Smiga: Hi Mark. It’s Brian Smiga.
Mark: Hey, Brian. Good to talk to you.
Smiga: Same here. Happy New Year.
Mark: Thank you. Happy New Year to you as well.
Smiga: Great. So this is the Alpha Venture Partners Podcast on category leadership, and today we’re going to talk with you about one of your best companies. First of all, I want you to define Math Ventures for us because you’re different.
Mark: Yeah, ask me in 10 years if different is good or bad, an I will let you know.
Smiga: I think it’s going to be good.
Mark: Yeah, I think so too. Math Venture Partners is an early stage fund; we like to invest in A rounds, and do a little bit of seed investing as well. We are Midwest centric, with about half of our portfolio in the Midwest, and the rest of our portfolio around the country. We are industry agnostic software tech investors, but what we really focus on, our investment thesis, is companies who know how to sell. We love entrepreneurs who have an unfair advantage or leverage in customer acquisition. That’s what gets us really stoked.
Smiga: And this stems from your, and your two partners’ backgrounds, right?
Mark: Yeah, we’re operators. I’ve built four different companies. My partners equally have built a number of different companies. We know that most entrepreneurs fail. It’s really, really hard. Our joke is that, assuming the business fundamentals are solid, nobody has ever gone out of business because they had too many customers.
Smiga: I love it. So if you have a company that’s maybe in the Midwest or anywhere, and you know how to sell, and your team knows how to sell, and you want an operator as an investor in your company, you got to talk to Mark, Troy and Dana at Math Ventures.
So today we’re going to talk about Apervita, one of your companies that’s breaking out and becoming a leader, having just closed a round last fall. Let’s define Apervita real quick.
Mark: Apervita has a technology that is a platform, and is a relationship manager. We’ve all heard of CRM, Customer Relationship Manager. Apervita provides a relationship management platform, but instead of people, it’s for data and analytics, and specifically in the healthcare world. So if you think of hospitals, if you think of providers, every single day, they are getting asked to supply data and analytics to multiple people from lots of different sources. It could be payers, it could be the government, it could be CDC, it could be part of the audit process they’re constantly being asked for data and analytics. What this does, is it’s a platform that organizes, manages, and expedites the relationship between data and analytics and multiple entities in healthcare.
Smiga: That’s great. So how did they fit your thesis when you discovered them?
Mark: Well, our thesis is several fold. We’re like every other venture fund, in that we look for a great team with a really big market and differentiated technology. And so, we’re really excited about Apervita on all three of those fronts. But what really got us interested was their sales methodology and how they approach the marketplace. We’re particularly excited about this concept of compliance, where entities are forced to use a product or a service; we talk in depth about that in Apervita.
Smiga: That’s great. So who are these heroes? Because they’re the hero of our story, not us. Tell us about one of the founders and how you felt comfortable about writing the check.
Mark: Yeah. I love the founder. The founder is a guy by the name of Paul Magelli. Paul is a seasoned entrepreneur, who built his last company, took in venture capital, built it up and sold it for a couple of hundred million dollars. He’s one of those guys that has a chip on his shoulder and he said, “Gosh, I want a billion dollar exit.”
Smiga: Great. I hope he gets one here.
So now, Paul saw this problem, and he saw this almost unfair advantage in selling. It was looking one way when he started, but then he probably got smarter about it and collectively, you got smarter about it. Well, it looked great on paper in the early days. How has it changed for the better?
Mark: Fundamentally, the products in the platform stayed the same, but what changed was the business model. The original business idea was to create a two-sided marketplace for people to sell and purchase data and analytics. That evolved into a hub and spoke model with one entity. I’ll use a concrete example of the Joint Commission. In healthcare, every hospital in the United States gets approximately 37% of their revenue from Medicare reimbursement. In order to be eligible for Medicare reimbursement, every hospital must go through an audit process, and it’s a very detailed data and analytics driven process. The organization that does it is called the Joint Commission. Once every three years, every hospital in the United States must go through a very difficult process with the joint Commission to be audited and certified.
The company decided to reach out to the Joint Commission because they had a problem in managing their data and analytics, and they wanted to make it easier for their hospitals to provide, control, and manage that process. Lo and behold, they won a competitive request for proposal process back in August, and were awarded a contract. Now the Joint Commission is rolling out Apervita; they are buying a copy of Apervita for 3500 hospitals over the course of the next year, and rolling it out, quarter by quarter.
