Tell us a little bit about SSM Partners (a Memphis-based private equity firm focused on Software & Technology, Internet & Consumer, and Healthcare). What attracted you to the firm?
I joined in 2004, shortly after business school. It was a dream of mine to do this type of investing in the Southeast, and that’s what SSM let me do. SSM has been a great small firm for many years and a leader in this part of the country, and I am very happy to be a part of that. We have a culture that distinguishes us. Our founder imparted a service orientation many years ago, and that fits really well with the way that I view the world and the way that I think about business. Getting to brass tacks, though, we’re a growth equity firm that invests in technology companies all over the country, so while we are located here [Memphis, TN], we are not limited geographically. Our market split is about 50-50 B2B technology to healthcare, and I am solely focused on the healthcare sector.
How does healthcare fit into SSM’s investment thesis?
Our healthcare activity began more than 20 years ago. When we started investing in healthcare, it was in the services sector, where there was a lot of healthcare innovation in the 90’s. HCIT was pretty nascent at the time. I would argue that we have sort of mirrored the industry. We have done less and less services investing and more and more HCIT through the years. For the last 10 years, we have done almost exclusively HCIT.
When you are evaluating HCIT companies, what are some of the most attractive characteristics or most important investment criteria that you consider?
There is a stratum of characteristics that apply to our portfolio companies inside and outside of healthcare. Those are basic things like strong management teams, attractive gross margins, happy customers and so on.
At a healthcare-specific level, a common phrase is the “triple aim”: lowering costs, improving quality, and providing a good user experience. Frankly, many of the big ideas to come out of HCIT have been in and around that triple aim concept. That said, I also think that there are some pitfalls in the triple aim. It is incredibly difficult.
At SSM we really value a few other things. First and foremost, we value a “hard dollar ROI.” That means an ROI that is objective. When you can credibly point to efficiency improvement, ideally significant efficiency improvement, from the adoption of a technology, as opposed to something that may be a bit more subjective, that is of first order of importance to us. A lot of HCIT firms offer “soft dollar” ROI where you have to do some work to connect the dots in terms of added efficiency.
In HCIT, we also pay particularly close attention to psychological factors and behavioral modification. If any part of the product is predicated upon the user significantly changing their behavior, we really study that. Historically, it has been notoriously difficult to overcome behavioral standards and patterns through the use of technology in the clinical setting. For any company to break into a given market, the returns have to be significantly greater than incumbents or competitors, sometimes greater than 10x. You need an excellent ROI to encourage change, and that is something that we look for in the companies in which we invest.
Interview to be continued in next week’s blog.