Daniel Cane On Selling His First Business For $1.6B And Now Raising $300M To Simplify How Medical Information Is Shared

Daniel Cane is the cofounder of Modernizing Medicine which has created the Electronic Medical Assistant, a cloud-based, specialty-specific electronic medical record system. The company has raised to date around $300 million in funding from Warburg Pincus, Summit Partners, Sands Capital Ventures, and IBM. Prior to this he was a cofounder of Blackboard which sold for $1.6 billion.

In this episode you will learn:

• How Dan makes customer delight a part of their DNA at Modernizing Medicine 
• The benefit of building new companies in tough times
• What you should do instead of chasing an exit
• His top piece of advice for founders venturing into their own startups

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About Daniel Cane:

 

• Wikipedia
• Linkedin
• Twitter
• Crunchbase

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FULL TRANSCRIPTION OF THE INTERVIEW:

Alejandro: Alrighty. Hello everyone and welcome to the DealMakers show. Today, again, we have a founder that is going to teach us how to go from one industry to another one without really knowing much about it. And then also, how to build, scale, finance, taking companies public – you name it. So without further ado, I’d like to welcome our guest today. Dan Cane, welcome to the show today.

Daniel Cane: Thank you, Alejandro. It’s a pleasure to be here.

Alejandro: So originally from South Florida. How was life growing up there?

Daniel Cane: Life in South Florida is not what people expect. I think people think of South Florida as retirees, vacation, a mouse and theme parks. South Florida has everything you would imagine, it should, from an academic perspective. I had a delightful childhood. I had parents who were very successful business people. My father is a physician. My mother was a teacher. So it’s an idealistic childhood. The weather’s perfect. But everything beyond that is what you would expect in a wonderful, normal upbringing environment.

Alejandro: Well, the weather is definitely perfect, and I’m sure that people in New York City miss that type of weather, especially in the winter. So, good stuff.

Daniel Cane: Absolutely. There’s always good weather in South Florida. It’s one of the not-so-best-kept secrets. What we need to make less secret is the fact that it’s also a fantastic business environment or place to raise a family.

Alejandro: Very cool. Why did you decide to come to New York City and go to Cornell?

Daniel Cane: Cornell was always the school I wanted to go to. I’m a legacy from Cornell. My parents met there. I was allowed to go to any school I wanted so long as it was Cornell. After many trips up there from my childhood, it’s that school I very much wanted to go. The right school, if you’re very interested in Applied Economics. It’s good for a lot of things, but what I found is their undergraduate business program was incredibly practical. It was incredibly pragmatic. They weren’t teaching you just the theory of economics or marketing. They were teaching you how to actually apply it. For me, that was important because I was busy starting a company as I was building my undergraduate degree.

Alejandro: Where did you get the love for resolving problems. I think that the economy, to a certain degree, has to do with that, but you got in the process very early in building your own business. Not the type of stuff that you would see from perhaps you classmates that were dreaming with the day where they would work for a consulting firm, a big bank, or let’s say maybe going into law school. Why did you develop this?

Daniel Cane: My passion for problem-solving was there since I was young. I had my first entrepreneurial experiences when I was starting a lemonade stand, I think like a lot of other kids. There’s not a lot you can do as a five, six, seven-year-old, but certainly, you can mix lemonade and sugar and sell it on the corner on a hot day, which in Florida we have an awful lot of. Where I think I was a little bit different than my peers were, I wanted to understand the cost of the good sale. I wanted to understand the supply side of Crystal Light. When you’re five, the answer to those questions are: your parents are going to buy for you and you don’t have costs. So I found it really profitable to make lemonade and sell it. As a matter of fact, I found the whole add water and ice thing really a pain in the ass. So I stopped doing that and just sold the packets of Crystal Light, which to me had great markup because I wasn’t paying for the inventory, to begin with. So, I guess you could say that I’ve always had that entrepreneurial bug. The problem-solving aspect of your question is one that I think a lot of people as they look around, they see inefficiencies. What makes an entrepreneur different is the drive to change it. It either bothers them more, and they feel compelled to do something about it, or they have more of an activity action threshold where it just forces them to want to make a difference and make a change. It can sometimes be as simple as seeing inefficiencies around you. Like when I was an undergrad at Cornell, the internet wasn’t being used in the classroom because the internet in 1997 was just being born. This wasn’t anything they were doing wrong, but I just saw this opportunity to take this new power and apply it to the only thing that I knew as a student, which was being in class. And the entire concept of Blackboard grew out of that need to act, that drive that said, “If I look around, there are things that we should be doing whether it’s with technology or with communication, and I have the knowhow to make that happen. Somewhere in there, there’s probably a business model.” The business models evolve, and the thinking around how to make money from those ideas is constantly changing, and I was very fortunate while I was helping create Blackboard that the prominent business model when I started was one of bill and collect. I was very fortunate because the model shifted in the few years after Blackboard founded away from the traditional, “You should make money by selling something,” to “You should give it away to as many people as possible and make money.” Which as we know today is not a sustainable business model unless you’re something like a Facebook or a Google or a Twitter. But very few of us can become that. So I was fortunate that the prevailing model at the time was the traditional business model, which is you have to find ways of selling something, taking money, collecting the money, offering a service, retaining your customer. Those have been the dominant business models I’ve had for all my businesses going forward.

