66. How He Raised $12M to Start a Wellness Business

0:00I want to work with people who have a great heart, who understand the mission, and understand that, you know, yes, we want to make a ton of money with this company, but just as importantly, if not more importantly, we want to make a really incredible impact on people's lives. And we want people to understand that that takes time and it takes a lot of experimentation, takes a lot of patience, takes a lot of hard work. And we want to work with folks that actually appreciate that. Hello, and welcome to the UpFlip podcast. I'm your host, Alex Freeman. And on today's episode, I'm talking to James Lee, founder of Mighty Health, about the best ways to raise money for a business.

0:36James started Mighty Health in 2019 to fill a gap in the healthcare and wellness market. It was an ambitious goal and required an equally ambitious startup budget. They've now raised nearly$12 million in funding and he's gonna share how they went about it in this interview. Let's dive in. James, thanks so much for joining us on the show. Thanks so much for having me. So to get things started, can you just give us a little bit of an overview about Mighty Health and what prompted you to get the company started? Yeah, absolutely. You know, when we're growing up, we often think of our parents as, you know, these invincible people who are always going to be healthy and be there for you forever.

1:10But, you know, a few years ago, my dad actually called me one morning and it turned out that he had been showering and suddenly felt some sharp chest pain and that the major blood vessel near his heart actually burst. So he was rushed to the hospital for an eight hour open heart surgery, which he very, very luckily survived. When he came out of that procedure, I had never seen my dad so weak and so vulnerable before. and basically the doctor said, Mr. Lee, you've got to change your lifestyle. You've got to eat healthier. You've got to sleep more. You've got to exercise more. He kind of just got up and walked out the door and so really the reason we started Mighty Health was really to be kind of a all-in-one home for healthy living for 50 on up and essentially we have things like joint-friendly exercises, personalized coaching and a customized nutrition plan that we designed for our members to help them be their healthiest self and help them tackle the chronic conditions that they have in their daily life.

1:59Wow. I mean, just an incredible response to a terrifying and life-changing situation there. Yeah, definitely a silver lining that came out of the challenge. And I'm happy to say my dad, he's been on the program now for three years or so, but he's a lot healthier now than he even was before the surgery. So I think it just goes to show that it's never too late to get started on your health and start getting yourself on the right track. What was the biggest challenge you faced once you'd made the decision to kind of start Mighty Health? What was the biggest challenge that you faced and how did you overcome it?

2:29Well, I think that, you know, we are outsiders to the healthcare space. We do have an amazing medical co-founder who is the, you know, vice chair of research at Columbia University. And so he's very well respected as a physician, but my CTO and I actually had previously started and sold a company that was in an adjacent marketing analytics space. So I think it was both a plus and a minus for us, you know, in joining this industry with fresh eyes and be able to see many of the problems with the industry and how we could take a fresh approach to it. But also, of course, not having a lot of the initial connections needed to start the company in the space, especially in an industry where it feels like everyone knows each other.

3:06And as big as healthcare is, it's actually also very small as well. Yeah. How did you go about, you know, obviously, fresh eyes being a major advantage to you, but potentially a disadvantage as well in terms of just like understanding the healthcare space? How did you go about finding the experience and knowledge you needed to enter into a new business? I think it was all about being authentically curious. We really benefited from being able to speak to lots of other health tech founders, investors, folks that worked in health systems and hospitals, health insurance companies, and basically just go out and ask them if you can grab coffee with them and sit them down for 30 minutes and explore the different areas of need or different pain points that they have in this industry.

3:50I think that most people, if you're coming at it from a very authentic, genuine way, you're not trying to sell them anything right off the bat, they're more than happy to share their stories and their experiences with you as well. And so we really, in the initial days, I would say talked to upwards of 200 to 300 people about the problems that they faced. Many of them were actually heart patients, just like my dad, who had faced very, very similar struggles. And we just really got to know them, their lives, what they were dealing with in their day-to-day, and just really understood the problem more deeply through these conversations.

