Josh Kopelman

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Revenue-based investing: A new option for founders who care about control

David Teten
Contributor

David Teten is a Venture Partner with HOF Capital. He was previously a Partner for 8 years with HOF Capital and ff Venture Capital. David writes regularly at teten.com and @dteten.

Does the traditional VC financing model make sense for all companies? Absolutely not. VC Josh Kopelman makes the analogy of jet fuel vs. motorcycle fuel. VCs sell jet fuel which works well for jets; motorcycles are more common but need a different type of fuel.

A new wave of Revenue-Based Investors are emerging who are using creative investing structures with some of the upside of traditional VC, but some of the downside protection of debt. I’ve been a traditional equity VC for 8 years, and I’m now researching new business models in venture capital.

I believe that Revenue-Based Investing (“RBI”) VCs are on the forefront of what will become a major segment of the venture ecosystem. Though RBI will displace some traditional equity VC, its much bigger impact will be to expand the pool of capital available for early-stage entrepreneurs.

This guest post was written by David Teten, Venture Partner, HOF Capital. You can follow him at teten.com and @dteten. This is part of an ongoing series on Revenue-Based Investing VC that will hit on:

So what is Revenue-Based Investing? 

RBI structures have been used for many years in natural resource exploration, entertainment, real estate, and pharmaceuticals. However, only recently have early-stage companies started to use this model at any scale.

According to Lighter Capital, “the RBI market has grown rapidly, contrasting sharply with a decrease in the number of early-stage angel and VC fundings”. Lighter Capital is a RBI VC which has provided over $100 million in growth capital to over 250 companies since 2012.

Lighter reports that from 2015 to 2018, the number of VC investments under $5m dropped 23% from 6,709 to 5,139. 2018 also had the fewest number of angel-led financing rounds since before 2010. However, many industry experts question the accuracy of early-stage market data, given many startups are no longer filing their Form Ds.

John Borchers, Co-founder and Managing Partner of Decathlon Capital, claims to be the largest revenue-based financing investor in the US. He said, “We estimate that annual RBI market activity has grown 10x in the last decade, from two dozen deals a year in 2010 to upwards of 200 new company fundings completed in 2018.”

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Mint founder Aaron Patzer launches Vital, an ER management tool that integrates with electronic health records

Aaron Patzer launched Mint to help consumers organize their finances. Now he’s raised $5.2 million from investors to launch Vital to bring that consumer-focused mindset to emergency rooms and hospitals to help them organize patient flow.

Patzer co-founded the company with his brother-in-law Justin Schrager, a doctor of emergency medicine at Emory University Hospital. The serial entrepreneur invested a million dollars and two years of peer-reviewed academic study and technical research and development to create Vital, according to a company statement.

Investors in the seed round include First Round Capital and DFJ, Bragiel Brothers, Meridian Street Capital, Refactor Capital and SV Angel. Alongside angel investors Vivek Garipalli, the chief executive of CloverHealth and Nat Turner and Zach Weinberg, the founders of Flatiron Health, these investors are hoping that Patzer can repeat in the healthcare industry the magic he brought to financial services.

“The HITECH* Act was well-intentioned, but now hospitals rely on outdated, slow, and inefficient software – and nowhere is it more painful than in the emergency room,” said Patzer, in a statement. “Doctors and nurses often put more time into paperwork and data entry than patient care. Vital uses smart, easy tech to reverse that, cutting wait times in half, reducing provider burnout and saving hospitals millions of dollars.”

Vital isn’t so much replacing the current system of electronic health records as providing a software integration layer that makes those systems easier to use, according to the company.

It’s basically a two-sided application with a survey for incoming patients. An admitting nurse begins the record and as a next step a patient receives a text to add details like height, weight, recent surgeries, medications and allergies, just as they would on a paper form. Patients can also submit a photo of themselves and their insurance card to expedite the process.

The information is then fed back into a tracking board that doctors and nurses use to prioritize care. A triage nurse then reviews the data and affirms that it is correct by taking vital signs and assessing patients.

All of that data is fed into an algorithm that analyzes the available information to predict a course of treatment and help staff in the emergency room prioritize who needs care first.

Vital’s selling the service to emergency rooms with a starting sticker price of $10,000 per month.

“Vital successfully built software with a modern, no-training-required interface, while also meeting HIPAA compliance. It’s what people expect from consumer software, but rarely see in healthcare,” says First Round investor Josh Kopelman, who’s taking a seat on the company’s board of directors. “Turning massive amounts of complex and regulated data into clean, easy products is what Mint.com did for money, and we’re proud to back a solution that’ll do the same in life and death situations.”

In some ways, Vital looks like the patient-facing admissions side of a coin that companies like Qventus have raised tens of millions of dollars to solve at the systems level.

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Athenascope nabs $2.5M seed led by First Round to bring gamers AI-edited highlight reels

As massive cross-platform gaming titles become even larger time-sucks for a lot of people, it’s probably worth reflecting on how to savor your in-game accomplishments.

Streaming of esports celebrities on sites like Twitch has taken off like no one imagined, but for the most part the toil-heavy editing process has left this attention largely focused on those with the ambitions of making gaming their full-time gig.

Athenascope is a small startup aiming to tap computer vision intelligence to record, review and recap what more novice gamers were able to pull off in their latest battle royale with a short, shareable highlight reel. The team is led by Chris Kirmse, who previously founded Xfire, a game messaging client that Viacom bought in 2006 for north of $100 million.

The company announced this week that they’ve closed a $2.5 million seed round led by First Round Capital to grow its tools and its team. They’re also rolling out their AI highlight reel tool for gamers. The tool is pretty customized for individual titles; they’re launching with support for Fortnite, Rocket League and PUBG, but Kirmse hopes to expand that list significantly in the future.

Josh Kopelman, a partner at First Round Capital who is joining Athenascope’s board, highlighted that a lot of existing tools for gaming entertainment are “really skewed towards the high-end.”

“They’re not democratized, they’re for professional gamers,” Kopelman told TechCrunch. “What I think Chris is trying to do with Athenascope is enable anyone to create these high-quality game highlights — what the pros have to do manually.”

The company is tackling a problem familiar to video-editing software companies: how to prevent footage from dying on the device. The answer here is the same as many others have posited, tapping computer vision deep learning to do the heavy lifting in determining which footage is interesting and worthy of a highlight reel. Athenascope has some key advantages over the companies like GoPro that are trying to do the same with real-world video, namely the games they support operate in fundamentally more predictable ways and 2D interface cues offer some pretty healthy indicators of when exciting stuff is going down.

The game isn’t a plug-in that needs pipeline access to your Fortnite account or anything, the product simply analyzes exactly what you’re seeing when you play. The startup is also working on cool tools that allow you to see multiple perspectives of individual moments in gameplay by essentially syncing footage from other people involved in a match that are also Athenascope’s service and giving a sort of multi-view replay.

The company has broader ambitions of how it can evolve these gaming insights with computer vision, including ways to help gamers learn about their strengths and weaknesses in a way that lets Athenascope serve as a sort of computer vision coach. For now though, the big focus is on getting gamers these entertaining snapshots of their gaming experiences in an intelligent way.

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