Alejandro: And Blackboard actually started as CourseInfo. Who started the business? Who were some of the founding team members?

Daniel Cane: It was my housemate’s. Of course, it’s your housemate’s because who else on earth is going to work for free? Nobody. When you’re in college, first of all, only your housemates are ones that are crazy enough to follow your hairbrained ideas for earning a business. We were literally doing it because we thought, “If we do this and it’s moderately successful, we could upgrade from Kegs of Beast to maybe like Rolling Rock or someday, maybe if we’re really successful, Sam Adams. That was the gauge of success. We were measuring success based literally on the number of courses at the university that were paying us to help build their websites. What we were ill-prepared for was just the massive demand that came out of, not just Cornell University, but as other universities saw what we were doing other places. The software concept grew out of necessity. We couldn’t keep up with demand. Once we got to a few dozen courses, we started to write tools to automate our own internal work to help manage these course websites. Pretty soon, the tools got pretty good. We could not only manage more and more, we could start to turn the tools over to the end-users so that they could update their own documents, post their own assignments, upgrade their own grade book, and that became the genesis of Blackboard.

Alejandro: Obviously, when you can’t keep up with the demand is what people call in our space, done product/market fit. So was that like right away, or did you guys have to make some tweaks on the MVP, the Minimum Viable Product that you guys went to market with, or walk us through that process.

Daniel Cane: It was a constant evolution. I would say even today, it has not reached a maximally viable product, but it’s reached a minimum. The needs of the market were ever-evolving as the technology was moving at a pace that allowed for us to do more, and more, and more, faster than users were conceptionally able to adopt it. The beautiful thing about the education technology market is the model of education had remained static for hundreds of years, where it was a teacher providing content. They were either standing in front of you, or somehow you were getting access to that. You were reading as a student. You were doing assignments as a student, and you had this dialog, but it was teacher/student, teacher/student. The other models which were more experiential hadn’t really been massively adopted. They were certainly being used in pockets of academia. But the models that we have today with its tremendous variety of instructor-led or teacher-led, student-led, and project-based. One is prominent back in the late 90s. So the product reached an MVP fairly quickly, but the definition of an MVP, the bar kept getting raised. What we found is, what worked in one semester was suddenly woefully behind for the next as the demand increased, and the demand increased. There was an absolute wonderful arms race going on between hundreds of companies, which then whittled down to dozens of companies, which whittled down to a handful of companies. We see that pattern over and over and over again as new industries emerge. It was not unique to us at Blackboard. We saw the same thing at Modernizing Medicine in the health care space where we’re in a consolidation phase now. But when we were starting Blackboard, we did get to an MVP for one class pretty quickly. Then what we found when we got to ten classes, the MVP changed; 100 classes, it changed; different universities, it changed. That’s what kept it exciting was the ever-need of investment to be able to grow your technology, grow the service, grow the platform to meet the needs of a constantly evolving, changing marketplace.

Alejandro: Got it. The company, as we discussed, was started as CourseInfo around ’97. But in ’98, Blackboard really became itself with a merger, a merger that you guys did with a company from KPMG. So why did you guys do this?

Daniel Cane: This is an area where the listeners, I hope, can take a lesson here. I was a lot of things, and I wouldn’t say that I was the most humble person, but I was at least self-aware enough to know that I knew nothing about actually going out and raising capital, funding a company, recruiting talent. I was, at that point, a junior in college – hadn’t even graduated with a BA, BS. I was self-aware enough to know that there are people in that world who knew more about running a business than I did. While I may be a decent technologist, and I might be an innovator and see things that other people hadn’t seen and act on them more quickly, I needed to surround myself with people that actually knew business. The KPMG aspect were people who were employed. They were working in Washington, D.C., and KPMG is a higher consulting division. They knew more about the industry than I do. They knew more about business than I do. The thinking and rationale behind the merger were if we combined forces – we have tech. We have customers. We have innovation. They had industry-knowledge. They were expert consultants on higher education. And they had brand. They had awareness. They had maturity, which is a good thing to have – that we would be taken a lot more seriously. CourseInfo had dabbled with the idea of raising capital, and once we got beyond friends and family – 1997 started with the dot-coms. I think the Globe had gone public just then if I recall back in time. The dot-com craze was just beginning, but it wasn’t at the stage in which people were writing checks for million dollars for 19-year-olds yet. Now, it would become that, but it wasn’t that when we started even if it was that the right thing to do was to combine forces with a group of people that really knew more about running a business than I did. That combination created the core of Blackboard. That’s literally the epicenter. We rub these two things together. Form Blackboard Inc., and suddenly, the pieces were there: expertise, experience, technology, innovation, customer roster. It was the right thing to get started from that point, and then we started to go out and raise capital from there.

