Making the Connection
Making the Connection | HealthSpring, HealthStream, Robert A. Frist, Jr., David Swenson, Herb Fritch, Fred Goad, Nashville Health Care Council, Nashville Capital Network, Caroline Young, Sid Chambless, Ron Samuels, Sarbanes-Oxeley

Panelists (L-R) Ron Samuels, Robert Frist, David Swenson, Herb Fritch and Fred Goad discuss Nashville’s funding climate for entrepreneurial endeavors. Photo Credit: Ed Rode.

Everyone loves a winner.

And on any scorecard, HealthStream and HealthSpring would fall into that category.

The Nashville Health Care Council and the Nashville Capital Network focused on the founders of these two local corporations and their skilled venture capital investment advisors as examples of some of Nashville’s most successful healthcare startup ventures at a sold-out seminar showcasing their winning growth and funding strategies.

Counted in Nashville’s 18 publicly traded healthcare companies, HealthStream and HealthSpring are among the most recognized names in the city’s $70 billion healthcare industry cluster.

Headlined as “Entrepreneur-Investor Collaborations: Developing Healthcare Ventures,” the gathering at the Loews Vanderbilt Plaza Hotel on Aug. 18 drew a local “who’s who” of players at the epicenter of the healthcare industry and highlighted the dynamic relationship between sophisticated venture capital investors and successful entrepreneurs that drives one of Nashville’s most important economic segments.

Caroline Young, president of the Nashville Health Care Council, welcomed the group and recognized presenting sponsor Bradley Arant Boult Cummings, as well as supporting sponsors Avondale Partners, KPMG and Revive Public Relations.

“Nashville’s entrepreneur and investment network is unparalleled, and its established track record in creating leading healthcare companies has been widely acknowledged on an international level,” she said. Young added, “This afternoon’s panel members are well-known leaders in bringing cutting-edge ideas to market.”

Moderated by Ron Samuels, chairman, president and CEO of Nashville’s Avenue Bank, the panel showcased the collaborations between entrepreneurs and investors — Robert A. Frist, Jr., CEO of HealthStream and early investor David Swenson, founding general partner of ColemanSwenson and a venture partner with SSM Partners, and Herb Fritch, chairman and CEO of HealthSpring, and investor Fred Goad, partner in Voyent Partners, LLC.

All four panelists, who have impressive achievements in both starting and funding businesses, agreed on the importance of the fundamentals: having a strong business plan, defining a need and articulating a clear vision of where the business would fit into the emerging marketplace.

Goad and Swenson emphasized that they look first for a talented management team in their evaluation of various investment opportunities, Swenson citing an old venture capital maxim: “Give me a strong management team and a weak business plan before giving me a weak management team with a great idea.”

Firtch said, “It’s all about proving that management knows what they’re doing.”

Frist said he co-founded HealthStream, a leading provider of learning and research solutions to healthcare organizations, in 1990 … “right on tailwinds of the dot.com bubble.” HealthStream now employees more 450 people and serves more than 100 hospitals across the country.

He stressed that he and co-founder Jeff McLauren self-funded their business while cultivating the outside capital network so that when growth capital was needed, there were “wells to plumb.” 

And the Winner Is

It’s official. Nashville is America’s healthcare hub.

On Aug. 22, The Wall Street Journal ran an article, “Where the Action Is,” about industry hubs in the United States attracting both entrepreneurs and investors. The article noted, “Entrepreneurs are moving there and flourishing in the teeth of a bleak economy. The cities, in turn, are nurturing the entrepreneurs by giving them access to funding, mentors and facilities.”

Citing the city’s more than 250 healthcare companies, the author said Nashville provided fertile ground to grow new businesses servicing the industry. 

Stephen Hau, president and CEO of Shareable Ink, which launched in Boston but now has a majority presence in Nashville, said, “The community here is so well versed in healthcare that it keeps us plugged in to the key issues and how to resolve them. And in terms of the investment community today, people are careful about where they place their bets. Being here, [investors] see we are aligned with thought leaders.”

Frist related an early lesson learned when calling on a potential investor. After he painted a positive picture of projections for rapidly escalating sales revenues, the investor peppered him with questions as to how big a sales force he would need in six months to handle that new business, and how he planned to secure the employees and train them to handle increased sales. Frist said the experience helped him prepare for future ‘asks.’

“There is an amazing network of investors who serve as development partners by contributing experience, strategic direction and management insight in addition to providing the financial resources to ensure that ideas can flourish,” said Frist.

Swenson added, “Through the years, Nashville has developed a well-deserved reputation as a rich environment for healthcare expertise and a collaborative spirit. These are key ingredients when entrepreneurs and investors are working together to turn back-of-the-napkin ideas into reality.”

Fritch agreed, “Access to expertise, both in the clinical and funding sectors, is a critical factor that makes Nashville a unique generator of successful healthcare companies and has contributed to the creation of innovative and sustainable businesses.”

Fritch, who has more than 38 years of experience in the managed health care business, is the founder of HealthSpring and has, since September 2000, led the insurer to become one of the largest and fastest growing managed care organizations in the country.

Goad said, “Herb could see seven months down the road. He put together the people and the culture, saw the size of the market, and got the right people involved.”

Fritch pointed out that he was “pretty fortunate to have worked with his team in two previous companies,” and pointed to the benefits his company saw from having a handful of its early investors who were familiar with the marketplace.

Frist said it was important to focus his company on “persistence, direction, and culture” and Swenson agreed, advising the investor not to “mess with culture of the company. We’re in the business to be supportive investors.”

When Samuels called on the group to talk about boards of directors, Frist said that important qualities were “strength and independence.” He pointed out that boards now are spending more time on governance risk management and more time talking about what can go wrong. “I’d like to get back to growing and bring back the positive energy,” he said.

Swenson, agreeing that the current pressure was on avoiding regulations violations, remembered that the “early days, when we were thinking out of the box, were the most fun.”

Since the passage of the Sarbanes-Oxeley regulations, the panelists reported that after an IPO, it was difficult to keep the growth mentality at the forefront of a board’s focus.

Goad stressed the importance of starting with a good business plan, suggesting “If you don’t have one, go see Sid,” referring to Sid Chambless, executive director of the meeting’s co-sponsor Nashville Capital Network.

In closing the forum, Chambless thanked the participants and said, “Nashville is fortunate to have a robust network of experienced healthcare investors who not only put capital into companies but work with the entrepreneurs to make ideas better and increase their likelihood of success. That eco-system exists in Nashville and it makes a big difference in the direction and outcomes of companies.”