by Walker Duncan, NashvillePost.com | Aug 19, 2011

Thursday afternoon, health care players from around the city gathered at Loews Vanderbilt Plaza for an event hosted by the Nashville Health Care Council and the Nashville Capital Network. The panel discussion centered on entrepreneur-investor collaborations in health care start-ups.

The discussion, which was moderated by Avenue Bank CEO Ron Samuels, included HealthStream CEO Robert Frist, HealthSpring CEO Herb Fritch and two of their early investors, Fred Goad and Dave Swenson.

Samuels spent the bulk of the discussion asking the panelists a combination of questions seeking to illustrate the growth of a company from both the founders’ and the investors’ perspective.

Though nothing said rose to the level of earth-shattering, it was a firm reminder for the entrepreneurially minded in the crowd of the fundamentals of starting a successful business and landing funding. All four panelists boast long histories of success in both realms.

Goad and Swenson praised the two entrepreneurs for having had strong business plans and a clear vision of where they fit into emerging marketplaces. Frist, who partially credited the tailwind provided by the dot-com frenzy of the mid- to late ’90s with the early interest in his company, also stressed the importance of having a network within the community.

Frist pointed out that he and co-founder Jeff McLaren spent time before they needed outside capital self-funding their business while cultivating that network so that when growth capital was needed, there were wells to plumb. Likewise, Fritch noted that much of his very early-stage capital came from friends and former colleagues, many of whom, were familiar with his business and brought a depth of understanding to his company’s model.

Goad and Swenson agreed that finding talented management teams is paramount in their evaluation of various investment opportunities. Swenson touched on the old venture capital adage, “give me a strong management team and a weak business plan before giving me a weak management team with a great idea.”

According to Swenson, a number of the companies he and his partners have invested in looked very different

That sword cuts both ways. A question from the crowd asked the entrepreneurs how important it was to have investors who know the industry their investments occupy rather than simply having the spare capital to invest.

Fritch pointed to the benefits his company saw from having a handful its early investors’ having spent time in the marketplace it occupies. And Goad, echoed his sentiment saying that he feels that its extremely important, from an investor’s perspective, to understand the markets one is investing in. Additionally, panelists agreed that as businesses mature, investor groups should evolve from an advisory capacity to helping companies with access to capital and other such expertise to helping oversee governance.

All panelists spoke to the difficulty in maintaining the growth mentality once an IPO has already been undertaken given the strictures now in place with the advent of Sarbanes-Oxeley regulations. At one point Bobby Frist opined that he would like to see public boards serve more as growth engines rather than groups more focsed on governance and risk management. It seemed that all agreed that, in their early stages, companies are more fun to work with as far as shaping the vision and direction of a company before more investors are involved and stricter oversight is involved.

Among the other investment and pitching advice the panelists had to offer the crowd were, as Dave Swenson put it, to “make sure your story is a good story and that you’re filling a need.”

Continuing the call to make sure that solid management teams are in place, Fred Goad advised those who are having trouble with their business plan to go see Sid Chambless, executive director of co-host Nashville Capital Network, to help with the honing of said plan.

Goad went on to say that the entrepreneurs in the crowd should endeavor to take advantage of the fact that the health care sector is set to see a number of disruptive changes with the onset of tweaks to the government’s relationship with the health care sector.

Additionally, the NHCC has posted brief interviews with the panelists on YouTube.