Ep 14 - Mastering Medical Practice Financing and Strategic Exits with Scott Kelly

Unlock the secrets to smart financing and exit strategies for medical practices with Scott Kelly, CEO of Black Dog Venture Partners. From his early days on the New York Stock Exchange floor to spearheading successful ventures, Scott brings a wealth of knowledge to our discussion. We'll explore the various financing avenues available for medical practices, including debt and equity financing, as well as the critical role of angel investors. Scott also delves into the nuances of timing and understanding your business goals, offering a masterclass in capital acquisition. Plus, he shares invaluable insights into the due diligence required when acquiring other businesses, ensuring you avoid inheriting unwanted liabilities.

In the second part of our conversation, we tackle the complexities of business acquisitions and the often-overlooked cultural compatibility between merging entities. Hear real-life examples of both successful and failed acquisitions that underscore the importance of thorough assessments and legal scrutiny. We also discuss the essential elements of a well-prepared exit strategy, right from the inception of your business. Scott provides practical tips on maintaining up-to-date financials and client records, and even shares a compelling story of a one-minute pitch that led to a major investment. Whether you're looking to grow, acquire, or exit a medical practice, this episode is packed with actionable advice and expert guidance.

Scott Kelly
Black Dog Venture Partners
scott@blackdogventurepartners.com
480-206-3435
www.BlackDogVenturePartners.com / VCFastPitch.com

LinkedIn Link:  https://www.linkedin.com/in/blackdogceo/
Twitter Link:  https://x.com/BlackDogCEO
Facebook Link:  https://www.facebook.com/blackdogventurepartners
Instagram Link:  https://www.instagram.com/blackdogceo/

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Production of Podcast: VISUALS BY MOMO

Transcript

Josh Fertel

00:04

Welcome to the Angry Biller, a show where we explore the people and the businesses behind the scenes of healthcare, those men and women that are the catalysts that allow providers to concentrate on delivering exceptional patient care. Welcome to the Angry Biller. My name is Josh Fertel. I am the owner of J3 Medical Billing. I'm your host. We are at the Visuals by Momo studio. I have a great guest today Scott Kelly. He is the CEO of Black Dog Venture Partners. They do venture finance and when it comes to a medical practice, you know money coming in for expansion or even talking about an exit strategy. This is where Scott is the expert, so we're excited to have him on and pick his brain how are you doing today, Scott? 

Scott Kelly

00:51

Thanks, Josh, for having me Appreciate it. 

Josh Fertel

00:54

So you know, before we get into the nitty-gritty, why don't you tell us about yourself, how you got into what you do, what your passion is? 

Scott Kelly

01:00

Sure, Sure, well, josh, I've been a deal guy for 30 plus years. I started working on the floor of the New York Stock Exchange in the early 80s, moved to San Francisco, worked as an investment banker taking technology companies public. I did that from 86 to 93. And I was fortunate to have a few companies of my own exit between 93 and 2000. 2000, moved to Arizona, got involved in a few different businesses and sports and entertainment. But then in 2006, I set up Black Dog Venture Partners and what was happening is a lot of the larger venture capital firms in California, new York and around the country would introduce us to companies that were too early for them. So we help these early stage companies raise capital, scale their business, grow their business, and then we either hand them back up to those venture capital firms or we help them exit. And so we've helped companies raise about $5 billion, helped another 30 companies exit and helped them grow every day. 

Josh Fertel

02:06

That's good. So how did you get into this at the beginning? What in your childhood brought you towards this? 

Scott Kelly

02:11

Well, as a child it's interesting enough my father ran the penny saver in Long Island, New York, and from a very early age every summer I would have to do something at the penny saver. So I went from printing the newspapers at 3 o'clock in the morning to delivering the newspapers at 7 o'clock in the morning, and then, as I got older, he put me in charge of selling advertising. So I understood really all the aspects of building a business pretty early, and so when I went to college it was something I was always intrigued in, and everything just happened from there. 

