Archive for October, 2007

The Real Motivation for Microsoft HealthVault & Google Health?

Posted on October 31, 2007. Filed under: COBRA & Health Insurance |

I think I must be simple minded. 

Since Microsoft launched its HealthVault beta on October 4, I’ve had no trouble finding opinions on whether or not the service is viable.  A representative sampling can be found here, here, here, here, here, and here though a simple searchwill return many, many more.  By the way, did that last one actually suggest that the potential of private health information “leaking out” of HealthVault might be a good thing since the threat of this might motivate people to live healthier lives?

Similarly, Google and other traditional IT powerhouses who are not usually identified with healthcare IT are apparently planning their own entries into this market and have been for some time.  Many people have written about this too

The central element of the debate seems to focus on privacy and security and whether or not John Q. Public will (a) trust the security and privacy settings of a service like this and (b) be self-motivated to spend the time to enter all of their own historical private health information.  The privacy and security questions are certainly reasonable today.  I know this first hand as a provider of a SaaS application for administering healthcare benefits which includes merchant capture of online payment of insurance premiums.  The need for maintaining security,  ensuring privacy, and complying with the HIPAA and PCI regs/rules/standards play a huge role in many of our decisions — impacting our application and database architecture, our code, our data center architecture, our daily data center operations, our customer support operations, and more.

Is it possible though that Microsoft, Google, et al. don’t really care whether or not John Q today trusts them enough and is self-motivated enough to use their system(s) right now?  Is it possible that they have a different motivator?

If you’ve not been paying attention to the 2008 US Presidential Race, a few minutes on Gallup.com will show you that many Americans seem to think that healthcare reform is a critical issue in this presidential election.  In one of my earlier posts, I also mentioned that one of our potential capital partners recently asked me to review and discuss the healthcare reform position papers of each of the major presidential candidates.  Clinton’s plan for example says the largest savings in her plan will come from “modernization,” and she sites a RAND (R. Hilletad et. al.) 2005 study titled “Can Electronic Medical Record Systems Transform Health Care? Potential Health Benefits,”which she says claims that improving healthcare IT can save Americans $77 billion annually.  If we look at Obama’s plan, one of his primary points is “Lowering Costs Through Investment in Electronic Health Information Technology Systems.” It goes on to say “Obama will invest $10 billion a year over the next five years to move the U.S. health care system to broad adoption of  standards-based electronic health information systems, including electronic health records.”  A major tenant of Edwards’ plan says it will “Improve Productivity with Information Technology”  Again, the first concept in this section of Edwards’ plan is “Adopt Electronic Medical Records.”  Interestingly, Edwards sites the same RAND study as Clinton, though he says this same study says that, “Savings from electronic records could be as great as $160 billion a year.” 

Here’s the point, if a Democrat is elected president in 2008, each of the major candidates claim that the #1 cost saving measure they hope to implement is a universal electronic medical record.

Microsoft and Google won’t need for John Q. Public to willingly choose to use their system if the US government decides that they get to play a part in implementing a universal electronic medical record.  If we look back just a couple years to the UK’s National Programme for IT in the National Health Service, Microsoft and Google were left out of one of the all time largest IT deals.  The original cost estimate for this project was 2.3 billion GBP.  This estimate has officially been updated to 12.4 billion GBP, but rumors apparently have some estimates as high as 20 billion GBP (that’s about $40 billion USD).  The companies that got to play in the UK deal were traditional Healthcare IT providers like Cerner and IDX and large systems integrators.  If Obama will publicly admit while running for president that he’s prepared to spend $50 billion to implement a universal electronic medical record, we can be pretty sure the actual cost will be much higher.  I think Microsoft and Google are rushing to get systems to market as soon as they can so they can attempt to play in what may be the mother of all IT deals.