Alejandro: Tell us about the capital raise because once the transaction was done, you guys finally came out with Blackboard. Were there certain things that you knew you needed to get right before you would go out to market and raise money, or you guys just went at it and just tried to get the money right away?

Daniel Cane: As much as I would love to tell you that we were very thoughtful about the process and where we needed to be as a company, this was a land grab. The best thing to do in a land grab is to grab land, get out there, raise capital. I would say in hindsight, we were ridiculously dilutive to ourselves as a founding team, but the tradeoff was if you don’t raise enough capital you can’t move fast enough that other people are going to be able to grab land faster than you. I think, in hindsight, it was the right tradeoff. We raised an awful lot of capital at various valuation ranges, always sort of escalating up and up and up, but it became a very dilutive experience. One of the lessons that’s hard to learn is the tradeoff between trying to maintain control and equity and grow slower versus taking on dilution, taking on investment, and being able to grow a lot faster. The things I’ve learned include money lets you overcome a lot more obstacles than not having money. Time to market is essential. You need to make hay when the sun is shining. When universities hadn’t yet selected e-learning platforms, and there was a massive competition on to get universities to adopt, and switching costs are high once it’s in, you need the capital to get out there. You need to be able to fundraise, hire a sales team, hire marketing, build brand, and drive a company forward. When I look back over those years at Blackboard, and we took on an awful lot of dilution, but we built a billion-dollar company in the process. Would you rather have a small percentage of a much bigger company or a big percentage of a smaller company? And I hate to make the tradeoff that simple, but it really was that simple. 

Alejandro: For the founders that are listening, how do you think they should be thinking about dilution then?

Daniel Cane: I would say it’s facts and circumstances. If you’re in an industry where agility and time to market are of the essence, then you should take on the risk of more dilution for more maneuverability and drive power. If you’re in a market where you have the luxury of time, then I would say consider taking on dilution only to the extent that it’s going to move your needle to a different level of either profitability of growth. You have the luxury in some positions of being able to do that. If it’s a lifestyle business, if it’s one that you’re comfortable growing at a slower rate, then taking on the dilution, taking on an investor may not be the right choice for you. If you are in a market where time is of the essence, you have a massively evolving competitive landscape, and your competitors are out there raising capital, then you want to make sure that you’re in there as well, and you’re raising capital, and you’re using the capital more effectively than your competitors are.

Alejandro: To pull up on this, I understand that you’re more of the school of thought that at an early stage, it makes more sense to raise more money from your customers. Can you walk us through this?

Daniel Cane: Happy to. The rationale wasn’t so much out of it’s a good idea to raise money from customers, though it is, and I’ll get to that in a second. It was in 2009 when we were raising money for Modernizing Medicine, we were in the midst of the worst economic climate in U.S. history. So, very few people were interested in investing in early-stage pre-revenue startups or companies that were hemorrhaging cash. The markets had crashed. Certainly, the housing bubble had burst, and even venture was doubling down on their initial investments rather than looking at new opportunities. There are a lot of thinking about what’s the right time to start a company. I actually really appreciate the ability to start companies when the market is bad because it means fewer people are starting companies at the same time. When everyone is rushing into a new industry, it’s harder to differentiate. I might have been one of the only companies in 2009 trying to tackle health care IT, which takes millions and millions of dollars just to get your MVP to market. There was a little bit of insanity in our thinking. It was evident when we went to raise capital, even with a billion-dollar exit of Blackboard under my belt, I got an awful lot of yeses to the meeting, and I got an awful lot of we’ll call you backs, or we’ll wait and see, or we’re going to see how the market goes when it came time to write a check. After a few dozen of those, the writing was on the wall that traditional angels and venture capitalists were just not going to be interested in a startup even if it had the right team and market and everything else about it was right, they just didn’t have the appetite for it. But it was interesting. In the process of building those relationships with those investors, we had been building our software, and we had accumulated a few dozen beta accounts. We weren’t charging for the software yet, but of course, we’re not out there fundraising on an idea. We’re fundraising that we’re going to take the prototype and turn it into an actual product, and we’re going to charge for it and build a real business. When we had asked our beta customers, who had no relationship prior to Modernizing Medicine, if they would be references when the VCs wanted to talk to an actual user, they said something that surprised me. They said they’d be delighted to be references and that the software was unlike anything they had seen before. Then they would say, “Could I invest?” It was enlightening because I never really thought of our end-users as a source of angel or early-stage capital. But you have to remember my market is health care professionals, and they do pretty well for themselves. So when I originally thought that, okay, maybe they’ll write checks for 10, $20,000 each, all the sudden they’re saying, “I’d like to put in $100,000, $200,000, half a million dollars And by the way. Your software is great. You should charge me for it, which will drive revenue, and I’m going to start letting all of my peers know that there’s this amazing software out there and they should be taking a look at it.” So we created a whole army of investors that were users of the product that now had a perfectly aligned interest to make sure that we were successful and used their position in the marketplace to be able to let people know. And so, it worked. It worked beautifully. I don’t know if that works in every industry, but if your users are willing to not only say, “Charge me for the software but can I invest in the company.” I think you’re onto something. 

