VC Secondary Market Partner Perspectives: Mike Boggs

In this fifth (and final) release in a series of interviews with successful figures in the venture capital secondary market, Derek Minno talks with Mike Boggs, a co-founder of Revelation Partners, which manages over $1.5 billion, making the firm the largest dedicated provider targeting healthcare secondaries. This article features Derek's takeaways from the conversation along with his own insights, as written by Derek himself.?

Story Voices?

Derek Minno (interviewer and author) —Derek has served as a GP in a domestic VC Fund; a GP in an international PE Fund, an LP in multiple PE and VC Funds, and a C-level executive in VC-backed companies. He is the President of Point Capital.?

Mike Boggs (interviewee)— Mike is a Managing Partner at Revelation Partners , whose specialized strategy is to provide liquidity and capital solutions to healthcare investors, companies, founders, and funds. Revelation Partners manages over $1.5 billion and recently raised a $600 million Fund, making them the largest dedicated provider targeting healthcare secondaries.?

A note from the author:?

"This collection of conversations will feature insightful interviews with successful figures in the venture capital secondary market. Discussions are focused on the perspective of opportunity analysis, historical evolution, and the current as well as future market trends and activities. The participants of these interviews offer insights and contribute diverse perspectives. We will summarize the interviews and provide both key information and wisdom honed from experience."?

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VC Secondary Market Partner Perspectives: Mike Boggs?

History?

Mike reviews how Revelation Partners, originating out of an opportunistic transaction in 2008, now manages over $1.5 billion. The secondary market for healthcare, with over $250 billion in unrealized value, suggests further growth potential. Revelation invested $190 million last year, solidifying its role as a key liquidity provider in this expanding market.?

• Origin of Revelation Partners: Mike Boggs and Scott Halsted met while buying a portfolio of investments from 波科 around 2008. They partnered on several similar deals, typically raising money for the transactions in special purpose vehicles (SPV). After establishing a track record, Boggs and Halsted aimed to replicate their success with Revelation Partners.?
• Unexpected Growth: Revelation Partners now manages over $1.5 billion and is investing out of a $600 million fund, a scale that seemed unlikely six years ago. With over $250 billion in unrealized value, the market for providing liquidity to private healthcare investors has room to grow. Boggs initially envisioned a niche market but is surprised by the market's expansion. This year, Revelation expects to invest over $250 million as the sole liquidity provider for this market.?
• Market Evolution: The market has evolved, making it easier to execute certain types of deals. Investors have become more accepting of secondaries, unlike the earlier antagonistic dynamics. The maturity of the market has reduced the need for extensive education on secondary transactions, streamlining deal processes.?
• Changing Dynamics: With the general acceptance of Continuation Vehicles (CV), the approach to deals has shifted, wiconth a focus on creating win-win situations. Sellers can now receive earlier economics, LPs don't have to sell, and buyers get a deal that works for them, contributing to smoother transactions.?
• Market Maturity: The market's overall maturity, coupled with improved deal dynamics, has facilitated a more efficient and accessible secondary market, contributing to Revelation Partners' growth and success. ??

Analysis?

Evaluation of regulatory, reimbursement, and clinical risks is crucial. Preference for companies with proven regulatory pathways and reimbursement, focusing on de-risked trials.?

• Ownership and Check Sizes: Ownership percentages typically range from 1% to 15%, with a target exposure of $15 to $25 million. Initial check sizes can vary from $500,000 to $25 million if there is a path to get to the desired exposure. The approach involves flexibility, writing smaller checks with the intention to build positions with multiple groups.?
• Value Proposition: Revelation Partners provides value to investors (by identifying quality investments), counterparties (by providing liquidity), and operating companies (by providing additional financing). They act as (maybe) the lone liquidity provider in the private healthcare market, presenting a unique option for liquidity in a market where alternatives are limited.?
• Pricing and Value Assessment: Only target quality companies. If too large a bid/ask spread, the deal never happens. Revelation Partners focuses on determining the price for transactions. The pricing is based on a calculated approach, considering the fundamental view on expected exit values.?
• Return and Duration: Targeted gross returns comparable to growth equity and PE investors with a typical duration of less than three years. Actual outcomes often show faster exits and lower multiples than initially underwritten. Of course, not every deal works according to plan.?
• Follow-on Exposure: Revelation Partners considers follow-on exposure in underwriting, often assisting in financing a company during transactions. The firm may fund a primary in conjunction with providing a secondary, catalyzing a financing event that de-risks the company.?
• Success Story: Revelation Partners successfully acquired 15 healthcare equity interests from GE in a $150 million transaction. Initially skeptical of the deal structure which included IT and healthcare, Revelation Partners proposed a tailored solution to buy, manage, and invest in only the GE's healthcare portfolio. The deal, completed in 2019, has been mutually beneficial, minimizing disruption for GE, transitioning the portfolio smoothly, and proving financially successful with the remaining companies performing well and exceeding the invested cost.?
• Challenges: An example of a challenge is an investment in a medical device company that faced financing issues. Revelation Partners opted to step away when an anticipated financing did not materialize, showcasing the difficulties in predicting future cash flow needs.?
• Business Challenges: The healthcare venture capital secondary market presents challenges due to its opaque nature. Revelation Partners operates more like a buyer in an M&A process, with only a fraction of offers resulting in completed deals.?