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A Startup SaaS Company in Omaha and Pmarca

Posted on October 27, 2007. Filed under: Other, SaaS Technologies |

I’m a big fan of Marc Andreessen’s PMARCA blog. I and thousands of others greatly appreciate the time he spends to share his experience and wisdom so freely with so many. His early series of posts on The Pmarca Guide to Startups, especially Part 1: Why not to do a startup, are wonderful reading for any entrepreneur who is considering starting their own company. You have to be one part crazy, one part lucky, one part gifted, and many parts incredibly committed to take a company from an idea to something really special. I personally will never forget the day when John and I decided our best course of action was to jettison every single one of our original developers and start over. I’m not sure how well John slept that night, but I’ll always admire the courage it took for him to do this, and in hind sight, it was one of our best decisions.

A recent series of posts, The Pmarca Guide to Career Planning, is equally entertaining and insightful, but one little piece of Part 3: Where to go and why has been bothering me since I fist read it on October 3. Marc advises:

Go to the city where all the action is happening. For technology, at least in the US, this is Silicon Valley…

In my opinion, living anywhere other than the center of your industry is a mistake. A lot of people — those who don’t live in that place — don’t want to hear it. But it’s true. Geographic locality is still — even in the age of the Internet — critically important if you want to maximize your access to the best companies, the best people, and the best opportunities. You can always cite exceptions, but that’s what they are: exceptions.

In general, Marc’s point is a good one, especially if you’re giving “go west young man” advice to a young person who dreams of striking it big in their chosen field, which is what Marc is doing here. To a certain extent, this advice also applies to entrepreneurs choosing to start a new company. John and I recently had one of the wisest and most experienced investors in Omaha (no, not him) explain to us that while people is the most important criteria in his investment philosophy and generally this refers to the founders, the talent pool within the company’s location is an important part of this people criteria. He explained that even if we each had years of experience working for Disney and Pixar and came to him wanting to start a new animated movie studio in Omaha he wouldn’t invest since Omaha isn’t exactly full of talent in this industry.

If you’re an entrepreneur wanting to start a technology company today though, there is no requirement that you be in Silicon Valley.

Sure, if you already happen to be there, your access to technical talent may be better than anywhere else in the US, but in my career I’ve worked with brilliant technical minds all over the US — Boston, NYC, Philly, DC, Charlotte, Atlanta, Tampa, Chicago, Dallas, Denver, even, gasp, Omaha! If you want to go international, I can point you to good friends and brilliant developers on five continents from Hanoi to Wiesbaden to Pretoria to Sydney to Toronto. Without hesitation, in Omaha, Nebraska, I’d put our VP of Technology and Chief Architect, John Borders, and our head DAL and database developer, Eric Smith, up against any technical minds in the world.

Also, as I’m sure Marc would agree, technical talent alone doesn’t make a good member of a startup team. Attitude and effort are equally important. While no company is ever a democracy, a startup company must be a team. To succeed in the early days, each member of the team must be able to pull their own weight and earn the trust of their team members. There simply isn’t room for non-contributing managers in the early days and there isn’t time to micro-manage everyone.

Finally, I’m going to shamelessly plug Omaha. Perhaps when you think of Omaha you think of Warren Buffett and Berkshire Hathaway, Union Pacific, Conagra, Mutual of Omaha, and Peter Kiewit Sons. You should, these are all great companies. Do you know though that Newsweek has named Omaha a “top 10 high tech haven?” Do you know that Omaha ranks first in the country in millionaires per capita and golf holes per capita? Do you know that Omaha ranks 8th in the top 50 US cities in billionaires per capita and Fortune 500 companies? Do you think of Omaha every time you use an ATM card or a credit card? You should. Check out ACI Worldwide, First Data, and First National Bank of Omaha. Do you think of Omaha when you call just about any large company for customer service? Check out West Corporation and SitelTD Ameritrade, Gallup, infoUSA, PayPal, LinkedIn — all are either headquartered here or have a major operations center here.  Who knew when Lori and I moved here 5 years ago that I’d become such a fan of Omaha?  I guess I just like being right in the heart of it all…

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SaaS Powered BPO

Posted on October 24, 2007. Filed under: COBRA & Health Insurance, SaaS Technologies |

Jeff Kaplan writes an insightful blog on trends in IT services with a strong focus on SaaS technologies which I’ve subscribed to for some time.  This morning I found myself dancing a little jig when I discovered his most recent post “SaaS and Business Processing Outsourcing Converging,” because this is exactly what we’re doing at COCO Development.  I’ve touched on our business model in some of my previous posts, but I’d like to focus here specifically on how and why we’ve built our company to leverage a SaaS delivered application to provide business process outsourcing (BPO) services for our customers.

