Even though he was still in residency, Dr. Jay Joshi didn't hesitate to launch a startup. Now he's funding them, too.
The Chicago “doctorpreneur” has assembled a group of about 30 physicians to fund healthcare-related startups at the earliest stages. His pitch is simple: Doctors generally have capital and need to diversify their finances beyond their own practices and the stock market. Meanwhile, one of the biggest barriers for healthcare entrepreneurs is finding investors comfortable enough with the sector.
“There's a camaraderie,” says Joshi, 31, whose primary care practice is in northwest Indiana. “Physicians want to invest in other physician-led startups. It takes out a lot of risk. They are living and breathing the market innovation they're trying to create.”
Joshi raised less than $1 million from several physicians and a former sales executive at a medical-products company for his startup, Output Medical. It makes a device to automate a common procedure that he saw during his medical training: monitoring and recording a patient's urine output. The product is in the prototyping phase at Insight Accelerator Labs in Ravenswood. His investors asked him if he knew of other startups like his.
Lack of seed-stage funding is one reason that medical and healthcare startup activity has lagged the digital startups that have taken off in Chicago in the past decade. (Medical devices and pharmaceuticals generally require U.S. Food and Drug Administration approval, too, which takes time and money.)
Joshi's group, MD Angels, is one of two healthcare-focused angel groups that have sprung up recently. Chicago Capital Partners has about 10 physicians who have done 15 deals in the past three years. MD Angels, formerly called TiE Angels Midwest, has done a couple of deals since launching last year. It meets quarterly and is making relatively small investments of $100,000 to $150,000 per deal, with $10,000 to $15,000 per physician, Joshi says. But such small deals can have an outsize impact on a startup.
“The hardest funding is your first 'stranger' money,” says Dr. Erik Kulstad, an emergency room physician at Advocate Christ Medical Center in Oak Lawn and founder of Advanced Cooling Therapy, a medical-device startup that recently won FDA approval for its product. “You can bootstrap and make it with funding from friends and founders only so far.”
Angels, or groups of individual investors, have played an important role in boosting startup activity from coast to coast. In Chicago, many of them have sprung up from alumni networks, like the University of Chicago's Hyde Park Angels or the University of Notre Dame's Irish Angels. Joshi—who graduated from the University of Illinois College of Medicine in Chicago in 2009 and got his MBA from U of C's Booth School of Business in 2011—and others are organizing around their profession.
One reason doctors are stepping up as angel investors is the change in their own job status. As more formerly independent physicians become employees of large groups or hospitals, they have more time to get involved with outside activities.
There are other investment options, of course, that most people consider less risky. But there's a certain appeal to Joshi's Peter Lynch-inspired pitch to docs to invest in what they know. “We can't invest in real estate because we've grown up in a cocoon and have absolutely no idea how the world works otherwise,” says Dr. Andrew Albert, a gastroenterologist at Advocate Illinois Masonic Medical Center in Chicago and doctorpreneur who co-founded a software company called Fibroblast.
For entrepreneurs, medical professionals' knowledge is as important as their money. “You can't just throw $50,000 at it,” says Sachin Gupta, a member of Chicago Capital Partners whose day job is in healthcare investing at Skyline Global Partners, a private-equity firm in Chicago. He's also a mentor at Matter, an incubator for health-tech startups at Chicago's Merchandise Mart. By turning to physician-investors, Gupta says, founders of medical startups “have networks of doctors they can call on, and you can get valuable advice on demand.”
Doctorpreneurs understand that, too. Dr. Marko Rojnica, a surgery resident at University of Chicago Medicine who also has an MBA from Booth, is a co-founder of ExplORer Surgical, a six-person startup that makes software for surgery. “You're looking for investors that bring more than just money because there are these hurdles for healthcare startups, such as regulatory matters,” he says. “You want people who can open doors.”
If you're in the startup biz, the doctor will see you now. If you're lucky, he'll bring his checkbook.