Smiga: Wow. It’s a great milestone.
Mark: Thank you. And every hospital must use it to comply with the Joint Commission audit process.
Smiga: Were you ever in doubt? Say, were you nail biting in June and July before this happened?
Mark: Yeah. We believe in the team and in the technology, but there were some nail biting moments because the business model – building a two-sided marketplace – is never easy, particularly when doing it in healthcare. For those of you who know, understand and appreciate the business of healthcare, you know there’s good news and bad news. The bad news is the sales cycles can be quite long. The good news is once you’re in, there’s very high customer retention rate.
Smiga: The shift from the two-sided marketplace to the hub and spoke model with this gorilla at the center is quite exciting, and it defines a larger destiny for Paul and Company, right?
Mark: Oh, absolutely.
Smiga: How big a future? How bright a market are you now going after?
Mark: Well, the company has a lot of execution in front of it. Think about all the different entities out there who are constantly asking hospitals for data. For example, the CDC, Centers for Disease Control, is now on a third trial with Apervita. There are also Payers, like Optum, United Health Care. Optum led the last investment round in Apervita, and now are in discussions for business relationships. They are thinking about the platform to manage that incredible amount of volume of data and analytics that they’re asking for from their hospitals.
If you think about payers, you think about CMS, Medicare, Medicaid, and if the company can be the standardized platform to control and manage data and analytics across the industry, that becomes a really significant opportunity.
Smiga: You were able to close a new round on the heels of this August development, right?
Mark: Yeah. That’s right. The contract with the Joint Commission was closed in August, and we closed a fairly significant round two weeks after that.
Smiga: So now, you and Paul have had multiple trials, you’ve now gotten the Saturn V rocket to the launch pad, you’re in test flight mode, and you have a lot of execution ahead of you. What is the biggest new learning that you experience in guiding and watching this company, that you feel you take with you on this journey?
Mark: Well, I think it is not necessarily a new learning, but reinforcing what I already know, which is a heavy dose of humility. You have got to believe in the team, the product, and the market opportunity and stay calm and carry on. I think that humility of believing in the team and persevering is really important. Also believing in our fellow investor group. Our co-investors in this deal, G.E., General Electric, and Baird, and the Pritzker Group, are fabulous co-investors. Sometimes when times are difficult, it can be stressful on the investor team. This was an example of the investor team really coming together and working together to help the company through what was a challenging time before that contract was signed.
Smiga: I really love hearing that. And from where I sit, both Math and Pritzker group are the kind of investors that attenuate crisis and help companies get through change rather than exaggerate it. That’s exactly what you want in a board, in advisors and in stakeholders with you, so, that’s really great to hear.
In closing, is there any advice that you have to first time or second time fund managers, where you could use an example from Apervita that might be generally applicable?
Mark: It’s a team effort. Going back to this concept of humility, it really was a team effort with the board and the management team to work through and partner to figure out and turn the knobs to make this hub and spoke model work. Some of the strategic guidance in terms of how the business model evolved, actually came from the board, and it was that partnership, which was really a fabulous partnership.
Smiga: This is how it’s supposed to work, right? The collective intelligence around the table. Really glad to hear the story. It’s a great story.
Mark: Thanks. I give kudos to Paul Magelli too. He really put together a great team. He’s taken some lumps and he persevered, and now he’s just leading this rocket ship.
Smiga: That’s great. So I hope you’ll include Alpha in your next round. I hope there will be another round because I think this is a really big market and Paul can get his billion-dollar exit.
Alpha is an opportunity capital fund that works with early stage funds like Math to invest in the best growth companies. We share the upside when we invest in their best companies. So keep us in mind, Mark, because it looks like this one is going to go through another round and become a billion-dollar company.
Mark: Well, I vote yes.
Smiga: I vote yes too.
Mark: Right. And of course, we would be honored to partner with you. We love working with you guys.
Smiga: Well, this has been a really good illustration about teamwork on the part of the Venture team working with a great entrepreneur like Paul, and a company that made a change in its business model and everybody pulled the oars together. I really appreciate you taking the time to be with us today, on the first week of January.
Mark: Well, stay warm. I understand some snow and cold weather is coming your way.