Caresyntax: $180M to Accelerate the Future of AI and Precision Surgery | LSI Europe '24

Henry Peck  00:03  
Steve, first of all, thank you all for sticking with us and joining us. I know it's been a productive, long week full of meetings and sessions, but I'm glad you're all here for this one because this is one that we've looked forward to since a few weeks ago. Not only did we put it together, but we've had a long-standing relationship with their team, and I'm very excited to not only have them here but to have their big news that they announced be a huge part of this session and what we're going to talk about with respect to the Caresyntax story. Also, I found out something about Dr. Ramshaw today. It is actually the one-year anniversary of his exit from his previous company as CEO. So we'll get some cool insights from that journey, as well as the Caresyntax journey that he's been a part of. First, let me introduce our speakers: David Cubbin of Cure Capital Advisors and Dr. Bruce Ramshaw of Caresyntax. David, I'll pass it over to you to introduce yourself first.

David Cubbin  00:53  
Certainly. Thanks very much, and it's a pleasure to be here. I'd like to start by thanking all of you in the audience for being here for the graveyard shift. I know that it's not just our session, but also possibly the drinks afterward that have brought you here, but that's our strategy. That's the strategy. But thanks very much for being here. So my name is David Cubbin, Australian by birth, based in London, and I run a firm that invests in health tech opportunities. As it pertains to Caresyntax, I'm a believer in the business. I'm an investor in Caresyntax, both over the last couple of years when I first invested, but also continuing to invest and bring my cohort of family offices and other investors into the current round. So, you know, I'm very excited to be here with Bruce and the Caresyntax team. Thank you.

Henry Peck  02:00  
Thank you. Thanks for being here. And Bruce, over to you. I'd love for you to tell us what got you into medicine to begin with, and a little bit about that journey.

Bruce Ramshaw  02:08  
Sure. And yeah, thanks for having us. Thanks for being here in the audience. Yeah, I didn't know what I wanted to do with my life as I went into college. I did have a good mom who taught me, you know, do something that'll help people. So I was thinking teacher, doctor, and I did some volunteer work in undergrad and really got excited about the opportunity to help people through health care. I saw, you know, little babies, people suffering. So I did get into medical school, and then the next step was, you know, what kind of doctor do you want to be? At that time, this was in the mid-80s, I knew there was one thing I did not want to do, and that was surgery. At that time, surgery was a pretty malignant specialty. A lot of kind of you had to be tough and get screamed at and yelled at. But I put my surgery rotation last, and when I did it, I think a lot of surgeons actually start out in medical school as the most tender-hearted medical students because when you see somebody suffering and then you actively introduce something like a surgical procedure, and you see the suffering relieved, that's a pretty good feeling. So, yeah, I was kind of didn't know what to do at that point because I was not planning on surgery. I interviewed about 25 places. I found about four places I thought had a decent environment, and fortunately matched at one in Atlanta, Georgia, called Georgia Baptist. So that started my surgical career, and I will talk some more about me and my journey through this dialogue. So that's kind of the beginning of my career, getting started in surgery.

Henry Peck  03:53  
Absolutely. David, I have a fun question for you that I didn't tell you I wanted to ask you, but I'd like to ask you. No surprises. Set things down here. I feel like people that are connected to the innovation and entrepreneurship and investment community, you don't just flip a switch one day and become scrappy, right? You either did something young, whether they were, you know, in high school or college, to make money or build a business or get exposure. I'm curious, outside of med tech and investments, what did you do? What was the first thing you did to make money?

David Cubbin  04:22  
That was there was scrappy or no. I mean, I've had a pretty diverse career, and it started quite, you know, officially, quite boringly after university. My first job was in investment banking, working for a little-known Australian bank called Macquarie. But actually, I remember now at university. I mean, the first money I made was working in retail shopping in Sydney, but the first interesting money I made was brokering some deals around art back at university in London, where, you know, people would say, I want to sell this painting, and somehow we ended up finding a buyer for things. There was art, there were a couple of other little bits and pieces. But it was sort of through brokerage that I guess I learned a bit of the hustle. It's probably a dirty word, but I learned that passion for doing deals.

