Founder Diligence 101
Hey everyone,
The founder is the most important part of start up diligence. Some of you may be familiar with Warren Buffet's quote:
"Buy a business so good an idiot could run it, because one day an idiot will.”
Unfortunately, the above does not apply to startup investing. An "idiot" cannot start and grow a successful company. Buffet's philosophy relies on excellent underlying business fundamentals.
These simply do no exist in a startup and constant iteration is often the path to success. Below I will walk you through how I would do founder diligence if they were building an EMR (electronic medical record) startup.
Deep Domain Expertise: Do the founders truly understand healthcare? Not just the tech side, but the day-to-day realities of clinics, hospitals, physicians, nurses, and administrative staff?
Regulatory Acumen & Commitment to Compliance: Healthcare data is highly sensitive. Non-compliance with privacy regulations is not just a legal risk; it's an existential threat. Red flags include downplaying regulatory hurdles or viewing compliance solely as an afterthought.
Technical Prowess with a Security-First Mindset: The EMR must be reliable, scalable, and, above all, secure. The technical founders need to possess the skills to build robust software, understand healthcare data standards (like HL7, FHIR).
Understanding of Healthcare Sales & Implementation Cycles: Selling into healthcare organizations is notoriously complex, with long sales cycles, numerous stakeholders, and challenging implementations that require significant support. Founders must demonstrate an awareness of this reality and have a credible strategy for sales, onboarding, and ongoing customer success.
Integrity and Trustworthiness: Handling patient data requires the highest ethical standards. Any questions about a founder's past conduct or integrity should be thoroughly investigated. Trust is the currency of healthcare, and it starts with the people building the system. There is a fine grey line between exaggeration and lying.
Team Cohesion and Resilience: Building an EMR startup is a marathon with significant challenges. Evaluate how the co-founders work together, their ability to handle setbacks, and their long-term commitment to navigating the complexities of the healthcare market.
Thank you for reading,
Rishad