Alejandro: Very cool. We’re going to go into your current venture, Modernizing Medicine, in just a little bit but going back to Blackboard, you did raise quite a bit of money before the IPO, and then during and after an IPO, but I’d like to get a better understanding for myself and then also for the listeners. What was that process of raising the capital from financing milestone to financing milestone with Blackboard?

Daniel Cane: Blackboard, as I said, was a lot of rounds of financing. A, B, C, D, E, F – I think we just kept going until we hit – boom – I’m actually not being flip. We kept on taking rounds and rounds of capital. It was a never-ending merry-go-round of pitching the company, raising capital, spending the capital, and while you’re spending the capital, preparing the next round of financing. It was one where we did it in stages. Again, in hindsight, it actually looked like it worked pretty well. Today, when I look at Uber as an example, fantastic company, hemorrhaging money – billions of dollars with no sign of relief. At Blackboard, when we raised money, each time we would elevate the growth rate of the company. We would achieve a new level of stability and get to a place that was close to break even. So the run rate of the business would go from 6 million to 12 million to 25 million. And each time we would raise capital, we would be able to ratchet up the size and the scale of the company, but it wasn’t built in a way that if the next round didn’t appear, the company would be in jeopardy. So we were never forced to take on more capital because that’s a position you never want to put your company in unless you really know what you’re doing, and I’m not one of those people. But what you can do is ratchet up the run rate of the business. Ratchet up the spend and the revenue and get to a new plateau of sustainability. That was the focus of Blackboard as we kept raising capital. Remember, I was not the CEO of Blackboard. I was the founder, co-founder – we talked about when we merged with the company, out of KPMG, there became three co-founders at Blackboard. At various points, none of us were CEOs. At some points, one of us was a CEO, and I used the opportunity to learn. We brought in at various points three different CEOs at Blackboard, and I like to think that I learned far more by watching them and experiencing with them, sitting with them in the board room, raising capital than I ever could have done it on my own because they had been successful in their previous careers, and they taught me how to raise capital. They taught me how to take a company public. They taught me how to grow internationally. They taught me about culture, and they taught me about the importance of transparency in the company, and just things that aren’t taught in school because – they used to not be taught in school that you had to really experience firsthand. I joke with my friends that while I never officially got an MBA, I have the most expensive MBA in history; it cost several hundred million dollars.

Alejandro: Very cool. There’s this book from Jim Collins, Good to Great where they actually perform some research, and they see the performance on companies that have founding CEOs versus companies that recruit CEOs. Did you guys see any type of difference in perhaps looking back like how that impacted the business?

Daniel Cane: I would say that the founders didn’t leave the company. I think that is important because that founding spirit is a large part of the innovation spirit that need to change, that need to drive something forward or transform an industry. I don’t like to think in terms of absolutes. There are ways, and we’re evidence of it, that you can be a founder of a company, but bring in a CEO, and enjoy the ride, which is exactly what I did at Blackboard. It was an amazing adventure. I learned a lot. I learned enough that when I was ready to do it myself with Modernizing Medicine, I got to make entirely new mistakes, but I had already learned a lot of the mistakes not to make in the first rodeo. I think that there’s definitely something to be said about that. Now, I disagree when people say like, “Founders are good for one thing. CEOs are a different position. The two are not mutually exclusive.” I definitely think there’s a different skill set between startup and scaleup. Some entrepreneurs can transcend those boundaries. Others get stuck, and it’s very painful to watch them try to apply a startup mentality to a scaleup organization. But they’re not mutually exclusive. You can be a founder, and you can be good at startup and scaleup. You can be a founder and good at startup. Obviously, you have to be good at startup to do it. Otherwise, you didn’t get anywhere. But you need to be mindful and more self-aware. Are you the right person to help scale that company?

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Alejandro: Of course. What was the process of taking Blackboard public? What was that like?