Henry Peck  05:36  
I like it. You're still kind of brokering art deals. I suppose some would call surgery an art. Beautiful. That would have been a good joke, making me feel good. So let's talk about Caresyntax. Obviously, a long journey to this point. We're going to get into the financing, but I'd like to set the foundation first. Back to you, David, with explaining what the problem is that Caresyntax is tackling and why now is the time to tackle it.

David Cubbin  06:02  
Thank you very much. And Bruce, I'd also welcome you to jump in in a minute as well because you're intimately way more acquainted with the problem than I am. But, you know, we all know that surgery today, in spite of all of the amazing technologies that we see at these fantastic events like LSI being gradually implemented, surgery is still incredibly dangerous. The spend in the operating room and in surgery is $1.7 trillion across the US and the EU annually, but there's up to a 15% risk of complications. Fifty percent of liability insurance underwriting is related to surgery. Sixty percent of insurance spend occurs as a result of perioperative actions. So we've got a system that is basically huge spend, still very dangerous, and kind of actually very inefficient. So that's the problem. Bruce, do you want to add anything there?

Bruce Ramshaw  07:21  
Yeah, and you know, surgery is part of health care. When we look at health care and surgery, as you mentioned, surgery is a major part of health care, especially acute care. When you go back 20 plus years, the Institute of Medicine in the United States wrote a couple of books, "To Err is Human" and "Crossing the Quality Chasm." In it, they describe the unintentional harm that happens in health care, and they were focused on the US, but it's the same across the globe. We have a ridiculous amount of people who have complications and death related to health care and surgical procedures, and that's just tragic, and we really haven't moved the needle on that. In the United States, an additional problem is the financial suffering health care and health care-related costs contribute as the number one factor to personal bankruptcy in the US. I know that's not the same everywhere else, but I know privatization is happening in many countries around the world. So, you know, that problem of unsustainable harm and unsustainable financial situations, both at the system level and at the individual patient level, is just a tragedy, and we need to address it.

Henry Peck  08:34  
In terms of things that we've talked about that need to be addressed in this space, one of the things that I've heard you reference is the siloing or inability to access data that is in the OR, both collecting and then getting that data out of the OR. Can you talk about why that's such a challenge to do and why it's such a tremendous need to address?

Bruce Ramshaw  08:54  
So one of the things I did in my career when I started to get recruited into leadership positions was start to study health care, study business, study leadership. It didn't take long, but I began to realize and understand that our global health care system was not sustainable, and that was an overwhelming feeling. This was 20 years ago. My first leadership position was Chief of General Surgery at the University of Missouri, and that was overwhelming. But I kept studying, and the foundational reason is we're founded on a science called reductionism, and in a reductionist science model, it leads to fragmentation. Just like you said, we have all these silos, so many fragments. When I began to learn the data science principles, and we worked with a team of data scientists and engineers for almost 15 years, I learned a lot about applying data science principles. One of the first principles of data science is that you have to put data in the context of a whole definable process. When you have all these fragments and the data is not available for the whole patient process, it makes it totally inefficient. It's impossible to measure and improve outcomes that matter, and we learned the most important outcome to measure and improve is the value of care. I kind of think that the way our current health care system is, we have data that ends up in data jails in every little fragment of health care, and we need to free up that data and put it in context. There are several other data science principles, but that's one of the core foundational problems: the fragmentation because of how we're founded and the system structure we're functioning in today in health care.

Henry Peck  10:30  
Let's shift over and talk about the financing a little bit. Obviously, we've seen the headlines: $180 million financing that you put together, both an equity and a debt component. David, before we get into the financing dynamics of this round itself, I want to kind of open the mind of an investor for everyone here who is raising capital and thinking about engaging with those like yourselves. Can you tell me a little bit about when you first got exposed to Caresyntax, and then walk me through the timeline from that first exposure, the building of the relationship, and then when the deal gets done, and what your involvement was like at those nodes along the line?

