Neil Parikh - Health Quest Capital

Neil: 0:05
Team is really important all the time period. And this wasn't super obvious to me, actually, when I first started. I had this idea that, we're really investing in kind of products and platforms and business models, and the amalgamation was a company that was led by a team but the leadership and the team and the culture is really that glue that sticks everything together. These are very high stakes, long hours high stress type of type of situations. And so you have to trust that the team that's working together, leading the whole company, likes one another, is working well, is a cohesive unit.

Giovanni: 0:45
Neil Parikh from Health Quest Capital requested that we have some local IPA. We have St. Arnold Art Car IPA. So on the count of three, let's crack this thing.

Neil: 0:57
Very nice.

Giovanni: 0:57
One, two.

Neil: 1:00
Love it. Cheers.

Giovanni: 1:01
Cheers, man. Thank you very much for doing this.

Neil: 1:03
/Likewise.

Giovanni: 1:04
We're here on the Medtech Startup Podcast, and we're going to learn about what growth stage venture capital looks and feels like. The first thing is, I just want to get out of the way. Let's talk about what is HealthQuest Capital? What's the elevator pitch?

Neil: 1:20
So HealthQuest Capital is a healthcare-focused growth venture fund. We invest in innovative, transformative healthcare companies all across the spectrum. That could be medical devices, diagnostics, healthcare IT services, digital health. We're typically investing in commercial-stage commercial stage companies that are already generating revenue, have paying customers, have achieved their product market fit, but need some additional capital to fuel growth. We're very broad in terms of the types of companies we look at. Our two main criteria are, is it gonna improve patient care? Is it gonna... Reduce inefficiencies in our healthcare system, and ideally it does a bit of both. And we're typically writing checks in the ballpark of$20 to$50 million per company.

Giovanni: 2:07
What's the size of the fund and what fun number is it?

Neil: 2:10
Our fourth fund is about$675 million.

Giovanni: 2:13
So we're gonna get in this and peel back the onion

Neil: 2:16
yeah

Giovanni: 2:17
For all those listening in, for the proverbial medtech startup entrepreneur who's raising series A right now of$10 million, who clearly doesn't or shouldn't be reaching out right now because they're a little bit too early, what is that nuance of early stage investing versus late stage investing. The diligence processes what you focus on as a growth stage investor versus what,... Asante Which would be an earlier stage investor than certainly a Health Quest Capital would do. Let's focus on medtech.

Neil: 2:47
Yeah, I know, great question, the first thing I'd say is even though we have our kind of ideal sort of check sizes It's very common for us to get to know companies even before they're at the stage where we might write a check. And that's one of the things I've really enjoyed the most about, about this job, even for companies that are a bit earlier, getting to know founders early, developing that relationship, offering feedback connections, whatever. So even if they are early, always happy to connect. And second thing, in some ways, like the definition of early and growth and late are becoming a little bit more blurry. I think there are some funds that are going a little bit earlier, some funds are going a little bit later. And also even the definitions of what rounds mean, I think has gotten a little bit confusing. But with that, at our fund, we're typically investing in companies that have de-risked their technology and their regulatory, their reimbursements. They're already generating revenue. So, for medical devices, they've already gotten FDA clearance, they have reimbursement lockdowns. They've proven that, there is no binary risk anymore. Team is always very important. There's no question about it. Especially in early stage investing where you don't have the FDA clearance to fall back on you don't have these points of validation to fall back on I really think that, having a team that you know really well that you really feel good about is especially important. And even in the growth stage, it's very important still, but it's a, it's potentially even a little bit more important in the earlier stage, is my impression.

Giovanni: 4:32
It's like you stole the words out of my mouth in terms of segway because I want to talk about team. And you answer the question in terms of the highlighting of importance of team. There is a factor of de-risking going on where you're making a bet more of an objective business rather than a hypothetical hard work of great team that hopefully will get FDA clearance, that hopefully will generate revenue. How important are the teams that you invest in? Or do the numbers on paper, revenue generation, FDA clearance, reimbursement, do those speak louder than the team? You can swap out the leadership if needed. Because the numbers speak loudly or more clearly or louder for them

Neil: 5:09
/Yeah

Giovanni: 5:10
than the people on the early stage. And then what do you do to support your investment on having the right team?

