Fireside Chat with a VC

Dr. Akhil Saklecha, a practicing physician and Venture Capitalist discusses his advice for entrepreneurs and views on start-up investments with Aloke Bhandia, Editor-in-Chief of TiE SV’s monthly newsletter, Entrepreneur’s Edge.

1. You are professionally trained physician with a very established practice, how did you become a Venture Capitalist?

I have always had an interest in business and becoming an entrepreneur. In fact, I nearly dropped out of medical school in my first year to join a company, but my parents convinced me to stay in school arguing that I could always do something in business after I got my MD. As an attending physician, I became actively involved in the administrative side of my medical practice – managing multiple urgent care centers, leading quality improvement in a hospital chain, directing a county EMS unit, running an emergency department, and finally, becoming CEO of a large physician organization. Following this, I became involved in hospital administration for a large tertiary-care medical center.

As I looked forward, I felt that my career path was lacking in its ability to drive and participate in innovation. Most hospitals are mid-to-late adopters of technology and reluctant to take risk. I started to actively advise some med-tech startups in product and business development and discovered a real connection. I was introduced to venture capitalism soon afterward and felt an instant connection. I love the ability to participate at the 30,000-foot level strategically and then running at the ground level to drive sales when needed. But the most fascinating aspect is being able to meet all of the passionate, motivated, remarkable individuals who want to make their mark on the world.

2. What are the most important aspects of a new business that attracts you for investment?

I believe the three most exciting aspects of a new business are that the problem being addressed is extremely large, the product is an absolute “must have” for the market, and that I have confidence in the ability of the team to execute.

3. What area you are currently interested in investing?

I love the consumerization of healthcare. We are seeing a tremendous decentralization within medicine – providers of care have shifted from physicians to physician assistants and nurse practitioners; hospitals have pushed care management to outpatient clinics; and lab instrumentation has moved to point of care delivery. In addition, insurance companies and employers have increased the financial burden on both providers (decreased reimbursement) and patients (increased premiums and deductibles). The net of all of these actions is that patients, aka consumers, have to become more engaged and take a pole position in this process. The only logical way to accomplish this is to incorporate technology that will enable consumers to visualize their individual health identity and take actions to improve their wellbeing. The emphasis needs to be dichotomous by helping the diseased consumers better manage their conditions and by allowing the healthy consumers to stay that way.  We are starting to see a number of startups utilizing the IoT approach to bridge this gap including Scanadu, CellScope, and Sano. These are just the initial forays with bigger and better initiatives on the horizon.

4. What do you mean by “White Space Investing”?

Artiman invests in White Spaces which we define as wide, open playing fields where there is no, or limited, competition and where the potential is seemingly limitless. These are big, bold ideas that often use transdisciplinary technology or skills to enter or create new massive markets. One example of this is HomeUnion. This is a financial services startup that is bringing institutional-class real estate investing to the retail investor in the single family home rental market. Most single family home investors live near the properties they purchase in order to personally manage them; however, many of the homes with the best cash flow returns can be hundreds of miles away. For instance, in the San Francisco area, investors are betting on appreciation of the underlying asset since monthly cash flow doesn’t even make the mortgage payment. HomeUnion offers a trusted platform for that optimal return using an end-to-end comprehensive solution from remote property selection to financial leverage to management, and finally, to an eventual sale. HomeUnion does this via a proprietary data-driven approach at the neighborhood level, which allows consumers to purchase portfolios of homes in order to achieve their financial goals – essentially becoming the “Charles Schwab” of real estate.

5. What would you recommend for entrepreneurs to do in order to get your attention?

I do meet with entrepreneurs who email me or call me, but the best way to get my attention is to get an introduction through my network. Invariably, it is human nature to spend time with those who are introduced to us by people we know and trust. Working this system is a work of art in and of itself. Besides if you can’t find a way to get to me through my network, how can I expect you to get to customers?

Once you have my time, show me how you are going to hit a home run in a multi-billion dollar market by creating a “must-have” solution in an area without much competition. Start by sharing your story of how you came up with the idea for the company, how you developed and nurtured it along, and why you want to build something big. Convince me that you want to go all out over the long haul through thick and thin. That level of passion, excitement, and depth of thinking is truly invigorating and gets my attention.

6. Once you decide to invest, what do you typically do to assist them besides funding?

One of my mentors once said, “The best thing you can do is try not to add value when it isn’t needed.” As venture capitalists, we do sometimes make the mistake that our opinions, comments, and ideas will help our companies when in fact the entrepreneur in the trenches has the real pulse of the market. That being said, our real value is in sharing our collective experiences – both failures and successes – as well as our rolodex of individuals that can make an impact on the company.  We are actively engaged in all of our companies so that our interaction is meaningful and we can truly help shape their destinies. In short, we are partners from Day One.

7. What are the key risks you avoid while deciding to invest in a business?

We typically assess and manage the following risks:

  • Technical risk: Ideally, we want to have a proof of concept and understand that potential manufacturing costs will be manageable.
  • Market risk: We want to enter a large addressable market with an understanding of external risks including adoption, regulatory, and competitive risks.
  • Team risk: We want to make sure there is the right team building passion to recruit the best individuals with the potential to execute flawlessly

8. When do you decide to exit from an investment?

I follow the old cliché that “great companies are bought, not sold.” I don’t think we have ever decided to successfully exit from an investment without an external stimulus driving the change. In reality, a company will reach an inflection point at which point the public markets offer a cheaper source of capital for continued growth or the company’s performance attracts outside suitors based upon their own need for growth. Most importantly, we need to be in sync with the entrepreneur and work as a team. We align our vision from the beginning and make sure that the entrepreneur truly wants to build a billion-dollar company. The worst thing we can do is to force a situation by doing something the entrepreneur does not want to do. By establishing a partnership, we do the right thing for the company, the team, and the investor base.

9. Can you give an example?

Virident was an Artiman portfolio company that was acquired by Western Digital in 2013 for $685M. We weren’t really looking to sell the company, but when we were approached, we decided to bring in bankers and lay out the groundwork. Given the concern that competitors could acquire the company in the following year, Virident was essentially bought early at a premium based upon future product and revenue.

10. What is your one advice for budding entrepreneurs?

When people say what you are doing is impossible and can’t be done, don’t run away. Instead, figure out if the reasons represent an absolute, meaning the laws of physics won’t allow it, or if it is just an expression based upon fears of regulation, adoption, or cost. Some of the most successful startups today have embraced this challenge and disrupted perceived monopolies or found opportunities when pushing beyond where others had stopped. Some of the popular examples that come to mind are Uber and Lyft which are challenging the age-old taxi cab monopolies and similarly, Airbnb taking on the hotel cartels. Both of these sectors have significant regulation that protect the incumbents, but at the same time, are large markets that are ripe for change – thus creating the right ingredients for disruption.

Dr. Akhil Saklecha is a Partner at Artiman Ventures and a practicing emergency physician at Good Samaritan Hospital in San Jose.  He is also an Assistant Professor of Emergency Medicine at Northeastern Ohio Universities College of Medicine.

This article is part of issue 4 of TiE SV’s monthly newsletter, Entrepreneur’s Edge.