Despite a common belief among many of these start-ups, it’s not the whiz-bang product or the graphics-laden business plan that attracts capital. It’s a management team that has the experience and ability to execute on the company’s strategy to build a business.
Problem
One company that got it right is Cogent Health Solutions Inc., which was born in 2000 as Cogent Integrated Solutions NA Inc., a developer of software to manage files in the health and social-services sectors. It was a good idea at the time, and after it went public in 2003 it attracted a bit of angel investment, most notably from Len Grenier, co-founder of ALI Technologies Inc., which was sold in 2002 for $530 million to U.S. health-care giant McKesson Corp.
But Cogent couldn’t seem to find its comfort zone and struggled for several years. Its aim was to provide case-management services for U.S. and Canadian social-care operations. But many of those operations depended on grant money, and money wasn’t usually forthcoming for expensive stand-alone software. An added impediment was that the sales cycle for such software was extremely long.
Tough market to crack, and Cogent was having trouble making a case to potential customers. As a result, it wasn’t attracting growth funding. So Grenier, who had by 2005 become chair of the Cogent board, began to remake the company. Most of the nine staff was jettisoned, and Grenier and the board took half the company private and converted the public part into a silver-recycling operation.
Solution
The next step was a research process to find a niche and restart the company. Grenier found one as the U.S. health-care system began changing from a completely simple (and costly) medical treatment model to lower-cost health-care management. This new model created a growing demand for tracking cancer survivors’ post-treatment progress. Grenier realized Cogent had the software needed to do this tracking; it just had to apply it to a different field and in a different way. Cogent could, for example, operate as a Web-based repository of information and charge health-care providers to access the information.
All that was needed was some basic funding and a management team that could attract more while it developed the market. Last year that team was put into place. Grenier assembled a governing board that would make a venture capital company slaver. The board includes Don Rix, founder and chair of MDS Metro Laboratory Services; Greg Peet, former ALI Technologies CEO (he and Rix were both early investors); and Amos Michelson, founder of Creo Inc., which sold two years ago to Kodak for more than $900 million. Together the group had experience building companies that sold for more than $3 billion. “Once you have a core idea that’s attractive, things fall into place,” explains Grenier, now Cogent’s president and CEO.
He created a management team out of Alan Paige, an original Cogent co-founder, as controller; Peter van Bodegom, ALI co-founder and former PricewaterhouseCoopers LLP consultant as CFO; Malcolm Wright, previously VP of product management at SourceMedical Solutions Inc. as VP of product management; Mark Thomson, former CEO of MDX Medical Inc., as chief operating officer; and Microsoft .NET software development expert Rob Chartier as director of software development.
What wasn’t to like? This spring Cogent attracted $3 million in early-stage financing from Vancouver’s Yaletown Venture Partners Inc., a relatively large placement for Yaletown. Yaletown partner Hans Knapp, who had been involved with Cogent for years, became the board’s chair. Cogent now has 10 staff and Grenier expects to strike a deal this summer with its first customer, the largest health-care manager in the U.S.
Lessons
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