Neil: 5:16
Team is really important all the time period. And this wasn't super obvious to me, actually, when I first started. I had this idea that, we're really investing in kind of products and platforms and business models, and the amalgamation was a company that was led by a team but the leadership and the team and the culture is really that glue that sticks everything together. These are very high stakes, long hours high stress type of type of situations. And so you have to trust that the team that's working together, leading the whole company, likes one another, is working well, is a cohesive unit. You do have the benefit in growth stage companies looking at their prior performance. What did they say they were going to do? Did they already accomplish it? How well do they get along? Things like that. You are able to be a little bit more objective in how you assess their performance and their track record. The earlier stage companies you really have to rely on your interactions, their prior performance before that company to place a bet. In our fund, we're not just writing checks and then, and then seeing what happens like four or five years later, like you're really involved trying to do your best to help these companies out in every way possible. Providing guidance at board meetings, but that's also, making yourself available all the time. If not just CEO, but anyone in the company needs help hiring, finding partnerships. Offering help in really any issue that comes up. To be on their board for four years at a time, you want to make sure that... There's a level of transparency, a level of partnership, they want to work with you and you want to work with them because it really is a partnership. And frankly, you also have to feel good about working with them.

Giovanni: 7:05
It hasn't been an easy time for startups raising money, investors deploying money. 2021 it felt like the Gatsby party, where money was just flying around. But this past year has been challenging and

Neil: 7:18
/yeah

Giovanni: 7:18
/all of a sudden you jump into being a VC in a fairly unique year to be

Neil: 7:24
/Yeah

Giovanni: 7:24
/a VC. What's your thoughts on that and where are we now?

Neil: 7:28
Definitely looked a lot different when I joined versus six months in versus now. And that's one of the. The interesting things about this industry that there's always going to be some level of entropy, randomness to the whole thing that's really hard to predict. How you value companies might be based on certain multiples, certain valuation metrics. But even those are derivatives of how the overall economy is doing. And so those Changes can go up and down, but as you pointed out, it's very hard to predict what that's going to look like long term. I think to answer your other question about how things have shifted over the last year I think there have been a few things. Initially when I joined there were relatively high kind of valuations that were being requested in, in many instances from companies. And there were a lot of folks that maybe had raised at a high valuation the prior round, were looking for a flat round or an up round, and with the macroeconomy changing as fast as it did, I think it really slowed down the pace of fundraising. I think... Many folks learned very quickly that the valuations they were anchoring on likely wouldn't be possible in future rounds and that's very challenging for all the companies that were in that in that type of spot, as well as the investors that were previously in those companies. But I think what it did in a relatively short period of time is it brought the focus for a lot of companies to really optimizing what their runway is. So I think before a couple of years ago, people were growing at all costs, right? So you were growing for the sake of growing, even if it wasn't super profitable. There'd be another round coming up. Cash management wasn't as important. And I think now there's been a lot larger focus, laser focused, ensuring that you're managing your runway, do you have enough to get to the next round? Who will that next round be? Do you have insiders that are accounting for that? And so I think very quickly, we saw the switch from growth at all costs to, visibility to profitability. While still maintaining some modest growth. And so I think that's been probably the biggest change that I've seen so far.

Giovanni: 9:55
Where do you think this time next year, what's your optimism or pessimism as to where we're going over the next few months to the next year? Are we in a good spot? Are we thawing out? Are we holding back up like we were six, nine, twelve months ago? What's your crystal ball prediction?

Neil: 10:12
Yeah, I'd say just from the activity that we're seeing at our fund things have really picked up nicely. And so I'm hopeful that that, that trend continues and that over the next year there's more and more activity that's healthy, that allows folks to get financing at any valuation that makes sense for all parties involved. And that we can continue supporting, entrepreneurs that are doing important things.