4:20Now, to me, that sounds like a tremendous amount of what we'll call sweat equity, just in the research and the understanding of what the space needed. But obviously, there are probably other expenses involved. So, I mean, what are those startup expenses for a membership-based health service like Mighty Health? Well, initially, you know, we always knew that we wanted to build this into becoming a tech platform. But the startup expense for doing so, you know, and especially having a CTO, which, you know, is a big help from the start is actually knowing what to invest in building and what to hold off on.

4:52So initially, when we started Mighty Health, we actually tested this concept of what we have today through just doing some manual coaching. So initially, we had recruited a number of different members to join us from Craigslist of all places. and we gave them my personal phone number and I was just texting with them every single day, serving as our health coach and seeing what types of prompts, what types of advice and guidance, what types of resources that we could share with them would actually resonate. And then we do these periodic surveys afterwards to see what stood out to them and then what wasn't as useful.

5:23And then we'd have a roadmap based off of that to know what to build first and what to invest for time. Because I think, you know, going back to your question about the most significant expense, I think the most significant expense is your time, right? Initially, when it's just you and your co-founders, and you mentioned just putting in sweat equity, you can really spend months or even years going down the wrong track versus really being smart about being lean and making the right decisions around what to build, what not to build, how to get out into the market and test with customers before sinking in half a year or a year into the wrong product.

5:56What was that kind of timeline from initial meetings to this group of beta users that you were, you know, just operating with via text message to kind of what you might call, okay, Mighty Health is now truly open for business. And now we're actually signing up members in sort of a more traditional way. Yeah, I mean, everything takes always a little longer than you hope it does. But, you know, initially, our industry conversations took about six months just to even get to the idea of, okay, we want to build this type of platform specific for members. You know, you can imagine we explored tons of different ideas around, you know, even helping insurance companies with claims processing, all the way to having VR solutions for surgery, right?

6:36Lots of interesting ideas in the healthcare space, lots of opportunity, obviously, in this massive market. So even the first six months we spent really trying to hone in on what is the Venn diagram of things that are important to us. We figured out that it was important to us to have a member-facing solution because we wanted that direct impact on people's lives. We knew that would be a mission that would keep us excited and give us sustained energy, even in the tough moments down the road. So that process took about six months. And then that's when we started doing the coach testing, actually texting with our members and recruiting them, running this initial beta.

7:11of about 50 to 100 members, again, very, very manual. And that we did for about three months or so before we even started coding what would now be the core part of the platform. And then actually building the initial MVP of the app itself took another six months or so. So we had begun exploring many of these ideas sort of in late 2018. And then we officially launched what is MightyHealth today in the early part of 2020, just as the pandemic was starting. Oh, a very interesting time to be launching into the space. How did the pandemic influence that launch? Well, the biggest thing was that we had initially started Mighty Health just based off my dad's story only for cardiac patients.

7:49So if you go back and find a lot of old press pieces on us, Mighty Health is described as a cardiac rehab platform. And what happened with the pandemic was that we noticed that a lot of folks that were of a similar age, in their 50s, 60s, 70s, and beyond, but weren't cardiac patients, had all these other chronic diseases as well. You could call it joint pain, obesity, pre-diabetes or diabetes, hypertension, all of these different chronic diseases. More than 80 % of folks in this age range have at least one chronic disease and more than 60 % of them have at least two. And so what we decided to do, and that was kind of impacted by the pandemic, was that we actually decided to broaden Mighty Health to become a platform for healthy living and tackling chronic diseases for all folks in this age range and not just cardiac patients.

8:36And I think that was a fundamental change for our business. Completely, obviously, not only changed the narrative and the marketing behind the business, but also the product itself as well. We made it much more generalized, but again, still very specific and age appropriate. Now, from that kind of early 2020 to now, how has growth been? What is the current membership of Mighty Health? Well, yeah, so we have now grown to now have served over 200 ,000 members through the platform. And as of this year, one of the biggest updates or biggest announcements that we've had is we've begun partnering with insurance companies because we know that unfortunately here in the US, a lot of folks that tend to need this type of healthcare or support the most can often be the ones who least afford it.