David Cubbin  11:06  
Yeah, certainly. So Caresyntax, I've actually known peripherally for many, many years, and I've known the CEO and CFO, especially the CFO and co-founder Bjorn Fonziemans, for 15 years, kind of peripherally related to Caresyntax. So I've watched them evolve for a long time. Like many startups, there are fits and starts and twists and turns and near-death experiences along the way. This is all part of the game. But it was really two years ago that I decided to formalize the relationship with Caresyntax and take a bigger bet on them. The reason for that was I felt like they had finally got the ingredients right. You know, they were on the right track before then. Every investor decides what the right point is to enter, but I started to see revenues growing at the right pace and getting to the right size. I started to see the traction the business was getting outside of one or two key markets. More generally, when we look at companies, I like to build a relationship with the business for a period of time. This is not a case of listening to a good pitch and thinking, this is fantastic, you know, let's invest. I think generally it can take a year, 18 months before we decide to push the button on an investment. In the case of Caresyntax, it actually took a lot longer. But I was lucky because I knew the guys, so I had, I think, a unique sort of insider perspective on how the business was being run. But I would emphasize to people with earlier stage businesses that when you're thinking about fundraising, you really focus on building these long-term relationships and recognize that actually a lot of patience is required. It's going to take you maybe a year, 18 months to bring the funds in and to have your eye on the next raise as well, you know, because for the next raise, you might need a different set of investors that will be interesting to your business, and so you need to be building those relationships with them earlier on as well. Actually, from a fundraising perspective, this is what I think Caresyntax does incredibly well: talking to lots of people and building lots of fantastic relationships across that sort of stage spectrum so that when it's the right time, people are not only aware of who Caresyntax are and what they're doing, but also already have an existing relationship with them.

Henry Peck  14:47  
Setting the stage for the financing, kind of on the other side of the equation, Bruce, you obviously brought a lot to this financing round, but the clinical expertise from your previous company as well, having exited and now bringing that expertise to Caresyntax at the journey or on the stage of the journey that it was at. Can you talk a little bit about some of the key learnings from the previous venture and how you leverage those in supporting and leading Caresyntax?

Bruce Ramshaw  15:11  
It really has to do with the aligned mission and vision around improving patient outcomes, and that was obviously what attracted me to join Caresyntax. But go back 10 years. I mentioned we brought in a team of data scientists. We brought in engineers. We were just learning that data science principles really needed to be introduced into health care, but we didn't know how to do it. An analogy that everybody knows is Moneyball and baseball 20 years ago. Before that, baseball used the same box score, the same exact data for every team all the time, always the same. That's kind of what we do in health care. We do the same in the United States. We have quality measures. We've introduced quality measures 20 years ago, and we've not improved quality at all. It's understanding data science that we need to go through. For our own hernia program, we did that for years, and we learned the science is all about measurement and improvement. If you can measure something and use data tools appropriately, you can improve what you measure. It took us a while, but like I mentioned, we understood that if we're going to have a sustainable health care system, we need to learn how to measure the value of care, putting financial data with outcomes data in the context of a whole definable process. As we did that and as we learned that, we were able to lower costs and improve outcomes significantly. A byproduct was that the hospital had better financial outcomes, but we realized there was a business model in that. If we could measure the value of care for any patient process, we could also measure the value of any drug, device, or diagnostics tool in that process. Our business model became partnering with industry. They pay us. We go into the clinical environment and apply our value-based CQI method, which is a quality improvement method. In the US, it doesn't require human subject research barriers like IRB and other things that are in place appropriately for clinical trials, but this is quality improvement, so we're measuring, and we're improving outcomes in real-world patient care settings, not randomizing. We let the clinician do what they do, but then we measure, we collect that data, and see what the impact of a drug, device, or diagnostic tool is on those value-based outcomes. We did that for about a decade. I was still a surgeon in a leadership position. My last leadership position was Chair of Surgery at the University of Tennessee in Knoxville, but I couldn't get the hospitals to buy in. Finally, I realized if we're going to get this spread into health care, I'm going to have to leave surgery and finally jump all in and be CEO of the data analytics company that we started. That was 2019, and I really learned a lot. Being a CEO is very different than being a surgeon. I was used to teaching everybody, and as a CEO, you have to listen and learn and ask questions. So, yeah, that was a lot of learning. But as I met Caresyntax, I realized this parallel path that they were on and our team was on had the same mission and vision. Obviously, they had done much better raising money than we had, but I think we had a key component of the Caresyntax platform around the data science principles. It was a natural match. As you mentioned, a year ago yesterday, the acquisition went through. So here we are.