Giovanni: 10:36
Once again, going back to the fact that we're in San Marcos, right in the middle of this corridor, stuck between the north of Austin and the south of San Antonio. What's your thought on the actual ecosystem of biomedical innovation and more specifically medtech and some of the tools and diagnostics that you invest in? What's your thoughts and optimism, pessimism of what's going on in Texas when it comes to innovation?

Neil: 10:59
I'm really excited by what I'm seeing. I think it's still very much underappreciated kind of how far along our state has come. We have such unique assets here. Austin, of course, is one of the world's largest tech hubs. And so we have an amazing amount of talent here. In, in that right alone. Houston being, home to Texas Medical Center, one of the largest in the world. San Antonio being the home of a very large and well respected military medical complex. We have all these very unique pieces within Texas that make it a wonderful place to do innovation. And then when you couple that with great talent that's coming from, top tier universities and then I think the last piece is probably like the secret sauce, which is everyone in the ecosystem is very friendly. Like this event that we're at right now is full of people that are super excited to get to know one another. And I think some of that familial vibe of just wanting to work together on things and wanting to be a part of something bigger than yourself. I'm really excited by that feeling and I definitely feel that vibe in everyone I speak with and there are many organizations here that have done a remarkable job of bringing people together, whether it's BiomedSA, BioAustin, Austin MedTechConnect, BioHouston, Capital Factory they're bringing entrepreneurs, investors, folks that are really crucial to the DNA of the city to events like these to discuss ideas and to build something great. So I'm, I couldn't be more excited by what we're building right now.

Giovanni: 12:39
This is going to be a somewhat loaded question. You're currently based in San Antonio.

Neil: 12:43
Yeah. I live in San Antonio, work in Austin, so podcasts on 935 are a big part of my life.

Giovanni: 12:50
HealthQuest Capital is fundamentally based in the Bay, in California. We just recently talked with Steven Levy from Unorthodox Ventures, which is based out of Austin and they're a family office, but they have a huge medical device portfolio. We have Sante out of Austin, which is a strong medical device investor, but there's also this, I don't know, rumor or thought or theory that the angel communities, the high net worth, investors within Texas. It's a lot of gas and oil money. And while Texas has this awesome innovation that's happening from an innovation sake, the investor present doesn't necessarily match the innovation heat that it's bringing. What's your thoughts on that? True not true.

Neil: 13:39
It's an interesting question. I think that's changing because I think even in some instances, folks that have wealth from oil and gas, I think they're also starting to see that the future is MedTech. The future is CleanTech. You have forward thinking folks like the donors and the investors and LPs in Texas that are seeing this innovation happen in their backyard and are serving on these boards and these philanthropic organizations. It's really fantastic to, to see. The Texas Medical Center is a great example of this. If you look at the the new renovated building that was done over there, that was done with a lot of funding from donors that saw the value in the medical community.

Giovanni: 14:25
Do you see that Texas is going to be a huge contender? We don't have to make direct comparisons, but is it going to be like Boston that, you know, very well, California that you also started your company out of. Fast forward five, 10 years from now is Texas going to be this health tech biomedical innovation ecosystem that also has investors that can play heavy.

Neil: 14:46
Yeah I think it's inevitable. So that I feel a lot more conviction. When you have world class organizations like MD Anderson Cancer Center, Texas Children's Hospital, UT Southwestern, these are amazing research institutions that have incredible faculty, incredible innovation. Universities like UT Austin, Rice, A&M are coming out with groundbreaking research. And so we have all the right pieces to feed into these innovative startups. And then of course, there are other aspects of living in Texas that folks in terms of cost of living being a bit lower. But I think all the pieces are set up very nicely for med tech and for medical innovation in general to really take off in the next five, 10 years. We're starting to see more funds, and I think that the trend will only continue.