Josh Fertel

02:49

That's awesome. So you know, as we said. So what I do here is I try to shed a light on what goes on behind a medical practice. You know, doctors, they need to be fixing people, they need to be concentrating on patient care, not worrying about finances and what's going on behind the scenes. So that's what we do with my company, and then what will come along? We'll always get these practices that are looking to expand, or they're looking for something new, or there's a new piece of equipment that they want, or they're coming towards the end of their careers and they need guidance, and that's why I wanted you to come on, because that's your expertise. So let's just say somebody's starting a practice, they're going to get a loan from a bank. Is there a better option, you'd think, than just getting the debt financing? Have you seen other things? Have you been involved in other Well? 

Scott Kelly

03:46

yeah, I think there's a lot of several different ways you can pursue financing. Obviously, you can pursue debt financing or a loan from a bank or another financial institution, or even the Small Business Administration or other organizations that provide loan or debt financing. In some cases, you may want to get equity financing. Maybe bring in angel investors who invest in your business so they have a vested interest in the success of your business, and you can pursue your suppliers, your clients, your customers to also invest in your business. So I think when you're looking at financing a business, you need to really understand you know what you're trying to accomplish, what you need with the capital and then the best way from your business standpoint to raise that capital. 

Josh Fertel

04:37

And when do you think the timing? As far as timing, dr Open's a practice, you know they're not making any money, certainly for a while. At what point do they say, ok, now I really need to look at money for whether it's just working capital or if I want to purchase another practice. What do you think the timing? What's the best time? 

Scott Kelly

04:57

Well, it could be really any time. But I think the reality is you have to understand the farther you log the business, the cheaper the cost of capital gets. So if you're a brand new practice and you don't have a lot of clientele, it may be more expensive to raise that capital. But if you can sell and grind it out for a while and build you generate 10, 20, 50, $100,000 in revenue a month, then you're going to be a much stronger position to either get debt financing, a loan or even equity financing. 

Josh Fertel

05:27

Okay, have you come across this scenario where you had a practice? Really any business really fit the model. So, because the practice really is just nothing but a small business where they've wanted to acquire another business, maybe the same size or so, what are the steps that somebody takes there? 

Scott Kelly

05:49

Well, I think what you need to do first of all is really understand why you want to acquire a business versus building the business yourself, Because there's pros and cons of each. You know. Obviously, acquiring a business, you may be able to acquire clientele and revenue and some branding and some other things, but you want to make sure you're not acquiring some less than attractive assets. You know, maybe some other debt or litigation or liability or things along those lines. So I think, first of all, you need to really have an understanding of who you're acquiring and then you obviously need to understand what this acquisition relationship is going to be. Is this company, this practice you're going to acquire? Are they going to stay with the business and how long? I think the reality is that's the other thing to consider, and then really, there's all different ways you can finance this acquisition. 

06:39

You can finance this acquisition through debt. Sometimes you can even get the seller to finance the acquisition. They would be the lender and you basically pay them off, or you can look at equity financing. So I think the first step is to make sure you have a good acquisition and you're buying the right assets, not the wrong assets, and understand the relationship, how that's going to be going forward with a person or the practice you're going to acquire, and then you can look at different financing options. 

Josh Fertel

07:10

Okay. So, scott, so you're the banker and I come to you and I see that there's a practice and this doctor, he's ready to retire. What is it that you're looking for? 

Scott Kelly

07:20

You know, again, you're asking me as a banker. I I think you need to determine who you're talking to first, to provide the capital, because they look at different things. So, if you're talking about a loan or debt financing through a bank, another financial institution, they're really going to look at, you know, the income statement, the balance sheet, the cash flow statement. They're really looking on at the ability to service and pay the loan on a monthly basis and pay the principal back at some point in time. Now, if you're looking at an equity investor, they may be looking at other things. Obviously those things are important, but they're also going to look at the growth trajectory of the company. They're going to look at management and their ability to scale the business, the business. So what you want to do is, when you acquire another business, if you're an equity investor, you want to make sure that one plus one doesn't equal two, or one plus one can potentially equal five or seven, and so I think it's really depending on whether you're looking at debt financing or a loan versus equity financing. 

