Episode Transcript
[00:00:05] Speaker A: You are listening to innovation four alpha where we explore innovation across industries, including Ag tech, healthcare, sports, technology, aviation and more.
[00:00:19] Speaker B: Hi, everybody, this is Tobe and Arthur with another episode of innovation for Alpha. And I'm excited today because I've got not just one, but two surgeons with us. And I am pleased to have Doctor Ryan Khanna, who as I've known for a long time, and he has introduced me to Doctor Islak and he is going to lead our conversation today. But I want to welcome you both to the show. Thanks for spending time on a Saturday morning.
[00:00:43] Speaker C: Thanks for having us.
[00:00:45] Speaker B: Ryan, why don't you start off just leading some of the dialogue and we'll get some background on Doctor Islak.
[00:00:50] Speaker D: Since I haven't met you guys on the podcast, I want to introduce myself as Ryan Khanna, a newly graduated neurosurgeon. As part of my training, I spent time in Chicago, New York, and for the last bit of my fellowship, actually spent it with the other guest on our podcast today, Doctor Bob Islak. He was one of my fellowship directors at the San Diego Spine foundation, which is located at Scripps in La Jolla, California. It's my pleasure to introduce doctor Islak, who started his career as an undergraduate at Stanford University, went on to medical school at Baylor, did his orthopedic surgery residency at University of California, San Diego, his fellowship at Mayo Clinic in Rochester, Minnesota, and returned back to San Diego where he went on to become one of the fellowship attendings at San Diego Spine foundation.
Today, Tobin and I have the privilege of speaking with Doctor Islak to discuss his career where he started as a clinical surgeon and a little bit of his outside ventures, including how he later started a started angel investing, which went on to a fund that he co started with another surgeon in the space.
[00:02:03] Speaker B: So give a little bit about Grant in terms of why did you go into medicine to begin with? Start from there.
[00:02:08] Speaker C: Yeah, I'm the first in my family to do that. I don't know where I got that bug, but I think it was a bit of a combination of a mother who was very sort of healthcare oriented without being in medicine, and then a technical side of the family engineering side that really is sort of problem solving. And I think that combination gave me this interest in being in medicine, solving problems.
And I did a lot of work with my hands growing up. My grandfather was a plumber, so I worked for him in the summers and had more of a blue collar growing up in the wilderness in Alaska and Wyoming and a bit in Texas. And that probably gave me a little bit of a bet towards doing something surgical where you're working with your hands. You know, we're just glorified mechanics, architects, if you will. So anyway, that's what brought me into medicine, and here we are.
[00:03:08] Speaker B: How was it? I'm curious. You gravitated into spine, actually, you know.
[00:03:14] Speaker C: Interestingly, at Stanford, I had done a fair bit of cardiology work.
We did research and started building the neural networks that ended up reading ekgs automatically. So for a time I thought maybe cardiology. But then when I went to med school and coming out of a neurophysiology sort of bias in undergrad, I leaned a bit in the neuroscience direction, but then I did orthopedic surgery. And with my other background in athletics and sort of a sports history, there was a lot I liked on the orthopedic side as well. And the other thing about orthopedics was it's pretty jovial group.
Most of the surgeons don't take themselves too seriously. Pretty laid back. A lot of ex athletes. So it was kind of my tribe, but I always had that bit of interest in the neurologic side of things, and spine was a way to have both. I could hang out with the jocks and get some surgery done on some cool stuff in the spine.
[00:04:20] Speaker D: Doctor Islak sounds a little bit different than my tribe neurosurgery. We're a little bit more serious, I think now you and I are related. We're like cousins.
I think the focus of our podcast today is kind of more on your investing in your entrepreneurial pursuits outside of classic clinical medicine. Could you walk us through how you started from a spine fellowship trained orthopedic surgeon to more of these kind of outside ventures?
[00:04:52] Speaker C: Side ventures, sure.
I think what brought me to spine, in part, was also the relative infancy that spine was in, in terms of evolving technology and our ability to do it well. Everybody I'm sure that is listening to this podcast knows the sort of negative perspective that spine surgery tended to have and tends to have.
And while that was that's true now, it was much truer 30 years ago.
