Oct. 7, 2020

Health tech field - how should founders overcome legal and financial barriers? By Sunny Kumar.

Health tech field - how should founders overcome legal and financial barriers? By Sunny Kumar.

Sunny Kumar, Partner at GSR Ventures talks about the healthtech field. How can founders overcome multiple regulation barriers and get through the capital-intense field? How should they get in touch with the right people in healthtech space if they don't have the right network?

Sunny's choice of newsletters that he recommends Fundraising Radio's listeners to follow (I like those too!) - 

StrictlyVC (VC)

Axios Pro Rata (VC)

CB Insights Newsletter (VC/Health/Fintech)

Fortune Brainstorm + Emerging Tech Newsletter (Health)

Rock Health Newsletter (Health / VC)

Seeking Alpha Morning Newsletter (General)

Morning Brew + Emerging Tech Newsletters (General / Tech / VC)

Accelerated (VC / Tech)

Sunny's LinkedIn: https://www.linkedin.com/in/sunnykumar1/

GSR Ventures: https://www.gsrventures.com/


Transcript

And today is a guest speaker, we have sunny Kumar partner at G, us GSR Ventures and today is a guest speaker. We have sunny Kumar partner at G. S. R. Ventures. 

And today we'll talk about going to Gail and Sanford, where the major benefits of those telling universities, how to benefit them. 

When you want to be a star founder or an investor, and we will also talk about regulatory barriers for the health care field. 

So sunny unless you call by, you giving us some background on yourself and on GSR Ventures. 

Perfect, thank you. So much constant dance. A pleasure to be here with you today. Maybe I'll start with my personal background as you noted. 

I did my undergraduate degree where I focused in molecular biology, and at the time, actually, very much wanted to become a research scientist and pursue a pH. 

D, 

ended up after working on a couple of different projects being exposed to the medical side of the field and decided to explore that as a primary career did my medical training at Stanford and at that point, 

had a branching decision to decide how I wanted to augment my medical background and expertise actually decided to go to business school at Stanford as well got my MBA from there. 

And that was a transformative inflection point for me, because actually exposed me to many different ways that I could deploy my medical skillset outside of traditional clinical care arena. 

So, through that actually ended up working on a startup on my own delivering and building a natural language processing technology platform for remote patient monitoring and through that found that I actually just loved the entrepreneurial world. 

There was something. 

Deeply gratifying about building an enterprise essentially from scratch and having a potential to impact. 

Hundreds of thousands, millions, maybe even tens of millions or more individuals far, far more than I could impact individually as a clinician that led me to develop my career more along that pathway. 

And that's how I ended up today at GSR Ventures. 

Maybe a little bit of context on GSR were an early stage tech focus, venture fund that currently has about 303B dollars under management, deploying out of our 7th main fund, which is a 650M dollar combined vehicle and looking to lead. 

Investment rounds and Series A,
and Series B,
stage companies are fund invest across a variety of different sectors, 

including consumer enterprise and healthcare but I primarily oversee our healthcare technology portfolio where our core thesis is looking at opportunities to deploy a emerging technology to deliver healthcare services. 
Far more efficiently and effectively that was previously possible and happy to tell you more about 
what that means during this conversation. 
And we'll definitely get to that part in a few minutes. But 1st, let's start with Gail and Stanford. See if you went to both of those and what's your major takeaway from those universities and what's your. 

Uh, what's the major thing you like there and the major thing you didn't like there. 

That's a great question. 

I think the benefit of having been able to attend those universities is that you get 2 major things 1, 

is that the amount of exposure to a variety of different sets of resources allows you to explore different types of pathways for yourself. 

I'll give you an example at Stanford, where I did my medical training, I would say, probably about 80% of the class does not graduate in the traditional for years for medical program. 

That's not because the students take longer to go through the traditional program. But because as part of the standard medical training, almost every student chooses to augment their standard curriculum with something else. 

Many people pursue a research focus spending time in the lab and working on fundamental questions many like me will pursue a dual degree going to get an MBA law degree masters in public health. 

And others still will go for different types of work experience working at a geo or a non profit, volunteering their time at an Indian reservation. And those types of experiences give you an opportunity to explore. 