Josh Fertel

08:22

So, equity financing, that's your forte, right, and then so equity financing that's that's your forte. Somebody's coming to you, then what's your role there? How are you making the process easier? 

Scott Kelly

08:33

Well, my role is that we work with a lot of companies Actually, I've worked with thousands of companies in my career and what we do is we make sure they are properly structured to raise capital Meaning that they have the right corporate structure, meaning they have the right team in place, because when you go to an equity investor just having a pitch deck and, honestly, some companies don't even know what a pitch deck is so we help them create all the materials they need to do proper due diligence and what that means is really for an investor to understand the risk and understand the opportunity. 

09:08

Because, especially in the angel venture capital community, you're looking at a very, very high default rate. On average, the average business maybe last two years before they collapse. A lot of them, a high percentage of businesses, fail quickly and when you're doing angel and venture capital investing, you're basically trying to bet 200% 2 out of 10. So, basically, you need to make sure a company is properly prepared to give all the information necessary for an investor to make a decision and, honestly, the same would apply to a lender, just a little variation on the focus of the information they require. 

Josh Fertel

09:50

How often does somebody come to you and say, okay, I'm ready to buy something, but they're not prepared with everything that you need? 

Scott Kelly

09:58

Just about 100% of the time. I got to say that's the answer yeah, especially if they've never acquired a business before. Because again, you have to understand you, as the acquirer, want to buy the business for X. The seller wants you to buy the business for Y. 

10:20

And you need to have a proper idea of how to value that business so you're not overpaying and you're getting full value for it. Because, again, if you're going to go after a lender or an equity investor, they're going to want to know that that acquisition is accretive to the growth of the business. 

Josh Fertel

10:41

How long generally before this process of me wanting to buy this other practice? How long in advance do you really need that? I should be really getting my information to get Obviously the more time, the better. 

Scott Kelly

10:57

Time isn't necessarily the issue. It's getting all the information Okay. I mean, the reality is if you have all the due diligence information and you have effectively determined all the risk and all the reward based on the due diligence information you have. If you could do that in weeks, that's fine. So it doesn't necessarily have a time issue. It's the ability to make sure you have the right information for a lender on the debt side or an investor on the equity side to make it properly affordable to see. 

Josh Fertel

11:32

Very good, I want to take a break, but when we come back, I want to talk about what happens in your role after the acquisition. Military Recreational Divers is your non-profit organization that exposes veterans in need to ocean therapy through scuba diving activities. Help our heroes in their healing journey. Support, follow and donate. Today at mrdflorg, we're back with Scott Kelly, cbo of Black Dog Ventures. We talked about what it takes to acquire an office or a different business. So, scott, now you and I, we've done business. You've given me everything I need. I wrote a check. I own this company. Now Tell me what my next steps are. How are you going to hold my hand? 

Scott Kelly

12:15

Well, part of how we hold your hand is is one even starts before you make the acquisition Because, again, you have to understand not only are you combining different businesses, you might be combining different accounting systems, different HR systems, different back office systems, and one of the most important things you're going to acquire is you may acquire a totally different culture, and so part of our job is to make sure that the culture continues. Everything runs smoothly from an operations standpoint, from a marketing standpoint, from a finance, accounting and a legal standpoint. So a lot of our job going forward is to provide guidance and coaching for you to make sure that, after you've made this decision, it doesn't become a regrettable decision, do you? 

Josh Fertel

13:02

have an example of something that you've seen where you really had to. You know, step in and put your thumb on something. 

Scott Kelly

13:08

Oh yeah, I mean, there's been countless acquisitions where the two parties just didn't mix, you know the reality is if you were, especially if you're acquiring, you know, maybe at a 50, 50% level where you know you both parties essentially own close to the same amount you know you can have a challenge with too many chefs in the kitchen. 

13:32

Someone ultimately has to make decisions and that's where the real problems can come into play. I've had several cases where we've effectively had to unwind a transaction, meaning we have to just go back to zero because the individuals couldn't get along from a culture standpoint. But that's also why it's so important to do all your work ahead of time. We've had cases where, in some cases where the acquirer was not necessarily completely honest in the information they provided, they were over optimistic about the amount of customers that would stick around after the acquisition. 