It was sort of the new frontier. And that same interest in being involved in an evolving, early, sort of infantile realm brought me to these sort of problem solving arenas that venture is involved in. So on the med device health science side, the inspiration is always solving these problems that we face. So whether it's us in the operating room saying, hey, this is, this is not the right tool, we need to develop new ways to do these things. There are a lot of pain points here. The companies, the small companies, startups and big companies that are putting teams together are trying to solve those same problems. It's really the same inspiration that brought me into spine.
Back when I was just starting out in San Diego, I ended up sort of serendipitously meeting the ex CFO of Staples who was involved in an angel group here. And it ended up being one of the largest angel groups in the country called Tech Ghost Angels. And they had a bit of a life science track and high tech track. But I actually went sort of selfishly to begin learning about the business side of this world, how to evaluate companies.
And of course they probably selfishly leaned on me a bit for the technical analyses, but nonetheless, it was a great opportunity for me to start seeing both inside healthcare startups and ventures and outside that. But learning the business, learning how to due diligence, what to look for that we don't get training on in, in our medical pathway. Certainly you do it in business a bit, but startup diligence and venture diligence is quite different. I mean, it really takes some experience and really more of an apprenticeship, I think, than what you're going to get typically in academic training.
Great.
[00:07:29] Speaker D: And I know that that kind of evolved from early angel investing to actually co founding a fund with another Billy general surgeon. Can you walk us through that transition and guess where you are now?
[00:07:42] Speaker C: Right. Well, so through the process of doing a lot of diligence and collaborating at Techoast Angels, there was another gentleman who was in that group who had much more experience than I had from different angles. He was a general surgeon, went to BiS school, left clinical practice, and he, he worked in industry at a high level as a global medical director of a couple large companies you'd know of, and then worked in venture in Silicon Valley. So he really had both a technical background and experiential background on the business side to look at companies in ways that I never had learned. But we collaborated a fair bit as I was learning, and then one day we looked at each other and said, you know, this angel approach is not going to be terribly effective for most people. It really takes a lot of averages. You gotta, we called it spray and pray. I think that's a common term in the angel world, but your ability to negotiate appropriate terms to help manage the process is not there. And you frankly have to get involved in at least 15 to 20 deals, which ends up being a pretty big sum of money for most people to have it work out financially. And so we put our heads together, so we could do the diligence better.
We can coalesce money into a fund and still go after these smaller entities, but make sure the terms are reasonable operationally. Get involved if need be, and certainly be board represented. And then we had very strict criteria in terms of what companies we would get involved in, from capital burn to the capital required to get the regulatory low regulatory burden, no IME or pmas or really large scale capital requirements to get through market. Because once you get to that point, the small startup funding requirements get washed out, often by the later stage investors.
Anyway, we sort of put this criteria together that we thought would be successful, coalesced just over 60 Lp's, from CEO's to engineers, a bunch of specialists in the medical field that we could harness as well in terms of cognitive capability to vet some of these companies if we were out of our realm. And that led to the fund. And then the fund deployed over the course of about five or six years into actually no spine companies, interestingly, but about ten portfolio companies that are sort of broadly peppered in the. In the healthcare field, most med device, but some sort of software based or cloud based kind of technology firms that are in the healthcare space.
[00:10:47] Speaker D: Is there any in particular that you'd like to share with us today about either success or failure and what you've learned from it?
[00:10:53] Speaker C: Yeah, I'll share a couple of both.
Unfortunately, we put the fund together in late 16, early 17, which was a good time.
And the lifecycle of health care investments will typically be maybe five years. It's probably five to seven. I mean, we like to think it's a little shorter, but it always takes more time and more money, as your investor crowd will know.
So, as we started investing, as you all know, 2020 hit and Covid blew the healthcare world apart. And it was particularly damaging for healthcare companies that were startups, because those companies have maybe six months, a year, if they're lucky, year and a half of capital to burn. But if they're trying to enter this market and entice hospitals, health systems, things like that, to bring them on board, and the blinders are on because of COVID it was very damaging. So one example was we had a company that was partnered with another big company to reduce radiation to patients and surgeons. They would aftermarket, deploy this technology onto fluoroscopy units, both biplanar suites for intervention, radiologists, operative fluoroscopy units for the care that we would provide Ryan in the operating room for minimally invasive work, orthopedics, vascular surgery, and reduce the radiation burden by 80% to 90%. So very occupational health friendly, great for patients, and they were doing great until Covid hit and they kept all the employees on. Management didn't want to let any employees go and say they didn't hibernate and they ran out of money. Great technology might come back, but that was an example of a failure for us. That was not because the technology wasn't great. They had great ip, great management until that point that they decided not to hibernate, but nonetheless, environmental factors crushed it. On the other side, we have some really fascinating technologies in the ocular space coming out of Ohio state.