Not only how you can be great, whatever that primary goal of yours is, whether that's medical school,
law,
school, 

business school but also how you can supplement that education in a way that makes you a multifaceted person from a skill set perspective and allows you to build on that to do newer more innovative things that require bringing together expertise 

across different domains.
That's the 1st thing. The 2nd, and you'll probably hear this quite often.
It's the network,
especially in certain areas of concentration,
like the Bay area,
having a network of folks that you went to,
that you share an academic background with makes that 1st,
step of getting in contact with someone building out that relationship a little bit easier. 
It doesn't solve everything just to be clear, but it helps that initial connection. Which can create a tremendous amount of value in the long term. 

Right, yeah, I think of versus like, a Y, C off the university it's like, why were you putting on your ankle? It improves the response rate, right? 

There probably has a similar effect, you know, at the end of the day, it's the entrepreneur that's going to make a successful company, but going through a program, like Y. C or 1 of the other leading accelerators can really just help. 

You get that jumpstart on whatever it is you hope to do.
Absolutely, so I know not too many of my listeners are a university students, but. 

Like, 10 or 15% or so for those people who are stealing in universities and thinking of becoming a founder. We're actually trying to start their companies. Now. What's your major advice? What is the thing you would recommend them to do? While they're still in the university? 

That's a fantastic question. I would recommend 2 things. 1 is identify interesting problem at the end of the day every successful company that at least I'm aware of started to wanted to solve a big problem out there. 

And we certainly at GSR Ventures have a bias as to what interesting problems are. And there's a. Broad definition of what may be interesting to you, 

but find something that you're passionate about and ideally is something that affects a tremendous amount of people or causes quite a bit of pain or challenge if you start there then to set up opportunities that you have to work on becomes truly a mess. 

The 2nd thing was actually quite related to that. Most of these problems will exist within a specific domain, but what we find. 

Leads to the most impressive outcomes for startups is to approach that problem from more than 1 angle or more than 1 perspective. You see this in healthcare and the healthcare technology space for I specialize. 

There's a lot that can be done from a med conditions or medical person's perspective to improve the system. There's also a lot more opportunity outside of that. How do we bring technology to the medical world? 

And if you bring together your a core perspective related to the field as well, as a supplemental perspective, which you can build up as a university student, given you have such flexibility and how to organized your coursework your experiences. 

That will make you a much more compelling entrepreneur and much more likely in my opinion, to be able to succeed in having a transformative impact. 

All right, that's a great advice here. I think it's time for us to move on to the major topic of our discussion today, which is. 

The health care field, so I know that regulatory barriers are very, very serious issue for his start values. 

How do you see founders generally overcome it especially on those early stages when they don't have money to hire lawyers and actually yeah. 
Hire anyone that's a great question and I think it comes down to 1 thing that every startup founder has to deal with, which is focus the more focused your solution. The more likely it is. 

You can 1st know what all the challenges are likely to be, when you decide to go after a certain problem and 2 gives you a better opportunity to be able to overcome those regulatory barriers. 

But that by itself, it's not an endall Beall to this challenge. Regulatory barriers have historically been major challenges for startups to be able to come into this space to identify customers and sell effectively to those customers. 

Because if I'm a very large health system, I don't want to take a regulatory risk by working with a smaller, newer startup. So, part of that is also to explore what are additional ways to build out and deploy your solution in a way. 

That can avoid running to some of those challenges. I'll give you an example. 1, new type of care. That's growing. Quite significantly. Accelerate it even further by cope. It has been something called a synchronous telemedicine. 

I'm sure most of your audience is familiar with telemedicine now. 

Certainly after cobit given that majority of appointments are occurring on telemedicine but asynchronous telemedicine takes that a step further and allows you to get care from your doctor without actually having to see that doctor face to face or video to video. 

Now, there's a challenge. There is that the regulatory environment is not ready to reimburse for that type of care no insurance plan that I'm aware of well, at scale reimburse for a synchronous telemedicine care. 

But, because this is a much more efficient way of delivering care. 

