Dear Startup Investor,
Care at Hand is based in Washington, D.C. I’m in Baltimore, an hour away.
So when Dr. Andrey Ostrovsky, the founder and CEO of Care at Hand, invited me to dinner, I hopped in my car, drove down I-95 and met him at the Blue Duck Tavern in Georgetown.
We ate. We drank. And we talked for a couple of hours.
This is what I found out.
First: A Quick Refresher
Care at Hand was put into our Startup Investor portfolio in March 2015. It uses a proprietary data set to reduce hospital visits. You can find my original recommendation right here. The raise was a convertible note with a $6 million cap.
Then and Now
Valuation then (when we invested): $6 million
Valuation now: Estimated $10 million
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Projected revenue then (for 2015): $840K
Actual revenue: $300K
New revenue projection (for 2016): $1.2 million
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Burn rate then: $37,000 per month
Burn rate now: $65,000 per month
Projected burn rate: $100K by end of year
Traction Metrics
Trial-to-paid conversion rate: 80%
Churn rate: 10%
2016 revenues: $1.2 million targeted by end of year
Latest clients to sign on: Cigna and Sancta Maria (a skilled nursing facility)
Total clients: 16
Major Developments: The Pivot
Care at Hand’s predictive data has a very specific purpose: Prevent unnecessary hospital visits by predicting which patients are most at risk.
The company has pivoted into providing a wider range of predictive analytics for broader applications. An example: predicting which patients are most likely to become high-frequency users of medical care.
Using this data, hospitals and other care providers can better coordinate preventive care strategies, optimize resources, and predict future costs and potential cost savings.
Care at Hand’s services come at a critical time. Hospitals and other care providers are making a historic shift.
Up until now, they made money from the number of hospitalizations under fee-for-a-service rules. But the government has now tasked them with finding ways to grow revenue by keeping patients out of the hospital.
Half of Medicare dollars are now tied to “value reimbursements,” not reimbursements for services rendered.
Predictive analytics technology will become an extremely valuable tool in shifting care toward prevention and greater efficiency.
Fundraising
A possible Series A round could happen in the near future. Care at Hand has a major commitment from a family office investor.
What Happened to the Revenue
More than $800K was expected for 2015. Only $300K was achieved. The pivot was the main reason why. Andrey wound down the $300K of annual recurring revenue under the old business model. He then generated ARR of $300K under the new model. Without the pivot, revenue would have amounted to $600K, a more palatable figure.
We are only a couple of months into 2016. But the company has already boosted ARR to $450K.
(I’ve found that at the seed stage, revenue projections are just educated and often optimistic guesses. The important thing is to understand why progress has not lived up to expectations.)
Key Question Asked
From Andy Gordon: “When do you expect to achieve self-sustenance?”
Answer from Dr. Ostrovsky: “By November 2017. By then we should be booking revenue of $4.5 million to $5 million a year.”
My Analysis
While tough to take emotionally, a pivot can unleash a company’s potential and point it in a much more profitable direction.
In which case the emotional toll is well worth it.
Andrey told me he has found product/market fit with his new model. The company’s conversion and churn rates indicate this is so. But it’s early. I’ll be keeping a close eye on both metrics to see if they hold up.
Andrey fully understands how unique healthcare is. Bad technology and/or nonperforming products can mean disappointing results for investors. But for patients, these could result in serious illnesses or even death.
To combat this, healthcare-related regulations will increasingly require that new technology be evidence-based. For example we’ve recently seen the government force Lumosity.com to withdraw its claimed benefits because of a lack of credible science backing them up.
Care at Hand won’t suffer a similar fate.
It has six peer-reviewed, published studies confirming that Care at Hand’s technology works. It has another five reports and studies presenting “emerging evidence” that it works. And it has five more studies on its business model underway (by independent third parties).
Gathering such evidence takes time. In the short term, it may slow down Care at Hand’s progress. But in the long haul, it’s going to prove invaluable. It will give the company a huge edge in the market. Another company won’t be able to waltz into Care at Hand’s market space and take over.
When a large market undergoes a fundamental change driven by government regulations, it can create vast opportunities. This is what’s happening now in healthcare.
Andrey knows exactly where the regulatory environment is headed.
Care at Hand is giving hospitals and other care providers the tools they need to survive and prosper.
The opportunity is very real and very big.
Andrey has put Care at Hand in position to take advantage of this historic opportunity. Again, it’s early. But if the company executes the way I think it can, it can evolve into something very special.
Invest early and well,
Andy Gordon
Startup Investor Portfolio
