S13 Ep62 | Private Equity

On this episode of Enhance Your Practice, host Dr. Diana Yoon-Schwartz welcomes Dr. David Kim, co-founder and general partner of Regal Healthcare Capital Partners, for a discussion on private equity and its growing role in plastic surgery. Together, they explore how private equity partnerships work, considerations for evaluating opportunities, and the potential benefits and challenges for plastic surgeons at different stages of their careers.

About Enhance Your Practice

Enhance Your Practice is the official practice management podcast from the American Society of Plastic Surgeons (ASPS), featuring conversations with leaders in plastic surgery on practice management, leadership, innovation, and professional development. Each episode delivers practical insights to help plastic surgeons build successful practices and thrive throughout their careers.

Explore more educational resources from ASPS at plasticsurgery.org.

Transcript

SPEAKER_00 0:07

You're listening to the Ant Your Practice Podcast Series, brought to you by ASPS number group. I'm Diana, Chair of Practice Management Committee, and I invite you to check out all of our educational offerings from professional surgical videos, courses on practice management, and much more on ASPS EdMed. So welcome. In today's episode, we will be discussing private equity. I'm joined today by Dr. David Kim, co-founder and general partner of Regal Healthcare Capital Partners. David, welcome to our program.

SPEAKER_01 0:50

Hi, Diana. And thanks for having me on.

SPEAKER_00 0:55

Oh no, thank you for taking the time to join us and uh share all your wisdom. Uh so David, I'm just gonna open up the floor to you and let you kind of tell your story because I think it's an extremely interesting and informative story. Um let's just start all the way from the beginning.

SPEAKER_01 1:14

Fantastic, Diana. Um so um Dave Kim here. Uh really nice to get an opportunity to talk to doctors. Um my background is um ex-operational engineer in college. Uh went off and worked at in operational consulting for Arthur Anderson, um, primarily with Fortune 500 companies. Um, and then from there uh decided to go back to medical school. And so um got the uh pleasure of uh doing four years of medical school, uh meeting my wife, uh thankfully my much better half. And um from there um went in into emergency medicine. Um I did that for um as an attending in um some of the local hospitals uh for about seven years. Um and while I was working in the hospitals, um, operational engineer, operational consultant, um, and this is back in I guess 2004, things were routinely uh uh one to four hour waits, and it really didn't make quite a lot of sense. Um, and so what I decided to do in 2007, um, I partnered with uh another night doctor, and so the two of us we started a company called Premier Care, which was one of the first urgent cares uh in New York, or at least scaled urgent cares in New York.

SPEAKER_00 2:44

I'm thinking back to that time period, 2007, uh, I guess that was before Obama's election. Was urgent care nationally like a thing? I just can't remember.

SPEAKER_01 2:58

So there there were um some sprouting urgent cares. Um, in New York, in particular, there were a couple of urgent cares that were opened, not really scaled, um, primarily run by uh family practitioners. Uh one was called First Med in in uh Bayside uh with Barry Brumberg, uh also one of my mentors as I started thinking through urgent care. And another one was in Oceanside called, I think it's called First Med. Uh that was run by Andrew Peck, who was also one of my mentors early days as I started thinking through um how to do urgent care and try to scale it for the masses.

SPEAKER_00 3:39

Now, did you actually go to these mentors before you started your first one and ask them for advice?

SPEAKER_01 3:48

Yes. Um, so uh well so I actually worked uh um as a resident with Barry Bromberg at FirstMed uh for I think several weeks. Um and I I was fascinated by the fact that it was so efficient. And then I worked um as a moonlighter for Dr. Peck in uh Oceanside.

SPEAKER_00 4:10

And how many years again did you work at Arthur Anderson?

SPEAKER_01 4:14

I worked for three years. Three years, okay yeah, and and to be fair, uh and uh if there's other consultants out there, uh early days it was a lot of um spreadsheets and PowerPoint presentations. Uh it wasn't uh quite a glamorous job. But uh I learned a lot still.

SPEAKER_00 4:33

Yeah, yeah, actually I for when I graduated college, that was my first job as well before medical school. I didn't spend as much time doing it, but uh I I share your observation of how inefficient sometimes the field that we're in can be.

SPEAKER_01 4:49

So yeah. And and and so um, Dana, with that, um if you can imagine, um, you know, as I started building out these urgent cares uh with my partner, Dr. Sarndasandu, um, you know, we we um we we made a lot of mistakes early days. Um one of our biggest mistakes was we opened up our urgent care without getting credentialed or contract with the payers. And um that is that was probably our biggest mistake uh doing that. Two physicians, we fully mortgaged our homes and uh decided to call up the payers and built out a site, bought a site, built out the site, and then we called all the payers, and the pairs, much to our chagrin, were told us they would never recognize us as ER physicians um working in outpatient uh in an outpatient setting. And so um it was a it was a scary time. Um both of us um continued working in the emergency rooms uh so that we could pay our mortgage as well as our staff. Um and so it was uh for me, it was four days in our our first clinic, uh, two nights overnights in the ERs, um, and then you know, another three days uh working administratively. And uh and the same goes with Dr. Sandu. He was three days clinically in our sites and three nights um in the emergency rooms. Um and we we pulled our monies together and we survived. Um, you know, nine months into it, uh we the payers started recognizing us and uh you know our business was born.