What some companies, including 1 that we invested in alphabetical has found is they're able to drop the cost of care so much that they're willing that they're able to get patients who are willing to pay out of pocket for that level of care. 

So instead of traditional urgent care visit, which can maybe cost 100 dollars, even after having insurance, they're able to deliver care. 

Just portal all in cost for about 20 dollars, and that allows for a new modality. They're not currently at least selling to the big health systems. 

They're going directly to the consumer and saying, if you want this type of care, I can provide it to more inexpensively. 

Then you would otherwise be able to access care, right? That's. 

A really good point. You know, I always recommend starting on the small niche whatever feel you're working on not necessarily in health care, but, uh. 

When you start working at health care,
I know that I mean,
there are just so many regulations there even if you don't work with the institutions, there are still numbers regulations, 
which are extremely complicated question is should you have some sort of education that field yourself or is it possible or should you find a CO founder who has that education or is it possible to actually self educate on the fly? 

So, great question, I think, at the end of the day, at team is stronger if they have somebody with the expertise to be able to understand the nuances of the regulatory environment, the health care ecosystem, that can help the whole team navigate that space. 

But that's not a requirement, I think, at. 

At some level, you can certainly teach yourself the fundamentals and make sure that you have a understanding of what is needed in the space. Even if you yourself may not be the person who can navigate all those intricacies. 1 thing that we've seen. 

Is that many of the companies we work with have founders that come from a technical or an engineering background? Not from healthcare background. So how do they actually solve that problem? 

There's 2 ways 1, is that you actually find people who bind to the vision and actually want to support the company. Even if they themselves can't directly be that Co, founder, and instead may want to be an adviser to help support the company in those specific domains. 

The 2nd is,
you actually find an investor or another party that wants to get heavily involved with the company, and can add that specific expertise for example,
in our partnership today, 

our healthcare team's entirely staffed by physicians people who actually understand the nuances of navigating the health system just make clear that doesn't necessarily mean I know every single regulation out there, 

but it does more often than not. 

I can tell you these are all the things you need to be aware of, when building out and scaling a solution in this space. So that you don't run into that issue a year down the road, where you have a possible risk of a regulatory violation. 

Right. That's a very good plan to surround yourself with people with expertize. Even if their advisors by quick full of questions here, this is some topic I can. 

Not sell down on, we choose the compensation for advisors and mentors. What do you think is the adequate stock option pool that you should dedicate as a start founder to those advisors and mentors. 

That's a great question. Maybe I'll answer it directly and then tell you a little bit more about my perspective on advisors and mentors. So for an early stage company is especially 1 that hasn't yet raised funding. 

It is perfectly normal to see advisor grants anywhere from half a percent up to maybe even 2% of the company for someone who's gonna be actively involved in the company for someone who's less involved or as the company matures. 

It's typical for those grants to drop down to about point 1 2.5. in some cases, maybe that 1% total capitalization of the company. 
But I want to use this as an opportunity to expand on how I would think about advisors as particularly early stage entrepreneur. 

If I were to kind of divide the world into 3 buckets, you'll find that there are many advisors out there who can add value to the company just by the sake of their name or their pedigree. 

And those advisors can be quite helpful to companies early on before they're able to. 

To really establish themselves and give them some credibility, make some introductions, but may or may not be able to actually add direct value in helping the company be successful. 

There's a 2nd bucket, which, depending on the space, maybe the largest bucket of all where the advisors spend a little bit of time with you, but don't actually add that transforming of impact and may, or may not even have that pedigree. 

And I would urge entrepreneurs to be cautious when it comes to building out an advisor base that's full of the people in that 2nd bucket. The 3rd bucket is what you really want to go after. 

And those are advisors who are deeply committed to helping the company. Be successful, and we'll spend the time we'll spend the energy in order to make that company make that product make that go to market strategy work. 

Those advisors, my opinion are worth, they're weight in gold, and I would certainly be happy to give up additional equity to bring those folks onboard. That would be cautious. When giving out equity too early around buckets 1 and buckets. 2. 

Very good point and yes, there are numerous advisors. They're not really good advisors not going to point fingers here, but I've seen plenty and. 

