Two years into creating a 2012 startup to develop management software for veterinarians, Sam Razor and Bart Conrad realized that the money was about to run out. Convinced that creating and delivering cloud-based veterinary practice-management software services held strong potential, Razor and Conrad in late 2014 began looking for investors for Hippo Manager Inc.
“We started with our own money and ‘bootstrapped’ it for as long as we could,” Razor said. “In order to get scaling and growth, it was going to take more resources than what we could put into it ourselves. There’s been times when life has been pretty stressful.”
The cofounders set out on the new Kentucky trail in search of angel investors and venture capitalists, and the support and programs available for startups. During the past five years, though, opportunities to raise funds from angel investors and venture capitalists have been growing. (see A Value Proposition for Venture Capital, The Lane Report, March 2017).
Hippo Manager, headquartered at 110 West Vine St. in Lexington, has added eight employees in the past year, and currently serves 600 active veterinary practices in the U.S. and nine countries (hippomanager.com). Its logo uses a hippopotamus, but its software serves veterinarians who treat horses, cows, cats and dogs, etc. Razor said the name originates from the HIPAA form that we humans sign in our hospitals, and so it shows that Hippo Manager “takes very seriously the idea of privacy and protection of information for clients who use our software,” he said. “Since we do animal records, that’s the bar we try to reach.”
Their software handles veterinary business operations from A to Z – scheduling, medical records, point-of-sale system, inventory management – “everything to help the office operate,” said Razor. The product is subscription-based at $60 per month per veterinarian, a price point accessible to all sizes of practices – from single practitioners up to the largest customer with 14 locations.
Razor graduated from the University of Kentucky and also earned a master’s in public administration with a focus on healthcare delivery degree at Eastern Kentucky University. Conrad graduated from the University of Southern Indiana.
He and Conrad wanted to work and start a company together, and tapped their experiences working at DVM Manager. When they were forming the ideas to create Hippo Manager in 2012, they were “astounded to discover that nothing had changed” in years in the veterinary practice management software market, he said.
It followed the decades-old business model of installing software on local servers and computers, and providing little support for customers. There was no use of cloud technology to access software running on powerful remote servers from local desktops, laptops and mobile device applications.
“The gap in the market was the opportunity we saw, and it lined up with our backgrounds,” Razor said. “We really had gotten to know the business space, and really enjoyed working with veterinarians.”
Hippo Manager’s first stop on Kentucky’s investor trail was getting help from the Kentucky Innovation Network, an initiative to provide resources and mentoring to create and grow new businesses.
KIN (kyinnovation.com) consists of 12 offices located throughout the commonwealth. Created in 2001, the network is managed in partnership with the Kentucky Cabinet for Economic Development and Kentucky Science and Technology Corp., along with local partners who pay half of the operating expenses. Local partners include universities and chambers of commerce. Business leaders and educators are recruited to become mentors.
Hippo Manager’s cofounders worked with the Lexington KIN office, and its director at the time, Warren Nash. The current director is Eric Hartman.
“Warren was just an enormous resource for us,” Razor said, by introducing him to potential investors and business mentors who could answer the hundreds of questions that come up about growing a business, and much more.
KIN offers assistance with business development, growth strategies, or funding sources.
It is “a one-stop shop so you don’t have to go 16 different directions,” Nash said. (He now is the executive director of the Von Allmen Center for Entrepreneurship at UK, which is a resource developing students into potential entrepreneurs.)
Nash’s guidance led them to develop their “pitch deck,” in which the entrepreneurs present a PowerPoint about their business before audiences of potential investors. It typically goes through several revisions to reflect what is learned each time the pitch deck is presented.
A pitch deck explains why the business is unique, how it disrupts the old ways of doing business in its market and defines how money will be used to reach specific business milestones, such as the first prototype or the first customers and revenue. Pitch decks are developed at the same time entrepreneurs are growing and operating their new business.
“I don’t know how many hundreds or maybe thousands of drafts of my pitch deck that I have been through, but it’s a process!” said Razor. “It is something that takes a lot of time and a lot of effort to get in good order.
“Fundraising in general I have found to be really taxing.”
The first audiences on Kentucky’s investor trail for Hippo’s pitch came at competitions in which grants are awarded, which range from a few hundred to a few thousand dollars. These competitions are offered throughout Kentucky, sponsored by KIN, angel investor groups, chambers of commerce, universities, etc.
