Robert Creeden knows a little something about how to invest in early-stage companies. A former vice president at the Massachusetts Technology Development Corp. and a general partner at Egan-Managed Capital, Creeden has spent countless hours on due diligence for new ventures.
But it’s his current position, as one of the managing directors of the Partners Innovation Fund at Partners Healthcare that puts him in the catbird seat at one of the healthcare industries busiest idea factories. The $35 million investment fund Creeden manages was formed almost three years ago to help push innovations being developed at institutions in the Partners system out of the lab and into the real world. So far the fund has invested in about 11 different technologies, including Daktari Diagnostics Inc., an Arlington, Mass.-based startup working to develop a quick and easy-to-use device to test for HIV/AIDS, which completed a $2.8 million funding round in Sept. With the help of the Partners fund, the company attracted investors not only from a wide swath of wealthy individuals in the region, but significant corporate and venture capital support as well.
MassDevice caught up with Creeden to get his take on the current state of venture funding, the secrets he’s picked up along the way and any tips he might have for would-be entrepreneurs.
MassDevice: Your bio says you have reviewed more than 2,000 business plans and invested in more than 40 companies. Have you developed a formula for how you evaluate a business opportunity?
Robert Creeden: There isn’t one particular formula. Throughout my time at MTDC and Egan, there was a process and procedures put in place for doing diligence that were pretty well-used throughout the industry. Here at Partners, where we started everything fresh, I brought those procedures, policies, guidelines and methods with us.
There’s a pretty deep dive into diligence; going through the market and the product and the management team and financials and the business models, so I can’t say that I have any one [formula] in particular that’s mine. I’ve drawn from a number of people that I’ve worked for over the years, folks that have been in the business a long time and other smart people that have acted as mentors, consultants and guides in each of the areas of marketing and management and all. We’ve brought all of that together here through my experience and through my partners Roger Kitterman and Carl Berke’s experiences. Between the three of us, there’s upwards of about 50 years of looking at and examining early-stage companies.
MassDevice: What’s the first thing you look for in a business plan?
RC: Personally, the first thing is I go to the management section, to see who the people are, if I know them, if they’ve been at companies where I know other investors; just some connection where I could do my diligence on their skills and their capabilities. Because I think at our end of the business, the real early-stage end, management is really key.
From there I usually look at those first 10 pages. I look at being compelled to bring someone in to speak with them. The purpose of a business plan is to get the first meeting with the investor. I’ve never invested just from reading a business plan, but I’ve certainly brought people in to talk my partners, or whatever it may be, because the plan was compelling and the people were compelling. Or the skill set of those people was such that in my opinion it had the proper skill set to bring this company from whatever stage it was at to the next level. I think you’ll get that answer from 90 percent of investors at the early stage.
MassDevice: What advice do you have for physicians who have developed a product and want to make the leap into entrepreneurship?
RC: One of the best things that any physician can do is to find a mentor, because, thankfully for all of us, physicians are wired to take care of us and provide healthcare. They’re not always wired to think about the business model, the pricing and the sales cycle, or how to develop this technology into a product and what’s the messaging and things of that nature.
It’s a whole new world for a lot of these physicians. Go get some advice and counsel from an individual, or even for the folks here in our system, come to the Partners Innovation Fund. One of the things that we do, besides invest, is work with all the physicians when they come in and say, “Hey, we have an idea, can you help us do that?”
Besides the venture background, each of us has a lot of operational experience, so we understand what it takes to go from step one, to two, to three, to four, and I think we can be really helpful to that physician when he or she decides they would like to take this technology they’ve developed and turn it into a commercial product.
I also think it’s really important that physicians understand what it means to start a company and be an entrepreneur; the commitment and the resources, but mostly the commitment and all of the different subtleties that go into it.
Another thing that we do here at Partners Innovation is we go out to the physicians and tell them who we are, what we have done. One of the things we try to stress is to come to us as early as you possibly can, because then we can help guide and formulate and strategize to get whatever it is they’ve developed into the marketplace to impact healthcare, because that’s really the main reason we’re here.