Background

Every US employer with 20 or more employees who sponsors a group health plan must comply with COBRA.  The law impacts about 650,000 US employers and their greater than 90 million employees.  Essentially, COBRA allows employees or their dependents who lose their health insurance due to one of several qualifying events to continue to remain on the employer’s group health plan for an extended period of time.  Because of (a) the complexity of the regulations, (b) the need to collect monthly premium payments from COBRA continuants, and (c) the burden of communicating regularly with the COBRA continuants, approximately 72% of employers outsource their COBRA compliance administration to a third-party administrator (TPA).  For the TPA, however, these challenges still exist, and are multiplied as the TPA tries to scale their business.  This is why no single COBRA TPA currently has a greater than 4% market share.  We know this from first hand experience, as our founder and CEO, John Jenkins, built the nation’s largest independent COBRA administrator, COBRA Outsourcing Company, before selling COBRA Outsourcing and founding COCO Development to revolutionize this market.

The Problem

We know from personal experience the pains in trying to scale a COBRA administration business. 

(1)The incumbent technology “solutions” on the market are outdated client/server systems with either (a) no web portal at all or (b) a kluged browser based GUI built on top of a 15 to 2o year old legacy system.  This means the bulk of the communication taking place today between the TPA and the employer and the TPA and the COBRA continuant is done by phone, fax, and email — requiring the TPA to maintain a large and costly call center and resulting in much duplication of effort and manual data entry errors.

(2)COBRA continuants pay about $24B USD per year in monthly continuation premium payments.  The vast, vast majority of these payments are made by personal check.  Furthermore, the COBRA regulations impose very specific rules governing whether payments are made in a timely manner to continue receiving coverage.  The postmark date of mailed payments is critical in determining their timeliness.  For this reason, COBRA TPAs cannot reliably depend on a traditional bank lockbox service to process these payments since no bank lockbox will integrate with the TPA’s COBRA system to check to see whether a payment is timely before depositing the check.  The result is that most COBRA TPAs hand open, hand enter, and hand endorse and deposit premium payments.

(3)Administering COBRA requires the generation and delivery of multiple pieces of formal, written communication with COBRA participants.  To date, the US courts have held that the only universally approved method for delivering this communication is via first class mail.  A fair sized TPA may generate a thousand or more letters a day, and this is with a smaller than 4% market share.  Unfortunately, the legacy COBRA systems on the market have no concept of optimizing their production of letters for use by a mail house, so most TPAs hand fold, stuff, meter, and sort their mail before hand delivering it to the post office.

SaaS Powered BPO

Communication, payment processing, and mail fulfillment — we solve all of these pain points through SaaS powered BPO services.

(1) COBRApoint is our SaaS delivered enterprise application for COBRA (and retiree)administration with unique, secure portals for the administrator, the employer, and the member (COBRA or retiree continuant).  All stakeholders have instant access to the data they need and the ability to communicate new information directly to the system of record.  Duplication of effort, manual errors, and call center volume are reduced significantly (we probably save a few trees too).

(2) COCO Payment Services provides a COBRA optimized (postmark date driven) payment processing lockbox service which is integrated directly with COBRApoint.  It is this direct integration with the SaaS system which makes the service valuable.  The fact that we can also accept credit/debit and ACH transactions through the COBRApoint Member Portal is another distinct benefit of an integrated BPO service and a SaaS application.

(3) COCO Mail Services automatically electronically delivers highly optimized letter files generated by COBRApoint directly to our mail house each business day.  In other words, when our customers perform an action in the SaaS COBRApoint system on Monday which triggers a letter, this letter is placed into the USPS mail stream on Tuesday without the customer having to do a thing.  In addition, the costs our customers pay for this service are far less than any TPA is paying currently due to economies of scale across our customer base.