One is technologically fascinating. It's really a math physics problem with an iPhone. Company's called Ocudoc, and essentially what they've been able to do is use an iPhone to do axial length measurement, myopia progression. And so it's in the midst of R and D and collecting enough eyeballs to do the machine learning that will lead to this product capable of really probably amazing global health impact in terms of myopia progression monitoring and a variety of other things.
And, you know, we're very excited about that. We kind of had to extract that one out of some doldrums, but the patient data is amazing. And so I think that one will be a rocket ship.
[00:14:00] Speaker D: That's fantastic. These all sound like great companies, and I think moving forward, I have a couple questions that are a little bit more selfish as me as a new young surgeon coming into practice. The first question is, for the listeners out there, I didn't mention, but Doctor Islak, while he's very busy in the operating room, also is working on these entrepreneurs, on these entrepreneurial aspirations. Also has five children, is the softball coach of his youngest daughter. So probably busy with that. How do you manage your time, and how do you manage to pursue all these different aspirations outside of the operating room while maintaining a busy clinical practice?
[00:14:46] Speaker C: You know, it's a constant balance act. I think the most important thing that I can convey is don't forget the priorities.
It's easy to get immersed into these things as surgeons. Your patients come first, and that's always the tug.
If you're stuck in the operating room, you got to stay late till the job's done. But don't forget the balance of the priorities in your life. And so my family's very important to me.
I try to set my life up to make sure that that priority is as met as I can make it.
But it's a daily battle and a weekly and monthly check on yourself to say, am I making the right choices here? And how I set my schedule up and ensure that when I go back to my priority list, I am accommodating the schedule appropriately and doing that. And then beyond that, it's just discipline. It's maybe a little less sleep than would be healthy.
It's getting up every day with the intention to maintain that balance and strike the priorities and spend the time where it's appropriate to maintain it.
[00:15:58] Speaker D: You said a little less sleep. How many hours are you talking per night?
[00:16:04] Speaker C: I try to get about five and a half to six and a half hours.
Once in a while I'll cash in and get seven to eight on a weekend night if I'm not having to get up and round on call or something like that.
But it's squeezing things in and I'm often working on the road. I do a lot of travel, as you know, for speaking, and I'm working the whole time on the plane. So wherever I can cram things in so I can accommodate coaching the next day when I get home, I'm doing that.
[00:16:33] Speaker D: Another selfish question.
I'm coming out of practice, as I mentioned several times.
New attending for somebody like me. And I have a lot of colleagues who are in my sort of demographic, newly graduated surgeon or medicine doctor. They want to be more involved in either venture capital, angel investing, or just sort of entrepreneurial aspirate pursuits, such as consultants to maybe small medical company startups or larger med tech companies, bigger spine implant companies, Medtronic, Johnson and Johnson. What advice do you have for someone like me?
[00:17:10] Speaker C: You know, I think the first thing I would answer is, what drives you? What are you passionate about? Are you passionate about solving problems and tinkering? That's one of the things I like to do. And so that's led me into lots of development projects with big companies and helping create tools to solve the problems that we face. I've started a small company based on that, just on creating a solution for a pain point.
And you don't have to take it down that road if you don't have the entrepreneurial spirit and the risk taking to do that, because you end up deploying capital that may be wasted in the end.
So first is first you got to have the passion, you have to have the interest to drive it.
On the venture investing side, my advice is don't go in hook, line and sinker right away. I mean, really try to ally with people around you, seek out guidance, folks that have had some experience and learn from them before. You dive in.
It's a tough world out there. Everybody's watched shark Tank. That's sort of.
It's a look that's obviously entertainment value, but it's a rough world and you're bound to lose a lot if you don't do it wisely. And it's really hard to do that on your own. So join a team, create a team, or at least get yourself in front of folks that have been there and have some deeper experience so you can learn from their mistakes before you make them great.
[00:18:45] Speaker D: You mentioned a company started. This is new to me, so could you tell us a little bit more about that?