Henry Peck  18:30  
I want to come back around to David. Something you were talking about with respect to watching the company grow over time. When the company was in its infancy, and you were seeing it and tracking it, it was likely functioning very differently and had a very different set of strategic goals and mandates. Now fast forward. You put in an investment along that journey. Two years later, this round comes together, bringing in new investors that syndicate with their own different expectations for the company, goals, and mandates. What's it like managing the syndicate as it grows, and how do you and the other leadership at the company, from both a financial and operational perspective, think about adding new voices to that conversation and making sure that incentives and needs are aligned across both boards, investor syndicates, and leadership?

David Cubbin  19:26  
Yeah, there's sort of a lot to unpick in that question. Obviously, if you're a founder, you want your investors to be able to help you grow your business and to help you raise money, to help you operationally secure new customers, and to not be obstructive in any way towards you achieving your vision. Of course, in reality, that's not the way the world works. Different venture capital funds have their own investment requirements and mandates that demand them to have certain expectations from their portfolio companies. Of course, when you get into the private equity world, you're dealing with bigger teams, so more analysis, more paperwork, oftentimes more aggressive when it comes to negotiating future rounds valuations, and also strategy. You know, wanting to drive your business's strategy. So as it pertains to Caresyntax, it hasn't always been easy. There have been disagreements with some of the shareholders at times. There have been some perhaps aggressive valuation negotiations with one or two of the larger shareholders without naming names. But I think that, you know, that's part of the journey and the struggle for a founder to figure out how to manage through that process, and it kind of separates the wheat from the chaff because you need to have incredible grit and determination and belief in your vision. It's a certain personality type that we actually look for in founders. Talk to most VC investors, and they'll tell you the most important thing is the founder and the founder team and the personality type. When it comes to navigating through these complex investor conversations, you need to have a hell of a lot of self-belief. That's probably the most important thing. Beyond that, of course, expectations of businesses change as they go from C to A to B to C and through the life cycle. There is the expectation that you're driven and enthusiastic and broadly reach milestones in the earlier stages. But you don't necessarily need to be super organized when it comes to preparing your financials or paperwork. I think there's a fair bit of forgiveness in the earlier stages, and as you get towards the later stages, it becomes far more of a financial play. For founders who are more on the technical side, it helps to either be more financially literate or to have someone on your team who's very financially literate who can help navigate all of these complex and at times challenging financial conversations with your investors. Certainly, in the case of Caresyntax, the two co-founders are very adept at the financial stuff as well as the technical.

Henry Peck  23:32  
Bruce, representing the leadership team, any comments on that idea of transitioning the business as goals and new voices transition how you work with the founders and evolve that vision?

Bruce Ramshaw  23:41  
Yeah, and I think a lot of what David said reiterates, but it really is staying locked on to the mission and vision and being able to pivot in other areas. Because, yeah, it's a pretty big mission and vision to transform health care to a value model and improve patient outcomes sustainably. But it's real. Because it's real, you have to be open to pivots and collaborations. I think the mindset was so aligned with what we were trying to do with my company, a very small company, but the same kind of commitment to the long-term vision and mission. I think that's really critical. It's easy to get off track. The first company I ever started was a medical education company, and we really, you know, it was laparoscopic surgery. Sorry. I got very fortunate. My residency was where the most laparoscopic surgeries were done at one hospital anywhere in the world in 1990, and so we were a leader in the world in laparoscopic surgery. I was teaching all around the world, but we saw the need for surgeons to get a product that would help them see how whatever laparoscopic procedure they would see all the anomalies, all the complications in one thing, and we put it on a CD-ROM because a floppy disk couldn't hold all the information. But nobody had CD-ROM players yet, and that was part of the problem. We were going public, we had an investment banking company, and they told us if you could acquire the rights to the domain .md, we would value it at $500 million, and .md can be the whole platform. .md is the domain for Moldova, and they had licensed .md to a company in Florida. We negotiated with them, acquired it for ten million about a month before the .com crash. We got off track. We wanted to help teach and have surgeons learn how to do complex, new, minimally invasive procedures, and we got more focused on the $500 million valuation if we could acquire that .md. I think that was a lesson for me. Keeping on that mission and vision, being able to pivot, but don't get off track of that mission and vision is really critical.