9:19And so we have now partnered with a number of different health plans, including Medicare Advantage plans, and now cover Mighty Health for 9 million Americans. So there are now 9 million folks that can access Mighty Health for free, and then we get reimbursed by their insurance company. A quick reminder for our listeners, you can get more advice on starting a business on the Upflip YouTube channel. Check out our podcast episode 27 with Ed Warren to hear more insights on how to start a software company from scratch. And if you have been enjoying this podcast, either this one or previous episodes, make sure you leave us a review on Apple Podcasts, Spotify, or wherever you're listening to this podcast right now.

9:55Those reviews really help us grow our audience and provide even more high quality business knowledge. James, I want to shift a little bit to a little bit more broader general startup questions here. I understand that you've worked with a startup accelerator. Can you explain what that is and how you worked with one to jumpstart business growth? We've actually, as a team, collectively been through at least three major accelerators and a number of different incubators going back to our last company. And an accelerator essentially is a program that is usually about three or four months. You typically go through a pretty highly selective process to actually get into the program.

10:29So you have to fill out an application and do sometimes a series of interviews to get in and get chosen. Depending on the accelerator that you are going for, they have different acceptance rates. So some of them take 5 % or 10 % of the applicants, and some of them take less than 1 % of the applicants that apply. So sometimes it can be even harder to get into an accelerator than getting into some of the more elite colleges in the US. And then some of the accelerators are more general, so they can take all types of venture-scale companies. And then some of them are more specialized. So you have accelerators for different industries.

11:01For example, in our industry, there are ones for healthcare, specifically health tech. And typically they'll invest some money as well. The check sizes will range anywhere between 50K to 200K in exchange for somewhere between 5 % to 10 % of your company. It is a quote-unquote more expensive deal from a founder's perspective. But in exchange, they add a lot more value than typically what a venture capitalist would. They put you in a program that's very structured. typically is a mentor or an advisor that is assigned to you that understands your business deeply. There are usually weekly, if not more often, speakers that are coming in and speaking as well.

11:38And then finally, there are typically peer groups as well that you can share advice with other companies that are in a similar stage or industry as you are. And it all culminates at the end of those three or four months in a demo day, where typically you will be showing off all attraction that you've had with your business so far and with the hopes of attracting investment. Typically, they'll bring in thousands of investors, hopefully, to listen to your two or three minute pitch. And if the investors are interested, they can set up a follow up meeting with you as part of your fundraising process.

12:08Now, how can one of our listeners, maybe they're out there, they've got an idea and they're like, oh, yeah, that's the thing. That's exactly what I need. I got to get into an accelerator. How do they go find one? Well, there are some accelerator databases and rankings out there that actually list out a lot of the top accelerators out there, as well as what their follow on funding success rate is, which I believe is quite important. Because if you're giving up that percentage of your company to be a part of this type of program, you want to make sure that they have a strong track record of being able to get companies to the next stage to actually bring them the awareness or the investor activity that they promise.

12:44So there are a couple of sites. One of the ones I used back then was called SeedDB. And it's just a little bit of a ranking of all the different accelerator programs that are out there. I would also do a specialized search, you know, again, for whatever industry you're in, plus accelerator, just see where some of the top accelerators are out there. There are FinTech accelerators for, you know, finance companies, health tech, even as something as niche as InsureTech, there's accelerators just for that as well. And those accelerators can sometimes give you more industry and strategic connections than some of the more generic ones, Ken.

13:15Shifting more a little bit directly towards the funding question. How does the industry of your business affect how you go about finding that funding? Are some funding approaches better for certain niches than others? Yeah, absolutely. I think that there are certainly many different types of funding, and venture capital is just one of them. And typically, for folks who want to raise money from angel investors, from angel groups, accelerators that we just mentioned earlier, and venture capitalists, you're typically looking to start a company that is what we call quote unquote venture scale, meaning investors are expecting anywhere between 20 to a hundred X return on their money, if not more, especially at the early stages.

