It’s an ever-increasing problem. You’re preparing for a scheduled medical procedure, and the hospital calls. There’s a shortage of one of the medications used in the procedure, and the procedure has to be delayed—for the foreseeable future. There just isn’t enough medication to go around. Now what?
One Innovation Quarter start-up is trying to answer that question, and they’ve received a lot of investment funds to do so. OrbitalRX a health care start-up formed in May 2017, recently raised $1.4 million in private equity to build a software platform that assists hospital pharmacies in addressing medication shortages.
In the United States, at any given moment there are roughly 250 to 400 drugs that hospital pharmacies can’t buy; they’re simply not available.
“Medication shortages often hit hospitals the hardest, because they tend to be drugs used in critical care, surgery or cancer treatment,” says Adam Orsborn, chief executive officer of OrbitalRX.
Orsborn is seated at a high table in the middle of Turbine Hall in the Bailey Power Plant with Nate Peaty, OrbitalRX’s chief product officer. Most days, you can find the two in their office just down the hall in the Innovation Suites.
Peaty and Orsborn are both pharmacists with more than 10 years of experience each in managing hospital pharmacies. They’ve seen firsthand the impact that medication shortages have on hospitals and patients alike.
“We’re in a new world when it comes to health care. The pressure has never been higher, but the tools pharmacists need to do their jobs just don’t exist,” Peaty says. “Even over the last six months, the number of people I’ve talked to who have had a personal experience with medication shortages has increased.”
When medications are unavailable, patients’ health can be affected, including having procedures delayed or treatment regimens changed. Alternatives can have different side-effects, be less effective and also be more expensive than original medications. In some cases, alternatives just don’t exist. And as supply decreases, the price for medications increases, which often trickles down to patients purchasing the drug. Shortages could add as much as $230 million to U.S. drug costs.
When a pharmacy cannot obtain a medication, the pharmacists suddenly have to answer a litany of questions:
- What alternatives exist? Where can they be bought, and what will be the difference in cost?
- How is the drug stored, prepared and administered?
- How do you inform physicians about how the shortage affects their treatment decisions?
“Today, most hospital pharmacies are managing all of this information on a spreadsheet,” Orsborn says.
It takes a lot of time and people to collect all this information. Employees have to gather the information from multiple technology systems and online catalogues—a process that can take several days. Now imagine collecting all that information for several hundred medications.
“We want to shape how pharmacy automation tools are built and raise the bar of what they’re capable of,” Peaty says.
That desire was the genesis of OrbitalRX, which will allow pharmacies to identify and obtain drug alternatives more quickly.
“We capture all the data that hospital pharmacies need to answer every question about medication alternatives in one place,” Orsborn says. “Whereas before multiple people might spend one day a week gathering this data, now they have that information updated in near real-time constantly.”
“This can help improve the safety and quality of health care,” Peaty says.
Investors are buying into the vision for a new tool that helps pharmacies address medication shortages. For Orsborn and Peaty, the journey wasn’t easy, but the lessons they learned about raising investment funds was paid off.
Keys to Finding Investors
Raising a cool $1.4 million is a dream for a lot of start-ups. What was the OrbitalRX secret to raising so much money? Orsborn and Peaty shared three lessons they learned in pursuit of investment funds.
Know Your Product
When OrbitalRX began, the start-up had a much bigger aim than simply addressing medication shortages.
“We had this idea that we would take a bunch of disconnected technology systems and create a software platform to address every technology problem facing hospital pharmacies,” Orsborn says.
“Our product would work with every vendor, every technology system,” Peaty adds. The pair laugh at that initial aim. It was a bit too ambitious.
In 2018, when the start-up entered the New Ventures Accelerator run by Flywheel Coworking, the OrbitalRX team received some valuable feedback: They were trying to do too much.
“What we had set out to build was probably $4 million worth of software development, so we narrowed our scope to addressing only three of the major problems pharmacies face,” Orsborn says.
But as the start-up began the search for investors, Orsborn and Peaty realized that they were still biting off too much.
“It took us a good year to get to the specific product that we could create and pharmacies would buy,” Orsborn says.
That’s when they landed on the problem of addressing medication shortages. Through conversations with both potential customers and potential investors, they were able to narrow down their offerings.
