Our investment thesis

In this newsletter we will discuss our investment thesis. Press play to listen to this newsletter

What is it?: an investment thesis is an outline of your strategy. It should identify the sector(s) you're interested in, why you believe this sector will grow, and the risks involved. Based on your thesis, you'll evaluate startups and reach a level of conviction (low, medium, or high).

Why do I need one?: you need a screening mechanism to filter out your deal flow. There are hundreds of startups raising at any point and its impossible to do a deep dive into all of them. There are also several distractions, FOMO (fear of missing out) being the biggest one. While investing alongside "great" investors is a good signal, it should validate your investment thesis not guide it.

How do I make one?: we'll do a webinar down the line on how to form it, but for now I'll talk about one aspect of it. What is the catalyst/ tailwind behind your investment strategy?

In his book "Outliers", Malcolm Gladwell discusses how tailwinds are responsible for quite a bit of our success. Tailwinds are external events (such as COVID, invention of smartphones, fast internet, wars and regulatory changes). In your thesis, you should try and identify which tailwinds you're banking on.

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Here are two growing tailwinds we are investing in:

1. Home-based care - too much of healthcare is delivered in facilities. These facilities are expensive to run and require considerable workforce. Most people would like to be treated in the comfort of their own homes. Home-based acute and chronic care solutions will continue to saturate the market and certain subsegments (such as care of elderly) remain largely untapped.

2. AI/ML to replace administrative/ clinical tasks - I think we are 5 years out from regulatory changes which will allow software to diagnose and treat. This will be expedited by the worsening healthcare clinician shortage. As more clinicians leave, it adds to the workload of those remaining and worsens burnout. Any solution in this space which involves clinicians “doing more” will not survive.

Updates:

Neel Patel:
Neel is an experienced investor and has invested in numerous startups. He is the current CEO of Zio Health. He will be joining us as an advisor.

Vena Medical: creator of a micro-angioscope for thrombectomy.
We invested in Vena Medical earlier this year. Congratulations to the team for 13 successful cases in Canada. They are currently looking for a Project Manager (based in Kitchener, Ontario) and help around FDA strategy. Feel free to reach out if you're interested.

My angel investing story

After I closed my startup in early 2022, I wanted to remain involved in the space and became more interested in angel investing.

While fundraising for my startup, I met several angels and venture capitalists and on the surface it looked like they were having a lot of fun. I started asking my friends and Google how to get started in angel investing. A friend who was established in venture capital recommended an angel group called Halo Health. I met with them and soon was seeing lots of pitch decks.

I still had no idea how to vet a startup, a process called due diligence. Around the same time I started becoming more active on LinkedIn. I made a purposeful decision to be honest and transparent with my thoughts. As my LinkedIn grew it soon became another source of deal flow both directly from founders reaching out and other investors and venture capitalists.

I had already read a few books on investing when I was fundraising. The ones I liked the most were:

4 books I would recommend to any angel investor

While reading books did provide me a foundation, I still had to invest in my first startup. I came across Vena Medical through Halo Health.  I have a strong propensity towards action without planning, which allows me to get started right away but also opens me to unnecessary risk. 

To be frank, I did not do enough due diligence before investing in Vena Medical and my process has changed considerably since then. They are doing well and although valuations at this stage are hard to discern, my initial investment has likely doubled so far. We will talk about the due diligence process in the next webinar and upcoming newsletters. 

A few of you have reached out asking about sources to learn angel investing. I will keep providing information through this newsletter, other website’s to check out are:

1. https://learn.angellist.com/

2. https://www.angelcapitalassociation.org/

Looking forward to sharing more with you soon. 

Sincerely, 
Rishad 

How do I evaluate a startup?

Here are the things I look for in a startup:

Team: previous successful startup founder experience is ideal. For first time founders we look for grit, ability to learn, ability to apply knowledge, comfort with uncertainty, honesty and transparency.

Product: the product should solve a clear problem. While founders should have indepth knowledge about their product, they should be focused on the problem they are solving. Customers don't buy product features, they buy products which solve a problem they have.

Data: this is becoming increasingly important. Good data is notoriously difficult to collect in healthcare. A good data gathering and processing strategy is a big advantage.

Why now: Market readiness is an important predictor of success. Founders should be able to answer, "why has this not been done yet?". What has changed that makes this possible?

Business model: generating recurring revenue is ideal. The model will likely change but we look for founders who have thought about how to grow revenue exponentially.

Competition: be wary of founders who claim to have no competition. Ideally there are a few competitors with no clear market leader.

Traction: as founders should validate their idea before they build, they should have "some" traction. Early stage companies, especially biotech/ pharma often will not have revenue and thats okay. In the absence of revenue; pilots, letters of intent and an established relationship with potential buyers is helpful.

Market: the market needs to be large enough for a 100x growth potential. As we look for a minimum 10x return on investment, the market needs to have room for this. A growing market is ideal, a new (non-existent) or stagnant market are both problematic.

Regulatory: the founders need to know if regulatory approval is required. If so which class (I, II or III) ? What is the cost and how long will it take? We will talk about different regulatory classes in a future newsletter.

Risks: the founders should be forthcoming with potential risks/barriers and how they will overcome them. I would generally dig a little deeper here, a red flag is if they deny any risks.

Intuition: we believe in a structured approach outlined above, we use our own experience and bring in our network as needed to obtain the answers to the above questions. After our structured approach we factor in our intuition before making a final decision.

Feel free to reach out if there are some topics you would like me to cover

Sincerely,

Rishad