David Cubbin  25:56  
And speaking of .md, of course, we have a very similar version of that today with .ai. We're now in the investment universe, starting to see a real shakedown of companies where the ones that are real and that are able to demonstrate a business model off the back of their data, as opposed to the ones that are literally just putting .ai on their URL, is starting to become clearer. When we look at data-driven businesses, there are a couple of things that we look for. One of them is that, ideally, we look for companies that have been doing this for more than six to 12 months since people got very, very excited about it in this very sort of late-cycle behavior. In the case of Caresyntax, this is their business model, and it's something that they've been plugging away at for over 10 years, and it's been Bruce's passion for a long, long time as well. That's really important to us. When you lift the hood of a data-driven business, you want to look at the kind of data they're collecting, but you want to look at how they understand data, you know, how are they collecting it, how are they making sense of it? What kind of insights are they actually generating from that data? Are those insights worth a business model? Do they make sense? Do they create a sustainable business model? In the case of Caresyntax, we can see that actually the data insights that the business has been able to derive are super interesting. I wouldn't use the term that the business is just at the beginning because it's a sustainable business today, but actually to consider the future and all the amazing insights that are going to be able to be derived as more algorithms are added to the platform is quite astonishing. Just to take a step back and look at the kind of insights that the business or change that the business has been able to drive and derive. Today we're talking about things like a 33% reduction in the length of hospital stays. We're talking about a 54% reduction in opioid usage. We're talking about a 93% improvement on time starts, and this is just, you know, just a few examples. Off the top of my head, a $15,000 improvement in margin per case in one situation. These are very, very tangible benefits for a hospital. When you add all this up, the kind of change that this can bring about for the health care system overall is inspiring.

Henry Peck  29:35  
I want to talk a little bit about the round itself and where you're going next. Before we close and ask the audience, I invite them to ask any questions. Certainly, when you think about the round itself and how this came together, I know there's obviously, again, there's the equity component and the debt component. Can you share a little bit about the dynamics of the round? Anything beyond the headline, the big number that we should understand as we think about the strategy and energy you're using to grow this business and take this to the next generation?

David Cubbin  30:04  
Maybe I'll talk very briefly because I've been speaking quite a bit, and then maybe Bruce can come at it from a business perspective as well. Just to very quickly summarize what some of you may already know, but it was an $180 million round: $80 million equity, $100 million debt facility. Out of the $100 million debt facility, which was provided by Symbiotic Capital, about $40 million has been used to refinance existing debt. $15 million is payable on certain equity and revenue targets being met. We should receive about $10 million before the end of the year, and then the remaining $45 million, and I hope I've got my mathematics right, the remaining $45 million is basically a mutual agreement between the parties on M&A transactions. Caresyntax is often thinking about, you know, what do we buy? What do we borrow? Nothing to bury. Not sure what I was thinking of in my subconscious there. But, you know, what do we borrow? There's tremendous opportunities to partner with these sort of point solutions that can benefit from the Caresyntax platform, but there are amazing opportunities to acquire really interesting companies that either provide tech that can be a great add-on or that can add customers quickly to the business. When I first heard this term from Caresyntax, I thought, oh, what, you know? Why do you need to buy customers? It's actually because Caresyntax has been really, really good at increasing their revenues per account, per customer. It's really about getting the foot in the door in an ecosystem that is very hard to penetrate. Once you're in, once you've got a wedge product, being able to sort of land and expand. So, yeah, plenty of interesting M&A opportunities. This is for the Series C extension, with this funding. The Series D round will be, say, $150 to $200 million round also for executing on an M&A strategy.