“When investors saw the product market fit we arrived at, they could finally see that we had a path to real revenue,” Orsborn says.
“That’s when we got genuine interest from investors,” Peaty adds. “The problem of hospitals not having the pharmaceuticals they rely on every day is a clear problem that investors, who may not have any health care experience, can understand.”
“If an investor can’t put your problem in a context they understand, they are not going to spend any time thinking about it,” Orsborn says.
Perhaps the biggest surprise for the entrepreneurs was learning that finding investments was a lot like dating: The biggest challenge in finding an investor was finding the right personality fit.
“One major question we asked about investors was ‘Is there a personality fit?’ ” Orsborn says. “Do we feel like these are people we can work with? Are we going to have fun with these people?”
Answering those questions involved building and maintaining a relationship with the investors. It didn’t happen over just one conversation or two, but over the course of many conversations the investors got comfortable with the OrbitalRX team and vice versa.“Investors are betting on the founders of a company,” Orsborn says. “I’d heard people say that, but I didn’t realize what it meant until we experienced it. When investors get to know you, that’s when they push the pitch deck aside and start talking through issues and solutions.”
This is how OrbitalRX was able to raise more investment dollars than they originally asked for—almost triple the amount, in fact.
“When we set out, we were looking for money,” Orsborn says. “When we got it, we realized that what we were really looking for was the right fit. As soon as someone believed in us, the money didn’t matter.”
How do you find that person?
“Talk to everyone,” Peaty says.
“There’s no ready-made entrepreneur; no one checks all the boxes,” Orsborn adds. “You need to find an investor who believes in you and is willing to help you check the rest of those boxes.”
Another element that the OrbitalRx team found important in developing relationships with investors was thinking ahead of where the start-up was in raising funds.
“Don’t think about raising money for this round of investments; think about raising money for the next round,” Osborn advises.
For Osborn and Peaty, that means knowing what you would do with the money you receive in your earlier round and what, specifically, that would set you up for in the next round.
“Either your goal is trying to raise something like $100,000 just to get off the ground and then seeing what happens, or you’re planning to raise $1.5 million in the next round because you have a plan for the $100,000 of this round that will get you to Series A funding to accomplish your next goal,” Osborn says.
This mentality helped the OrbitalRX craft their presentation to investors. Their pitch deck looked into the future of the health care start-up, beyond the round they were currently raising money for.
“The quality of presentation you’d put together for a series A investor is different than for a seed round. It needs pretty robust information,” Orsborn says. “If you build your presentation as if you are going into the next round, you’re going to impress a lot of people.”
One of the benefits of looking that far ahead is establishing your relationship with investors who can afford investing in your company when the fundraising get pricier.
“You want to have investors in your round A who can afford your round B,” Osborn says.
“It’s like chess,” Peaty adds. “You’re trying to think how this move will put you in good position for the next two moves.”
Another move Osborn and Peaty made to put OrbitalRX in a good position was placing its offices in the Innovation Quarter. The start-up first took up residence in Flywheel Coworking, located in the Center for Design Innovation.
“Flywheel was the first place where we had our own office with access to all of the conference space, internet and other amenities that we needed to feel like a legitimate company,” Osborn says.
As the start-up kept growing, OrbitalRX moved into Bailey Power Plant, which provided more space along with the other ingredients they needed to be successful.
“Bailey Power Plant has the ideal environment for us,” Osborn says. “We’re surrounded by fellow entrepreneurs who are going through the same struggles that we are, and the area itself has a revitalized energy, with the park, the restaurants and food trucks and housing options.”
Finding Your Path
While the entrepreneurs of OrbitalRX are happy to offer advice from their experiences, they realize that every start-up’s path to investment is going to be different.
“There’s a hope that there’s a strategy or a process that, if you adhere to it, increases the likelihood of getting the investments you need,” Peaty says. “While there are things that help, from our own story and stories from other start-ups, it’s very clear that almost everyone has a unique path to fundraising that most people could not have foreseen.”
Peaty leans over the table, adjusts his ballcap.
“Listen, the thing that works is the thing that works,” he confides. “Your job as an entrepreneur is to experiment and adapt, learn and connect as much as you possibly can and as quickly as you can. And if you find something that works, build on that as far as you can go.”