Giovanni: 15:40
So I want to get into your story then, I'm going to call you Dr. Neil Parikh. Who are you? How have you built your life and your education and academics

Neil: 15:49
/Yeah Yeah

Giovanni: 15:49
and your career leading up to being vice president at HealthQuest Capital?

Neil: 15:53
I haven't figured it out yet, but I'll let you know when I do. I think my story is one like many that find themselves in venture is one of detours. I grew up in Texas, began college at Rice pre med and really fell in love with economics and health policy, so became really fascinated by for such an affluent country that we live in, there were there was a plethora of issues of how fragmented and broken our healthcare system was in certain parts. And so I became really fascinated by this really large optimization problem. Like, how do you tinker with a system that has a lot of the right pieces, has a lot of resources, but improved care? I ultimately, was very excited to pursue graduate studies, went to med school at Baylor and then business school at HBS to really learn the clinical side of things as well as the business side of things. So,... in those those five years were some of the best I've ever had. Amazing people. That's where I met my wife and and really walked away with a great clinical education as well as an understanding of, outside of the the hospital, what healthcare actually was starting to look like. But it still felt a little bit academic. So I did a year of internal medicine, first year of residency in Boston, and then I actually spent a couple of years at McKinsey in their Boston office because I really wanted a firsthand perspective of what healthcare was like from the eyes of the payers, the providers, the life science companies. I thought that having the physician's perspective was really great, but it was a bit incomplete given how much those other entities play a role in our healthcare system. Did that for a couple years, came back to clinical medicine trained at UCLA for radiation oncology and when I was at UCLA, I was very fortunate to take part in the biodesign program. During that year long process a few folks and I were involved in creating a medical device company in the neuro ICU space CranioView which was aiming to develop a non invasive intracranial pressure monitor. And that was really my, despite business school and McKinsey, that was my first experience really seeing what innovation is like on, the ground level. It's one thing to do case studies and learn about these things, but it's another thing to pitch value analysis committees yourself and to build pro formas, write the business plan, put the device together, apply for IRBs. So, that left a really strong kind of desire in me to continue that. At this point, my wife and I had a couple of kids, time to get a real job. So we moved back to Texas, where we're both from. We took clinical jobs. I was practicing as a radiation oncologist in in San Antonio treating prostate cancer. And about a year ago, I was very lucky to meet Garheng Kong. So he's the founder and managing partner of HealthQuest. Learned about the goal of HealthQuest to impact patient care in a very large way through partnering with innovative companies I was immediately sold.

Giovanni: 19:13
So you brought up a lot of great points that I want to dissect.

Neil: 19:17
Yeah, please.

Giovanni: 19:18
Oftentimes a lot of MDs they boast about their clinical understanding. And you were leaning more on the business side. You lit up more when you were talking about the business side. But yet, you went back to clinical practice. A year into being a VC does that medical doctorate degree that you have, that clinical practice that you've experienced, does that make you a better investor when you're looking at these health technologies?

Neil: 19:44
I'd say that it certainly gives you a very unique perspective. It becomes quite valuable when you're initially taking a look at a company and if there's some type of scientific diligence to be done, if you need a basic understanding of physiology, anatomy, whatever the case is, having a medical background, clinical background can certainly be helpful. Oftentimes, the types of companies we're looking at will require you to really get in the weeds to look at papers, to read regulatory documents. And I think at times the scientific jargon can be quite intimidating. So just having that level of familiarity and reviewing papers, going through that scientific method I think can be valuable. I think the less obvious point, though, is that, and this seems silly, but you know how doctors think, you know how nurses think, you know how hospital administrators think, because you've, been in those situations before, you know what will fly with your patients, you know what won't fly you know what types of denials you get from insurance companies, and how life science companies like to operate. By having that on the ground, like on the boots type experience, there are a lot of ideas you can quickly use your intuition to say, I'm really excited by this, I should really dig in. Or, I'm very weary of this because of X, Y, or Z. And then last thing is, I think it just, it builds a really powerful network. I've been really fortunate to to go to med school and residency with some amazing people, some of my best friends, and it really helps when you have a really great network of people to call on to catch up with, to to learn from. That's on the positive side. I would say that there are a couple caveats to that. For doctors that are looking to enter VC I think there are probably two big things I'd highlight as being careful about. One is, we take the Hippocratic Oath we're always thinking about kind of impact on patient. And that is always extremely important but I think doctors can have, myself included, can have a tendency to sometimes over index on the technology more than how the business will survive, how the product will get distributed how payers might react to it. There are so many layers of a company and how it becomes successful. One lesson I learned early on, to have the impact on patients you really need to check many boxes. That's the first thing. And second thing is I urge folks that are trying to get into Venture, or are in Venture, to really get out of your comfort zone and do the things that don't come naturally to you. Because it is really easy to provide clinical input and that be your thing, but I found a lot of enjoyment and a lot of value in all the things that have felt very hard and very uncomfortable at the beginning.

