Corrections or additions?

This article by Barbara Fox was prepared for the January 17,

2001 edition of U.S. 1 Newspaper. All rights reserved.

Help for Health Start-Ups

Last year’s wave of capital is enabling startup

companies, says venture capital consultant Ted Stack. "The economy

has allowed later stage investors to take a closer look at companies

in an earlier stage. Everyone is looking for portfolio diversification

and has become more competitive." Individuals with sufficient cash

to be considered venture capitalists are now doing angel investing, he

says, "and this has fueled a whole new type of investor."

Stack and his partner, David Wilson, have founded InHealth Venture

Management to capitalize on these new funding opportunities. They

call the firm a "business accelerator" or, alternatively,

"a venture capital firm without the capital." In other words,

a new kind of consulting company. It operates in Forrestal Village

under the aegis of Niix/Apex Group Holdings.

But though investors may have plenty of cash, they are more careful

than before, says Stack. "Though some VCs continue to amaze you

on what they fund and for how much, most want a good business plan,

a good management team, and connections to the first clients."

Stack’s firm aims to provide those items for their portfolio

companies.

The first of its three clients, CareHub, is a Boston-based healthcare

tools designer for the geriatric market. Intelhealth, in Malvern,

Pennsylvania, has a wireless platform for clinical results and does

order entry for providers on PDA. The third client, Chicago-based

RXaminer, is an Internet-based consumer friendly formulary that shows

the best cost alternative for a prescription.

Wilson and Stack were introduced to each other in 1996 by attorney

Sharon Klein of Pepper Hamilton in Philadelphia. "She thought

we were both very entrepreneurial, that our views of the business

were compatible, and that we could do some interesting things."

says Stack. The partners raised their own money (individually and

with Apex Group Holdings) for their own start-up, and they hope to

turn a profit next year.

Wilson was born in Winnipeg, where his father was a firefighter, and

majored in mathematics and statistics at the University of Manitoba

(Class of 1973), before earning a master’s degree. He was an insurance

consultant at Great West Life Assurance and with William Mercer in

New York and Foster Higgins in Princeton. He left that firm in 1993

for Apex Management Group, a healthcare actuarial consulting firm.

Wilson focuses on strategic planning and high level technical support

but also meets with potential investors to talk about the technical

aspects of what a new enterprise might do. "I explain the

technology

to investors and talk about how it fits into the marketplace,"

he says.

Ted Stack grew up in McLean, Virginia, where his father worked for

AT&T. He majored in accounting and finance at James Madison

University,

Class of 1986, and worked with what is now Ernst & Young for six years

in the healthcare and insurance consulting practice. Then he spent

eight years with three startups, including one that he founded and

sold.

Stack works as the interim CEO who provides the entrepreneurial

experience.

"The young companies need someone to step back and think through,

not from an emotional perspective, how to deal with issues that come

up," says Stack. "The whole process of raising money involves

the ebb and flow of emotions, from one day of having investors you

think will invest, and the next day having no one, and then next week

another group comes that you think will invest. If they don’t know

what to expect they get overwhelmed, and they give up in a lot of

cases."

"You have to hang in there until everything has been tried,"

says Wilson. "There will be victories and defeats along the way.

The emotional rollercoaster is not unlike the emotional rollercoaster

that a cancer patient rides."

They often look at deals forwarded by former colleagues who have

received

business plans from companies in early stages; they are not yet ready

for venture capital or the services of an investment banker. "We

deal only with the subject matter we are expert in," says Wilson.

"The referrals we get from the VC world are often driven by the

fact that they respect our knowledge in this area."

"Venture capitalists don’t get involved with the level of personal

issues that come with the starting a company," says Stack.

"They

may not know what it is like to mortgage your house and lay everything

on the line. We have started our own companies and we know the issues

in growing a company. We can bring key things in perspective and not

get wrapped up in any one aspect."

"We look for an initial 5 to 10 percent equity of each of the

companies we deal with," says Stack. "We will look at

any

startup company. We will spend time working with folks to see if there

is any match with what we do. We think we provide a lot of good advice

as we do our due diligence. VCs don’t give you our perspective; We

give you the entrepreneur’s perspective. But we can do a great service

to the investment community by solving the issues that professional

investors will have before they invest the money. We might need to

tell someone straight out: You have to hire a CEO to make this company

grow."

Stack says that his and Wilson’s entrepreneurial adventures help to

attract clients. "Also, we are not an expense item; we are not

taking a pay check. The only reason we get involved is when we think

we can accelerate some key component of your company and turn it into

an equity interest in 12 to 36 months. Our incentives are directly

aligned with the organizations that we work with."

That Inhealth Ventures gets paid in common stock, just like the

founders,

also helps to align Inhealth Ventures with the founders, says Stack.

"No one can claim we had had a different incentive."

"We thought about evolving into a VC fund early on," says

Wilson, "but that would put us in competition with our

allies."

Instead of money, his firm will invest intellectual capital in the

young firms. "We have a network of relationships with VC folks,

and we hope to provide honest feedback to help them not waste their

time."

"Our short term goal is to build a real brand identity," says

Wilson. "To do that we will have to expand our staff and will

be looking to hire some talented MBA types toward the end of next

year."

Stack tells of a portfolio company that hadn’t been paid after two

months and didn’t know what to do. "The two individuals involved

had never been in a position of dealing with customers before."

Stack called the company himself, reminding the firm that it had

signed

a legal contract and asking if they were going to honor it. "There

are a million little decisions to make," says Stack. "The

entrepreneurs don’t know what they don’t know.

InHealth Venture Management LLC, 125-310 Village

Boulevard, Princeton 08540. David Wilson and Ted Stack, co-managing

directors. 609-452-7100; fax, 609-452-7134.

Www.inhealthventuremgmt.com.


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