Is it a Good Idea or a Good Business Opportunity? A Discussion with Entrepreneur and Venture Capital Founder, Dr. Luis Pareras

Many physicians have tremendous ideas on ways to improve healthcare. This episode of SoundPractice will walk you through the funding process from the perspective of someone who awards the venture capital.

Covering topics such as the need for physicians to have “MBA Skills” such as negotiation and communication, what partners are looking for in business pitches, and the protection of intellectual property, enter the world of the VC in this conversation with Dr. Luis Pareras.

This transcript of their discussion has been edited for clarity and length.

Mike Sacopulos: HL Mencken famously said, "Capital is timid." Mr. Mencken never met Luis Pareras. Dr. Pareras is the founding partner of two venture capital funds, Healthequity and Invivo Ventures. These funds focus upon the early-stage healthcare sector. Dr. Pareras is also the author of Innovation and Entrepreneurship in the Healthcare Sector: From Idea to Funding to Launch .

Unfortunately, great ideas are not enough to advance healthcare. Business skills and capital investments are needed as well. The stakes for venture capitalists in the healthcare space and for the general public could not be higher. Prepare to enter the world of the VC.

My guest today is Luis Pareras. He is a physician and an entrepreneur. He founded the Innovation and Entrepreneurship program at the Barcelona Medical Association. Dr. Pareras is an internationally recognized expert in the area of physician entrepreneurship. Doctor, welcome to SoundPractice.

Dr. Luis Pareras: Thanks for having me Mike, a pleasure.

Sacopulos: There is a growing landscape of physician entrepreneurs. In this interview, I'd like to focus on how physicians can differentiate a good idea from a good business opportunity. Is that something you could help us with?

Pareras: I think I may, yes. For the audience to understand what I do for a living, let me explain very briefly. I'm the founder two venture capital funds that invest in biotech companies. So, I'm very used to hearing ideas from entrepreneurs, physicians, or researchers. And we receive 500 to 1,000 business plans per year, and we choose the 3, 4, 5 that we are going to invest in.

I've seen lots of ideas, and let me tell you, the most important thing to understand what a good idea is, is understanding the clinical need that's behind that idea. That's very, very important. I mean the best idea, would be a very high clinical need with a very solid science approach. The goal is to get the patient to a delta of meaningful improvement.

Sacopulos: For purposes of our audience doctor, can you tell us a little bit about your own journey as a physician leader and how you became involved in your area? Our audience are physician leaders and they'd be very interested in your background and story.

Pareras: For sure, Mike. I started my medicine career as a neurosurgeon. And I was a neurosurgeon for 11 years. From the very beginning, since I was a kid, I had a very entrepreneurial style of approaching life. And I built a couple of companies while being a neurosurgeon. And then finally, I went to the U.S. and Europe to do an MBA because I thought that I could have more influence on patients by building a venture capital fund and investing in those ideas.

I finally ended up by fundraising for my first venture capital fund. And now we are on the second venture capital fund, and we invest in ideas across the world. So that's, in a nutshell, my story very briefly explained.

Sacopulos: Are entrepreneurs born or made?

Pareras: It's difficult. I think they are, although this doesn't mean that we can't find people with natural abilities that make them especially successful. But let me just try to engage physicians in entrepreneurship and say that anyone can become an entrepreneur. I think society will be much better off if we engage more physicians in the task of solving those unsolved problems that still remain in medicine. And physicians are at the forefront of detecting problems.

One of the things I say is, "Pay attention to people that are, (excuse me for the language) pissed off around you." Because when someone has detected a problem, usually that person is worried about the problem. So as a physician, you need to be able to detect those areas where people are not happy, and then try to do something about it.

Sacopulos: Very interesting. I like that.

Pareras: Mike, Why are we here trying to promote entrepreneurship for example, or in my case, venture capital investments in biotech and healthcare? That's because people die that should rather not, or people live difficult lives that should rather not. And I can't imagine a most interesting thing to do for a physician to try to do. You don't need to leave your MD status or not seeing patients. You can lead both things at the same time. I've seen this done many, many times in the past.