Daniel Cane: The process of the roadshow, it was one where every entrepreneur always dreams of it. I know I certainly had these beautiful delusions of what it would be like in the private jets and the meetings and the opening day on the Nasdaq. It was some of that. It was a private jet. Though on the second day, you’re realizing it is Groundhog Day, and you’re doing the same thing with different people over and over. So, it gets a little anti-climactic, but it’s still an adventure. It’s still fun. The day you actually go public in trade is unlike anything. There aren’t words I can use to describe the excitement. But I would say also at the end of the day it was anti-climactic. It was a beautiful experience. I would do it all over again. Then I got home, and I’m like, “Tomorrow is another day. Tomorrow, we’ve got to work at it, and now we’re publicly traded, and the whole world can see how we’re valued.” It was an anti-climactic experience at the end of the day. During the experience, it was magnificent. And you realize only after you’ve done it that it is a financial exit for some people, but not for you. That for you, it’s just another chapter. It’s just another stage in the journey. Being publicly traded gives you tremendous benefits for public currency to go out and do M&A. It’s a lot of visibility, and there’s an awful lot of quarterly accountability. We went public before Sarbanes-Oxley. Obviously, it’s a different world now. I think that the world has changed, and it’s harder to be a public company than ever before. I think that private equity has billions and billions of dollars in their war chest, and are dying to deploy that into great companies. The need to go public is different today than it was when Blackboard went public. There was no way at the time we wanted to raise 130 million. There was no easy way to do that as a privately-held company back then – as a tech company that was growing fast, but losing money. That’s just not a profile back then that private equity was very interested then. I would say that today, entrepreneurs have it different in that there are more opportunities. You can go public if you choose to. You can stay private much longer. You’ve got a world of private equity. Some that value growth. Some that value EBITDA. Some that are looking for the Rule of 40 or now the Rule of 50, and trying to figure out the right balance between growth and EBITDA. But there are options out there for just about every business that’s looking to raise capital.

Alejandro: So Blackboard ended up being acquired actually by private equity firms. You were talking about private equity firms just now. What was that process like?

Daniel Cane: A company called Providence Equity; a large, very well-respected private equity fund acquired Blackboard. The actual process of being taken private, also anti-climactic. You expect sort of – I don’t know what I expected, but nothing changed. Suddenly you’re delisted, and you’re owned by a private equity fund, and they own the equity of the company. What did change was their thesis in what to do didn’t mirror my own personal opportunities for what I thought Blackboard could become. Their thesis was around continuing to innovate and grow the company, but they were more interested in looking at the profitability profile. The levers were set in a different configuration. To me, that was sort of the writing on the wall that the days of large R&D budgets and innovation and transformation were going to be slowed down. I didn’t wait very long after that process to leave Blackboard and come to Florida where I had no idea what I was going to do, and I thought for a very brief period of time that I was going to find something smaller. Maybe I would teach. Maybe I’d coach. Maybe I’d mentor. After two weeks of moping around the house trying to be a great dad, great husband, helpful as possible, my wife and kids said, “You need to go get a job. You’re driving us crazy.” They did stipulate. So, this is the great, true story of how I founded Modernizing Medicine. They stipulated that I had turned 30 and I hadn’t seen a doctor, which was true, and that I needed to get a health check. I just needed a checkup, and then I could go start whatever company I wanted to start. I thought that was a very reasonable negotiation. I made an appointment with a primary care physician. I think I mentioned earlier in the podcast that my father’s a physician. So this primary care physician knew my father and wanted to make sure they were thorough. I met the doctor. They asked what I needed done. I just need to check a box off, so if we could make this fast, I want to go start a company. After a quick dialog and a brief check, they said, “Well, you know, you seem fine and healthy. You probably could exercise more and lose a little weight, but you’re extremely tan, and we want you to visit a dermatologist. I was not going to question too much on it because, frankly, I was unemployed, so I was spending a lot of time outside, and I wasn’t using sunscreen, and I did get rather tan. So it didn’t seem unreasonable, but I did notice in the process of going to that physician, that there really as no electronic anything. My intake forms were bad photocopies and skewed paper. The entire experience from the doctor to the medical assistant to the front desk was analog. It was a paper chart. When I went to the dermatologist that they had referred me to, it was the same thing. It was paper, more paper, more paper. All of the things I had filled out earlier that morning, I had to refill out. As a tech entrepreneur, that was frustrating. I used the opportunity to strike up a conversation with the staff at the dermatologist’s office and find out why they hadn’t adopted any sort of electronic anything, and they were all complaining that the software out there was either terrible to use and would slow them down, or was cost prohibited, or they had to install a whole bunch of things on servers, and they were not IT people. To me, that smelled like an opportunity. I met the physician and struck up a conversation with him. So here I am in a paper gown talking to a doctor about why isn’t he using technology, and is there an opportunity. He starts flipping back in my charts like, “Who is this kid?” He didn’t know what Blackboard was, but we hit it off, and a long story short, he became my co-founder.

Alejandro: Very cool.

Daniel Cane: It was a pleasant encounter with my dermatologist that led to the founding of Modernizing Medicine.

Alejandro: Very cool. And just to close the chapter of Blackboard, what were the terms of the acquisition? I believe those were public and were reported.

Daniel Cane: Yeah. It was a little over 1.6-billion-dollar cash buyout for the entire equity stake of the company.

Alejandro: Very, very cool. For your first company, not bad at all, Dan!