Giovanni: 22:37
It seems like this job in VC, this position that you take is everything in your journey was leading up to that. It's this is like the perfect job for you right now.

Neil: 22:48
Yeah, it's really funny. I now looking back at it feel that way, although very truthfully, I never really thought about a career in this space at all. I knew that these were really great learning opportunities, and I was hopeful that there'd be something impactful to work on, whether it's in, in policy, or in industry or in academia, but now looking back at it I do agree it does feel like it's a nice mix of of opportunities to, to follow up on.

Giovanni: 23:17
You haven't been a VC for all that long

Neil: 23:20
yeah,

Giovanni: 23:20
/so I want to dig into that.

Neil: 23:22
/Yeah,

Giovanni: 23:22
/all those aspiring VCs that are listening to this right now.

Neil: 23:25
/Yeah

Giovanni: 23:27
/What is that first year of VC look like and like you mentioned just now. This wasn't something that you had even thought of it wasn't on your radar. But, now here you are. And what's this past year looked like for you?

Neil: 23:40
/Yeah, I think the first thing I'd say is still very much learning and just very much enjoying the constant learning curve that you're blessed with. But the last year has really flown by and I think when we talk about steep learning curves there's steep learning curves on a couple different dimensions, so coming in I knew that there were going to be specific things to VC that would be important to learn about that I hadn't had experience with term sheets, cap tables, there's specific parts of the job that If you haven't been an investor before, they're going to be a bit new to you. So that I knew going in. What I didn't fully appreciate is, especially in our in our fund, because we look at such a broad range of things within even just being healthcare investors, I thought I knew a little bit about medical device. Turns out I knew way less than I thought I did. I knew that I knew very little about diagnostics and healthcare IT and services. And so you are faced with getting up to speed and learning about what seems like five different industries that are all rolled up inside of healthcare. And they each have their own kind of peculiarities and the things that are a little bit more important in some more than others. And so learning the ins and outs in the sub industries within healthcare has taken, a good chunk of time, still very much a work in progress. So there's that piece on the industry front. Every company itself is... It's bringing, by definition, any promising company is doing something different that nobody else has done. So you're always learning about new technologies, new business models. So on a VC level, industry level and a company level, there's just constant learning. And then in terms of the people outside, like just the network that you're building, meeting you for example a few months ago, and just amazing people in the local area, you're constantly amazed at how many more amazing entrepreneurs investors there are to meet. And that learning curve is one that is steep, but it doesn't really tail off. It just keeps going. So that's been a lot of fun to witness last year.

Giovanni: 26:00
So then as we start dovetailing into the end of this idea of luck, you've had a really fortunate career.

Neil: 26:08
Yeah.

Giovanni: 26:08
We talked about the fact that... VC wasn't even really on your radar,

Neil: 26:12
/Yeah

Giovanni: 26:13
but here you are and you're loving it. Luck in personal life, luck in professional life, but just investing. We talk about this idea of de risking. How much does luck play into investing?