Sacopulos: I find that many of my physician clients initially focus on protection of intellectual property, copyrights, and trademarks well before thinking about competition in marketing plans. Do you see this as well?

Pareras: Once you get your idea in front of you, it's not as much about the business plan that you have, at least in medicine or in biotech, but about the problem you're trying to solve and the regulatory roadmap that you have in front of you and the IP strategies that you want to deploy to better protect your idea. And all this roadmap until it gets to the patient, right? It starts as an idea, but then it gets to the patients more quickly than people think sometimes.

Let me tell you something that I think could be of value. For example, just to judge how good or bad an idea is, let me tell you that when I present ideas to my team here if everybody agrees with me that this is a good idea, I am too late. You need a very good idea, an idea that excels is disruptive and many people won't understand it.

There's a saying also in my field, "If it works, it is already obsolete because people are working on the next version." So, I don't care too much about marketing plans. What I care about is the idea and what is the roadmap, the plan to make it happen, how to implement.

The value of an idea is zero. Believe me. Nothing. If you take it to the marketplace, then it can be worth a lot, both money and social return on investment as well. But the value of an idea is in its execution, So I'm worried about the execution of the idea, how the team needs to make it happen, what are their skills, what are their motivations, their internal drive. And above all, will this be a part of the future of medicine, because there are many, many ideas that are great, but maybe there are some other approaches to that very same problem that would be more interesting for the future. So when choosing your idea, you need to be very careful that it's not only a good idea but also, it is in a field that it's going to project itself into the future and become a part of medicine in the future.

Here's an example…gene therapy versus a small molecule treatment for a rare disease. Probably gene therapy is going to better treat the disease. Right? So, solving a problem is not enough. It's not about solving a problem; it's about solving a problem better than the other approaches that you have around. That's very important.

Sacopulos: Many physicians today are employed by large health systems or academic institutions. How does being an employee impact the entrepreneurial process?

Pareras: Well, that's a very good question, Mike, because that's part of the problem why we have less entrepreneurship than we should in medicine. I think, of course, when you are an MD, you devote yourself to treating patients all day long, all week long, and it's very difficult to get entrepreneurial. If you're an MD, it's because you want to help people out, of course. But you can help millions of people out if you bring your entrepreneurial idea to the marketplace, or if you are a research physician as well, and you have found a new molecule, a new gene therapy, a new cell therapy, a new synthetic biology approach to tackle some disease. You should devote a little bit of your time, and institutions and hospitals and centers should allow that.

I mean, we need clearer rules of the game here for innovation to happen. But this is a problem that happens throughout the world, but I think in the U.S. this is less of a problem than in Europe. In Europe, it's an even more pressing problem, because, in the states, physicians retain a major degree of freedom. In Europe, it's not so common. But in any case, I mean, your question is very relevant. The rules of the game need to be clarified.

Sacopulos: I agree. At what point or points do you recommend physician entrepreneurs involve accountants or lawyers, ancillary people? What point along the journey is best to do that?

Pareras: The immediate answer to your question is, from the very beginning. But it's not about lawyers or accountants, it's about team members. I mean, nobody does anything of real value on his or her own. You need to be surrounded by very interesting people, very smart people. And the first task of an entrepreneur, regardless of the area, but especially in healthcare as well, is to surround yourself with the abilities that you are lacking. And that needs to be addressed from the very beginning, especially if you want to attract venture capital money. Because if that's the case, we venture capitalists, don't invest in ideas, as I said, we invest in the execution of ideas, and the execution is made by people.

This is a people industry, and we trust people with our money, and we help them out because it's not just about the money that we invest, it's as well about all the effort that we put from the board of directors of that company into trying to make it happen right. So, it is very important to be surrounded by the right people. Sometimes there are lawyers, yes. But I doubt this is the right profile. Usually, somebody who knows very well, the regulatory aspect of what you're trying to do, some other guy that knows a lot about the preclinical studies that need to be done. So, you need to be surrounded by the right people, for sure. And the sooner, the better. Believe me.