Probably, it's not too hard to see who is a real, you know, who really wants to help you and who just wants to take a small sake of your company and just. 

Yeah, there so just cautious there. I would just maybe add that. I do think most advisors are well intentioned, but not every advisor is going to be the, the right fit for the company at that stage. 

So, it's worth in my opinion, spending the additional time, to make sure that the adviser that potential advisor that you're going to work with, is somebody who can add value to the company at the current stage that it's in at the time. 

If you're able to find that person, they're absolutely worth bringing on from a equity allocation perspective. 

Right, right it's just like, I've seen so many people who have Pfizer on their LinkedIn profile and I'm like, okay, well, anyway, we're not going to get too deep into that field, but 1 more follow up question advisory thing. 

How should you. 

How should you structured that contract? Shouldn't advisors say that he, or she will dedicate a certain amount of time for an X percent of the company or? It should be like, X amount of introductions. Where, how can that be structured? 

Yeah, so great question most advisory contracts do not have quantitative metrics. 

Associated with them, whether that's a number of hours or a number of introductions or whatever else it may be, depending on the advisor, and the stage of the company. I actually would encourage 
the company to look into kind of get a formal commit. 
But, honestly, even with a formal commit doesn't necessarily mean that that will actually end up being what that interaction is like, in practice. 

So, what I recommend is, if possible, even before engaging, formally to try in and try and find ways to work with that advisor, to see what they're like to see how much time they'll spend with you doesn't have to be over multiple months. 

But even just a couple of weeks to see what that engagement looks like, and then the next step is,
when you're actually designing that advice or contract,
we recommend, 

generally to take a smaller scope as far as the amount of time that you're looking for the time line of that engagement. 

So instead of signing a 3 year advisory engagement start with a 3 month or a 6 month contract and have. 

Equity and compensation be scaled accordingly and then after that period, if you're happy with the level of engagement, you can certainly look at signing a longer arrangement with that advisor. 

This helps prevent cases where someone may seem like they could add a lot of value initially. 

But then, that value drops off pretty quickly afterwards, prevent the company from maybe over allocating the amount of compensation to that advisor before that's discovered. Perfect. That's just great advice. No small steps. 

Always recommend small steps was moved back to the major topic of our discussion, 

which is healthcare and another thing, 

besides the huge, 

awful complex regulatory barriers that are there another thing that I know off as long sales cycle. 

So, whenever you start working with actual hospitals and similar organizations, the sales cycle can see. 

Like, up to a year, how do you see founders solving variation? How hoping someone accelerate that process? 

That's a fantastic question and probably 1 of the biggest challenges in the healthcare tech arena is dealing with that long sales cycle. There are a couple that I've already touched on, which is looking at alternative ways to access your customers. 

So, for example, instead of perhaps going through a large health system to get to the patients trying to go directly to the patients, sometimes that works better than some of the other solutions out there. 

But at the end of the day, you have to look at what's going to allow your company to scale scale effectively and scale quickly. And in addition to the sales cycle being long, perhaps 1 of the biggest challenges is the pilot phase. That is common. 
And healthcare with many startups that I see, particularly, very early on able to secure very impressive pilots, but having challenges converting those pilots into true commercial contracts. 

From my perspective, that's usually caused by 1 or 2 things. The 1st is the most fundamental, which is solving a real problem for the customer and are they seeing the right value from it? 

Unfortunately, a lot of solutions in the healthcare technology space are fantastic. 

Solutions they create value for patients, they improve quality of care, but unfortunately do not create a strong enough incentive for the purchaser of that solution to adopt it and integrate it quickly. 

I'll give you a broad example.
We saw a lot of technologies being developed in the radiology space where they went, where these computer vision algorithms, 

what support the radiologist and diagnose common findings and things like chest X rays or scans all of the studies that I have seen have shown that these technologies often are just as good as radiologist and radiologist using these 

technologies are often better than radiologist alone. 

However, the adoption of these technologies in the US has been relatively slow because they did not solve that fundamental incentive problem. 

They did not come up with a strong enough value proposition for the hospital system, or even the radiology department to want to purchase these types of technologies. So I found that if you're able to solve that correctly, you're able to get much faster adoption. 