SPEAKER_00 6:32

Now, would you say the payers in terms of the rates that you were trying to get, or in terms of a billable uh sort of uh CPT or coding system? Like was it both of those or just the rate at which you could negotiate was the main issue?

SPEAKER_01 6:53

Yes. Um so no, it was uh it was actually worse than that. I I wish I wish I wish they um would have at least recognized us as family practice doctors. Um, but they they um they actually made it, they went out of their way to say they would never recognize us and that we should go back to the emergency room. And so first nine months, we we made a we made a pact, the two of us, to say, hey, look, we're just gonna take it on chin here. We made a big mistake. And we we accepted co-pays. I think our our blended average of collections for scene patients was like $11 or something like that back then. Wow. It was tough. It was tough times.

SPEAKER_00 7:36

Yeah. I'm sure from your uh uh consulting days, you would have said to yourself that wasn't uh the best maneuver as far as uh uh profits or uh the bottom line.

SPEAKER_01 7:49

So yeah, it it it definitely hurt. Um the good thing is that urgent care back then wasn't really a thing. And so we weren't seeing a lot of patients. Um so to be fair, we probably wouldn't have made a lot of money anyway. Um but uh if you'd imagine it it would have been better than uh than making the $11.

SPEAKER_00 8:11

Yeah. So I mean, the years that you started, um, I think you said 2007, was that a single site at that time, or did you already have multiple uh sites by that time?

SPEAKER_01 8:22

We um we luckily didn't open up multiple sites because we definitely would have gone bankrupt. Um opening up one site was hard enough. Um, but um no, it was only one site, Dana. And uh we we did our best to survive. Uh I think we made a name for ourselves in the community. And then if you can imagine, fast forward nine months, uh we got into network with all the payers, and um we decided to open up our second site, which was uh in Lemitown.

SPEAKER_00 8:51

Uh if that was 11 months later, that would have been about uh like maybe just a year before Obamacare went through. Well, he got elected 2008, and that was um the next year legislative cycles, like first law passed. So I would say by 2009 it was effective, and I think the whole, you know, sort of medical care system or health care system was making some adjusted adjustments based on that.

SPEAKER_01 9:22

Yeah, that's that's probably right. Uh I I've probably noticed Obamacare probably closer to 2009-2010.

unknown 9:29

Yep.

SPEAKER_01 9:29

Um but yeah, absolutely. Um yeah, and and it's there it definitely changed uh the landscape of how things were done in urgent care.

SPEAKER_00 9:38

Now, I have a question. If that maybe had not changed where patients had, I guess, sort of lack of excess access or changed access to their old physicians, um, maybe some barriers to receiving their normal uh scheduled services. Uh do you think it would have been the same organ like had it organically would have grown that way? Or do you think that that particular change in medicine and healthcare had a big impact on your field and area?

SPEAKER_01 10:14

So um I'll I'll tell you my thoughts, uh great question. Um so for me, 2007, 2009, 2010, 2011, the real the real problem um wasn't necessarily whether you know the you know the the uh 10 to 15 percent got more into network. I think the real success of of premier care and then eventually City MD was really just creating access. Um I think um there there are still routine two hour, two-week waits for doctors, and there's routine like one to four hour waits in the emergency room. We basically brought the ER doctor into a setting where you know a patient with an acute illness could be seen within a very short period of time. And by doing so, um I think you know, word spread, people really enjoyed the access. Um, we we tried to take all pairs, and uh by doing so, uh it was it was first of first of mine when you got ill. And um that that really worked well. And then um, I I think in 2009 we had um, I don't know if you remember the swine flu. Um by being already um efficient, um, we we swelled and we probably grew about 300% overnight. And um from that point on um our urgent cares grew at a at a at a at a very fast rate. Because I think I think our communities that were we served um realized that we could provide access to medical care in a timely way, but also with high quality, with great doctors and great systems. And um, and from there the urgent care thing kind of really started taking off for us. And we would open up a center and literally be super busy in six to nine months.

SPEAKER_02 12:26

Wow.

SPEAKER_01 12:27

And so um from there in 2009, 2010, my second partner, Rich Park, wanted to uh really dreamed about doing stuff like this in Manhattan, and so he opened up C D M D. What a great, what a great branding exercise he did. Um and uh he uh basically merged us in 2013. Um and at that point, it was the first time I've actually met private equity. So if you imagine um when we did our our centers and from 2007 to 2013, Dr. Sandu and I were just trying to create a practice, a medical practice. We we we never understood what private equity was, we didn't know what a CFO or COO was. You know, between the two of us, we wore a lot of hats. And um, in 2013, I got to meet um uh my first private equity sponsor. Um, we were fascinated by the fact that they um would would infuse capital into what we were doing and allow us to continue our dream of building out um a great company. And so we took on the name City MD. Um Rich Park had eight at the time, uh, we had 12, merged them together in 2013. Rich stayed on as CEO. Um I stayed on more as an operating partner, kind of help out with some revenue cycle, um, inventory control, staffing models, physician alignment programs, and business development. I I I literally went from, I don't know, about 70 or 80 hours a week at the time down to about 20. And um, that's what I thought I wanted to do. And then from there, though, um I started up two more companies because I realized I'm a worker. Um, I just need to always be involved. And so I started up two more companies. Um, one was a dental company called Dental 365. Um, I started that with a with one of my dental uh golfing buddies, Scott Asnes.