So, why do we call our business model SaaS Powered BPO Services?  First, COBRApoint’s SaaS delivery model is what enables us to provide our BPO services.  If each of our customers were running their own local copy of the system behind their own firewalls, we could never efficiently provide our BPO services.  Secondly, while a web based, scalable enterprise application would revolutionize this $24B market on its own, it is our BPO services which dramatically impact our customers’ bottom line.  The efficiencies we drive through highly optimized automated processes and economies of scale empower us to provide these highly repetitive services for our customers at a fraction of the cost they are paying currently.  For these reasons, the BPO services are all our customers pay for — COBRApoint is free.

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CTOs and Market Driven Companies

Posted on October 22, 2007. Filed under: Other |

What is a CTO? I’ll do better than tell you, I’ll show you.  My friend Niel Roberston is posting again, and I think his blog is one of the best peeks inside the mind of a great CTO you can find.  His most recent post is titled Do Programming Languages Matter Anymore?  I had the great pleasure of working with Niel a few years ago at Newmerix, and I’ve never known a CTO who could so deeply understand the needs of a market, envision and articulate technology based solutions to those needs, and guide the engineering team to turn the vision into reality.  A truly great CTO starts with the market and goes back to the product and technology.  Far too many CTOs (and far too many companies for that matter) start with inventing a new technology and then try to create a market.

My positive experience working with Niel and my “lessons learned the hard way” experiences early in my career taught me how much easier it is to sell a solution which was built to solve a significant unmet market need then one invented by brilliant technologists simply because it is better than solutions which currently exist.  This is why I love our current company so much.

John Jenkins, our founder and CEO, built the nation’s largest independent third-party COBRA compliance administrator, COBRA Outsourcing Company, before conceiving our current company, COCO Development.  What do we do at COCO Development?  We solve the very specific pains John experienced in building COBRA Outsourcing Company.  John learned first hand why there is an incredible disconnect in the COBRA and Retiree Continuation industry where 72% of employers outsource continuation administration but no one third-party administrator owns greater than a 4% market share.  Simply put, the incumbent technology solutions on the market are outdated and can’t scale and the two largest operational pain points in continuation administration — payment processing and mail fulfillment — can’t scale efficiently without significant capital investment, economies of scale, and experienced process optimization.  So, we solve all three — technology, payment processing, and mail fulfillment.  I love the reactions of our prospective customers when they first learn of our integrated suite of solutions.  “You really get it,” and “this is exactly what we need” are pretty nice things to hear.

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When is hearing the F-bomb a good thing?

Posted on October 20, 2007. Filed under: Other |

I’m not exactly a choir boy. You can’t spend four years in one of the largest fraternities at Dartmouth and be a saint (you do know Chris Miller who wrote Animal House went to Dartmouth?) . I’ve also spent most of my professional life selling enterprise software, and when high-end sales people are together behind closed doors, ego and quota busting are all that matter — leave your sensitivities at the door or go home. However, I can’t think of one time when I’ve ever used any curse word in front of a customer. Customers using them in front of me is also pretty rare. It is rare enough that at a former company we routinely referred to one of our customers as “F-bomb ___” due to his incredible creativity at working the F-bomb into every other sentence when he spoke. He was so creative that George Carlin could have taken lessons from him.

The last few months though have produced a watershed of F-bomb droppings in meetings. In each case, we had an executive or c-level officer sitting in front of us start dropping them casually and without any malice towards the end of our meetings. It has happened so often in this recent stretch that John and I have begun to talk about this as much as the net results of the meetings themselves. I suppose I should note that all of these meetings went very well, and all of the relationships we were hoping to build are progressing nicely. So, when you hear the F-bomb like this, could it be a good thing? Could use of the F-bomb be a c-level code for “I like you guys and what you’re doing, and I’ll signal this to you by dropping the formality being very familiar with you?” If this is the case, I’m going to start hoping to hear the F-bomb as often as I can.

