[Corrected 12/22/14, 1:30 p.m. See below.] Early in his career, Mark Bakken never imagined himself as an investor in startups. But the serial entrepreneur has lately become one of the more active angel investors in Madison, WI.
“The perception growing up was that venture capital is ‘vulture capital,’” Bakken says. “You don’t know anything about it; you think they’re all going to trick you.”
Bakken says he purposefully avoided taking money from outside investors for his first two startups, software consulting companies Goliath Networks, founded in 1993, and Bedrock Managed Services & Consulting, born 11 years later. He did fine without the help of angel investors or VCs, growing both businesses to millions of dollars in annual revenue before selling them for undisclosed prices to Integrated Information Systems and Tushaus Computer Services, respectively.
But in hindsight, Bakken wishes he had taken outside investment dollars for those two companies, as he did with his third startup, Nordic Consulting Partners, the fast-growing Madison-based electronic health records consultant.
Nordic, founded in 2010, has grown to more than 400 employees and raised more than $38 million from investors including HLM Venture Partners, SV Life Sciences, Health Enterprise Partners, and Kaiser Permanente Ventures, according to the 2014 Wisconsin Portfolio. Nordic’s investors have been “wonderful” to work with—and key to the company’s growth, Bakken says. [An earlier version of this paragraph listed Summit Partners as an investor in Nordic. Summit did not invest in Nordic. We regret the error.]
Outside investment “could’ve helped me, definitely my first company, grow faster and get to market sooner, before the dot-com crash and everything I had to deal with later,” Bakken says.
Last year—20 years after founding Goliath—Bakken began investing some of his personal wealth into Madison-area healthtech startups. He has invested in 15 companies, eight of them in healthcare—including Healthfinch, Forward Health Group, Wellbe, Catalyze, Moxe Health, 100health, and HealthMyne.
This year, he decided to up his game and form a small venture fund focused on local healthtech startups. At the end of this month, he will step down as CEO of Nordic to run Madison HealthX Ventures, which will be located near the Capitol Square in the same office as 4490 Ventures and American Family Ventures, Bakken says.
Bakken announced his fund last month, and he has been lobbying potential backers in the hopes of raising $10 million to $20 million for it. So far, he has secured around $4 million, including $1 million of his own money, $1 million from Nordic, and a commitment of at least $2 million from the new state-backed Badger Fund of Funds, he says.
His goal is to make the first investment by the end of the first quarter in 2015. Madison HealthX Ventures will initially put $300,000 to $500,000 in each of its portfolio companies, while reserving some of its pot for follow-on investments, Bakken says. It will primarily target Madison startups, but could also consider companies located around Wisconsin and outside the state.
With Nordic, Bakken has seen firsthand the opportunities in healthtech. Hospitals and other healthcare providers have invested heavily in moving patient records from paper to digital formats, spurred in part by government incentives. That has been a boon for companies like Epic Systems, based near Madison in Verona, WI, and software consultants like Nordic.
The next wave of successful healthtech companies, Bakken says, will be those that create software that helps hospitals and clinics operate more efficiently—an imperative because changes in government reimbursement are putting pressure on healthcare providers to cut costs while boosting quality of care. Those are the types of companies his fund will target, and he thinks he’ll continue to find promising startups in the Madison area.
“Madison is positioned probably better than anybody just because we have a lot of people that work in the healthcare IT world, just because of Epic right in our backyard,” Bakken says. “They talk to customers, they know what the challenges are.”
Bakken and other local business leaders believe Madison has a shot at becoming a nationally recognized healthtech hub, thanks to the presence of Epic, which employs more than 8,000 people locally; the turnover at Epic, which results in some former employees starting new healthtech companies; and the talented computer science graduates coming out of the University of Wisconsin-Madison, among other factors.
One of the missing ingredients, in Bakken’s mind, is an adequate local supply of early-stage capital. But more than that, new healthtech entrepreneurs need mentors and investors who know the healthcare industry and can make the introductions to healthcare executives, which are key in a field that is often seen as slow to adopt new technology. Those are two challenges—capital and connections—he wants to help address with Madison HealthX Ventures.
“What we can bring to the table is not just capital, but I personally know over one third of Epic’s customers,” Bakken says. “There’s so much noise out there in the healthcare world. Most of the customers don’t respond to anything if it’s an e-mail or phone call, unless you have a connection or relationship.”
Bakken says he plans to hire a local healthcare executive to help manage the fund. He is also talking with local healthcare providers to see if they want to participate in the fund, whether it’s investing in the companies or agreeing to serve as pilot customers for the startups, he says.
Bakken’s fund will network with VCs around the country that could invest in the portfolio companies’ Series A and B rounds, he says.
He also wants to organize two conferences in Madison each year, one that would draw investors here to meet with local healthtech companies, and another that would bring together potential customers of the startups. The investor conference could piggyback off of the existing Digital Healthcare Conference, and the customer conference could be timed to coincide with the Forward Technology Conference or Epic’s annual Users Group Meeting, Bakken says.