Nash said such pitch competitions and grants are important for early-stage companies so they can use the money to create the company’s first prototype or attend their first tradeshow to do some customer validation, all of which is important to become an “investable company somewhere down the road.”
In 2015, Hippo Manager won a $4,000 grant from the Lexington-based Bluegrass Angels investor group at an annual pitch competition it sponsors. The grant included mentorship from a Bluegrass Angel fund manager, Brian Luftman, a former Chicago Mercantile Exchange floor trader.
The grant, plus more funds from friends and family, and then a convertible note investment from the Kentucky Science and Technology Corp. kept them going. Hippo Manager launched a public beta version of the software in 2015, and started marketing the software in the fourth quarter of 2015.
Although some pitches were unsuccessful at getting funds, Razor said he wasn’t discouraged “because nothing about this process of a startup has been easy, so I didn’t have any expectation that raising money would be either.
“You learn as much if not more at times when it didn’t work out as times when it does work out,” he said. “From our first pitch decks to where it is now is a major transformation.”
One thing he learned from all the pitches he made was to spend less time demonstrating the software, and more time on how Hippo Manager will get customers and revenue.
“We created software that was very visual and easy to use. We are extremely proud of it. The desire to show it off is something we had to really learn to fight against,” he said. “Regardless of how good your product is, you need to exhibit an understanding of where your path is for your market.”
At another stop on the Kentucky investor trail, Hippo Manager’s cofounders gave their pitch before the virtual Kentucky Angel Investors Network created in November 2013 (kyangels.net). Its 84 accredited investors from nearly every region of Kentucky telecommute into its regular meetings to hear pitches, then they take surveys to express whether they are interested. Nash manages the meetings, and connects those interested with the entrepreneur. KAIN members who are involved in other angel investor funds may invite entrepreneurs to pitch to them, too.
Hippo also used another resource that has become influential in the Kentucky entrepreneurial ecosystem, known as an incubator. In Lexington, Awesome Inc. (awesomeinc.org) provides office space, support and several innovative programs at its East Main Street location to help very early-stage ventures that focus on web and mobile software, software-as-a-service and data solutions. It receives financial support from KAIN and Commerce Lexington.
Awesome Inc., which helps companies get access to mentors and investors, legal services and technical talent, awarded Razor an Entrepreneur Hall Of Fame Fellowship.
“The resources and expertise provided by the fellowship have been immeasurably valuable to the development of my business,” he said. “Awesome Inc. helped us stay focused on our goals and forge important partnerships for long-term success.”
In early 2017, the Hippo team finally felt ready to pitch for its biggest fundraising commitment to large angel investor groups, such as the Bluegrass Angels Venture Fund, one of Kentucky’s oldest investing funds with 52 current members. Hippo intentionally waited until they were “further along before they made their first impression on those investors,” Razor said. “If it doesn’t go well with the Bluegrass Angels, then the doors can start shutting. The number of opportunities here are limited. You want to put your best foot forward when you reach out to them.”
Hippo Manager found its success on the Kentucky investor trail in 2017, and convinced the Bluegrass Angels, the Kentucky Science and Technology Corp., Commonwealth Seed Capital and Enterprise Angels of Louisville to invest nearly $700,000. It will use the funds to “scale operations and continue to grow as fast and faster than we have over this past year.”
As its software product matures, the Hippo team plans on “offering more and more tools to those practices, not just to facilitate data capture, but to help run their businesses in a more efficient and more profitable way.”
Hippo Manager is just one example of startups pitching to the growing number of angel investor groups in Kentucky. Other examples from this year include:
PowerTech Water – the cofounders (Cameron Lippert and James Landon) of this high-tech and unique water treatment process, which could decrease costs for municipalities, bourbon distillers and various industries, recently pitched to the Bluegrass Angels for $300,000, which would be a steppingstone for seeking Series A funding of $1-2 million in 2018. (powertechwater.com).
FrogDice – Michael Hartman, founder of this independent videogame developer, told Bluegrass Angels the Lexington company is preparing to launch its biggest game in the company’s history, and made a pitch to investors for $300,000. (frogdice.com).
SmartFarm Systems – Bob Farinelli, CEO and one of the founders of the company, gave a pitch to the Bluegrass Angels for $100,000 for its next phase to expand operations and sales in 2017. The company is using innovative technology with wireless monitoring devices to enable large farms to control and operate remote equipment in farm fields. (smartfarmsystems.com)
Michael Agin is a correspondent for The Lane Report. He can be reached at [email protected]