Why would you go and do this? And so I think it attracts a special type of person that's willing to bet on non-obvious stuff. And that's why I find it such an exciting sector.
to be there are mad people trying to do mad stuff but then one day all the mad stuff looks completely normal and then you turn around and say yeah why didn't why was that ever considered a weird thing to do so you do need that optimism I guess my role and kind of where what I think the market is starting to kind of get more tuned to is just the different range of different outcomes. Just thinking.
What does good look like for me? What does good look like for my management team, for my shareholders? How do we make sure this thing that we've built, that we really care about, that we're passionate about, how do we make sure that other people get to benefit from the thing that we know we're able to do better than anyone else? And if actually that's your core mission goal, then there are lots of different ways to get there.
pathways one of them and the private equity pathways one of them and the debt pathways one these are all just these all just become tools in the toolbox like you don't have to marry yourself to the tool right you're married to the mission that's the thing you're trying to solve for And so, and that's what I spend more and more of my time talking to founders about is, like, just tell me, like, you know, founder, guy, girl, just tell me what you want to do. What really matters to you?
And there'll be somebody saying, look, I just want to make a ton of money in Bermuda. And that's cool, man. In which case, there are options for that too. But the majority, interestingly, particularly in this sector, I just want to make sure that... clinicians are able to access this kind of care for their patients i just want to make sure that this bit of you know this element of making it up here diabetes care oncology care it's just done so badly right now we do it so much better
I don't get why people have to get the worst version. Why can't they get the better version? You know, that's a mission. Right now we know the mission. Let's figure out how we're going to get there and let's use money to help us get there, not the other way around. Yes.
yeah i'm really starting to feel like in this conversation that the money is a tool and and that tool appears in certain different forms and there's a different form for a different reason a different tool for a different purpose and i think that's
That's definitely what I'm picking up here. Let's talk about UK versus US or Europe. UK versus Europe versus US. VC is obviously still... the darling of the startup sector, still, you know, probably the most common way to get funding of any significance beyond that sort of seed stage.
where is vc working best do you think i still think it works best when companies don't know the path to profitability and need to take a huge amount of risk And so in the early part of that, the seed stage, series A stage, it almost always is the right type of capital because the other types will just say, look, you don't know how you're going to make a profit, so we're not going to give you the money.
And so there it works really effectively. I guess the counterpoint to that is where does it work badly? It's probably when companies raise too much at the very early stage and therefore have to go for an outsized exit. profile for it to make sense for the early stage investors so they either because they've raised so much money they've got to return 10 times that amount of money you get trapped in a valuation yeah so you get trapped in a valuation you get trapped in an outcome
And that I think that's where it gets tricky. And in that series, B, C and D stage, kind of the growth stage, scale up stage, whatever you want to call it thereafter. I think actually the type of VC investor changes, you see more of what we call growth equity investors who are often from VC firms, but in a separate team.
who look at these kinds of situations where companies are now thinking about real scale-up and how do I scale this business. And they know that they exist in a competitive ecosystem because the founders have options. If you've graduated to a series C stage company, you're probably doing something right. And so there are options for those companies, particularly if they're profitable. And so we often see the best growth stage investors.
The dance isn't so much in the early stage where the founders are just pitching for money and hoping to get some cash from the VCs. It's all one way. On this stage, you often see that actually the best companies... know what their options are, and the best investors recognize that. And so there's almost a two-way pitch to say, look, here's what you want, here's what we want, here's what we can achieve together. And that's where that ecosystem works really well.
Because then you're talking about how the method aligns with the goal. You're talking about how their capital, their resources, their type of capital, the way they deploy it, the resources they have on hand to help. They're talking just about how their method aligns.
lines with your goal and impact which I think is interesting and then it's like an interview isn't it like in part you're always interviewing them type thing like you want to know that you know you're going to be the best fit for your your reasons too and I think Yeah, that is fascinating. And what about geographically? Because we see and we feel and we hear so much about the West Coast, particularly of the US.
I think in the U S as well with, with far more seemingly far more transactions in healthcare. There's more to siphon off. There's more obvious buyers. There's more obvious tracks to monetize and that kind of thing that almost the risk of VC is perhaps slightly less risky because they've got a more mature system where they can critically...
praise their ideas better probably so they probably do have higher success rates i don't know but it certainly feels that way so do you i mean from your from your perspective and view does it does it feel like vc is a bit more successful in the us when it comes to healthcare
There's a ground truth answer to this, which you can get from just fund performance data. I don't have that data to hand. So the honest answer is I don't know, but the truth is out there somewhere. What I would say is that... Thinking about that, from a founder perspective, does that mean you need to go to the US and build your company into the US? I used to be quite one-sided about this. As I've learned more, my views changed.
you know is that like yes certain types of businesses the big money the big revenues the big profits are in the u.s and if you're in one of those types of businesses You've done your validation in the UK or in Europe somewhere and you've got your clinical proof and maybe some small contracts locally, but it's really hard to get scale contracts and to really build something big here. It is probably a sensible idea to think about heading to the US where you can now build on your success.
and continue to grow in a much larger market and a market that's perhaps a bit more willing to pay premium and more any there are the buyers i mean i'm talking about procurement now on behalf of hospital systems or insurers procurement teams are more used to dealing with companies with a novel offering and
able to figure out how to pay you on time and how to not make you do a 12-month pilot before saying, sorry, we've got no budget. You know, all the kind of horror stories you hear in the European ecosystem, right? So for some companies, absolutely, there are some companies where actually...