SPEAKER_00 14:36

Just a quick question. Um, I have two questions uh from your like first entrepreneurial adventure. So uh Dr. Park in the city, did he start his urgent cares after you had started, or was he growing them concurrently at the same time, just in separate areas?

SPEAKER_01 14:57

So uh yeah, it's a great question. Um so Rich Park and I were um both co-residents together in emergency medicine. And Rich Park uh came on as my second partner at Premier Care in 2008. And we were we basically opened up our second site to have Levitel.

SPEAKER_00 15:20

Oh, okay. So he came on after you and uh your first partner had already sort of started everything. Yes, came on just to build the second site of your premier care system, correct?

SPEAKER_01 15:38

That's right. That's right. Okay. We we we developed our model together. Um and you know, he took our joint model into Manhattan uh and did a wonderful job. He uh, you know, he did a wonderful job. He opened up eight sites.

SPEAKER_00 15:53

Um and that was separate from yours? Was that separate from the premiere care? Like he kind of did those on his own, or was that still part of your collective uh three-way partnership?

SPEAKER_01 16:06

No, no, no, that was all on his own. Um he he partnered with a bunch of other doctors, we partnered with a bunch of doctors as well.

SPEAKER_00 16:14

Oh, okay.

SPEAKER_01 16:15

And so we we grew ours to 12, he grew his to eight. Um, and then in 2013 we emerged.

SPEAKER_00 16:23

Oh, okay.

SPEAKER_01 16:24

And you know, it really interesting. Um both of us, I think, you know, Rich and myself, we we were we were, you know, in and then this is a really important point. We we were building a medical practice, we were not building something that we were gonna sell. You know, private equity in 2013, at least in New York, wasn't really a problem. And so the other thing, which as an entrepreneur, we we couldn't get any cash. Like we were went, we went to the banks and we begged and pleaded for more money, and we were shut down. Um, by the time when we merged, we were both run rating close to about 40 million dollars each, top line. And we both probably had about eight or nine million of profit. Um neither of us had much debt. I think I had like three million dollars of debt, and then Rich had like one or two.

SPEAKER_00 17:20

So you were just always taking you were always taking your revenues um as you were expanding onto each of the sites.

SPEAKER_01 17:28

So exactly. We would take our profits and then basically pay our taxes and then reinvest into the company and then try to borrow a little bit more money from the banks.

SPEAKER_00 17:38

So even though all the sites and uh the business in whole was profitable, you always just reinvested your profits to keep growing.

SPEAKER_01 17:48

That's right. That's right, Diana. And so um we we merged our two companies in 13. Um, we took on a uh I was surprised also with the valuations that we got, um, but we we got a pretty good value. And then um Rich uh continued on um as our CEO. He did a wonderful job of uh really building out that brand and putting together a team um to really get us to the next level. And so I stayed on as an operating partner from 2013 to 2017, and Rich built up our company from 20 sites to about 80 uh sites. Wow.

SPEAKER_00 18:30

But that was at that time with the private equity infusion, correct? Yes, 2013.

SPEAKER_01 18:36

Yeah, and and that's a good point that uh um, you know, a lot of people think that private equity is like not the right way to go. But if you really have a great idea, um you know, you gotta really um you gotta get cash and in order for you to really kind of live out your dream and build out what what you want to do.

SPEAKER_00 18:59

Yeah, because otherwise the growth gets stifled as you're waiting for those like next line profits to um you know enable you to keep your growth rate.

SPEAKER_01 19:09

I think between the two of us, we could have probably grown with our cash, probably like two or three sites each a year.

SPEAKER_00 19:16

Right.

SPEAKER_01 19:16

Right, right, right.

SPEAKER_00 19:17

It's a rate limiting step, right?

SPEAKER_01 19:19

Yeah, that was that was that was the rate limiting step. And so when we took on our cash infusion, we left we left most of it on the books, and with that, we basically were able to grow at 15 to 20 facilities a year. And so um we really supercharged up our growth.

SPEAKER_00 19:39

Now, uh just uh you know, before you go on to your next venture, uh when the private equities came on board, um, did you give up a lot of your equity or you kept um you know some stake in it to grow? Or like how does that work? Because I'm just a regular physician, I don't know anything about this business stuff.