Sacopulos: In your book, Innovation and Entrepreneurship in the Healthcare Sector , you talk about the need of healthcare professionals to leverage MBA skills in their entrepreneurial endeavors, such as deal-making or negotiations, or strategy. Could you expand on your philosophy a little bit more here?

Pareras: Well, the problem is that physicians, don't speak the language of innovation and entrepreneurship. That's a fact. Some physicians do, of course, but it's not a common thing. We are very focused on research and on our own specialties in neurology, cardiology, or whatever specialty you have.

It is not difficult at all, to learn the language of entrepreneurship and innovation. The MBA stage is something that any physician should be able to learn very, very quickly. This includes, of course, strategical thinking, the ability to negotiate, and the ability to look into the future and try to anticipate that future, which is, by the way, one of my favorite topics. I mean, how to predict the future, because if you ask me, what I do for a living is I try to predict the future sometimes. Sometimes I am right, and many times I am wrong. But the key thing here is having an open mind to try to anticipate what's going to happen in the future.

All those skills, precisely when I wrote that book, I was thinking about trying to explain the different worlds. I'm not saying difficult because it is not difficult, but a different approach to life offered by a more business-like language. It's about the language and I think all physicians would gain a lot, by learning to speak it.

Sacopulos: I agree with you. Now, when we first started, you mentioned that your fund receives, I believe you said somewhere in the order of five hundred to a thousand different pitches or proposals per year.

Can you walk me through how your fund sorts through those, what the process is, and what makes some stand out far more than others? What makes a great proposal and how does the process work?

Pareras: I love that question. I love that question, especially the second part of it. And let me explain. Of course, we are a team of very science-driven people here at our venture capital fund. There is a team of analysts that go through the ideas, the 1,000 ideas, for example, per year. And they select those 50 ideas that are worth being studied. And those 50 ideas then go into a process of more interviews with entrepreneurs and more deep thinking about the quality of the idea and the things that need to be done, until we finally select, let's say, 10 ideas per year, that are worth this final effort of due diligence, full due diligence, a full negotiation with the team. And in the end, only half of those get to a final deal because sometimes we, don't find the common ground.

But the most important part is the selection of the idea in its origins. Can I explain an anecdote that I think illustrates very well, the point? It's a historical anecdote. I love art, by the way. And this is an anecdote that I think the audience will understand. What do you feel when you are in front of a very good idea? I'm going back to the '50s, Jackson Pollock. The great American abstract expressionist painter. And he called his wife, Lee Krasner, who was, as well, an American expressionist painter. He called her and showed the canvas laying on the floor. And you know what? He never asked, "Is this good?" He asked instead, "Is this a painting?" The guy wasn't sure if this was even a painting.

So when you are in front of a very good idea, you have this feeling of, "Can this be done?" And these are the ideas that drive medicine into the future. Let me explain another anecdote because I think they illustrate it very well. This is a famous story about Albert Einstein. He was teaching at Oxford back at the beginning of the 20th century and he was giving an exam to his students. He gives the exam to all the students and the students start to answer the questions. One aide of Einstein comes and says, "But Professor Einstein, this is exactly the very same exam that you made last year. So they're going to know..." And Einstein said, "No, don't worry. The answers have changed."

Because in medicine, things change so incredibly quickly, that it doesn't matter to know a lot about a field, you need to be on top of the field all the time. Read all the papers that you can. So, it's a very time-demanding endeavor, but when analyzing good ideas, you need to identify those ideas that are breakthroughs, because it's not about investing in something that could fly. It's about investing in something that will change people's lives, and do so in the most aggressive and positive way. So, that's the challenge that we're talking about.

Sacopulos: You mentioned timing, that medicine is very time sensitive. How long does the process take for someone that applies to your fund? Assuming that they're successful, what would the time be involved?

Pareras: I would say in normal circumstances, from the moment they get into the door, since we do have an investment executed, probably three to four months. And you would say it is very slow, and you are right. But we take our time in doing proper due diligence and calling key opinion leaders throughout the world to check on the physician's idea and see all its potential caveats. I love CEOs that are paranoid. This is the best quality that a CEO can have. Someone that is worried about everything, sometimes at the end of one of our meetings, I ask this tricky question, just to catch them off guard. "What worries you? What doesn't let you sleep at night, Mr. CEO?"