Henry Peck  32:46  
Bruce, I want to throw you a slightly adapted or continued version of the question. You heard David talk about the prospect of Caresyntax doing M&A to ramp up its own customer base, expand its technology stack and offerings. But let's also look at Caresyntax being on the receiving end, potentially of M&A, not on the acquirer angle. Obviously, a lot of capital raised, a long journey, both to date and a journey ahead. But tell me how you're thinking about the future of the company with respect to where we go as a business overall. This is a vendor-agnostic platform currently. Does it one day become a proprietary asset of a large company, much larger than Caresyntax? Is this company destined to be standalone, vendor-agnostic forever? And is there a different path to both impact that you want to see and financial returns for your investors?

Bruce Ramshaw  33:38  
Our vision is to have a data and analytics platform available for all of health care anywhere in the world. That's what we need. We can teach data science to clinicians. We want to see a day where for every patient they see, they have a data and analytics platform that can show them what's the best value treatment for this patient, with their situation, with the factors that put them in a certain subpopulation. We can't have that one-size-fits-all mentality. To have that, we also want to bring the stakeholders in health care around that value and that data platform. That's why we've added the business with industry, bringing startup companies as well as major top five med tech companies to the data—the right way to measure and improve the value of their products—and even payers, bringing them in and helping them be part of the improvement of value, not just controlling the dollar like it has been in the private sector for other countries, in the dominant part of the US. We really want to continue that, to be vendor-agnostic, data-agnostic, and have that be the platform for the future of health care. Most of what we have in health care, again, is electronic medical records that are built into the fragments of health care, primarily for documentation, coding, and billing. That doesn't help patients improve outcomes.

Henry Peck  34:56  
Absolutely. Well, thank you both so much. David, I'm going to start with you for some brief closing thoughts, and then come around the horn here, and we'll open it up for a question or two at a time.

David Cubbin  35:04  
Thanks very much. I reflect on the journey that I've been on with Caresyntax and just sort of segueing from what Bruce is saying. What I find not only a compelling investment case around this concept of data-driven surgery and vendor neutrality, it's not just the investment case, but it's a vision for a sustainable health care system. When we look at what that means, it's about bringing about the best technologies and knowing what impact those technologies are having in the operating room and optimally using those technologies, the devices and tools, in a way that leads to the best outcomes for patients and also optimal outcomes for all the other stakeholders as well—not maybe not all, but most other stakeholders. That is the health care system that we dream of and that we're excited to be on the journey heading towards. It's been inspirational to work with the two founders of Caresyntax. I believe that as they've continued to inspire people in the ecosystem in terms of the investor landscape and the complicated stakeholder landscape and hospital pay ecosystem, I believe that if anyone can achieve what they're setting out to achieve, it's the team at Caresyntax.

Henry Peck  37:12  
Thank you.

Bruce Ramshaw  37:14  
Yeah, I guess in closing, I think we're at a critical place in our world and our health care system globally. We really need not just incremental improvement but transformation and disruptive innovation. I think my time early in my career working with minimally invasive surgery, I got to see disruption in surgery—true disruption—because there was only open surgery before that. I saw the pioneers of laparoscopic surgery get tomatoes thrown at them, telling people they were killing people and being unethical. Ultimately, they did this because it was what was right for patients: smaller incisions, quicker recovery, less pain. Eventually, minimally invasive surgery became a major part of surgery today. This is an even bigger disruption in how we do health care, how we take care of patients, the fragmentation, the data jails. We need a transformation, a disruptive innovation around data. The data science part of data science that makes me most excited is the fact that we all need each other in data science. Today, in health care, we're aggregating data and producing algorithms based on aggregated data, producing averages. Nobody's average. These algorithms are unintentionally harming people, especially marginalized subpopulations. To understand the science of data and systems and be able to decentralize data in each local environment globally and generate algorithms that can be networked gives us the opportunity for the best predictive algorithms. When we do that, we will have a sustainable health care system where costs go down and outcomes get better forever.

Henry Peck  38:56  
Well, thank you both so much. Congratulations again on the success, both to date and the success you're set up for in the future. Thank you, everyone, for joining us at LSI Europe. The 24th is our last panel of the week. Let's give a round of applause for our speakers and for all of our speakers this week. If you'd like to ask questions, once we take the stage off, we'll be happy to stay and answer some questions. Thank you. Applause.