Douglas Smith, former president of HCA Management Co. and co-founder of Brentwood, Tenn.-based Quorum Health Group, had a habit of giving out free advice to people wanting to break into healthcare.
Now Smith and two other former executives plan to start charging for their services. They have joined forces to create what they call a venture management firm to provide advice and seed funding to healthcare start-ups.
The Brentwood-based company, Evergreen Investments and Management, was formed in November by Smith, Terry Bryant, co-founder of physician practice management company PhyCor, and Phillip Gibbs, founder of Executive Learning, a management consulting firm. All three are principals in the new venture.
Observers say they haven't heard of similar firms that are willing to lend management expertise coupled with seed financing. Nashville-based Laura Campbell & Associates, a 1-year-old firm, advises healthcare entrepreneurs on how to launch their businesses but doesn't provide seed money.
Laura Campbell says she knows of several people who individually invest in start-up companies, but none had formed a formal limited liability company like Evergreen.
The three Evergreen partners have accumulated an initial capital reservoir of $1 million to invest in start-ups or companies in the early stages of development. Eventually, as its initial investments start paying off, Evergreen's partners hope to open the fund to other investors. Bryant says Evergreen plans to invest $200,000 to $250,000 in each new company; the goal is to invest in five to 10 companies over a five-year time frame.
Evergreen plans to charge each company a monthly fee of $2,000 to $10,000, depending on the services the client needs, a company spokesman says.
For start-ups, getting the cash is dependent on letting Evergreen come in to provide what's needed most, including strategic, financial and operational planning. One of Evergreen's principals also will keep an eye on the firm's investment by becoming a board member of the new company.
"We're trying to fill the niche that's needed just prior to the venture capital stage," Gibbs says.
While the seed funding might be small, it's usually the jump-start new companies need to reach the next level of funding: attention from venture capitalists. Through both financial and strategic resources, Evergreen will help shape a new company's objectives so that it becomes more attractive to venture capital firms, whose minimum funding levels usually start at about $1 million.
And more often than not, venture capital firms don't have the time to do the hands-on work Evergreen will offer during a new company's earliest stages -- when that kind of assistance is needed most, Bryant says.
"I think we're actually an asset to venture capital firms," Smith says. "We provide the on-ground kind of support they don't have time to do."
John Runningen, a principal at Atlanta-based venture capital firm Cordova Capital, says many entrepreneurs have the vision of a new product or service but lack the expertise in executing a strategic plan and getting the company out of the blocks. The management advice Evergreen can provide to a start-up could prove more valuable than the seed funding, he says.
"The first thing we look at is the management team -- whether they have good judgment and leadership skills," Runningen says, adding that Cordova's minimum investment is $1 million. "If they don't have (a solid management team), the numbers are meaningless."
Runningen says new businesses sometimes fail because executives don't know they need to concentrate on what they do best and farm out strategic management concerns.
Evergreen's services also are attractive to venture capitalists because they can pre-screen new companies.
"When (the start-up) comes to us, six, 12 or 18 months later, they come with (Evergreen's) endorsement of that company's management team," Runningen says.
The Evergreen strategy might be more attractive to small and medium-size venture capital firms than larger firms whose minimum investment might be as much as $50 million.
Most larger venture capital firms also require a majority interest in the companies they invest in. That can stifle the entrepreneurial spirit of a company if the founders essentially become employees of the venture capital firm. Runningen says Evergreen's approach allows the entrepreneurs to maintain control but still adds value to the company by diversifying board membership.
The Evergreen niche has piqued several entrepreneurs' interest. The firm has made its first investment in Brentwood-based Passport Health Communications, a healthcare technology company that provides Internet consulting services and related products. Passport signed a deal last week with Blue Cross and Blue Shield of Tennessee to create a secured "intranet" site so providers can access data.
Since Evergreen opened for business, executives have received three to five new company proposals a week, Bryant says. He says the company is considering three to four proposals but has turned away many more.
"We are pretty conservative initially because we want to get a decent track record," Smith says. "Our real success will depend on whether the businesses we've invested in will be successful."