[00:18:51] Speaker C: Yeah, sure. We started, it was really an IP play. We sat around with a couple engineers and a couple surgeons and said, what's the pain point that we think is out there? This is about 2013 in spine surgery right now in terms of implants or even delivery surgical approach. And at that point, expandable inner body fusion devices were starting to come out a bit.
There was a significant expense related to them. They were very costly to make, they were costly for the system, but there was something to that. And you've seen the expandable inner body fusion device market really blow up. It's gotten very big. But at that point for us, we thought there's a better way to do that sort of surgery with a device that is cheaper, sort of elementary, but still solves this problem of alignment and is fusion friendly, can maximize grafts. So we basically just worked as a collaborative team of those few engineers and few surgeons and created a device and then created a company around it with a delivery mechanism and then got it through FDA and commercialized it. But we were able to do that with that small group and get it on the market with about one point five to two million dollars, which is an extraordinarily low bar for that amount of work to be done and getting a product to market. And it's still alive and it's being utilized. As you know, Ryan, we don't do a lot of t lifts, but when we do we use that sort of thing.
[00:20:38] Speaker D: What's the name of the company?
[00:20:41] Speaker C: Spine innovation.
[00:20:42] Speaker D: And is it still a standalone company or has it gotten acquired like a lot of the other companies in the space?
[00:20:50] Speaker C: It's still standalone but partnering with other entities.
[00:20:54] Speaker D: Oh, great.
Tobin, have any questions for Doctor Eastlak?
[00:21:00] Speaker B: Yeah, a couple things actually just working backwards a little bit. So as you look at the spine industry, maybe go out the next five years or so, what are some of the things that you're seeing in terms of maybe trends or opportunities.
[00:21:17] Speaker C: I think that there's been a lot of consolidation in spine, big companies merging with other big companies, and that's changed the market quite a bit. So that's probably the biggest thing over the next few years, is seeing how the combination of a couple of the big companies that's occurred challenges the market from almost a monopolization perspective.
But I think on the more granular level, where I'm going to think things are going to really take off and be sort of revolutionary to a degree, will be as we see the robotics technology advance beyond very simple processes that we currently use them for.
There's some liability issues and technical issues, but when the robotic platforms can engage in surgical processes and increase the efficiency and work alongside the surgeon, rather than just as a tool of the surgeon to do the same thing the surgeon would do, I think we'll see an enormous benefit to society.
The value proposition starts to get there. It's a very expensive process, but I think that's one thing to look for. And then the other is, I think, gonna be centered around data more so, and how we use that. So machine learning and how that's applied to imaging, predictive modeling for who we operate on, how we operate on them, in a way to reduce the burden on society and improve the outcomes for the people that we're operating on. So I would look for those things in particular to be, in the next five to ten years, the technologies that really make spine advance from where it's.
[00:23:06] Speaker B: That makes sense. And when you think about, when you look at companies that you're interested in, to what extent, if at all, do you work backwards? Like you're just talking about consolidation, you know, how do you, do you ever spend time looking at, here's what the big players are missing in their portfolios, and if there was a startup that could meet that gap, in other words, do you ever work backwards from here's the end game, here's who's likely going to buy this company, or what's your a little bit of your process in evaluating, potentially?
[00:23:36] Speaker C: Yeah, that's a great question. I mean, once in a while we look at it that way. But the ability for us to look two to five years down the road at what the big companies are going to need, if they're even going to be around, is pretty tough. Now, there's absolutely that question along the way as part of the diligence process. But the first and foremost questions typically are, is there ip? Is there protectable ip there?
Number two, does it, does it make doctors and patients lives better?
And is it, is it cheaper? Does it make healthcare more efficient?
So those are the three pillars of our diligence process. Once we get those answered, if they're all affirmative, if they all look like they're good, then we start looking at, okay, now, what's the regulatory pathway? How costly is that going to be? What's the reimbursement pathway? If they don't have reimbursement, it's almost an automatic no, because it's such a challenging hurdle and very difficult to anticipate on timing and whether it'll come through at all.
