From Investor Pitch to Eventual Partnership: Interview With HealthQuest Capital Founder Garheng Kong

Garheng Kong is the only member of his family who isn’t a practicing physician, but he’s still involved in their profession: through funding healthcare advancements as a venture capitalist.

Garheng’s resume is broad and deep. He has earned numerous degrees from two of the nation’s most prestigious universities — Stanford and Duke — and funded an equally impressive collection of healthcare companies throughout his career.

Garheng got his start in investing with Intersouth Partners and Sofinnova Investments. After fine-tuning his skills, he launched HealthQuest Capital, a private asset firm focused on providing growth capital to companies transforming the healthcare industry.

Garheng and his team see up to 1,000 investment opportunities in any given year. The experience has taught him how to assess which ones are right for the firm, and which he can afford to let go.

In this interview, Garheng shares keen insights for startups and innovators preparing to pursue funding, along with observations about how the healthcare industry has shifted thanks to the global COVID-19 pandemic.

Guest

Garheng Kong

Founder of HealthQuest Capital

Garheng Kong worked at GlaxoSmithKline, McKinsey and TherOx before transitioning into the world of healthcare investing with Intersouth Partners and Sofinnova. Twelve years ago, he founded private asset firm HealthQuest Capital, where he currently serves as managing partner.

Listen to the Interview with Garheng Kong

Key Insights from Garheng Kong

  • Companies that pursue venture capital funding should approach it strategically. Focus on warm introductions and carefully constructed pitch decks that answer common investor questions.
  • Syndicated deals are also an option for startups, but require a strategy that ensures the product doesn’t fall victim to having too many cooks in the kitchen. Two to three primary investors are ideal when going the syndication route.
  • The pandemic has changed the future of healthcare, and investors are paying attention to emerging trends as they make decisions about what businesses to fund. Solutions in healthcare that address national migration patterns and the emerging gig economy are two areas that have piqued Garheng’s interest.

Preparing to Pitch With the Investor in Mind

How does an executive summary or pitch deck get onto the desk of someone like Garheng Kong? It’s not luck, but rather the result of careful strategy and planning on the part of the startup.

Garheng shares valuable feedback about what to do (and what not to do) for those wanting to grab the attention of investors.

Getting Noticed is All About Your Introduction

Tapping your network and forming authentic connections with potential investors is an essential strategy for those seeking funding. Garheng believes the healthcare industry is so intertwined that by deploying some creative research, most startup companies can identify someone with one degree of separation from the investor they hope to solicit.

Making those personal connections is important because it adds credibility to your company.

Garheng also points out that investors can easily see past the “copy and paste” form letters that often accompany cold calls. Taking the time to personalize these initial points of contact is worth the effort and doesn’t take much time to accomplish.

The personal touch isn’t just about making the investor feel valued. It also serves as a filter for identifying startups that will go the extra mile.

“It’s a proxy for how they operate,” Garheng explains. He believes you can learn a lot about how a startup will work with their customers simply by looking at how much time they dedicate to the initial stages of seeking investors.

Properly Prepare Your Materials

Given the overwhelming number of startups seeking funding in the healthcare space, it’s not uncommon for executive summaries to be overlooked. Instead, Garheng prefers a clean, concise, and easy-to-browse pitch deck.

“In this day and age — and I don’t know if it speaks to patience, or lack thereof — but a typed-out, two-page executive summary is probably less effective than a short deck people can click through and get a sense of,” he says.

When Garheng reviews a pitch deck, he’s looking to answer three key questions:

  1. Are the team members or board members credible professionals with experience?
  2. What is the overall opportunity for financial gains?
  3. Is the product or technology differentiated in the market and proprietary in nature?

What Investors Want to See in Your Pitch

Entrepreneurs need to understand that a private asset firm is being judged by its own investors. VCs aren’t looking for philanthropic projects: they’re looking for opportunities with high ROIs. Garheng has passed on opportunities because he would have had to wait too long to see a return.

Garheng is always looking for entrepreneurs to address why the company is uniquely positioned to succeed in the market. Companies are competing with multiple players. Garheng wants to understand why the entrepreneur in front of him will be the one to rise to the top.

“Entrepreneurs are very passionate about their product or their approach. And you ask them about competitors, and … They dismiss them. And that can occasionally be true, but it’s usually not the case,” he says.

Startup leaders shouldn’t dodge or deny the question of competitors when seeking funding. Instead, prepare to speak directly to how your product or service uniquely positions you to win versus the competition.

Finally, Garheng is looking for what he calls “entrepreneurial larceny,” which he describes as the entrepreneur’s ability to walk a fine line between their own blind optimism for their creation, and reality.

Garheng and other investors understand that an entrepreneur is going to believe in their product — but sometimes, it’s too much. As a result, investors tend to scale back an entrepreneur’s projections to account for the bias.

If an entrepreneur is too optimistic, they lose credibility. If they're too focused on the challenges, they undersell themselves. For Garheng, it’s about striking that balance.

Don’t Fall Short on the Follow-Through

Garheng is often surprised by the long turnaround time from startup companies to respond to his team’s questions after the initial pitch. It sends the wrong message and can cost the company the partnership.

Companies should maintain momentum at this stage in the process. To do so requires rapid responses and quick follow-through.

“Once you have us engaged, you want to keep that dialogue going,” Garheng says.

Venture Capital Isn’t Always the Answer

Garheng is not afraid to point out that venture capitalism shouldn’t always be the path forward, especially when a business lacks the potential to achieve a high level of growth. Just because a business isn’t a good fit for investors like Garheng doesn’t mean it isn’t a business with immense value and opportunity for success. Depending on the startup’s potential to scale, Garheng believes that bootstrapping or seeking angel investors is a better path to funding the project.

Avoiding the Red Tape Pitfall of Syndicated Deals

Accessing syndicated funding for a startup requires a delicate balance.

Garheng believes that two or three syndicate investors is a good number, but that anything beyond that can be problematic. Maintaining a small number of investors in a syndicated deal helps ensure everyone’s voice can be heard.

Having more people can also impact the timeline — another important factor in making investment decisions. The more people at the table, the more likely the startup will face red tape in preparing to launch its product.

Take it from Kleiner Perkins co-founder Eugene Kleiner, who once said, “The only thing a highly syndicated deal guarantees you is a well-attended funeral.”

The Impact of COVID-19 on the Future of Healthcare

As an investor, Garheng needs to stay on top of where the healthcare industry is headed. And nothing has had a greater impact on healthcare in the last decade than COVID-19. As a result of the global pandemic, Garheng is paying close attention to the following emerging themes:

  • The definition of elective procedures has changed dramatically in the wake of the pandemic. Even life-threatening procedures, if they can wait a day or two, may now be considered elective.
  • Healthcare is a global issue, in terms of the spread of disease and the possibility for treatments.
  • The healthcare supply chain can have an enormous impact on a startup’s ability to maintain projected timelines.
  • National migration patterns and the gig economy are affecting the healthcare industry. Since doctors and nurses cannot be trained overnight, there’s a need to prioritize solutions for the shortage of healthcare professionals.

Transforming the Industry One Partnership at a Time

“Healthcare is no longer practiced in silos,” Garheng says. Doctors don’t think in terms of medical devices versus drugs: They look at all of these options as pieces of one big toolbox.

As an investor, Garheng takes a similar approach to investing in startups. He doesn’t operate in specific silos, but instead looks for the next transformational opportunity to rapidly improve the healthcare system and patient services.

You could consider HealthQuest’s portfolio of partners as a transformational toolbox. It’s a collection of forward-thinking medical professionals, charged with changing the future of healthcare for the better.

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