Anyone otherwise another 1 that is quite. 

Specific to health care, although this does generally apply outside of healthcare as well is making sure your solution integrates in a nonobtrusive manner. 

So perhaps the single biggest thing that I've learned working with companies selling to health systems, or even talking to my colleagues in those health systems is that a solution needs to integrate into the workflow as seamlessly as possible. If you're able to solve that. 

You can probably solve.
Somewhere between 50 to 70% of the adoption issues, right off the bat. 

But if you don't solve that, that, by itself can prevent a company from scaling up, and having the type of impact it should, even if the technology creates a tremendous amount of value, if it's not easily integrated, it's gonna take a long time to get through that adoption cycle. 

Absolutely, 

so another thing that occurred to founders complaining across all fields basically is getting in touch with those people, 

you know,
they say even Holly,
I could put my product in the hands of I know manager of a hospital. 
I'm not quite sure. I'm not quite familiar with the terminology there, but let's call them manager of the hospital. So, you know, someone who's in charge of that place. How should founders with no connections in that field? Get in touch with people. 

How can they actually start working with hospitals and big places like that? 

Yeah, I would say there's 3 challenges with that 1 is, as you note, and sometimes it's just hard to get in touch with that person. Just things may be hard to find out who they are, or figure out how to contact them. 

But they're actually 2 more fundamental issues in healthcare that actually make this particularly challenging. 

1, is that at every hospital or every health system, that person is different, the person who makes those buying decisions is different from system to system hospital hospital. 

Maybe, for example, for healthcare tech solution, the chief medical Informatics officer may be the chief data officer. Maybe the CFO maybe maybe the department share any of those. 

Persons in the system might be the decision maker, but in another system they may not be so that adds a little bit of additional complexity. 

The last 1 is that even once you've identified the right person, 

that person maybe getting so many of these prompts that it's difficult for him or her to be able to distinguish which 1 here adds true value and which 1 here is more hype than substance. 

So, in order to figure out how to navigate that effectively, what I find is the best way to get in touch with the right people is to go to conferences or events where that audience is going to be there. 

So, for example, if you're selling a hospital cyber security product, the healthcare cyber security conferences are going to be the best place to find the right the right decision makers are going to be able to help accelerate the company. 

Now, of course, that's a little bit more challenging in the coven area, because these events are much much less frequently done in person, but that will pass. And when it does pass, I would encourage you to go down that route. 

The last is to find a way to show that your product has value even early on and that's usually by working with a champion or stakeholder who sees the value of your product, who wants to use your product and is willing to do. 

So even if it's on a small scale to show that this creates value, and then have that champion, who may be attending physician, as opposed to an administrator help carrier product to the right person. 

Eventually we found that our companies, including wanting the technology space called pharaon was very successful by going down that route. They didn't go straight to the ultimate decision maker. 

They went to the person who would see value from this product, convinced them up the value of this product, and then worked with that collaborator and that clinical champion to bring the product through the company through the right administrative channels to actually end up with a purchase. 

Right champions is a great way to go. And 1 more question I want to ask about this topic is I know there are. 
I'm not sure if there are many tools for that, but I imagine that there is more than 1 tool to get 
introduced to people like. 
Heads of hospitals again, not that familiar with the terminology there. So, my question might sound weird, but I know that there is a tool called hunters dot. I. O, I personally checked out their pricing plans and they're horrible. 

Honestly, like, it's waste a 1000 dollars per introduction. We're just. 

Insane, but do you know any tools that you would recommend for founders to get in touch with particular people, or just expand their networks? 

Yeah, it's a great quick question, and I have seen the rise those types of services have been around forever, but they've become more popular in the last few years. 

And I would generally agree with your assessment that in most cases, they don't add as much value as you might like, for the company. 

What what certainly works very well is if you're able to find a way to network to the person that you're looking at, even most doctors and healthcare professionals do use. 

So, if you can find a way to get a warm introduction to those target persons, that can make things a lot easier. But the flip side of it also, is that there are. 