And we look where we've been burned the most, honestly, are the management teams and their experience, coachability, and alongside that, the board. And if it's functional, a lot of companies have boards that are really have constituents that are investors and they may put a lot of money in, but their technical wherewithal, their startup savvy is not good. And their scrutiny and help on the operational level for the management teams that need it, may not be there. So we spend a lot of time vetting management teams and the boards of to make sure they're sufficient and they're functional. An example would be a startup may have three people on a board, one of whom's a CEO, another 1 may be a founder. So that's not a functional board. So we're always looking to make sure there's a five member board or seven member board, some independent capacity, and certainly experience levels that warrant that, that allow them to govern the management in a way that's appropriate rather than glad handy.
[00:26:06] Speaker B: That's good feedback. And along those lines, do you see any difference between, if you're investing a lot in technology related companies, med tech, do you see a difference between founders that may come from engineering backgrounds versus maybe it's a physician surgeon or somebody else from some other background, or is it really just depend?
[00:26:28] Speaker C: There's absolutely a difference.
And even in the same background, there's a different set of skills.
So that you can have an amazing, thoughtful founding engineer who's had a great idea, get it to a certain point, but they're not going to commercialize effectively.
So when we look at companies, we absolutely look at that dynamic, including are they open and willing and introspective enough to step aside or to know, hey, I'm out of my depth here, I need to bring in somebody who's done this before, who knows more than I know about the next step. And as you, I'm sure, know, that can be tough with the ego that it requires to, you know, to start a company.
So it's a dance, but you gotta get through that and have the conversation typically ahead of time. And if you get the squeamish feeling that that individual is not coachable, they're not. Their ego is more important than the team winning, then I'd walk away.
[00:27:34] Speaker B: Yeah, yeah, that's very common, unfortunately. And I remember having a conversation with Tom Fogarty a number of years ago, and you probably ran into Tom through your Stanford days, but we were talking about intuitive surgical, where he was an early investor. And he said, no discredit to Fred Mall. The company exists because of Fred. But really what made the company was a guy named Terry Tor. And he said Fred was a great idea guy and innovator, but you needed to sell something. And so they brought in Tierry, who could sell. And he said that yin and the Yang ended up making that company. And he said all too often we, in his early days, he said, we learned you can build great product, but if nobody's selling the product, it's going nowhere. And so. And he says, and almost invariably, those are not the same people. So that was kind of a key lesson from Tom Ryan. Do you have any sort of wrap up questions that you want to throw to Doctor Esau?
[00:28:35] Speaker D: This is kind of just taking back to one of your first questions when I was asking about your portfolio. Interestingly, you said that you didn't invest in any sort of spine companies. Obviously, your expertise is orthopedic surgery and spine surgery. What was the reason that you didn't invest in any companies? Was it just not good opportunity? Was it that you knew a little bit too much about the space, so you thought that maybe a different investor would have invested and you decided not to, because it's your kind of day to day job. What was it?
[00:29:04] Speaker C: Yeah, I think it's mostly about the fact that we looked at lots of companies in the orthopedic and spine space, but none of them really met the criteria that we set up. When we established a funnel, we tried to stick to our guns on that concept. So while there were interesting things, none of them met the threshold, with the exception of one that's not entirely. It's not a device play.
And we'll call it. We'll call it spine, but it's an imaging baseplay that uses current mister spectroscopy technology that you've, I'm sure, seen for cancer assessment, Ryan. But this. This voxelates a small area of the disc spaces and can do a chemical analysis of discs, which is a known proxy for pain.
So we did invest in that as a portfolio company. And that is on the market. It's on the ticker tape now, so I shouldn't say none. But not a classic sort of med device.
Yeah, it's more software.
Cloud based analysis. Play.
[00:30:18] Speaker B: It's been great having you guys spend some time on a Saturday morning. And Doctor Islak, appreciate your thoughts and I'd love to stay in connection connected with you and follow the companies that you're involved in, expose any of them and showcase them. We're happy to do that as well.
[00:30:36] Speaker C: Well, thanks for having me. Appreciate it. Good to see you, Ryan. Glad to meet you, Toby.
[00:30:44] Speaker A: See you again soon. For the next episode of Innovation four Alpha, make sure to visit innovation four Alpha. Come for access to other episodes, show notes, newsletter, subscription and other resources. This show is for entertainment purposes. Before making any investment decisions, consult with a professional. This show is copyrighted by Innovation four Alpha, LLC and written permission. Yes. To be granted before syndication or rebroadcasting.