SPEAKER_01 20:01

No, I but Donna, that's a great question. Um, you know, typically um private equity, um, healthcare service private equity, they like to take controlling interest of a company. Yeah. Um that's not always the case. Um, and so if you can imagine, um, you know, they value your company, they infuse capital onto your books, right? And uh, you know, and at times you're you're able to take some some cash home. That's the way it works.

SPEAKER_00 20:34

Yes.

SPEAKER_01 20:35

Um, but the the the the smart um healthcare service private equity companies, right, will um will will will basically assist those entrepreneurs into really developing a better brand and really help think through the problems of scaling. And that's that's their job. That's great. But great question. Um and and and to be fair, there are some private equity companies that will take minority interests.

SPEAKER_00 21:11

Got it. Okay, now we can talk about the teeth and the dental practice.

SPEAKER_01 21:16

Yeah, so um, so in so 2013 we merged. Um I literally went from a very like working clinically as well as administratively, and um I stopped actually becoming stopped being a clinician in 20 like 18, let's say, uh 2014. Um, but if you can imagine, I literally went from like 70 or 80 hours a week down to like you know 20 being this operating partner. And uh from there I I um I I I for about two to four weeks I kind of slowed down a little bit and realized that that just wasn't me. And so from there I started two more companies. One was a dental company with a dental golfing buddy of mine, Scott. As um, another one was an ER management company with a good friend of mine in Andy Sama who had managed North Wells ERs prior to joining me. And then I did an MBA at Columbia.

SPEAKER_00 22:15

So I guess we could say that you're really not allowed to have a lot of free time because you won't use your free time to have free time. So yeah.

SPEAKER_01 22:27

And you know what? It was actually really helpful for that period of time when I had to really kind of think about what made me happy. And uh, you know, what I realized during that time is that helping companies grow and become bigger, um, you know, taking uh helping an entrepreneur, especially clinicians, take their vision and then assisting them in taking it to a uh you know a local brand and potentially a national brand is been exciting.

SPEAKER_00 22:56

Yeah, it's probably uh almost like you're doing a service as well as uh helping other people fulfill their dreams. So it's very exciting.

SPEAKER_01 23:06

Yeah, no, it's been great. Um and so um so um in 2014, started a dental company um called Dental 365 with a dental buddy of mine, um uh Scott Asnes. Um great story here, Dana, is that Scott Um was a dentist. He managed two two dental practices, and he kind of seen what I had done in urgent care and asked if I could help him think through some of the problems in scaling out. Um, what he wanted to do was was was to bring his high-end dentistry to the masses. And so that's how dental 365 was born. Um, and um, I really can't take a lot of credit here except for the fact that um I really did help Scott think through scaling of his company. And so fast forward, um, if you can imagine from 2014 till today, uh, we've grown that from uh zero zero sites and just really just an idea on a piece of paper. Um I think this month he's I think he's at 112 facilities. Um and and and doing a great job. I think he might be top 20 in the country as far as dental uh companies. And um, I wouldn't be surprised if he takes this to top 10 before he's done. Um, and then with that, um really impressed by Scott. Um really thankful I got to help him think through some of those problems early days. Uh had had a wonderful experience um doing that. And then I did the same in emergency medicine. We we grew our company from zero, uh, one facility to about eight facilities, also with about five obs units with Andy. Um same idea, really, really helped Andy think through how to scale it out. Um, once again, Andy Sama um was a seasoned operator. And so um I I basically was more um just making sure he had enough cash to do what he wanted to do, um, and then helping him understand some of the dashboards that we were putting together um so we can help manage the business. Um and then help.

SPEAKER_00 25:25

And that was the staffing company, correct?

SPEAKER_01 25:27

Yeah, it's a yeah, a management company would manage emergency company. Oh, okay. Yep. And that company merged with other companies, and that now is like probably top 10, top 15 in the country. And so another um exciting company. And so um with that, I'll I'll just tell you in 2017. Um, now you fast forward, um, we um we eventually sold 85, all the CD MD guys sold about 85% of our stock to Warburg Pincus. Um, and that's where I decided to uh to leave CDMD as an administrator. I'm still a partner, I'm thankful for that. Um, and then um you know Warburg Pincus from 2017 to 2000 to today took it to the next level. They really did a wonderful job, helped that company with equity, um, put together a multi-special group called Summit. Um, they they they they they did a lot of different things that that we wouldn't have done. Um and I don't know if you've if anyone's heard, but that company just recently um transacted a $9 billion valuation. So um it was good for us to be partners still. Um we never would have got there without private equity sponsors in in our first one and then our second one, Warwick Pincus.

SPEAKER_00 26:48

So Warwick Pincus was then like a second um uh I guess company that came in to continue to grow your initial venture.

SPEAKER_01 27:00

Yes, so Warwick Pincus. Um yes, they they they helped us. Uh they they they bought out our first private equity sponsor, um, they and then infused a lot of cash to basically take CDMD from 80 to where it is today.

SPEAKER_00 27:17

Oh, and and what what's that number now? I'm not even sure.

SPEAKER_01 27:20

Now it's probably like I you know, I I I think it's close to 160 today.

SPEAKER_02 27:24

Yeah, okay.