14:12

They were over optimistic about their receivables and their payables. So I think the reality is those are the issues where we've seen problems in the past. 

Josh Fertel

14:25

So what happened in that example? What was the final outcome of that example? 

Scott Kelly

14:28

Well, on several examples, we've unwinding the transaction. Basically, we brought everyone back to where they were. And you know, because what you don't want is to have litigation. 

14:39

You don't want people after the fact say having a he said, she said or he said, he said, you know, type situation. So in that, in that particular case, it's honestly it's happened more than once, it's happened, you know, a number of times. I've been doing this for 30 years. You would affect, you just unwind the transaction, meaning you just go back to where you were before. But that can be costly. There's legal costs involved and Simon called involved in that. So it's not a decision taken later. 

Josh Fertel

15:07

How long does it take before that decision needs to be made? 

Scott Kelly

15:11

Well, honestly, I think that has to be made even prior to the acquisition taking place. Because again when you're putting together and again, I'm not an attorney I really recommend both parties have good legal counsel, because at the end of the day, you have to prepare for all scenarios. You have to prepare if the acquisition goes great, and then you have to also prepare and understand what happens if the acquisition doesn't go great. 

15:38

And in some cases. Yeah, it's kind of like having a prenup in a marriage. You may want to have, effectively, a prenup or a way to disband this ahead of time, prior to even getting involved in the transaction. Right. 

Josh Fertel

15:54

All right. So now give me an example of one that just worked out perfectly, but on a smaller scale, right, you know like a small scale. You know, two guys came together. 

Scott Kelly

16:03

Yeah, we had a company many years ago and they were basically just acquiring small software companies. Okay, they were acquiring local cybersecurity companies and what are called MSPs that were generating anywhere from $100,000 to $250,000. Okay, Okay, okay, what they ended up doing is acquiring enough of them to become a large enough company to be acquired for hundreds of millions of dollars from a much larger company. 

16:31

And that's the case where it really works well. If you build a good model, you can definitely build a company through acquisition Right, and I think you can build a lot of small companies that way, and we've had several cases where companies, honestly, were started out small, acquired a bunch of companies that were small and the whole became worth more than the individual parts. 

Josh Fertel

16:54

And do you help in this situation, were you involved in targeting the companies that were being acquired? 

Scott Kelly

17:00

Yes, we have. In fact, we do some work with that. That's part of our work. From time to time we get companies that are in our portfolio or companies that come to us that say, look, we want to grow internally, but we also know there's opportunities to go externally. So we will go out there and, based on their criteria, help them find those companies that meet that criteria and introduce them to these companies and then help them work through the process. 

Josh Fertel

17:30

And how are you finding those companies Through your network? 

Scott Kelly

17:34

Yeah, you know I tell people I'm a collector of people. You know I've been I've been doing this for 30 years and I've been doing this for a long time. Like yourself, josh people. I'm a collector of people. You know I've been doing this for 30 years and I've been doing this for a long time. Like yourself, josh, I just have a lot of relationships. I have a lot of relationships with individual businesses. I have relationships with other business brokers and M&A people and financing people. You know I've got 13,000 investors I've done some kind of transaction with over the last you know 30 years, some kind of transaction with over the last 30 years. So I have a good network of people that I can either go directly to or people that know people that might be interested. 

Josh Fertel

18:06

Oh no, I definitely follow you on LinkedIn. I see the networking that you're doing. I see the companies that you're working with. When it comes time now to start thinking about exiting, let's talk about that. So you know when do you start? When does that plan go into place? What's the best time for that plan? You? 

Scott Kelly

18:27

know. I think the reality is. In my experience, you want to begin to think Honestly. You should be thinking about that in the beginning. When you start a business, you want to think with the end in mind and work backwards. So even when you start a business, we work with, you know, we work with entrepreneurs that are large, that want to build large software companies or technology companies. Part of what we put in their pitch deck or their presentation to investors is their exit strategy, and so what you want to begin to figure out is okay, when do I want to exit? Who would be a potential acquirer of my business and then plan accordingly? So again, I would even have those in your idea ahead of time. 