Daniel Cane: Well, the lemonade stand was the first.

[Laughter]

Daniel Cane: Yeah, not too shabby. A couple hundred million of venture IPO, and then an eventual exit for a billion-six. It was definitely a journey. It was delightful. The people along the way – obviously, I’m still very close with my housemates. They’ve all gone off and started other companies. We now have friendly competition between us over who’s going to have the next best IPO or exit after that. All of them are doing really exciting things in industries that frankly, none of us knew anything about when we were going to college together. It’s exciting, and it’s more proof that the experience and the exposure to the industry is not necessarily the most important thing. It’s that drive for innovation and change and learning the mechanics of how to build and scale a company, which really differentiate great entrepreneurs.

Alejandro: Of course. So let’s talk about Modernizing Medicine. I know that choosing the right co-founder is super important, so what made you to believe that your co-founder here was the right one?

Daniel Cane: Choosing a co-founder is probably the single most important thing that a founder does. I do not understand how entrepreneurs can go at it alone. It’s so hard. It’s so much of an emotional toil that not having anyone to share it with – I mean, the burden is just unbelievably great. I can’t speak from experience because I’ve never gone at it myself. At Blackboard, there were three co-founders, at Modern Med I have a co-founder, and I couldn’t imagine a journey in which it was just you in a room with no one to share it with. The highs wouldn’t be as high, and the lows would be unbearable. How I knew Michael was the right one was, his unbelievable attention to what the industry needs. He can serve as a human proxy for an industry. Obviously, he needs to check it and validate with others, but his intuition when it comes to health care is unparalleled. It was, again, I’m a little bit aware of my own deficiencies, and I knew that I knew nothing about health care. I don’t know the business of health care. I don’t know the medicine of health care. I didn’t know the reimbursement of health care. I just didn’t know how it worked. So I wasn’t brazen enough to think I could do it myself, but I knew that with the right partner, with the right domain expert, that we could get something done. The mistake I didn’t want to make was, having a co-founder who was a consultant. Like having someone who once a week or once a month or whenever would come in and give course-correction. What I needed was a co-pilot. A co-founder should be sharing the responsibility and the burden in helping you run the business. That’s what I got in Michael, and he’s unbelievable. It’s been ten years now. He’s an unbelievable friend, a co-founder. He runs all of the strategies, and he’s obviously the Chief Medical Officer of Modernizing Medicine. Even he realized the lessons that I had learned as we grew the company, which were while he knew dermatology, he didn’t know orthopedics, or orthopedics, etc. So we’ve hired other physicians to work alongside Michael who can help advise us on the nuances of the specialties. I think that you need as an entrepreneur to be receptive to the fact that you don’t need to always know everything. Being vulnerable and admitting that you don’t know something is not a weakness; it’s a strength. You need to surround yourself with people that complement your vulnerabilities, and you need to make sure you get to the right answer rather than make up an answer and look like you know what you’re doing.

Alejandro: Something interesting here and just following up on Michael, your co-founder, Michael Chasen. He actually studied in Yale, and then also Harvard. Then he was a dermatologist for 11 years before joining this journey with you. How did you convince someone with that level of stability to really take the leap of faith, leave everything behind, and join you in something like this, Dan?

Daniel Cane: Michael’s an underachiever. Never really lived up to his potential academically. Yale, Harvard – the pedigree was just okay. Joking aside, Michael is someone who is unbelievably driven to be the best, and when he reached the level of – he’s got and MD, MBA from Yale. He was chief resident at Harvard at the Brigham. The guy is a brilliant, brilliant dermatologist. And as you said, that’s stable. For some people, it is about doing what they love, making some money while they’re doing it, and that’s what drives them. I’m not Michael, so I can only speculate, but I’ve known him for ten years, and I’m going to take a shot at it. He’s driven for the transformation, for the journey of making an indelible mark on something even bigger than all of dermatology. He wants to like I want to, make a difference in health care. We’re starting off in derm and GI, and opth, and ortho, but the point of modernizing medicine is do our namesake. It’s to leave an indelible mark on health care that’s made a difference. I got to do that in education. In Blackboard, I firmly believe, made a huge market on the educational technology landscape. The opportunity is to do that again in even a bigger industry in health care. In health care, a fifth of this country is GDP. It is trillions of dollars, and we’re only talking about the U.S. There’s a whole world of people that suffer from the same illnesses, that use the same treatments, that need the same data to understand what works and what doesn’t. 

Alejandro: Yeah.

Daniel Cane: What got Michael to leave the comfort of very successful dermatology practice and take a leap of faith with this crazy entrepreneur that walked into his office and convinced him to take the leap of faith, was the ability to actually make a bigger impact in what just one person could do. There are 800 of us at Modernizing Medicine, and we need more. The impact we’re making is tremendous, but there’s so much more work to do. That’s the feeling you can only get when you start a company that’s going to do something as big as what we’re doing.