Neil: 26:25
It's such a good question. I think that luck, It would be, it'd be crazy to say that luck doesn't play a role at all, because when I think about all the things that have to go right for a company to really, make it, the team working well together, the product market fit being on point, having capital ready at the right time having a market that's large enough, but competitors that aren't like there's so many different things that have to work out. So I would be lying if I said that after you make an investment there's no luck involved. But I do think that there are a number of things that we can do to try to minimize the amount of impact that luck has. So if you're able to. To really go out of your way to broaden the funnel of companies and to really understand the spaces that you're excited about. So you can make more informed decisions when you're doing diligence. Really going after every stone, making sure you're, leaving no stone unturned. You have the confidence that You're trying to think about, various things that may come up and there's always inevitably gonna be things you didn't think about or things that no one could have ever predicted. And that's part of the luck point. But I think you can simultaneously accept that there is luck and involved, but there's also a level of effort that you can put into the diligence and kinda the sourcing efforts that, that really put you in the best position to, to do well.

Giovanni: 27:58
Anyone that you consider a great mentor to have shaped who you are today.

Neil: 28:04
Would probably highlight folks for the next like 30 to 60 minutes. I've been really lucky to have many mentors at every stage of life. But the the few that I think. Really opened my eyes to, to this this opportunity. Where some mentors I was really lucky to have at UCLA. Because when I think about the different directions that my career may have gone in I was very fortunate to be training in a program that saw the value in their residents and their trainees really having diverse set of experiences. Our program leadership, Amara Kishon, Dr. Michael Steinberg, and Ralda, they're all very sort of encouraging of me to take my research here. So instead of being in the lab or doing clinical research, they were totally fine with me doing biodesign, something that nobody had ever done before. So I'm very grateful for them, and for the folks, the mentors I had in that program that supported me, that gave me the great sort of perspective, Jennifer McKinney, Desert Horse Grant, others, to really see from the ground up what innovation looks like, to make sure I had that taste remaining inside of me to want to do something like this. And then, of course Garheng at HealthQuest was the reason that I'm here and one of the big reasons that I decided to make the jump.

Giovanni: 29:28
If you had to be a mentor to anyone listening right now, those clinicians who are practicing today, who are possibly fully thinking about leaving clinical practice, or half a foot out, or one ear open, what would you say to them. What does it mean to be a VC for all those people thinking about and aspiring to be a VC your first year in the business, what would you say to them about what to expect or what to prepare for?

Neil: 29:53
It's a very, impactful way to, to make a difference. You're able to help people at a scale that, that just isn't quite possible one patient at a time, which is one of the big reasons that I was excited to make the transition. But you never stop learning. And I think for a lot of physicians, lifelong learning is just a part of your DNA. You're going to conferences, you're reading journals, and sometimes it can be scary to do something that, forces you to be on this sort of stagnant path. And I'd say that VC is anything but stagnant. The economy is changing, technology is changing, everything is always changing. That's what you know will be fixed. And so if you're looking to constantly challenge yourself and looking to meet really awesome and very inspirational people this couldn't be a better career.

Giovanni: 30:44
I'm assuming those who are watching, those who are listening, likely thought the same. If there was an appropriate entrepreneur or company that thought that they should reach out to you based on what you're doing at HealthQuest Capital, how can they get a hold of you?

Neil: 30:59
Yeah, and in general, I'd say very happy to connect. Even if you're not working at a company and if there's anything at all that I can be help with, feel free to shoot me an email. It's very easy. It's Neil, N E I L at hqcap. com. So happy to connect with folks. If I can be of any help feel free to reach out.

Giovanni: 31:17
Our time together has been absolutely incredible. So we've just spent the past time together with Neil Parikh, Vice President at Health Quest Capital. And this is the MedTech Startup Podcast, where we discuss the hard work of investing and building businesses that help people. Thank you very much for your time.

Neil: 31:40
thanks so much, Giovanni appreciate it. Cheers.

Giovanni: 31:42
Cheers to this great beer. Local beer.

Neil: 31:43
Local beer.

Giovanni: 31:44
from your home state. We did it.

Neil: 31:47
Delicious.

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