Josh Fertel

19:13

What's your end? 

Scott Kelly

19:14

in mind? Are you going to continue the business? Is this going to be a legacy business that you hand off to your children and they continue to run it? Or is there going to be a time in certain, in five years, 10 years, 20 years that you want to be out of this business and grow the company going forward? But then, as you get to you know, I would say three to five years, and you are nearing, maybe, its retirement, then it's a good time to begin to position the company. You know, make sure it has a fresh coat of paint and it has, you know, a tune-up before you go out there and try to sell. 

Josh Fertel

19:56

And okay. So now I'm getting to three years and I'm ready to start looking to pack it in. I come to you, scott. Okay, scott, tell me what I need to do. What uh? What are the steps? What's the uh gameplay? 

Scott Kelly

20:07

well, I think the reality is is make sure you begin to make sure you have a data room and all the information necessary that if someone wants to acquire the business, they have the information. Make sure you have good financials, you know, understand your technology, understand your market, have systems in place so someone can actually okay, if they want to acquire their business, they can immediately get all the information they need about your business as soon as possible. If you have intellectual property trademarks, patents put that in what we call a deal room. Make sure your books are up to date. Make sure you have client maintenance up to date. So again, it's really just making sure you put a package together so when someone does want to, does express interest you're not fumbling around to get information to give to them in a timely fashion. 

Josh Fertel

21:00

Have you ever come to this scenario where a principal was saying, okay, I want to leave this to my kids and then, at the last minute, the kids were like, no, I really don't want to do this. 

Scott Kelly

21:09

Oh yeah, I mean, I'll be honest with you, my own kids don't want my business. So you know, I have two boys. One one has a successful film career and one is pre-med, and they have no interest in my business whatsoever. 

21:25

They, you know, my son, my actual youngest son, actually told me look, if you give me the business, I'm just gonna sell it. Um. And so if that, based on that scenario, I said, well, I'm not letting him be in charge of selling it, I'm gonna sell it. Um. Yeah, that happens a lot, because sometimes you may want to make the decision that, although you would love to give the business to your children, they, either from a passion standpoint or a qualification standpoint, wouldn't be able to operate the business properly or effectively. 

Josh Fertel

21:58

That's all good stuff. Give me your best success story 30 years. Give me the best one. 

Scott Kelly

22:05

Wow, there's a lot. The reality is, I think, probably the two that are really fulfilling to me is I've been hosting what's called our VC Fast Pitch events, where we have companies pitch to investors. Now, this had to be maybe eight years ago. I had two entrepreneurs pitch at my event in Phoenix. They pitched for one minute about their idea One minute. 

Josh Fertel

22:34

One minute. 

Scott Kelly

22:35

During that one-minute pitch, they found an investor that was interested. This investor invited them to dinner about three weeks later and immediately invested $270,000 in their startup. A year later, they led a $3 million round for the startup. A few years later, that company got acquired for nine figures and now those two starving entrepreneurs run one of the largest venture capital funds in the country, and so I was very. That was really fulfilling, because you got to see full circle. It was two struggling entrepreneurs looking for an investment to becoming what is now space station investments and making literally hundreds of investments in startups themselves. 

Josh Fertel

23:20

That's great, you know. So let's talk about a one-minute pitch to get somebody's attention. That's an art, right? It is, it is. 

Scott Kelly

23:29

And I tell people, if you're going to pitch for investors, you really want to have a one-minute, a five-minute and a 20-minute presentation in your head. I don't mean memorized, I mean imbibed in your senses, in your psyche, okay. And, for example, in a one-minute pitch there's a few questions you need to answer. You know what's the problem you're solving and why is it a problem worth solving. What is your solution and why is it better? Is it faster, cheaper, whatever the case is. Three how you make money. Investors are interested in putting investment in dollars in companies that make money. How do you make money? Are you selling a software product? Are you selling a product or a service? Three who are your customers and how are you going to reach them? Service Three who are your customers and how are you going to reach them? Five I think is probably one of the most important issues is who is on your team and why they best qualify to execute on your company's mission. And then, obviously, the ask what are you looking to get from this potential person? 