13:56And so typically you're looking at companies that have an ambition to want to grow and achieve that within five to 10 years. Now, obviously we all know that usually that's not what happens, but that's what the ambition is, and that you have also what they call essentially software-like margins, meaning that you're not producing typically a physical good where you're selling it, you produce it for a dollar, and you either sell it for less than a dollar or maybe you sell it for $1.10. Usually, your costs are typically from 15 % to 50 % of the gross revenue, and then you can actually reinvest those profit margins into growing that business at that scale that we had said earlier.

14:34For other types of businesses, you can consider things like carrying on debt or taking convertible debt and things like that. That might be a better fit if you're not seeking that venture scale type of business. And again, that's not what everyone is looking for. So I think that is the first checkpoint before deciding whether or not to go after investors is if you're deciding to build a venture scale company or not. Can you talk about some of the best ways to attract investors to a new business? So I mean, if you feel like you have the venture scale idea, how do you then go about attracting that investment dollar?

15:04That's a great question. I think the first thing really that I hear a lot is how do I actually meet investors? A lot of folks are like, you know, they think of themselves as I don't have the network needed to actually do this. Where do I start? And the best way to meet investors is always through warm introductions, wherever you can get them. And the people who can make the best introductions typically are as follows in kind of this order. Number one is founders of companies that have done really well for a certain investor. You know, they have the most respect from those investor networks. Second one might be other founders who maybe are just getting started out and still have a decent track record or a decent relationship with those investors.

15:42The third is other investors and advisors. Again, maybe they aren't existing investors already in your business, but maybe they've indicated that they're willing to put in a small check and they're willing to have some skin in the game. And then they're now introducing you to their friends who might be also interested in this industry as well. The fourth one is actually platforms like AngelList and also crowdfunding platforms. So there might be a looser tie there to the investors, but those investors are also more likely to put in a smaller check and also make it a faster decision as well. And then the fifth one is through lawyers as well.

16:15So a lot of companies will have lawyers who have investor networks and can make those introductions. Those tend to be weaker ties just because lawyers are obviously serving a large number of clients. So they're a little indiscriminate. And then finally, cold emails and using databases like the NFX signal database, where you can actually do your own research, filter a list of thousands of investors by industry, by average check size, by how often they're writing checks, frequency. And then you can actually start seeing if you can either find an intro path directly to that person, or the very worst case, reach out to them cold.

16:50So again, there's just an exhaustive list of ways you can meet investors. And I would really encourage listeners to really sit down and take an inventory of their existing network because a lot of folks just kind of forget who they've met in the past or who they already know. Going through LinkedIn, creating your own CRM of all of the people who might be able to make intros for you and using those people as a starting point. Now, getting the meeting can be one thing. Then, you know, closing the deal is a different thing. What's one thing that new entrepreneurs do that might scare away potential investors and how can they avoid making that mistake?

17:23One thing that a lot of new entrepreneurs do is they think that they need to sign an NDA with investors. And that might've been the case maybe 20 years ago when meeting investors that before that you had to sign an NDA, a non-disclosure agreement. But nowadays, I think investors basically see so many different ideas and companies every day, and this is their job and to be professional about the way that they go about these meetings. So NDA is not required. The one big thing I would say that, I often encourage entrepreneurs that are just starting out to do is to really spend a lot of time on their deck.

17:55That is essentially your first and last impression when you meet an investor. They often ask for your deck ahead of time. You'll obviously send them a deck after your meeting as well. It's what they'll share with their colleagues. It's what they'll use to sell up to their partners. And so having really polished deck you've gotten a lot of feedback on and spent a lot of time iterating on is really critical at this juncture. Now, let's say that the investor's interested, they start to go down the road of actually writing the check and investing in the company. Are there any common pitfalls that entrepreneurs should be aware of as that process is unfolding that maybe could cause them massive headaches down the line after the investment's made?

