Healthpoint Services — Transforming Healthcare in India
The following case study demonstrates how Toniic members helped move a seed-stage investment from Seed Round to A Round and beyond. It is also an example of how investors can assist early-stage investees with business model development in order to have a larger impact.
Healthpoint Services is a social enterprise that has the goal of catalyzing better rural & peri-urban healthcare. It was co-founded by base-of-the-pyramid researcher and strategist Al Hammond along with Amit Jain and Chris Dickey, and was incubated by Ashoka, the world’s largest network of social entrepreneurs, which remains an active partner. The company’s goal is to transform rural healthcare through newly available technology—advanced water treatment, rural broadband, tele-medical software, and advanced point-of-care diagnostics.
Healthpoint Services International is structured as a holding company with an Indian subsidiary (Health Services India). Health Services India owns and operates E Health Points (EHP), which provide families in rural villages with clean drinking water, medicines, comprehensive diagnostic tools, and advanced tele-medical services that bring a doctor and modern, evidence-based healthcare to their community. As of 2013, Health Services India has provided over 31,000 tele-medicine consultations, 17,000 diagnostic investigations, has filled 36,500 prescriptions and has provided safe drinking water to 300,000 users daily.
Identifying the opportunity. Toniic member Charly Kleissner got to know Healthpoint through the Santa Clara Global Social Benefit Incubator at the time the company was going through a capital raise. While Healthpoint had already raised a seed round, it wanted to find investors who were better aligned with the social mission of the company than the large corporations interested in investing at the time. However, Al Hammond found that early-stage impact-focused capital was in short supply. Impact-focused funds were interested in supporting growth and expansion, but were unwilling to assume the risk required at such an early stage.
First round: a Program-Related Investment. The Toniic network stepped in to fill the gap. In Al Hammond’s experience, “Toniic [was] one of few groups interested in early-stage investing.” Charly met with Al and his partner and decided to invest in the venture. However, he wanted to ensure that the capital was the right fit for the stage of the company. Instead of an equity investment, he brought together a number of investors—including several future Toniic members—over the course of six months to do a $600,000 Program-Related Investment round. The KL Felicitas Foundation (KLFF), Eleos Foundation, Peery Foundation, Woodcock Foundation, and Beyond Capital, amongst others, invested in early 2011 through a 2% 3-year interest-only convertible note that gave the company latitude to develop and fine tune their model.
Active investor engagement. In addition to rallying investors and contributing capital, Charly took on an active mentor role. He took a board seat to represent the Toniic capital and coached the principals on the types of investors—ones with government connections or on-the-ground capacity to help scale quickly—that Healthpoint should be pursuing. He also helped the company prepare for a leadership transition that would attract bigger capital and negotiate more favorable terms with other investors. Beyond Capital Fund also provided pro bono legal support from McGuireWoods and additional transactional support from partner Tres Vista Financial services.
Building comfort with PRI investments. The Healthpoint loan was the first PRI investment for Eleos Foundation, which had only given grants up to that point. When Eleos former Executive Director Andy Lower approached the board suggesting a low-interest $50,000 loan to the for profit company, the board perceived the investment as too risky. However, they were willing to give a grant in the same amount without any reservations. When Lower pointed out to them that they had the opportunity to recover the principal with a modest return, rather than what amounted to a guaranteed loss, and also to signal interest to other investors, the board agreed to give it a try.
Market feedback. The collective PRI capital allowed Healthpoint to test market receptivity and operational effectiveness for their two services: water purification and distributed tele-medicine. As it turned out, the two businesses performed quite differently. The water purification business was met with great demand, while the tele-medicine offering stumbled in the face of unsustainable cost structures in combination with too little patient traffic. As a result, Healthpoint first turned to a hybrid model—with its water business subsidizing its telemedicine business—and then decided to split the two lines of businesses into separate entities in order to use appropriate capital for each, i.e., impact capital for the water business (both debt and equity), and grants and subsidies for the health business.
Splitting the company into two. The model was bifurcated in mid-2012, in preparation for the company’s new round of capital raising. The water model was poised for scale and, as Toniic member Stuart Davidson put it, “became instantly investable,” and is expected to deliver a profit by the end of 2014. Once water purification was isolated into its own business, Healthpoint was successful in raising investor capital to help it grow. Meanwhile, the telemedicine side of the business was placed into a foundation to explore alternatives to the walk-in clinic model. The foundation also received a $250,000 grant from Grand Challenges Canada to build up its ante-natal care.
Critical early-stage risk capital. Toniic members were able to fill a critical funding gap for Healthpoint, allowing the company to fine tune its offering and focus its efforts on quickly scaling its successful water purification business. At the same time, Toniic member’s impact orientation and willingness to offer program-related capital were a better fit for an early-stage mission-driven organization than corporate investors seeking a 20% return on investment. The PRI investors also agreed to hold their conversions on the convertible note until a full Series B round, even though it was clear a bridge round would be needed sooner. As Healthpoint matures, commercial capital the company scale and enter new markets. Indeed, the company raised a $1.4MM bridge round in June 2012, followed by a $3.5M debt investment from OPIC. Al credits impact-oriented angel funding as critical in getting Healthpoint to where it is today. “Toniic has a serious orientation toward impact paired with a low overhead model most investment funds cannot match, and thus plays a critical role in the impact investing space,” he says.