SPEAKER_01 27:25

Um, but that wasn't all they did. They they also basically went and basically with vertical integration, they they purchased a multi-special group called Summit.

SPEAKER_00 27:36

Yeah, Summit Hub.

SPEAKER_01 27:37

Yeah, which is one of the largest in the country. Um, so the the union was was an interesting one. Um, and they've done, and I I'll say this uh I love love love the fact that um Warren Pinkus did what they did. They they put together a lot of maneuvers um which really propelled the company and uh increased the value.

SPEAKER_00 28:04

And what is your uh continued involvement in that greater organization, or are you kind of out now?

SPEAKER_01 28:10

So yeah, too. So 2017, um, I I no longer worked um for City, um, still a partner, still have my pom-poms on, and I'm still uh um rooting for my friends who are still there and doing a great job of managing that company. Um rooting for War Repincas, actually. Um, and they did a great job. Um, and so uh if you can imagine uh 2017, I I had started these other two other companies. I had just I'd finished my MBA and um called up a good friend of mine, Johnson Tema, who had managed uh Jeffree's uh investment banking globally um for healthcare. And so um, you know, picked his brain, and the two of us decided that we would start a private equity firm focused on helping um primarily clinician entrepreneurs uh get to the next level.

SPEAKER_00 29:09

And so sort of so sort of at the time point where you and Dr. Park were at uh you know sort of uh creating a a company that would support that those ideas and growth potential.

SPEAKER_01 29:29

Yeah, helping companies like Dr. Parks and I to get to the next level. Yes, absolutely. That's that's you put it well.

SPEAKER_00 29:38

That's exactly what you wanted to be your you now wanted to be the initial investor in projects such as your joint project from the very beginning in that sort of um that's right at the at the initial start, correct.

SPEAKER_01 29:57

You know, I'll tell you, and this is just more from an entrepreneur, um you know everyone a lot of there's a lot of great clinicians and there's a lot of great operators, um, and there's a lot of great ideas. Yes. Um the the one problem that that entrepreneurs will run into, especially when they are banking everything themselves, yes, is that they will run into those periods of time when they're when they don't have enough cash to live out their and they get nervous, right?

SPEAKER_00 30:31

And they get nervous.

SPEAKER_01 30:32

And so when when I did my first transaction when we were at 12 sites, you know, I I mean I I personally guaranteed uh myself and Dr. Sandu uh personally guaranteed 12 leases. Um we we put every single dollar into uh what we were doing. We we literally had we we were making a lot of money, but but between Sandu and I we had no money.

SPEAKER_00 30:57

Um and yeah, I've watched I've I've watched lots of episodes of Shark Tank where you know they make lots of revenue, but then you know when they ask, like, what do you have in the bank? It's like nothing.

SPEAKER_01 31:10

So that's right. And and so we we believed in what we were doing, we wanted to keep building um our our practice, right? And so we literally were infusing all our cash. But at some point, we we were actually bumped up against um not having enough to really take our vision to the next level, um, but not just that, um, we we were we we were starting to get a little nervous. I mean, it was literally like seven years of unbelievably hard work. Um and we're you know, if you can imagine, we were also nervous for our 400 employees.

SPEAKER_00 31:49

Yeah, and your families, and your families, yeah.

SPEAKER_01 31:52

Right. We how how do we make sure that they you know that they can do what they have to do to pay, you know, their own mortgages or rents or you know, um their you know, the kids' education. Um, and so it's a tremendous up, tremendous responsibility. And so for us, it was the right timing for us to take on a product sponsor, um, to ensure those employees had jobs, but also for us to kind of live out our vision of building, you know, the premier brand in urgent care in the New York region. Yeah.

SPEAKER_00 32:31

Now, um, during that time of uh uncertainty, uh were you and your partners seeking that partnership, or did they come to you? Like what was the relationship building process in that?

SPEAKER_01 32:48

So um I think they identified Rich's company, City MD in Manhattan, as a fast grower. And they approached Rich, and then Rich asked me if we would be interested in working with him and putting our two companies together and then building out one brand. And that's when I was I was happy to do so at the time.

SPEAKER_00 33:12

Yeah. Did did he still have that uh partnership with you in that second site that you initially started? Like was he still part of the Lioneling game?

SPEAKER_01 33:21

Yes, absolutely. He he was still my partner, and it was great to have him as my partner.

SPEAKER_00 33:28

Yeah. It's great, yeah. Okay, so now we're at uh we did the dental, we did the uh management company, um and what what other hobbies do you have? Uh yes, and then you still did Regal Capital, right? Regal Regal Capital with John.

SPEAKER_01 33:51

Yep, and so 2017, we we put the we put our thoughts together, maybe like toward the middle of the year. Um, and from there, it took us about six months. Uh, but we you know put our cash together. John and I put about 30 million of our cash together. We raised about 30 million from the C DMD guys uh that just exited with War of Pincus. And we took about 30 million from friends and family, and uh Regal uh was born. And so um, so you know that that that brings me to another topic. Um, you know, and I didn't know what private equity was in 2013, and now fast forward 2018, um, I'm starting a private equity firm, right? Some would say that probably wasn't wise. Um but I think because I was an entrepreneur, I'm also a doctor, um, I think that um it made a lot of sense.