The founders look at the market and go, there probably is a decent sized US competitor already there. There's nothing in Europe. And we have a business model which works pretty well in Europe. Maybe it's DTC. Maybe it's insurer reimbursed in selective markets. you know maybe it's selling the dates to pharma whatever it is we're able to make money comfortably in europe maybe we should just build a european champion because you know you use the word europe holistically including the uk
There's still a large population of, by global standards, wealthy people who have expensive healthcare. That is a place where you can build informed businesses. Many of the American companies look at Europe and think of it as a series of small fragmented islands and it's difficult to navigate. Why would I expand to Europe when I could just go deeper into my domestic US markets? You don't see the European champions.
in quite the same way. You don't see the American champions coming to Europe in quite the same way. That creates opportunity, I think, for European champions to say, well, we can learn from what they're doing over there. We can do stuff of our own, which is custom to our market.
And we can build something very meaningful in Europe, which maybe eventually the big American players come to buy. Maybe private equity comes to buy. Maybe we put it on a stock market somewhere and becomes a company kind of freestanding forever.
I don't think there's a reason why you don't necessarily have to go to the US. And that's different, because I think once upon a time, I thought, you know, candidly, everything had to go to the US to really make money. My position has changed, you know, been proven wrong. And that's an important thing to reflect on, too, that you can build.
really important european champions and and the investors in the market get that too now and so going out with that pitch and saying look we're going to build the european champion of x yeah Well, not X as in Twitter, but X as in Twitter. Don't do that. Don't do that. Let's not get into that. We'll be on there for another round half. We're going to build a European champion because here are all the reasons why Europe needs this.
why we think no one's going to come across from the US to start, take it away from us. That's a pretty good business to go build. You should totally go do that. And there will be pockets of capital that want to support you on that journey. Ash, this has been incredible. Honestly, I feel like I've learned so much. It's been such a realistic, practical guide to startup financing in healthcare.
You understand the market so well. I mean, frankly, you and I both worked on the ground floor, right? You've been in an Eastish, you've held the laryngoscope and the, yeah, we've all been in there. relieving some trauma there but yeah we've all we've all we've all been there and i think knowing it from the ground up really helps and i think the way that you've you've come at it today has been amazing like actually just educating us about all those different uh types of funding and
exactly what founders should do and i think that's what i'm going to take away from this more than anything which is there is that conveyor belt you mentioned there is that system that everyone thinks they should be following but actually money and financing is a lot more fluid it's a lot more fluid than that you can set deals up in ways that benefit you you can and again to use the the phrases that you've coined like it's a tool
And actually that tool can look different for, you know, change the hammer versus the nail. Like let's analyze what the nail is and then let's pick the right hammer and, and that kind of thing. So I think. that's definitely what i'm going to take away from this which i think has been super important before i let you go just give us a little bit we've got five minutes left like
What is it that you're up to specifically with HL? What does your job look like? Who do you help? And of anyone listening, who should get in touch with you and why? So first, in reverse order. If you're building a company that you think is important, I'd love to meet you and hear about it. I kind of don't care where you are in that process because you just never know when interesting people come out and what comes next, right? Like you and I met.
randomly and look at us years later. So please genuinely reach out on LinkedIn. I would love to connect with people. What do I do for a living is I help... Typically, growth stage founders raise something like 50 to 100 million dollars upwards, which is usually series BC and above from large institutional investors. If you're a founder that's built a business that now needs that large capital injection.
Where do you get that money from? What's the story you need to take to the market? Who are the investors you need to go talk to? How do you put together a deal which gives you the terms that work for you and your existing shareholders? All of that is what people come to us with. And that's what we solve for them.
I kind of put it, I know law founders do a lot of fundraising themselves and do a fantastic job. Most of them could probably argue their legal negotiations themselves, but they still hire a lawyer. So we become at a certain stage of a transaction size, we become your advisor.
you know we're the people who actually say look we've seen this kind of stuff before here's how we would solve for it ordinarily here's how perhaps these investors behave because we've seen them in other deals here's a set of terms that we know are market normal here's a way of structuring this deal which gives you what you need but gives the investors what that we need and we can help put that deal together um and so we work
most typically for the founders of the companies and the companies themselves. We don't typically work for the investors, although we do occasionally if they want us to help support and diligence. But the vast majority of what we do is working for founders and their companies. to help them find the right amount of money and the right type of money to help grow their business. Fantastic. Ash, it's been an absolute pleasure.
absolute pleasure mate let's not leave it another four years before you're on again um i'm sure there'll be lots to talk about as you say this market is changing fast there is lots happening and I really look forward to seeing where this market matures into. I think as we get more clarity on the business models, the buyers, the structures, the value of certain assets and who buys them on that health tech side, I think this sector...
can and will become as important and as famous as it should be. I think it's important that we get clarity on those things in the meantime, though. I think that's what all of us close to the ground floor are trying to do every day. You want the businesses that need to exist to exist in the world. Ultimately, that's a good thing for everyone. The question is now, how do we collectively do it? Let's just figure out parts.
Fascinating, Ash. It's been a pleasure. Thank you so much. Awesome, man. Good to see you. Take care. Remember to subscribe, rate us, and leave a review, and you can head to the description of this episode to follow me on all of my social media so you don't miss out on any of the latest health tech content.