Of course, there is always the alternative theory which goes like this — “You’re in my f’in company on my f’in floor in the premier f’in office building in this f’in city, and I’ll say what I f’in please whenever I f’in feel like it.”

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The Power of Face-to-Face

Posted on October 18, 2007. Filed under: Other |

Don’t let my VP Ops title confuse you.  I’m a sales geek at heart.  In a good startup you have a small team of great people who all wear many different hats.  In our case, my title simply means I work hand-in-hand with John and John (our CEO and VP of Technology), our Director of Payment Processing, our Director of Marketing, and our Director of Customer Support to ensure that we execute on implementing our vision. 

My background though is defined by hundreds of thousands of air miles sitting in coach and more nights spent in hotels during my twenties than at home.  I remember a call once from my grandmother, Dori, when she scolded me for not letting her know that I was going to be in Milan since she could have given me wonderful advice on what to see.  I don’t think she really understood when I explained that I’d only been in Milan for 24 hours since in one week I’d had meetings in Amsterdam, Brussels, Paris, Milan, and Madrid.  Why on earth would someone do that???  The answer is simple — face time.  I was selling enterprise software and building international sales channels, and the only way to do that well was good old fashioned knee-to-knee selling.

Like many companies today, we’ve found that we can be highly successful selling our suite of services to most of our target market by web cast.  This is great for many reasons, and cost savings is only one of them.  The fact that my wife and kids know me really well is a pretty great benefit too.  What you miss though in a web cast are the intangibles — body language, force of personality, depth of understanding, influencing group dynamics, and most importantly, relationship building.

The old adage states that selling starts when the contract is signed.  This is pure BS when you’re selling enterprise class software as I can only think of one time in almost 15 years when all I had to do was answer my phone to take an order from a purchasing department.  The truth though is that relationship building can’t stop when the contract is signed, and if you haven’t done much relationship building before you got the signed contract, you now have your work cut out for you.  This is especially true in our case where our revenue comes in over time only as our customers ramp their use of our system and services.  So, if your close percentage is high through web cast selling but your support volume is high or your customer retention is lower than expected, perhaps the apparent cost savings from selling via web cast aren’t as great as you thought.

John and I got up at 4:30 AM today for a morning meeting in Kansas City and were back in the office in Omaha by 1 PM.  I’m a little tired this evening, but I’m so glad we made the trip.  Nothing beats face time, and its always good to get back to your roots and remember what got you here.

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The Thrill of the Blog

Posted on October 18, 2007. Filed under: COBRA & Health Insurance |

John (our founder & CEO) and I had a meeting this morning with a visionary insurance carrier to discuss their interest in leveraging our integrated suite of services to empower them to provide full-service COBRA administration for all of their policy holders.  Two fun, first time, results occurred for me.

First, I got to say for the first time in a conversation, “I wrote about just this topic in my blog last night.”  Secondly, they reaffirmed across the board their agreement with my post.

This carrier intends to provide COBRA compliance administration for all of their policy holders’ members’ plans — not just their own.  In other words, Carrier A will be administering COBRA for Carrier B, C, and D’s plans.  The question they asked was, “How will the COBRApoint system enable us to communicate eligibility changes to other carriers?”  Before I could stop myself, I was self-identifying myself as a blogger.

The good news (I think) is that they agreed that the only universally accepted solution we could offer today is faxes.  The better news is that they agreed that they’d be happy to work with us to begin to help us convince the carriers they’ll be communicating with to accept EDI files from us.  I hope WEDI influences the universal adoption of a common standard before we build a library of custom file formats for every carrier in the country, but if we have to build this wall one brick at a time, we will.

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Paper, People, & Universal Healthcare

Posted on October 17, 2007. Filed under: COBRA & Health Insurance |

Question:  How many people do health insurance carriers employ to manually enter data received on faxes into eligibility and claims systems?