SPEAKER_02 34:51

Right.

SPEAKER_01 34:53

And so um just a it might be helpful if I just explain what private equity is.

SPEAKER_00 34:59

Yes, if you could give us the bare bones, like you know, when you do a definition for the regular physician, how would you explain it to somebody in medicine who has absolutely no idea um the term or or the comparison to I think the other term would be venture capital? If you could just give us the bare basics, that would be great.

SPEAKER_01 35:23

So um so venture capital and private equity are similar vehicles, okay. Um venture capital probably invests in earlier stage companies than private equity. The mechanisms are similar though. Um in both categories, we raise money from investors, okay, and ideally, so a lot of that money comes from myself and my partner, John. Um, and we take that money and then we find companies that we like to invest in, right? And then we use that money to basically invest in those companies. The private equity sponsors, who are myself and John, and now my my new partner, Terry Wang, who who's really amazing, um are responsible to our investors, just like in venture capital, it's the same structure, right? The way we as private equity sponsors uh make our money is we provide returns for our investors.

SPEAKER_00 36:33

Yes.

SPEAKER_01 36:34

Okay. And so um we don't make any money unless we make more than eight percent return for our investors, and that's typic, that's the typical structure for private equity and venture capital. Got it. I would say the primary difference between venture capital and private equity is stage of companies. Venture capital will will likely invest very early stage, and some will even invest before someone even makes any money. So they may invest pre-revenue, or they'll invest in companies that are losing a lot of money, but will basically at some point get to the next round um and become very big, right? Where private equity most of the time, right, with most private equity firms, we'll invest in companies that have revenue and have profit. Right? So that's the primary difference. Now Regal is probably a tweener company. We are half VC, half private equity. We will invest in companies that have revenue plus profit, but we will also invest in companies um that are early stage.

unknown 38:05

All right.

SPEAKER_00 38:06

Um, I had a question. Uh, what about um you discussed about I guess taking um revenue or or taking uh I guess is that like a management fee or something if you earn profits over whatever percent, eight percent? Yes. Is that considered a management fee?

SPEAKER_01 38:26

So typically there's um so most private equity firms and a lot of VC firms, they essentially manage on two ways. One is they charge a two percent management fee yearly for five years, right? Right so that they can help basically build up the infrastructure of their teams. Okay, so that's the one component. Yeah, then they will also make a something called a carry, where they make more money as long as they return eight percent, they're entitled to 20% of the profits.

SPEAKER_00 39:11

Yeah, that's that two and twenty rule or something.

SPEAKER_01 39:14

Well, two, it's called two and twenty, which is the classic private equity or venture capital company.

SPEAKER_00 39:22

Company.

SPEAKER_01 39:24

That's right.

SPEAKER_00 39:25

Yeah, I read a little bit about that. So um, and then uh one other clarification with private equity and venture capital. Uh so you know, I I read something about minority and majority stakes that you know, venture capital tends to not be as involved in management and tend to take more of uh minority shares, but I guess it's all variable based on whatever uh project is underway. Um but would you say that you as your company like to take a sort of you know, what kind of stake do you like to take in that to ensure that it's something worthwhile for you to get involved in?

SPEAKER_01 40:06

Yeah, and Dana, I think I think that's the right way to put it. Um, you know, you you really um it it depends on the size of the companies. It depends on where position, what's you know, what stage of company they are. Um early stage companies, at least we like to take a slightly majority stake. And the reason why is because it allows us the flexibility to put in the infrastructure that we need in order for us to take this company to the next level.

SPEAKER_00 40:40

Got it. So it's sort of like um the opposite way almost, yeah.

SPEAKER_01 40:45

Yeah, and and and the reason the only reason why I say that is that um, and and then this is not this is not to try to like pat myself on the back or our team. But um, you know, we we just we just seen so, you know, right now we're we're managing 14 companies, and so we've seen a lot, right? Right.

SPEAKER_00 41:04

What works and doesn't work, right?

SPEAKER_01 41:06

We we've kind of we kind of see and smell what works and what doesn't work at this point. Um, also starting up three healthcare service companies as an entrepreneur, um, I would say I have a lot of scars, right? Um I I mentioned my first my biggest scar, which was starting premier care with without being credentialed or contracted. But there have been over the course of the last um you know 15 years, I I I've put I've I have my whole body is scarred, right? Um, we made a lot of mistakes early days, and we're making less mistakes today. But I think you know, at the end of the day, we're pretty good at this now. And so um, but but having said all that, our our goal is to help that entrepreneur get to their dream. Um, and most of these entrepreneurs that we back and we work with are entrepreneurs that are are concerned about their legacy, they want to build something that will outlive long lasting. Yep. Right. And that's what we've done. I gotta be honest, our dental company, I'm so proud of it, it's just gonna outlive outlive Scott and I. Um our our urgent care company, um, it may eventually be called a different name, but it's gonna keep going. Um, and all those people employed by us are still a lot of them are still working for our company.

