VasoGnosis (July 2020)

Deal Abstract

https://www.seedinvest.com/vasognosis/seed

SaaS platform that wants to become the big data decision engine for doctors diagnosing aneurysms and making big medical decisions. Very early with no obvious product trying to launch in a heavily regulated, anti-innovation industry. Reminds me of Monogram in that it’s a highly speculative business model, but less scammy-vibes, more naivety and startup ignorance.

Decision

Pass

Why Investing/Passing

  1. Buzzwords I hate, especially together: AI, Biotech, and “zero competition.”
  2. Team and investors seem to lack people with business and startup experience.
  3. Underestimating the amount of capital they’ll need to run this ship.

The 6 Calacanis Characteristics (91 161 18)

CheckPass/Fail
1. A startup that is based in SVFail: Midwest U.S. (Source)
2. Has at least 2 founders Pass (4)
3. Has product in the market Pass
4. 6 months of continuous user growth or 6 months of revenue.Pass (sort of): Firm was founded in Feb 2019 and revenue was $72k. No reports for 2020.
5. Notable investors?Fail: Mostly rich medical professionals, which is not a bad thing, but no notable VC’s who’ve made big biotech money.
6. Post-funding, will have 18 months of runway Pass: Raised $70k so far, 2019 burn was $12k, targeting $600k, so would have 50 months of runway at maximum round.

The 7 Thiel Questions (ETMPDDS)

  1. The Engineering question:
    • Maybe: Interesting that the CTO is not the programmer, and rather that’s the COO. Curious what this means as to what Vasognosis thinks their core technology is (which I guess is the prediction algorithm?)
  2. The Timing question
    • Bad: Not convinced that 2020 is the time to build a prediction platform for aneurisms.
  3. The monopoly question
    • Yes: If they could build it, for sure. That said, I don’t see any organizational advantage to collecting and defending data for this firm.
  4. The people question: 
    • Bad: My heart goes out to this team as they’re a bunch of medical nerds, but medical nerds like programmer nerds don’t strike me as the best business operators.
  5. The distribution question
    • Not Good: I don’t see anyone here who has either been on the hospital buy side or has huge influence to gain access to those decision makers.
  6. The durability question
    • Very: again, like the monopoly question, the question isn’t if “this product existed would be valuable,” the question is “will the entrenched players in this space let you even build this product on a reasonable timeframe.”
  7. *What is the hopeful secret?: 
    • Diagnosing of aneurysms and blood clots in the brain is going to be a venture investment, and ML and AI is going to have its breakthrough in BioTech this decade.

What has to go right for the startup to return money on investment:

  1. Hospitals become willing to give data and pay for this product: getting some advisors or increase clout to talk to key hospital decision makers.
  2. Doctors somehow get incentivized to use this: doctors are pretty overloaded already, and at worst, could even be too arrogant to use this type of software over good ol’ intuition. Buy-in from early adopters, and barring that:
  3. Regulation: assuming this company can build the product and find the early adopters in a heavily resistant industry, they’ll then have to prove their system is that much better so that at one point it becomes embarrassing/risky for orgs to not “cover their ass” by having this software.

What the Risks Are

  1. BioTech is the Worst: “we’re the only company doing this” –> this is a bad thing because biotech is the worst.
  2. Capital Costs: Having funded biotech companies before, it seems like raising $600k is far underestimating their costs to hit business goals. I’d assume they need $3-5 million to launch a real product.
  3. Team risk: not convinced this team as present, including investors, can build a tech startup. If this is just a hospital servicing firm, then it’s not good for venture funding.

Muhan’s Bonus Notes

  1. At present, it seems like I am really bearish on biotech for angel investors. Reminds me of Monogram. Need to revisit deal and check-in on my original deal memo.

Financials (References)

  • Total Amount Raised: US $70k
  • Total Round Size: US $600k
  • Raise Description:  Seed
  • Minimum Investment:  US $1000 per investor
  • Security Type:  Crowd Note
  • Valuation Cap:  US $4,000,000
  • Offering Type:   Side by Side Offering

Updates

This is where I’ll post updates about the company. This way all my notes from offering to post-offering updates will be on one page.

Review these deal memos every time the startup raises a new round

Test if original thesis still applies

Notice trends in how you think

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4 comments
  1. Yina Huang
    Yina Huang
    July 16, 2020 at 10:57 am

    “Team and investors seem to lack people with business and startup experience” — can you opine on this further? Curious to understand your logic here — it seems like the lack of confidence falls primarily on the team and operating experience.

    Reply
    • muhan
      muhan • Post Author •
      August 4, 2020 at 9:00 am

      Sure. When I’m vetting teams for business/startup experience, there’s a few archetypes I tend to look for:
      1. Has worked for a corporation, ideally being responsible for an entire P&L (profit and loss center.)
      2. Has worked for a startup, where it’s easier for younger, more inexperienced people to get executive experience
      3. Has run some kind of entrepreneurial side project

      I’ve had some version of all three experiences above.

      Evaluating the team here, I see:
      1. CEO Phd in Mechanical Engineering and post-doc research. I see he founded two other IT companies, but no mention of what they did, revenues achieved, exits, etc. I could do more research here, but frankly, I’m default against bio-tech so the investment of due diligence wasn’t worth it to me.
      2. Raising $600k on a $4MM valuation fits my target, but is probably raising too little money for selling to hospitals and doctors. I recently did a post-mortem with a portfolio company that was trying to sell a B2B solution to large healthcare organizations, and concluded that underestimating capital costs/time to sell was one of the existential reasons.
      3. Instead of having any of the experiences above (which is already a form of my bias,) I see that the team is highlighting their experience with large institutions/bureaucracies (U. of Wisconsin, IEEE, more universities,) which flags to me that they’ll be less prepared for a resource-poor environment (which is what a startup is.)

      Hope this helps!

      Bonus, if they had someone like this on their board, I’d be more excited: https://en.wikipedia.org/wiki/James_Doty_(physician)

      Reply
  2. CDL
    CDL
    July 24, 2020 at 1:18 pm

    Hi,

    I’ve enjoyed seeing your posts, I’d be curious what you think about Bext360 on Seedinvest (?)

    Reply
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