My background is all technology.  All of my previous companies built industry agnostic middleware solutions which we sold to hardcore IT teams.  So the last two years have been a crash course for me in learning the SOPs of our customer base — insurance carriers, TPAs, and HR departments.  My learning curve of the week is related to how our system should best produce automatic eligibility notifications to insurance carriers when COBRA and retiree continuants elect continuation coverage, change plans, change dependents, terminate coverage, etc.  How the system should “best” do this is probably a misnomer, at least for now.

The “best” solution for all parties would clearly be EDI(electronic data interchange).  In other words, our COBRApoint system should automatically electronically send a file of information to a carrier, and they should have a system which automatically takes this information and updates their eligibility systems — no people and no paper.  Ideally, all carriers would accept the same file format, and all carriers would accept these electronic files for all of their clients (employers sponsoring group health plans).  Unfortunately, this isn’t the case.

If you poll our customer base about this topic, your head will start to spin.  “Carrier A wants us to manually enter these changes through their website.  Carrier B only accepts faxes.  Carrier C wants us to send changes via (hopefully encrypted) email.  Carrier D will accept EDI files, but only for our three largest clients — oh, and since one of these clients is a 5,000 to 10,000 member group and the other two are 10,000 plus, the files have to be in a different format and sent to different places.”  “O.K.,” I say, “is there one format that all carriers will accept for all clients?”  “Sure,” they say, “faxes.”  At this point I can’t help but imagine some little fax machine at Mega Insurance Company running 24 hours a day spewing out pieces of paper.  Now, I’m sure this isn’t the case, they probably have a Big Blue document management system collecting all these faxes and routing them to people, but still, how many people must it take to manually enter all this data, and how much do all these people cost, and how many manual mistakes do they make????

If you’ve paid any attention to the news surrounding the still far off 2008 US Presidential Election, you’ve no doubt seen that some flavor of healthcare reform or Universal Healthcare is a very popular topic.  In the interest of full disclosure I suppose I should admit that I have a deep-seated mistrust for any idea which suggests that we should build a government program/department to better manage something than private industry is doing.  If you don’t agree with me, just go spend an afternoon in your local DMV office.  That being said, I recently spent a delightful evening reading the position papers of all of the major candidates on this very topic at the request of one of our potential investors — and I found something I could relate to.  Most of them claim that their first order of priority would be improving the efficiency of Healthcare IT — including and perhaps most importantly how providers, members, employers, and carriers communicate.  Amen.

I would like to point out that the healthcare community, including the insurance carriers, are already working on this, and the government is involved too.  HIPAA specifically makes an attempt to encourage simplifying all of this communication.  WEDI, the Workgroup for Electronic Data Interchange (with the active participation of carriers and providers) has been working on this for years.  Their core purpose, “Improve the quality of healthcare through effective and efficient information exchange and management,” is spot on.  This page I think nicely sums up the “best” solution I’m dreaming of.  In the meantime, we’re generating lots of faxes.

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How should we fund the growth of our company?

Posted on October 15, 2007. Filed under: Company Financing |

In an ideal world, my great aunt twice removed on my father’s side would have left me a nice parting gift of $20M on her way to meet St. Peter.  Of course, if she’d done this I might have been too busy attempting to become King of the Mountain in Aspen or, if Lori had her way, opening a string of soup kitchens, to ever think about starting a company.

Since this didn’t happen, we find ourselves 2 years into our self-funded to date company looking at our funding options for moving forward.  I love working with John since his strategic mind is always working to ensure we have multiple options for a future need long before we get to the point where the need is critical.  Our options right now are probably similar to most companies at our stage — proven ability to deliver product and land customers but not yet profitable. 

1.  We can continue to grow organically using our own money and/or debt to fund operations until we break even.  To do this we’ll need to continue to keep expenses low which means our ramp will be relatively long.

2.  We can pursue funding from traditional or not-so-traditional venture capital firms.  Traditional or not, a good VC firm will bring us assistance in growing our company professionally and a healthy, experienced outsider’s perspective on our plans.  John and I both appreciate and value the need for professional management, but we’re also both “entrepreneurial” at heart.  The right VC could help us.  On the downside, they’ll not only take equity, but even if they only acquire a minority ownership stake, the company will no longer be “ours.”

