VCs: Nashville 'doesn't exist' in minds of many healthcare, tech investors
By Milt Capps
Published Wednesday, May 21, 2008 8:55 pm
Woolsthorpe CEO Kin Clinton
On Monday, Kin Clinton, CEO of Woolsthorpe Technologies, told VNC he has learned the hard way that Nashville's healthcare prowess isn't nearly as well recognized among U.S. money-center investors as he wanted to believe.
For months, Brentwood-based Clinton has been scouting for sorely needed venture capital to bring his cardiovascular monitor to market. If Nashville money doesn't soon step up, Clinton may be forced to deal with investors who'd require he relocate the company.
He said Wednesday that of four potential investors (none from Nashville) who are currently in pre-deal due diligence with him, "ALL firms have heartburn about this being a Nashville-based company."
During Clinton's sorties to such investment watering-holes as Menlo Park-Palo Alto and New York City, he said he was "disappointed" to find that in the minds of investors there, "Nashville doesn't even exist."
Wednesday, a similar conclusion was delivered by a panel of experts assembled for "Financing the Deal," a conference sponsored by the Nashville Health Care Council and attended by more than 450 executives.
Not to worry: Program moderator Senator Bill Frist, M.D., now a partner with Cressey & Company, said that no matter how flat the rest of the economy gets, how steeply banks "deleverage" or who's in the White House come January, "we're going to be putting more money in healthcare."
Still, if Nashville casts a smaller-than-expected shadow on the investment landscape, that could limit local companies' and investors' participation in the next wave of growth.
Panelist Charles Ditkoff, who is Banc of America Securities' co-head of global healthcare, told the audience that framed copies of the Health Care Council's annual Family Tree hang on the walls of his office on 57th Street in New York City. There, he said, visitors are typically "taken aback" by the number and diversity of companies branching-out from HCA and other progenitors.
Fellow panelist Allen Moseley (at left), general partner of Atlanta-based Noro-Moseley Partners, explained that investors don't associate "Nashville" -- or Southeast cities, generally -- with any kind of technology.
Then, as if the point needed to be sharpened, Jon Santemma, who is UBS Financial Services' global healthcare investment banking group's managing director, told the audience that he finds that the money-center investors who are most deeply involved in biotech and medical technology are typically unaware of Nashville's success in traditional healthcare services.
Several panelists stressed that both consumerism and government will increasingly rely on technology to improve transparency, quality, transaction processing, etc. -- meaning a premium on technologies that enhance the payments, reimbursements and revenue cycles.
Because of that, Moseley suggested healthcare technology companies based elsewhere may soon recognize that in Nashville there are "a lot of people here who know how to execute" and who could be valuable additions to management teams.
Execution is crucially important, said Moseley, because introducing technology into providers' operations is tantamount to "operating on their aorta."
Robb Vorhoff, vice president General Atlantic LLC (recently part of the final buyout of Emdeon Business Services) said he believes many investors share his interest in longer-term investments in companies with strong management and driven by secular trends.
In keeping with that longer view, Moseley said he believes private enterprise will continue to take on roles previously held by government, offering better quality and efficiency in the bargain. In fact, he said, it's close to time for some major players to "make a big bet on who wins in this space." Despite the sounding of economic alarms, several panelists suggested declining corporate valuations could actually provide venture capitalists fresh incentives to make such moves.
As the NHCC program adjourned, Clinton told VNC he felt the panel had validated his earlier assessment of Nashville's problem.
However, Woolsthorpe faces an immediate challenge: There are, he said, no firms in Nashville that have been "lead investors in technology or what I call medical-device deals." He said that while there are some local high net-worth individuals who are interested in Woolsthorpe, they won't act without a strong lead investor.
Clinton said the Woolsthorpe has spent nearly $12 million developing the product and has raised more than $7 million in the past six years, but needs up to $5 million to bridge the next 18 months.
Meanwhile, he said he cannot rule-out moving Woolsthorpe away from Nashville to another city, to satisfy venture capitalists. He noted that due to the uncertainty regarding financing, he's been reluctant to relocate to Nashville a portion of the company's total 19-person workforce who live and work for him in other cities.
Clinton said he's already talked with some interested investors and other parties in his native Alabama, though he much prefers to remain in Nashville. ♦