Anchorage 'angel fund' aims to link investors with budding businesses

mgokey@adn.comFebruary 9, 2014 

The municipality's 49th State Angel Fund thinks it has a winning investment in a medical industry tech startup called Call Dr.

By the end of 2013, the city-run "angel fund" had disbursed two investments, totalling $200,000, into the fledgling company. Angel funds, also known as venture capital funds, are groups that make high-risk investments into budding businesses, often in exchange for ownership. Because Anchorage lacked a private-party angel, the city created its own after making a successful pitch that brought the municipality $13.2 million under the federal Small Business Jobs Act.

The city's investment has allowed Call Dr., a medical management software company, to hire seven new employees in Anchorage since April 2013, plus a handful of contractors elsewhere in the country, according to Call Dr. co-founder Kevin Halvorson.

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At Alaska Regional Hospital, Halvorson and a handful of Call Dr. employees were on hand on Jan. 30 to introduce hospital workers to their software.

Call Dr. has two key products. One is a software system designed to streamline how on-call doctors manage their shifts. The other allows on-call specialists to offer their medical expertise remotely using an iPhone.

"We basically turned the Apple iPhone into a multimedia pager that not only notifies a doctor but sends a mini-medical record when a patient comes in," Halvorson explains.

Like many startups, the firm also has big visions of where this technology could take them in the future.

Emergency room physician Bruce Welkovich said switching to a digital system like Call Dr. has long been in the hospital's stars. As it stands now, most on-call scheduling is done through phone calls and faxes (yes, faxes) between the city's two main public hospitals. Bringing that system into the 21st century is a positive thing, Welkovich said.

And Welkovich sees the potential for the Call Dr.'s rapid consultation service.

Welkovich describes a hypothetical scenario: A patient comes into the ER with leg pain. A doctor notices one leg is a different color than the other and suspects a blood clot. That doctor could use Call Dr. to send a photo of the patient's leg to an on-call vascular surgeon, who would immediately decide whether to come in or schedule an appointment during regular hours.

Maybe the most important aspect of Call Dr. is that it is HIPAA-compliant (meaning that it guarantees patient confidentiality), Welkovich said.

While Halvorson brought entrepreneurial and tech experience to the firm, Call Dr.'s two additional founding partners are from the medical world.

One stipulation of the Angel Fund's investment in Call Dr. was that any city money must be matched by investment from the private sector.

Most of Call Dr.'s private investors are doctors, kicking in amounts ranging from $10,000 to $120,000 in exchange for a slice of ownership.

"Right now we have 14 medical doctors who are members," Halvorson explained. "We've raised $700,000, and we're looking for another $800,000."

While Call Dr. is courting interest from several major players in the medical industry, their first major client is here in Anchorage: Alaska Regional Hospital, a unit of Hospital Corporation of America, the nation's largest hospital holding company. Halvorson said he hopes the firm's work with Alaska Regional will lead to contracts with more of HCA's 350-plus hospitals.

To date, Call Dr. is the only operating business that's received investment from the 49th State Angel Fund, said Joe Morrison, program manager for the fund.

The other recipient of 49th State Angel Fund investment is a third-party asset management group called the Anchorage Opportunity Fund. The $2 million awarded to AOF dwarfs the $200,000 Call Dr. received from the fund.

Even though Call Dr. is taking off, it is still early enough in the company's life cycle to be considered a high-risk investment.

Morrison said putting money into the hands of a third-party management group like the Anchorage Opportunity Fund allows city investments to be better diversified.

After the 49th State Angel Fund got the $13.2 million in seed money from the federal treasury, AOF coalesced to apply for an investment. Apart from the dollar-for-dollar investment matching by the private sector, another stipulation of the city fund's investments is that they must show economic promise for Anchorage.

Those are unusual parameters, for a fund to be focused on a single city, AOF partner Mark Kroloff said.

In that way, the 49th State Angel Fund is doing what it was designed to do: bringing private investors, and their assets, off the bench.

Kroloff and a handful of partners were up for the challenge, so they raised the $2 million needed to match the city's investment of $2 million.

To date, AOF has invested in a startup scrap metal recycling company. The fund is currently evaluating several other investments, including one that would bring manufacturing to Anchorage, Kroloff said.

AOF's $4 million under management (of which $2 million came from the city) can't be invested into the businesses of its own stakeholders, which include Bristol Bay Native Corp., Cook Inlet Tribal Council and other individuals, Kroloff said.

"Those entities don't really need investment (capital) like this," he said. "This is going to be invested in smaller businesses that are doing well but need additional capital to grow."

Those thoughts echo Morrison's description of what the 49th State Angel Fund is striving for.

"I think we're helping to create the spark for a more robust investment ecosystem," Morrison said. "We're hoping to spark interest in early-stage risk capital."

Just to be clear, funds from the city's angel fund aren't grants; they must be paid back with interest.

For pre-revenue, seed-stage deals like the investment in Call Dr., Morrison said, the angel fund will usually write a loan with an option to convert to ownership, which allows for the possibility of a truly exceptional return in a case where a business really takes off.

Call Dr. has already had one buyout offer from a wealthy Chinese investor but Halvorson said he and his partners aren't interested in cashing out just yet. They see the potential for Call Dr. to go big.

And for Halvorson, there's a civic aspect to keeping the business in Anchorage.

"If you look on the West Coast, all these cities have some kind of major stars," Halvorson said. "You come up to Alaska and what do you have? There's no Dell. There's no big building that's created hundreds of job. That's what we want to be."

The 49th State Angel Fund is expected to announce a new round of investments within 90 days.

 

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