Josh Fertel

24:37

That's a lot for a minute. 

Scott Kelly

24:39

What are you looking to get from this potential person? That's a lot for a minute. It is, and you'd be amazed. 

Josh Fertel

24:46

We've had literally hundreds of companies raise money pitching for one minute, yeah, so when you're pitching as a service company, which is what I am, as compared to a product company, like I said, if I watch Shark Tank, they're all product companies. Everything's a product company. So what's the difference when you're a service company? Because you know service companies, there's no IP. Everything can be duplicated. 

Scott Kelly

25:07

Well, you may not have IP, but what you do have one thing that a lot of investors like is reoccurring income. Okay, you know, reasonable, understandable income. Because again, in our line of work, you know, if you remember, years ago you would buy you know software in a box and then a couple of years later you would have to buy another software in a box. It was kind of staggered every couple of years. Now you have what's called software as a service. You pay a monthly fee every month to get access to that software. Those are viable businesses. Those are businesses that are investable because they have consistent revenue, much like a service business like yourself. It has consistent revenue. 

25:53

And, honestly, product companies come with other risks. One you've got to manufacture it, you've got to ship it. You've got to take returns. You've got to ship it, you've got to take returns. You have all kinds of things. So I think you know again and that's part of we have to find the right investor. You need to find just finding somebody with money isn't the end of the game. You have to find someone with money who understands your business and specializes in your type of business. There's a lot of investors that can invest in products and consumer products, or medical products or physical products, but if you're a service company, you don't talk to them, and vice versa. 

Josh Fertel

26:31

Right Makes a ton of sense. How would somebody contact you, Scott? How would somebody find you? 

Scott Kelly

26:39

Yeah, I mean. Obviously I'm all over social media. If you go to Black Dog CEO on most social media channels you can find me there. You can reach me at my website, blackdogventurepartners.com, and if you're interested in pitching at one of my events, you can go to vcfastpitch.com vcfastpitch.com, vcfastpitch.com, and they'll get in touch with you and then you will, you know, vet the people out. 

Josh Fertel

27:06

Yeah. 

Scott Kelly

27:07

We offer a free consultation to any company. They can obviously reach out to me. They can go to scott at blackdogvp.com and send me an email, or you can obviously go to either of those websites and there's a contact me button. 

Josh Fertel

27:20

Awesome, they're easy to find. So I always like to ask this question at the end. If I had a magic wand, scott, and I could give it to you and you can change one thing about Black Dog or the way you see your business, what would you do? It? 

Scott Kelly

27:33

Wow, I think that's a really good question. I think if there was one thing I could do, is I. I wish I was this smart, much younger. 

Josh Fertel

27:46

Oh, that's not the right answer. We all have that. 

Scott Kelly

27:52

That's not bad Well yeah, the one thing I think I would change is obviously and I'm actually doing that now I'm actually building the next generation of people to run my company, and that's something I probably should have done sooner. There you go. That's a great answer. 

Josh Fertel

28:07

Thank you for coming on. I really appreciate your knowledge. I was looking forward to this because I know you had a lot of in-depth business and capital that people need to hear and that the money's out there. If you're a person, you're doing a good job, the money's out there for you to get, to help expand your business or do with it whatever makes it more beneficial for everyone. 

Scott Kelly

28:30

Awesome, thank you. Thanks, josh, appreciate it. 

Josh Fertel

28:33

I'm hoping that you'll come back and visit us again. Hope you had a good time. 

Scott Kelly

28:36

I will Thank you. 

Josh Fertel

28:39

Anything else, that's it. Well, I appreciate it, scott. Thank you, my pleasure. Thank you for listening today. Please follow us on Facebook and LinkedIn, and you can check us out at www.theangrybiller.com.