And there are two types, the ones that say, "Nothing." or "Getting the money.", or "I'm very confident.", or whatever. This is one type. But then there's a good type, the right CEO, who is the one who starts with the list, "Well, I'm worried that in Stanford, somebody else is doing that. I'm worried that the patent is not going to fly. I'm worried that the clinical studies will be very large, I am not sure the science will stand." And I need to stop them. "Okay, stop. I understand." But these are the good ones, the paranoids that are worried about everything and pay attention to very close details of everything that's going on.

Sacopulos: Well, I imagine it takes a certain amount of personal courage to tell the person that you want funding from, all the potential flaws of your idea.

Pareras: Yeah. There are two things here to answer this question. Number one, and I'm sorry to be so brutally straightforward, but I'm afraid I'm not in a popularity contest. When I reject a company, it's not necessarily because it's a bad idea, it's something that probably I cannot help enough. Or for whatever reason, I don't think it's going to fly. But I may be wrong, of course. But that's on the one hand.

But on the other hand, let me tell you that it is such a privilege to work surrounded by such great physicians all day long. I mean, all my meetings are amazing because these are incredibly smart people, incredibly talented people, willing to bring something good for patients in the future. This is such a privilege. You can't imagine. So yes, on the one hand, I'm not in a popularity contest, I'm sorry, but there's no offense at all. It is just a judgment. But on the other hand, it's so rewarding.

I want to think it's rewarding for both sides because we try to give them, regardless of whether we invest or we do not, all the advice that we can. It's like going to a free consultancy, but a good one because we have very good specialists here in tackling all kinds of problems that entrepreneurs may face when they're building their companies. But yes, you are right, Mike. Sometimes I'm not very popular.

Sacopulos: If one of our listeners ... And I would love to believe that there's someone listening to our podcast today that has an idea that will be extraordinarily beneficial for mankind. If we have a physician in our audience today, doctor, that has an idea for innovation or a device or a healthcare business, could you lay out the first three things that he or she should do?

Pareras: Number one is, think very carefully. You have identified a problem and you want to solve it. The first thing you need to do is to surround yourself with the right team to try and solve it. At the same time, think very carefully about other alternatives that there are in the world, trying to move forward to solve the very same problem.

Again, it's not about solving a problem, it's about solving a problem in the best way possible. So, you need to be very aware of your competition. I recommend all those physicians to paint some sort of competition landscape, where you figure out who else is trying to solve the very same problem.

And then, think very carefully about what you need to do for the idea to get to the patients. And the most important thing, probably, try to refine your science and get the best proof of concept that you can achieve. The right experiment, asking the right questions shows that your solution to the problem is going to fly and it's going to be a very good one, that it brings a very good delta on patients. Sometimes it's an animal model of your disease if you are a researcher. If you have a medical device, then sometimes it's a mock device that has been used, not in a human environment, of course, but by physicians that say that this is great for them or whatever.

Try to find the reasons why your investor is going to invest in you. Because the first one to believe in your idea, of course, is yourself as an entrepreneur. Right? So, you need to not only be very enthusiastic but to have proof as well. And the proof is usually accomplished by having a proof of concept. Depending on the field, it looks like different, but you understand what I mean. It's something that shows the world and specifically at this time, your future investor, that it is worth it to give it a try.

Sacopulos: My guest has been Dr. Luis Pareras. Thank you so much for your time. And thank you also, for improving medicine worldwide through your efforts. I think you are doing fabulous work and we appreciate you being on SoundPractice. Thank you, sir.

Pareras: It was my pleasure, Mike. Thank you so much for having me and good luck. Anything you need from me or you or anyone from the audience, please. Please drop me an email and I'm very happy to help when I can. Thank you.

Sacopulos: My thanks to Dr. Luis Pareras for sharing his time and knowledge. The role of the venture capitalist in the healthcare sector cannot be overstated. My thanks also to the American Association for Physician Leadership for making this podcast possible. Please join me next time on SoundPractice. We release a new episode every other Wednesday.

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