Alejandro: What ended up being the business model, Dan?

Daniel Cane: The business model of Mod Med is the same traditional model I always fall back on. Bill and collect. We sell a monthly subscription to physicians for their practices to manage their medical health records and their practice management, their pathology, their telemedicine. It’s a beautiful, simple model. We get paid each month. Each month, we have to re-earn the business of our entire base. I love that because it keeps us honest. It means I have to invest in innovation. It means I have to invest in customer delight. If I don’t, my customer will leave. There are a lot of people who will try to tell you that you want to and encourage you to get into multi-year contracts, prepays, upfronts because you’re “locking” people in. That’s a terrible way to maintain customer delight and customer sentiment – my happiness in the company kind of mirrors the corporate NPS for: if our customers are happy, I’m happy because they’re happy, and their patients are happy, and everyone wins. If our corporate NPS goes down, I’m unhappy because our customers are feeling pain, and I need to understand what’s causing that pain. Is it us? Is it the industry? Is it something that’s changed in the regulatory environment? We keep the vital signs of our customers always in mind, and we are very responsive to them. It’s that partnership that we have with our customers, which is one of the key reasons for our success.

Alejandro: For example, especially for the people that are listening, how do you measure customer delight?

Daniel Cane: There are a number of ways to do it. I’ll give you the easy one, which is you bake something like NPS, Net Promoter Score, into your product. If you’re doing surveys over emails or some other form, you’re only getting a true subset sampling of those who opened the emails, and who responded, and so on. If you build it into your application, and you have to be careful not to oversample because you tend to upset people. But if you do it correctly, the application will tell you on a rolling basis who’s happy and who’s not. If you do it in application, you know the customer. You know how long they’ve had the application. You know their role. Are they the doctor? Are they the medical assistant How long have they been using this software? Which features of the software did they use? So, you start to develop more than just an NPS score, which you want and profile it, but you want to develop what we call a health score. Our health scores are vitals. We look at new-feature utilization. So when we roll out a feature from the Cloud, we know which customers are using it and do they have higher NPS than those that don’t? But the key is to bake it into your product. Bake it into the workflow so that you’re actually able to measure on a much broader case what the customer delight is. You, of course, don’t want to do it exclusively, you want to ask them also. You want to have conferences and phone calls, and you’ve got to get out of the office and meet them. But having that heartbeat, that vital sign monitor in the application is essential.

Alejandro: Got it. How much capital have you guys raised?

Daniel Cane: Oh, boy. Three-hundred-ish million, give or take a few pennies.

Alejandro: Wow. And I see wonderful investors too. Obviously, this time around, you came with your homework done because with Blackboard, you learned a lot about raising money and the fundraising process and all of that. What did you learn that you knew that you were going to apply here, especially when thinking about who you were going to marry with from an investor relationship perspective?

Daniel Cane: I think you nailed it, Alejandra. It’s the who – much more important than the money. Blackboard raised capital from companies that don’t even exist anymore. Strategics that don’t exist anymore, investment funds that don’t exist anymore. Their money was as green as the next ones, but their ability to help and clearly sustain didn’t exist. You know, we’ve raised capital in Modernizing Medicine from Warburg Pincus, which may be one of the largest funds in the world, but the reason they have survived decades and decades is that they have some of the smartest institutional investors who are there to be helpful, and they are not operators. They don’t try to run the company for us. They’re great advisors. They help advise on M&A. They help advise on capital, but they are not in our windscreen trying to direct us on how to build and scale and run the organization. So, we’ve absolutely loved our relationship with Warburg. We raised 231 million dollars from them. I would raise more capital from them should we need to, and that’s going to be the interesting thing is, Modernizing Medicine is now at a place at which we are very much EBITDA positive and growing at a good rate. So, we’re now questioning, do you try to ratchet up? Like if you’ve got a nearly 30% growth rate, what more could you do? What more could you buy? How could you put and deploy capital that’s going to yield a good return, and that’s the questions we are faced with today. But I would absolutely recommend that you, as an entrepreneur, need to get to know the private equity partner. Not the fund – the people – the actual people. And not necessarily the deal team. If the deal team will be the team that’s going to join your board, great, make sure the deal team is the team that’s going to join your board. Make sure you know the people. Make sure you know what their goals are and how you align that just with the fund, but the individuals. Just constantly be open and transparent with them on, is there a misalignment? The one thing that’s made Blackboard sustainable, and as we grew up, and then later on Modernizing Medicine sustainable was we never felt out of alignment with our investors. Like the constant cadence of resetting and realigning for what we want the business to do is clear. If there was a misalignment with a growth rate or a profitability metric, it was aired at the board level, and it was dealt with. We came to a conclusion, and then we left that board meeting and locked step again on what we were going to do. So that constant realignment to make sure you’re in it for the right reasons with your business partner, with your financial partner is essential.