SPEAKER_00 42:35

Oh, question. Um, on that dental company, uh, since you and Scott kind of originated the idea and started growing it, um, was there a different uh infusion company that came in, or did you and Scott, or did Regal Capital come in and grow it to 100? Like who who who initiated that growth?

SPEAKER_01 42:56

That's that's that's a great question, Dana. So um we um Regal invested early, right? I think Regal invested when dental was at 17 sites, right? Okay injected some cash and we helped them get debt. And with our cash and debt, we built it to about 70 sites.

SPEAKER_00 43:19

Oh, great.

SPEAKER_01 43:20

Um, and from there we Regal Regal um uh is not the biggest private equity firm. Um, we basically sold a majority stick to another private equity firm so that they could help build it again to the next level.

SPEAKER_00 43:41

To the next level after that, okay.

SPEAKER_01 43:43

And that company is Jordan Company, which has done a great job with that and Scott.

SPEAKER_00 43:48

What was what was that company?

SPEAKER_01 43:50

The Jordan Company.

SPEAKER_00 43:51

The Jordan Company, okay. So I guess it's like it's very interesting that at different levels of different companies, there may be sort Of a layered uh structure of other companies. Like so, you know, I read on your website you kind of like to do things that are in revenue range of like 10 to 20 million. Um, and then I guess some other companies like things in a in a different scale or range, and so there may be, I guess, multiple players at different stages, which is quite interesting.

SPEAKER_01 44:25

Yes, uh that that's uh that's a great way to say it. They're they're definitely um different size private equity firms, and there's different some private equity firms are better for certain companies than others.

SPEAKER_00 44:40

And maybe at different and maybe the same company could have multiple companies, which is uh sort of interesting to me, um uh based on at what stage that the company is at. So very interesting.

SPEAKER_01 44:53

Yes, that's right. Yeah, um that takes me to the evolution of Regal. We we've literally gone from uh our first starter fond of 85, we quickly raised 165 behind that, and then we uh we we had a we really helped this one entrepreneur take his company um from um essentially 17 million of of revenue up to about 125 million dollars um and and had a really nice successful exit with him. Um and with those exits, with Dental's exit and with this exit, we um we were able to raise um $600 million in about two weeks, actually. And we paired it back to about $415 million. And so that's what we're investing in of now. Even Regal is starting to progress into what we're looking at and the size companies we we look for.

SPEAKER_00 45:47

Now, would you ever take Regal and allow them to be part of, let's say, like a bigger organization like Blackstone or some of the like huge private equity firms? Would would you mean would you ever seek, you know, when you want to maybe sunset and take some time off?

SPEAKER_01 46:07

Yeah, and that's a great question. I I think for me, you know, I I really enjoy building. Um I think since 2007, I've not worked for anyone else. And so, and um, and maybe John has a different opinion, but I I I I would prefer to be independent um and to keep doing what we're doing. Um, the one thing I will tell you is that um Regal, right, um, just like our other companies, um, is developing levels of infrastructure. We currently have uh 14 investors and and two and two um assistants. Um, but in the next rendition, we'll probably have you know close to 30 you know employees. Um we're built just like the our companies that we invest in are building other infrastructure, we're doing the same with Regal.

unknown 47:02

Yeah.

SPEAKER_01 47:02

So we can handle that.

SPEAKER_00 47:03

Yeah, no, that that's why I find it so interesting because you know, within building some of these other healthcare organizations, your own sort of um, you know, sub-entrepreneurship has also grown. So that's that's very interesting. And looking at the next level. Um, so uh can you tell us a couple of I guess qualities or things you look for as you look at things to invest in in healthcare? Um, because I know that a lot of plastic surgeons are themselves um entrepreneurs, and uh I've heard from many of them some of their like grave mistakes as well as some of their successes. Um so just curious as to what qualities you look at or uh things that you see as opportunities.

SPEAKER_01 47:55

Yeah, um, I mean that's that's a great question. I mean we're we're we're Regal is always looking for healthcare service companies. Um we and once again, we like to back typical, typically we like to back clinicians, although some of our companies we backed entrepreneurs. Just like every other private equity firm or VC firm, we you know we're looking at opportunities where there's um there's like an asymmetric upside, right? So like an industry where maybe not a lot of people are fishing or looking um uh is really interesting to us. Um anything that can really bend the cost curve, right, is really is really interesting to us because I, you know, once again, I like I like to try to help companies build sustainable companies. And I think by bending costs, um you're you're kind of sitting in the right space. Um and and once again, um I think that sustainability for me is is what I look for as one of my first questions. Does this is this something that will outlive, could outlive us, right? Uh can we help build a company and build a foundation that really kind of grows, right? Um eventually by itself. Um and so um those companies are the ones that we value uh highly. Um we also value, in particular, great executive teams, right? So you know it's it's a it's a fairly straightforward formula. If someone is successful and has done it once or twice, right, there's a good chance they're gonna do it again. And that's what we've seen across the board in our 14 portfolio companies.

