48 | March 2012 Healthcare EXECUTIVE

apil Khandelwal runs his
own investment banking
and advisory services
company, EquNev Capital. In his
25 years of his career, he has
carried out over 30 transac-tions
including cross-border. His
particular area of focus is invest-
ment banking, business advisory,
and driving business results
through mentoring leaders and
his passion is connecting people
and making an impact on the
lives of people in this region.
He holds the unique distinction
of being among the elite club of
Chief Information Security Of-
fcers (CISOs) in the early-phase
drug discovery in the world. He
has played an infuencing role
with the Governments in India
and abroad. Kapil is a recognised
industry leader and speaker on
topics like health and business
strategy. He also serves several
company boards and industry
advisory committees. He was
the Founder Board Member
of DMAI; and among other
positions, currently is a Member-
Advisory Board at Pfzer and the
Fund Advisory Board
Member for several funds.
Here, he tries answering some
of the frequently asked questions
on healthcare fnance…
Q. We are in the
course of expanding
our hospital services.
How can we choose
the right PE partner?
First and foremost, for expand-
ing the services, you need to
really ask, if you are ready for
welcoming a PE frm into your
governance. As a running hospi-
tal, you need to evaluate if you
can do with bank/institutional
debt to fund expansion of your
additional service lines. If you
have exhausted all your bor-
rowing limits, then you need to
consider PE funding.
Secondly, the question you
need to ask is: Is your service
expansion plan large and siz-
able enough for a PE to justify
investments and upside on the
If your answers are affrma-
tive to the two issues, then you
should start looking at the right
PE frms as investors into the
hospital. The key points that you
should look into are:
1. Hospital/healthcare services
industry experience including
portfolio companies where the
PE frms have made investments
in the past and exited them suc-
cessfully or are currently holding
investments in similar ventures
2. Working understanding and
comfort with the PE team
3. The hospital operator should
look for industry references
4. Networking in the hospital
industry in India and abroad
5. Lastly, a question that needs
to be asked is will the PE frm in
question add strategic value to
the hospital for the growth in the
Q. What should we
keep in mind while
presenting our case
for fund requirement,
so as to receive a
positive response?
Every healthcare entrepreneur’s
dilemma is getting the business
model right and articulating
it properly to the PE or VC or
investors through the funding
proposal or the information
memorandum (IM). Having
defned the value proposition
correctly as outlined above, the
corresponding delivery proposi-
tion and the fnancial proposition
has to be outlined clearly. These
Solving the funding formulas
Kapil answers some of the questions hovering in your mind on funding
Healthcare EXECUTIVE March 2012 | 49
would become the inputs to
putting the formal funding pro-
posal that clearly articulates the
purpose of seeking the funding
(money), clarity in describing the
opportunity we are addressing
through the medical technology
(markets), and the ability of the
team to ensure the results (man-
agement). I call them the 3Ms.
Q. What are the top 3
factors that the PE/
VCs look for while in-
vesting in healthcare?
My assessment of any funding
proposal in healthcare is judged
on the following 3 issues:
• First, does the product/service
improve clinical quality, or at
least deliver equivalent outcomes
in a less costly and better way?
• Second, does the product/
service more than offset its cost
through reduced overall health
care expense to the system, such
as reducing costly side effects or
replacing or eliminating other
expensive procedures?
• Third, does the product/service
offer clinical and/or fnancial ad-
vantages for patients, insurance,
and providers alike?
Q. When to raise mon-
ey and from whom?
The promoters must determine
how much money to raise,
and when to raise it. Promot-
ers typically start out raising a
small amount of money to prove
the feasibility of the product or
services idea, and then raise more
over time. How much money to
raise and when to raise it is an
issue that needs to be mapped to
major milestones over the life of
the venture.
Q What strategies
should be followed
and at what stage of
Each stage in the business life
cycle of the venture brings about
different issues and opportunities
and hence each stage is unique
from the other in terms of risks,
problems, rewards and outcomes
that accompany it.
The strategies that can be
followed need to be carefully
considered by the promoters
before seeking the funding from
different funding sources. The
effect on the business cannot be
considered in isolation but has
also to be viewed in the light of
the changes that will occur as a
consequence of the funding.
How does the VCs and
PEs funding process
work out?
The typical process followed by
VCs and PEs which are active
in the healthcare space is set out
• Determination by the potential
promoters that cash is required in
the venture for growth, buy back
existing investors, or buying out
IP, etc.
• Preparation of business plan
and funding proposal (IM)
• Initial presentation to the VC or
PE frms
• Preliminary analysis by the
VCs/PEs followed by meetings
and visits
• Preliminary offer letter (term
• Discussions of the terms by
the promoters and their consul-
• Acceptance of the indicative
offer given by VCs or PEs
• Due diligence by the VCs and
PEs team and their advisors
• Study of results of due
diligence and indicative offer
confrmed or modifed term sheet
• Investment committee proposal
by the VCs or PEs and indica-
tive terms approved, modifed or
• Issue of full offer letter (subject
to legal stages) by the investee
• Legal stages, which are frst
meeting between the VCs or PEs
and their lawyers to draft the
shareholders and legal agree-
ments, then meetings between
the venture and their lawyers to
consider its reply and fnally a
series of meetings between what
has been offered and what will be
accepted and agreed
• Signing and completion of
the contracts between the VCs
or PEs, their lawyers and the
promoters and their lawyers
• New investor joins the com-
pany and their board (in most
• New governance processes
after this.
Q How reliable are for-
eign PE and VC play-
ers? Do they under-
stand Indian
healthcare so
much to be
able to invest
with us?
That is a million dollar
question in itself. India
is an attractive destina-
tion for PE and VC frms and
hence many PE and VC frms
have started their Indian opera-
tions headed by Indian partners
and associates. Hence, it is fair
to say that they do possess the
depth and knowledge to invest in
Indian healthcare sector over the
last few years.
Q Mostly, we see for-
eign investors pump-
ing money here. Are
there any Indian play-
ers too, with whom we
can source funding
and investments?
We do have a large number of In-
dian players who are very active
LPs. Indian healthcare investors
include business families trusts
and their investment arms – in-
cluding the Reliance, Birlas,
Tatas, Azim Premji, etc; PEs
such as ICICI Ventures, TVS
Capital, Apax Partners, Matrix
Partners, Lumis Partners, Ven-
ture East, ePlanet Capital, Nexus,
Helion Partners, Song Invest-
ments, NEA, Bearing
PE, Sequoia Capital, and many
Q Should I appoint
professional advi-
sors? My venture can-
not afford it!
I always recommend that
promoters appoint professional
advisors for their technical inputs
in preparing the business plan
and the funding proposal that you
would like to present to the VCs
and PEs.
However, it is prudent to
restrict their scope of work.
Outside lawyers and
accountants have their con-
tribution in the funding pro-
cess, however they should be
employed at the right time.
Some considerations are:
• costs burden will increase
on the venture at the start
up phase (certainly)
• time taken to complete
will extend (probably)
• harmony between the manage-
ment team will unravel
Every healthcare entrepreneur’s
dilemma is getting the business
model right and articulating it
properly to the PE or VC or investors
through the funding proposal or the
information memorandum

Sign up to vote on this title
UsefulNot useful