Darshana Zaveri of Catalyst Health Ventures
As physicians become increasingly interested in entrepreneurship, it is important that they first understand the different elements of the entrepreneurial ecosystem. Recently, I had the opportunity to sit down with Darshana Zaveri, a partner at Catalyst Health Ventures, a Boston-based fund that invests mainly in medical devices and recently made an investment in the Otolaryngology space. Darshana discussed her firm’s role in the start-up life cycle and was kind enough to offer advice to physician entrepreneurs on approaching venture capitalists for funding and avoiding common pitfalls that physicians often make.
Manan Shah: Tell me about Catalyst Health Ventures and what types of investments you make.
Darshana Zaveri: Catalyst Health Ventures is an early-stage healthcare venture capital fund that focuses on technology solutions that solve large problems in healthcare. We work with lots of physician entrepreneurs, many of whom are surgeons. Our particular interest is mechanical solutions to mechanical problems, so we invest predominantly in medical devices. Our expertise is in assisting to develop the design and engineering of a device. We also will invest in diagnostics, which make up about 20% of our current portfolio, and we sometimes invest in research and development tools for scientists. We have been investing in healthcare for 14 years now through 3 funds, the last of which we just closed last December. Josh Philips and I source and manage all of the deals and opportunities, and we have about $100 million under management.
Manan Shah: What are your thoughts on physician involvement in healthcare entrepreneurship?
Darshana Zaveri: I think physicians should absolutely be involved. There is a lot of emphasis on savings and money in the healthcare system today, but at the end of the day, it should be about the patients, and most physicians truly care about and understand their patients. They know what the clinical needs are and should be involved in finding solutions. In fact, whenever we see an area where a physician has jerry-rigged a solution to make a procedure work, it is a sign to us that it would be a great area to invest in. When we are considering a new device investment, a large part of our due diligence is discussing the concept with physicians we know and trust.
Manan Shah: When is the right time for physician entrepreneurs to approach early angel or venture funds?
Darshana Zaveri: There is no easy answer to that, and there’s a lot that rolls into what makes for an attractive investment opportunity. At Catalyst, we are willing to start the dialogue early, and I mean as early as just having a concept and a PowerPoint, as long as the concept is innovative, feasible, and most importantly, it must improve clinical outcomes and reduce cost. In terms of clinical outcomes, it cannot just be that your imaging technology provides two times more clarity than what is out there; in order for us to want to invest, you have to fundamentally change the clinical paradigm. Most physicians are able to articulate this clinical value, but one area where we see a lot of entrepreneurs stumble is articulating the economic value. You do not need to have an Excel model, but you do have to have a back-of-the-napkin idea of how much your innovation will cost, how much it will save the system, and how many people it will help.
On the other hand, you do not need to have nailed down every part of your business plan, or have all the answers to the FDA regulation, and the right team. Part of our job is to help you put those pieces together. The most important thing is the concept, and the product has to be cost saving and very innovative.
Manan Shah: What are some other common pitfalls that physician entrepreneurs make?
Darshana Zaveri: We are based here in Boston, which is a Mecca for doctors, and we are lucky to interact with extremely bright physicians. One common frustration I have is when a brilliant clinician brings on a subpar CEO, or worse yet, brings on a good CEO but does not allow that CEO to direct the company. When we take meetings with them, it is hard for us to determine who is driving the company, and that uncertainty concerns us. Often, entrepreneurs make the mistake of just partnering with a hired gun, or any MBA, because they think they cannot attract someone better at this stage. This isn’t true; in the same way you need to convince investors to provide VC dollars, if the concept is strong enough, you will be able to attract strong teammates, and then you have to let them execute. Sometimes these quick partnerships make things worse; if we find a great clinician with an innovative concept without a team, we can find a strong CEO to partner with, but it is much harder to get rid of somebody than to find somebody else. Partnering with someone in a business, be it a CEO, a technician, or a researcher, is like a marriage, and it is a good idea in business to date a lot before getting married.
Manan Shah: Do you think physicians should be CEOs of their own companies? Or do you think our training of ‘trusting no one and double-checking everything ourselves’ hinders us?
Darshana Zaveri: While there are definitely exceptions, I think it is not always the best idea for physicians to be the CEOs, because sometimes that culture of certainty, particularly with surgeons, prevents you from seeing pitfalls. And it isn’t just physicians, in general, being a CEO is a very tough position, and very few people are good at it. It requires a special mix of personality, experience, and a characteristic that I can’t put my finger on, but I know it when I see it. I think it is far better to make sure you hire the right people, and, once you do, let them do their job effectively.
Manan Shah: You recently invested in a medical device in the Otolaryngology space, the Lantos Aura 3D digital ear scanner. Could you tell me a little about the device and how it is as an example of what you would consider a strong investment?
Darshana Zaveri: I think the hearing aid space is ripe for innovation and currently is dominated by a few key players. We have seen a few companies entering this space; one had to do with disposable hearing aids, another was an online hearing test, and the direct-to-consumer companies are popular now as well. In general, we are leery about technology that leaves the physicians or audiologists out of the loop, because they should be the ones disseminating the technology, and we want them to be our champions.
We were the lead investors in a company called Lantos, which created a device that uses 3D scanning to measure the ear canal and improves the process of creating custom ear buds and fitting hearing aids. As an investment, first off, it completely shifts the paradigm, and the hearing aid field is ripe for innovation. The current technique uses silicon putty placed into the ear to create molds, and many audiologists are hesitant to measure deep in the canal for fear of damaging the tympanic membrane. This technology allows for deeper measurement of the canal, and there is a lot of innovation going on for deep-in-the-canal hearing aids. Also, the silicon putty method takes 10 to 15 minutes to fit, whereas the Lantos technology only takes 30 seconds. More importantly, that computer scan can be sent directly to manufacturers, avoiding the time to mail a mold back, so it decreases the time to production and saves the customer time. Lastly, it improves the function of the product itself because it allows for dynamic measurement. Since the ear canal changes shape with movement, the Lantos technology allows manufacturers to see which areas are constant with movement, allowing for a better-fitting ear bud. Ultimately, this allows you to get increased performance and battery life, since you have less sound loss and require less volume. The technology came out of a group of clinicians working with researchers out of MIT, and all the clinicians we spoke with wanted a digital scanner, which we knew was a strong sign.
What we also liked about Lantos was there was a consumer angle to it. Audiophiles and musicians use custom ear buds, and companies like Logitech and Skull Candy are interested in driving and expanding the custom ear bud space, so we think there are multiple markets that this one technology can address.
Manan Shah: Thank you very much for sharing your time and for the insightful advice. If readers have questions for you, is there a way they can contact you?
Darshana Zaveri: Sure. They can visit our website and contact me through there.
Learn more about Catalyst Health Ventures and Darshana here: http://catalysthealthventures.com/