MassDevice: What about entrepreneurs who feel they need to keep everything a secret? What’s your advice to people who are hesitant to talk about their ideas, because they’re afraid someone will steal it?
RC: I think it’s wise to have some conversation with an attorney on how to legally protect yourself. From an investor standpoint, I don’t think there’s going to be too many, if any, institutional investor funds that will sign a non-disclosure or confidentiality agreement. Certainly, when you’re speaking with individuals you need to be careful about disclosing things, but at some point you have to be comfortable enough with that person to disclose some of the “secret sauce.”
Every entrepreneur needs to have a funding strategy. It’s a campaign to raise money, and certain times during that campaign it’s appropriate to talk to one group and not to another. When you do identify where you’re at in the funding continuum, then you need to do some diligence on the people you’re speaking with as well. Find out who that person is, what their funding history is. That goes for individual investors and institutional investors. You need to do your homework on the investor. Talk to other folks that the individual or group has invested in. And I think it’s appropriate to ask the size of deals they do, the types of deals they do, who have they done investments in before, how much reserve for the funds. And then I think you should try to speak to people they’ve invested in and say, “How did they react when you missed the product deadline? When you didn’t make the sale on time? Is he supportive? What resources can he provide that will provide greater support and assistance than other funds do?”
I make the joke that George Washington is on every dollar bill, whether it’s a billion dollar fund or not. However, what one fund can bring in terms of resources, contacts, knowledge, prior experience could be different than another one, and that’s what an entrepreneur needs to find out and figure out.
If you have a medical device, then you should be working with folks with experience and resources and knowledge in the medical device area. You really need to do your diligence to figure out who is the proper investor for you.
MassDevice: Do you have a favorite technology that you’ve helped foster during your tenure at Partners?
RC: I don’t think there’s one in particular. We’re still pretty new, only about three years old.
I think what I’m most proud of is that we’ve been able to fulfill the goals we set when we started this here at Partners, which was to identify some solid solutions and technologies by some really creative, bright, unique individuals; get them to a point where we can form a company, get some funding involved so the evolution of the technology can move forward and into the marketplace. So far we’ve done a good job of that. There’s still a lot of work to do to improve upon what we do, but I think being able to sit here and say we’ve made 11 investments in three years is something that I’m very proud of.
MassDevice: About how many different technologies have you seen at the fund so far?
RC: We’ve probably seen more than 300 in the time that we’ve been around, since March of 2007. Our focus is the Partners system, so everything has been developed from inside the Partners system.
MassDevice: We’re hearing that some of the larger endowment funds are making noises about scaling back investment in the venture model, since the IPO markets have dried up and we’re not seeing big exits. What are your thoughts on the state of venture funding, and how does the environment trickle into the innovation world?
RC: I think there is still money in venture funds. I think what you’re referencing is that endowments and other limited partners in funds will allocate about 5 percent to 10 percent of their endowment to the asset class known as venture capital. When the public markets took their downturn in the last year or so, the asset class known as venture capital became, because of the depression in the markets, became 15 percent to 20 percent of the endowments. Therefore, they’re saying, “We need to get this back down to the 5 percent levels before we can look to put more money into that asset class.” I think the return of the public markets has helped endowments return to looking at the asset class known as venture capital and I think, hopefully, returns will come back so the venture market will see some returns and raise some more money.
I think the industry is consolidating in some ways. As in every industry, I think we might see some funds go away, but I’m sure every year there’s some attrition in every industry. But I think it’s still pretty healthy and I don’t know if the model is broken or not. I’m looking at our model and so far it’s working so hopefully we’ll continue to do it.
MassDevice: Do you still think the venture model is the best way to fund start-ups?
RC: I do. I’d better, since I’m in it, right? I think it’s a good model. Certainly there are things to improve upon, but it’s one good way for innovation to be funded.