Thousands about 5000 hospitals in the US. They're probably about 10% of those, roughly 500 or 600 who are very open to adopting technology. 

So, 

at the end of the day, 

it takes just quite a bit of hustle to make sure that you're covering the right ground reaching out to the right people making the connections whenever possible and not every connection is going to lead you to the right person at the end of the day, 

but if you do that enough over and over again with enough repetition,
you will eventually get in front of the right people for an early stage company. 

That's still trying to prove out the value proposition of their product. My opinion, you really only need 2 or 3 champions, 2 or 3 potential customers to validate the product. And then once you have the validation, the whole process becomes quite a bit easier. 

Absolutely hospital is completely required here and by the way the advice to go on conferences is Curry. I've personally seen numerous founders who got their 1st investments 1st partners. 

1st Co founders 1st buyers on those conferences. So, it might be boring and not as effective now during once everything is a zoom, but once the normal life is back. 

Definitely definitely go to those conferences. Great place to network. Sure. We're moving on to. Discussing GSR Ventures again, so, um.
Yeah, I'm trying I'm going to cut that sentence out. I'm thinking about the next question to ask her. 

All right yeah, so here, we're moving back to the GSR Ventures, and specifically to the previous investments that is done. So, 1 of the investments that you've done already had an exit. 
And the question is, would you recommend founders to aim to that exit from day? 1, or. 
Try to accelerate that process in any way, or just try to go with the flow. Sure. That's a great question. I think it also very much depends on the personal preferences. Founders. 

In many cases,
any significant exit, 

whether that be a 30M dollar exit 100M dollar exit or a 1B dollar exit can create significant windfall for the entrepreneurs who, 

especially for early stage companies tend to own the majority of the, the company stock between how many of our founders,
there may be,
but the real question also is, 

you know,
what kind of impact do you want to have? 

We adjust our Ventures, have a big biased towards looking at outsized, transformative impact. And historically, the companies that are most able to do, that are the ones that actually scale. 

Independently of a large company, because they tend to maintain their nimbleness and their ability to adapt to changing circumstances, far more efficiently than a much larger company. Even if that larger company as well capitalized. So when you. 

Make that personal decision, depending on what sector you're in, you may choose from day 1 to look at who are the potential acquirers in space? What would they be looking for from an acquisition, which tends often to be more technology and product than actual commercial traction? 

Or you can decide to focus on scaling an independent enterprise, focusing on growing commercial traction and building out the business that way. 

The reason why I encourage you to do that early is because it does actually affect what you focus on as an entrepreneur, 

what you optimize for and how you build the business also how much capital you take on and what kind of investors you choose to work with, 

so, 

I think at the end of the day, 

there's no absolute right or wrong, 

whether or not, 

you should focus on an exit from day 1 but I would highly encourage the entrepreneurs to think about what is in their personal ambition. 

What's in their personal best interest and then once they've made that decision, choose how to build a company around that, rather than the other way around. 
Perfect great advice. And here on that perfect advice, we're moving on to the last question of today's episode, which is a call to action. So, what's the 1 thing you want to do? As soon as the episode is over? 

Fantastic, it's a great question. I think today, especially in the healthcare arena has just created such tremendous change and disruption across the industry. 

I think you can't mentioned without acknowledging the significant pain that it's caused all throughout the world. But it's also created opportunities for entrepreneurs to go out and create that type of transformative impact that I was mentioning. 

My call to action would be looking at how the world has changed over the last 8 months. 

Where is 1 particular area where you think you can make an outsized impact based on your background, your experience, your skill set and then within that area think about how you can. 

Affect that change, bring it into reality. What you'll find is that more often than not these disruptive events like, coven, create, such, unique opportunities, that with enough thought and reflection. Many of your audience. 

Listeners will find that. They themselves have the opportunity to create a transformative impact. If they're if that's their passion. 

Perfect as a really positive call to action I like it. And Michael's section is going to go to the description of this episode. I'll leave a bunch of links there. I'll check in with sunny by the way to see if he will recommend any particular sources for you to take a look at. 

But whoever is whatever I'll leave there. It's going to be interesting. So definitely check it out and have a good day.