Alejandro: So on the show, we’ve had a lot of people that have raised money from venture capital firms, and we’ve gone into that type of detail and perhaps interest and what drives them. In this case, especially for the folks that are listening, what drives private equity funds to make an investment?

Daniel Cane: It’s a tough question. I think there’s no such thing as a single answer. Some private equity funds, the traditional private equity funds were driven by using leverage, which is primarily driven from profit. So taking EBITDA, leveraging it up 5, 6, 7, 10 times, and using those proceeds to continue to roll the engine forward. The optimization there was around EBITDA and profitability and cash flow. That’s a playbook. That’s not my playbook. That’s not the growth playbook where there are green fields and market opportunity, and you’ve got to get out there and build a business, but that is a playbook. That is not all of private equity. Warburg’s a great example We are a growth company in a private equity portfolio, and there’s absolutely no reason you can’t have a portfolio where there are some fast growers, there are some cash cows that you’re leveraging the EBITDA off of. But the traditional playbook is one where – and I would caution: make sure you know your partner. Are they one that’s going to really look for a multiple of EBITDA on an exit, or are they growth-oriented and willing to work with you? It’s a higher beta. It’s a higher risk opportunity for you to say, “I’m going to grow this company at 20 or even 30% growth where the multiples on growth can be many times that of an EBITDA. Well, your EBITDA multiples can be higher from a dollar amount, but your revenue growth and your revenue numbers are typically much higher than your EBITDA number. An example today, and obviously, by the time this airs none of it will be true, but public companies are able to command even 10x revenue multiples in the spaces that we look at. The same companies are maybe commanding 18 to 22 times EBITDA multiples, and you just need to decide on which of those sides of the equation you want to be. And you can mix and match to some degree. Most investors are going to want to optimize for one or the other. We at Modernizing Medicine are an example of doing both simultaneously, focus more on growth, less on EBITDA by maintaining an EBITDA margin, and I think that’s a healthy way to build the company.

Alejandro: Got it. Really, really interesting. One of the questions that I always ask the guests that we have on the show is, knowing what you know now – your second-hypergrowth company, incredible lessons learned. Obviously, many mistakes along the way, too, that have made you really who you are today, I would say the question here is, what would you tell your younger self if you had the opportunity to go back in time and give yourself one piece of business advice before launching a business?

Daniel Cane: First of all, I would congratulate myself on being humble enough to know I needed other people, and then I would slap myself in the face and say, “You need to be more humble.” But yeah, you have to stay humble and grounded. I don’t want to say any entrepreneur. I was chasing an exit. As a 21-year-old, I wanted to go public. I wanted to be wealthy. I was absolutely doing it for the wrong reasons. Now, my heart was in it for the right reason. I wanted to fix education. It was a noble cause, but anyone who says that they’re not chasing an exit, I sort of suspect a little because it’s part of life. Life certainly becomes easier once you’ve had a big exit. It becomes easier to start more companies. It becomes easier to live your life and be philanthropic and do all the things I think should make most people happy. I would slap myself around, and say, “Stop chasing the exit. If you do well, and you do good, you’ll do well by doing good. It’s going to come together nicely for you.” I don’t know if it would have resulted in anything done differently at Blackboard. We would have still chased it. We would have raised hyper-capital. We would have gone public, but I was being driven for the wrong reasons. In hindsight – of course, it’s easier to say in hindsight – that I would love to tell myself to chase it for the right reasons. To do it for the noble good. To fix something as important as education. To make a mark in a way that matters and in an industry that matters. All of my companies have had that. So clearly, somewhere in Dan’s subconscious is a need to do a social good. And I like that. I like the fact that I get up every day today at Modernizing Medicine, and I’m helping fix health care. That feels good. I’m surrounded by other people that also have heard the calling. The mission here is not, “Let’s make a lot of money by selling something to doctors.” The mission here is “Let’s make an impact on health care by understanding what works and what doesn’t so that they can have better outcomes.” And if doctor’s had better outcomes, they do better for their patients. They do better for their business, and they do well for themselves.

Alejandro: Got it. So for the folks that are listening, what is the best way for them to reach out and say hi?

Daniel Cane: Oh, I’m on Twitter; not super active. LinkedIn, also. I’m @dancane on Twitter. I’m /dcane on LinkedIn. I’m not one of those people that declines everything. I’m almost quite the opposite. I’m happy to accept people who want to connect and chat. I can’t meet with everyone who’s interested in meeting and getting advice, but I certainly always trying to mentor, give words of advice where I can, and I genuinely want to see other entrepreneurs succeed. So if you’re listening to this, I’m wishing you the absolute best of luck. It is not a zero-sum game. Your success does not come at my detriment and vice versa. There are plenty of opportunities out there for all of us.

Alejandro: I love it. Well, Dan, thank you so much for being on the DealMakers Show today.

Daniel Cane: Thank you so much for having me, Alejandro.

 

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