Revelation Partners' journey reflects successes and challenges in healthcare venture capital secondaries. Their strategic, flexible, and calculated approach contributes valuable insights into the complexities of the healthcare sector, offering lessons for industry professionals in navigating this dynamic market.?

Market?

Mike discusses how the secondary market is undergoing specialization evolution, mirroring multi-billion-dollar buyout firms. With over $300 billion invested into healthcare over nine years, there are liquidity needs, particularly in biotech, which remains the largest portion of invested dollars but is also the least penetrated portion of the secondary market. Revelation balances financing and secondary deal allocations. Healthcare can deliver consistent returns with medium-sized exits. Revelation collaborates with emerging managers for liquidity, often utilizing continuation funds. CVs (Continuation Vehicles) could become a significant share of investments, offering interim liquidity.?

• Market Evolution: Boggs discusses the evolution of the secondary market, drawing parallels with multi-billion-dollar buyout firms diversifying into specialized sectors. He predicts increased specialization in the secondary market with dedicated teams focusing on specific sectors.?
• Contrarian Approach: Boggs shares his contrarian approach, choosing healthcare pre-IPO companies post the Great Recession of 2008. Revelation Partners started with a focus on private healthcare investors during challenging times and has witnessed substantial growth since then.?
• Market Dynamics: The healthcare sector has over $300 billion invested in the last nine years, with an unrealized value of around $250 billion. Revelation Partners primarily addresses the need for liquidity in the healthcare market, where returns often take time due to the long duration of healthcare investments.?
• Sector Exposure: Revelation Partners has exposure across various healthcare sectors, with about 15% in therapeutics or biotech. Challenges in biotech include balancing cash allocation between secondary deals and supporting financing.?
• Health Tech Definition: Health tech for Revelation Partners includes tech-enabled healthcare businesses, software selling to the healthcare system, and healthcare analytics, providing a broad definition.?
• Generalists in Healthcare: While generalist crossover investors entered the healthcare market, Boggs notes that healthcare's consistency in regular, medium-sized exits has mitigated risks. Structural changes in healthcare, such as value-based care, contribute to an exciting investment landscape.?
• Seller Dynamics: Institutional investors make up over 50% of Revelation Partners' pipeline, with a focus on emerging healthcare managers facing fundraising challenges. The firm collaborates with these managers to generate liquidity through secondary deals.?
• Continuation Funds: Revelation Partners engages in continuation funds, sometimes structured as smaller deals ($100 million or less), addressing the need for liquidity, and offering a diverse portfolio mix rather than individual assets.?
• Challenges in Primary Investment: Primary investors have been defensive, leading to challenges in funding for private companies. Regulatory constraints and the need for reserves have slowed down primary investors' entry into the secondary market.?
• Future Trends: CVs (Continuation Vehicles) are expected to become a more significant portion of overall investments. Boggs anticipates CVs to represent at least a third of their investments, providing an interim liquidity tool for investors and constructing exposure to top-tier companies.?
• Industry Change: Boggs suggests standardizing processes for specific types of deals, such as those involving individual stockholders with expiring options, to streamline and simplify transactions within the industry.?

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Key Interview Quotes ?

“If you look at where we are today there has been $300 plus billion invested in healthcare over the last nine years. Those investors have only received back in cash ~40% of their investment to date. Also, depending on how you want to slice it, on paper the unrealized value of that investment is worth~$250 billion. There is a massive opportunity to provide liquidity to investors in these investments that have a need for cash. .”?

“Last year we invested over $190 million across all healthcare segments, which is 6x what we did in our first year as Revelation, so the dynamic has really changed, and the market is really exploding in terms of growth in every dimension.”?

“If you're in the biotech world 95+% of the time you are dealing with a company that is pre -commercial and will exit before it ever produces any commercial revenue. As a result, as an investor, you are primarily underwriting to whether the company is a better mousetrap story or whether the company is going after a big market opportunity that nobody has figured out. When we have invested in biotech, which is about 15% of the time, we have generally tried to skew our exposure towards the first category which is we're looking for a better mousetrap. Typically these companies have proven regulatory pathways and proven reimbursement. We can also look at prior clinical trials of a company and understand why the current trial they are running is de-risked.”?

“Many of the companies we evaluate need to raise money. However, they typically have one or two investors that can no longer invest and support the company. We can serve as a catalyst to help bring together a financing. This helps the company solve their financing at the time we do our deal. As an example, we can price a primary round in conjunction with providing secondary liquidity thus catalyzing a financing event that de-risks the company. “?

“In our world there's never a debate around the quality of a company. If you want to sell to me and I want to buy from you we tend to not debate that XYZ company that you hold is a good company. Instead, it's what price you (the seller) want and what price I (the buyer) am willing to pay. ?We have found that if our discount or bid / ask spread is too steep there's never going to be a deal.”?

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Disclaimer: The information presented in this post is the sole opinion of the writer and does not reflect the view of any other person or entity. The information provided is believed to be from reliable sources but no liability is accepted for any inaccuracies. This is for information purposes and should not be construed as an investment recommendation.?