SPEAKER_00 49:40

So um let's uh say there are um you know, maybe clinicians who think that they may be worthwhile. Is there like a process that they go through? Um like let's say they have, I don't know, I'm gonna make up a uh a business model, maybe they have these uh mobile uh medispa units or something, you know, whatever they've been developing and it's been taking off. Um what's the process for having them be evaluated? Do they like contact companies like you, or are you already set to look for those opportunities? Like what's the process? Because I think a lot of physicians don't know about this alternative source of funding as well.

SPEAKER_01 50:27

2013, I didn't know what private equity was either, right? So you know, so um total that that makes a lot of sense. Um, I I think uh doing a little bit of research around what you're doing and and seeing what who else is doing it. Um understanding like there's probably four or five, you know, some uh private equity firms, healthcare service private equity firms that they should contact. Um venture capital firms that they should contact.

SPEAKER_00 50:55

And so it's okay for the uh person looking for funding uh to kind of put it out there for somebody and and and make themselves potentially accessible to this.

SPEAKER_01 51:09

No, absolutely that um with one of our companies that we're backing now, that entrepreneur actually reached out to us and we thought that the that you know his thoughts, his executive team um was was was uh was great. Um their thesis was right. Uh it was about saving costs and about you know doing something different, slightly differently. And then um they'd they'd already been successful once before. And so for us, it was um, you know, it fit a lot of what we're looking for. And so we've we've now backed that entrepreneur to do what he wants to do. Um, and uh no, and and you know, we this this happens to us a lot now. Um I think as we get our name out there more, and as I think now that people have seen kind of what we've done and talked to some of the entrepreneurs we work with, um our names getting out there. But and same with the other healthcare service private equity firms.

SPEAKER_00 52:07

And would you say healthcare as a sector is still a rapidly growing field as opposed to other industries?

SPEAKER_01 52:16

Um I I think that um it's it's I think healthcare's I think healthcare service, there's it's there's um there's still um a lot of opportunity. Um and I think it's because there's there's still opportunities for efficiencies.

SPEAKER_00 52:32

Um well to to better put it, I would say, you know, your journey has taken you a long way because um, as you said, the inefficiencies you saw as a physician, um, backed by your experience as a consultant, to give you the lens almost to see those if inefficiencies. And um as we all know, physicians are not the best business people always. And so, you know, I guess that makes sense that the inefficiencies are sometimes more glaring in in healthcare to those who can actually see that. Um because as I see your journey, I think your experience as a consultant maybe gave you the lens to review some of the things you saw in daily life as things that didn't work. And then now that you're evaluating business opportunities, you're kind of maybe almost tracking things and opportunities that are uh improvable, you know, like set for improvements that you can then take that and turn it into um efficiency and generating increased revenue um at either lower or the same cost. So I think uh that's my like quick observation of your journey. But uh Yeah, no, absolutely.

SPEAKER_01 53:55

Yeah, that's that's definitely a big part of it is uh understanding where those uh inefficiencies lie and and actually seeing if there's companies that are are trying to um to fix some of them for sure.

SPEAKER_00 54:07

And that's why and that's why it's it's kind of an interesting industry because you know, in other industries they're already kind of like as well oiled and lubed as possible. Um whereas uh I do think that in healthcare um there are both like technologies and just systems um that can certainly improve things um and you know pave the way for better success. So um well I wanna thank you so much for the time you're taking to explain. Um are there any other like major points you'd like to share with um physicians who really don't know the sector? I think we've learned an incredible amount about uh sort of the fields and kind of the processes involved, but any sort of like pointers or things, uh like kind of final thoughts you'd like to share with our group?

SPEAKER_01 55:09

Um I I think the only thing I would add, um, Donna, is that um I think entrepreneurialism is real. Um I think that people that are finding something that they're trying to fix um is is is is a very strong um uh you know opportunity for a lot of people. Um and I think that um I I think that entrepreneurs are are the best uh people to fix problems. And um once someone identifies those problems and once they put a business plan around it to fix it, um, and if those entrepreneurs are passionate about that, um there's a good chance that they're gonna win. Um and so having said that, um I I really do respect um entrepreneurs, it's it's a different way of thinking. Um real entrepreneurs are going to risk their houses or their cars to do it. And um just gonna put it out there that you know, if if there's someone that's got a great idea and they're looking to do something and they're passionate about doing it, um we at Regal would love to talk to them.

SPEAKER_00 56:32

Oh, that's great. All right. Well, thank you, David, for your time, your incredible uh expertise, your um honesty, and um it was a really vigorous and engaging discussion. And uh we look forward to maybe taking another opportunity as Regal continues to grow and maybe uh incorporates uh some of uh our physician ideas. So thank you again, David. We hope you enjoyed this episode of the Enhance Your Practice Podcast series brought to you by ASPS University. You can listen to our other episodes on other podcast platforms, or you can download recordings directly from ASPS web. New episodes coming soon.