3.  We are fortunate to have several large, public companies expressing strong interest in working closely with us and in making a strategic investment in our company.  On the plus side here, they seem less interested in being involved in how we run our company than the VCs are.  On the downside, we’ve found that the corporate development teams in large companies seem to be more rigid than the VCs regarding valuation and percentage equity for their investment.  I guess this makes sense.  The VCs are more involved so they’re more willing to take a risk regarding the valuation and equity percentage.  Of course, they’re also thinking way ahead of us about B and C rounds of financing.

4.  A fourth option we could choose is to license our source (with a highly restrictive non-compete and IP protection agreement) to one of our prospective customers who would rather run our system in-house than in our hosted, SaaS model.  The revenue growth curve in any SaaS model is a long one.  A large one-time license fee from this customer (plus annual maintenance for new releases) would easily solve our funding needs for the next year or more.  In my earlier life selling COTS enterprise software, this would be our no-brainer choice.  The downside is that even a large upfront payment for a source code license from this customer would be significantly less than they would pay us in our normal model over a 5 year relationship.  This is compounded even more in our case since software license/subscription fees is not where we make our money.  Our model is to give access to our software for free in return for processing insurance premium payments on behalf of our customers.  If we give this customer our source so they can run our system in-house, we’ll likely never get their premium processing business.

5.  Our last option is an angel investor.  I’ve been surprised how easy it is to find wealthy individuals who like to do angel investing.  I’ve also found that there is no real rule here — some like to be very involved; some don’t want to be involved at all.  In some ways angels are like VCs on a smaller and perhaps less formal scale, though “cash on cash return” is a question we’ve gotten often from potential angel investors, but we’ve yet to have a VC ask us this.  The biggest drawback for us where angels are concerned right now is that most of them want to invest somewhere between $25K and $500K.  I’m sure there are angels out there with really big pockets who will go higher, but they’re a little harder to find.  At this stage in our growth, if we only take $500K it might as well be from a loan with no loss of equity.

So, we’re actively working all of these options right now except for the angel option.  If anyone has personal experience or advice, I’m all ears.

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Why?

Posted on October 12, 2007. Filed under: Company Financing |

My daughter turns 3 next week, and my son is not quite 4 1/2.  Lori and I hear, “Why?” a lot.  One of the many things I love about Lori is that she never seems to get tired of trying her best to answer each “Why?”  So, why am I writing this blog?

We’ve (my business partners and I) recently begun the process of exploring our options for future growth.  We can continue to grow organically; we can accept venture funding; we can accept a stratetgic investment from a large company; we can license the source code for our SaaS application to a large company who would like to run the system themselves internally; or we can accept funding from an angel.  We see positives and negatives in each scenario.  I’ll do my best to briefly outline each in my next post.  The reason I chose to start this blog though is this:

Before this week, I’d never seen a VC term sheet in my life.  I’ve negotiated hundreds of software license agreements, reseller agreements, and service agreements; I’ve poured through ERISA and COBRA regs and many state laws for health insurance continuation; I’ve even done my best to understand how GLB and PCI compliance laws/rules apply to our business; but I’d never seen a VC term sheet.  I’m not a fan of negotiating anything from a positition of weakness, so I went looking for help.  I found exactly what I was looking for in some outstanding blogs.  I found both VC general partners and entrepreneurs who shared their knowledge and experience in frank, easy to understand language I could understand.  I owe the authors of these blogs a great deal of thanks.  I won’t pretend here to be an expert in any of the topics I discuss like these authors are, but I would like to share some of what we learn in building this business in the hopes that I might, one day, write something which helps someone else.

The blogs which helped me so much?  Here they are:

Feld Thoughts by Brad Feld
Ask the VC by Brad Feld and Jason Mendelson
A VC by Fred Wilson
Venture Hacks by Nivi and Naval Ravikant
Ask the Wizard by Dick Costolo

Thank you to each of you.

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  • About

    Mark Waterstraat

    VP Sales

    Benaissance

    www.benaissance.com

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