Money is always available in plenty, it comes with cost, commercials and structure which needs to be understood very well. An insight by Kannan Ramesh, Partner, Somerset Indus Healthcare Fund
In a burgeoning healthcare market, where technology is key there are many choices for a provider of capital finance. It is important to understand that every option comes with its challenge and it is very important to pick and choose the right option. In my limited learning over nearly 30 years the key is to understand what you can do and then decide what is the best option to have. A lot of people spend a significant amount of time worrying about the cost of funds rather than the outcome based on the utilisation of funds. Also, we have to be very clear whether we are going to put money into expenses or we are going to put money into a business that will determine the risk and the resultant reward.
Banks
Provide term loan, external commercial borrowing, letters of credit, personal loan, mortgage loan, equipment loan etc. These depend on the cost of the project, the means of finance, cash flows, collateral security, personal guarantee etc., we have to pick and choose the option most suited to us in terms of the repayment period, moratorium, structure and repayment and the cost.
NBFC
Are a little expensive but more flexible and digitally empowered to meet the requirements be it term loans, equipment loans, lease, demand Loan etc., it is advisable to use this loan more for business with increased turns to pay for the cost and also benefit to accrue.
Development finance institutions
Play an important role in enabling benefits to the community at large. The size may be a little large but the terms are more palatable and the purpose is not only economics but also empathy to the patients. The flexibility offered and the varieties are worth exploring. A lot of international players are in vogue
Private equity
Largely driven by Returns and Exit. These two determine the purpose of investment. A company with adequate turnover and profits willing to grow to size and scale including acquisition could be a potential target. A sense of maturity in the promoter is required to handle private equity and in today’s context, ESG (Environment Social Governance) is increasingly becoming very important.
Venture capital
Is focussed more on technology and the quantum can be smaller compared to private equity and their ability is that much higher and the idea takes precedence over revenue and profit. This is a good option for health tech companies.
Family officers
Play an important role in helping in seed-stage investment with some traction on the business and a need for money to help in technology / people etc.
Ultra net worth individuals
Play an important role in supporting seed-stage companies to find their moorings before they approach a family office.
Accelerators
A play a very important role in identifying potential opportunities and supporting deserving companies with mentoring, networking etc.
RBF (Receivable based financing)
This is a new development today where companies are funded based on the consistency and regularity of revenue. The costs are high but the process is very quick and can act as a boost before the company approaches funding.
Invoice discounting
This is a facility offered based on the comfort of the debtor to discount the Invoice/Bill reading to receivable financing to help meet the obligation. Technology plays an important role in enabling improved cash low, educed ost of funds, collateral, avoiding debts on the books.
Venture debt
This is a more established form of fundraising and has been very successful in India where leveraging debt, without diluting equity one can build scale and then approach the
private equity/others.
Public issue
A recent phenomenon has been a rush towards going public to raise the sources, provide exits for investors and retire debts. Healthcare is seeing a big boon where many companies are taking this route.
SPAC (Special Purpose Acquisition Company)
Is again a new development now (though existing for some time). This is leverage to acquire companies in a given geography.
Lease
In articular perational ease in addition to capital lease is becoming an increasing trend where providers are allowed to earn and then pay. By structuring the expectation of the borrower and the comfort of the lender is established and turns out to be a winner for both. This is an interesting option which the companies should explore.
SAAS
This is a new trend catching on with healthcare companies where solutions and services are provided on a model which enables pay per use basis. This is very advantageous to companies who can define the usage based on the availability.
While the options to raise money is enormous and customisable the key is to pick and choose the best possible option at a given point of time to ensure comfort and convenience without adding too much stress. In today’s world collateral security has been largely replaced with cash flow’s pledge of shares, personal guarantee, security cover etc., thereby freeing the entrepreneur from a load of collateral security, significant margins etc.
Money is always available in plenty, it comes with cost, commercials and structure which needs to be understood very well. Technology is playing a very important role in ensuring the speed of completing the transaction with minimal hassle. Manufacturers and suppliers of equipment too are contributing by offering payment terms that enable the provider to earn and pay. Particularly in IVD market equipment’s are placed in the provider’s premises and reagents are supplied and returns are made without investment by the provider.
To sum it up, every provider needs to assess and understand the opportunity to grow, expand, diversify and accordingly raise the most suitable form of funding.