18:34Yeah, typically in the first stages of your company, you're going to want to use fairly standard documents such as a safe note, which is a specific type of promissory note essentially that is being created as a standard in the venture capital industry. And it contains standard terms so that you as a founder can know that venture capitalists or angel investors at that stage are not trying to take advantage of you or add any kind of founder unfriendly terms that might, as you just mentioned, mess with you down the road. So typically, I would encourage founders to look up the standard safe notes.

19:11There are a few versions of them, but again, most of them are pretty standard and utilize that to actually do the investment so that the investor doesn't get any additional rights that they haven't negotiated down the road. I would say that the broad advice of investors and you being in a marriage is right. If it's a smaller investor who's putting a very small check, they can still actually give you a lot of headaches down the road because they could be asking you for financial statements or hounding you for your cap table all the time We're constantly trying to give you advice. So I would really see that pitch process as a mutual dating process and not just a pitch process.

19:46I think there are shows like Shark Tank that kind of characterize investor pitch as almost like begging for money kind of deal. You go on there and you pitch these sharks who are sitting up in their high chairs and they're judging you and how good your company is. But oftentimes with raising money, you actually want to be more of a mutual dating process where you're getting to know them as much as they're getting to know you. And if you feel that anything is off, maybe they're being rude to you, maybe they're being overly invasive, maybe they're spending more of the time trying to give you advice about your industry that you should know better than time getting to know you and your business.

20:21Then those are typically yellow flags to stay away from taking their checks. On that note, I'm curious why you chose the investment firms that you chose to work with. Why Will Ventures and GFT Ventures and what advice do you have for an entrepreneur as they kind of go into that, as you said, dating relationship? Yeah, I mean, I think it's a bit of oversimplification, but sometimes you can look at the person on the other side of the table. And again, the best outcome here is that your company does incredibly well and then they do incredibly well as a result of it as well. So sometimes it's actually as simple as, do you want to make this person rich?

20:57I know it's kind of a really funny and weird question to ask, but ultimately what that helps filter for is genuinely good people. That's what I look for. I want to work with people who have a great heart, who understand the mission and understand that, you know, yes, we want to make a ton of money with this company, but just as importantly, if not more importantly, we want to make a really incredible impact on people's lives. And we want people to understand that that takes time and it takes a lot of experimentation. It takes a lot of patience. It takes a lot of hard work. And we want to work with folks that actually appreciate that.

21:30And so Jay and Jenny from JFT Ventures and Isaiah and his team from Will Ventures, along with all of our other investors, dating back to when we went through our first accelerator, Y Combinator, to even strategic investors like AARP, are all folks that deeply understand the mission and what it takes to get there and are also just incredibly kind and thoughtful people who we love working with. So this is going to bring us to a section of our show that we call our Fan Blitz Questions. Again, these questions come from our YouTube community. You can go to youtube.com slash upflip, join the community and post questions to future podcast guests.

22:03So James, we're going to try and get through about five questions in like approximately a minute. We'll see how we do. Okay. All right, here we go. First one, if something happens to you, what happens to the business? The business will be in great hands. My team is excellent and would carry on the mission. What's the biggest purchase you've ever made? The unconventional answer is not just one thing, but it's all my self-care. So things like spa days, investing in a personal trainer, having massages, anything to help de-stress and care for myself. What's the biggest purchase that you regret? I think regret is a strong word, but oftentimes we feel that investment in some of the agencies that we've worked with, some marketing agencies, some outside agencies haven't panned out the way that we've wanted and sometimes it's just easier to do it ourselves.

22:46If you could sell the services of Mighty Health to one celebrity, who would it be? Oprah. Oh, I love that answer. Last one here. If there was a movie made about your journey, what would the title of it be? This is a bit of a funny one, but I title it Hitler and Cockroaches because the first startup house that my co-founder and I ever lived in together was cockroach infested and also was run by a house manager who is obsessed with Hitler books. Definitely a humble beginning for our first company together. Wow. Yeah. I mean, I feel like there's like a full hour of interview just on that. So unfortunately, that is the end of the FanBlitz questions.

23:21Yeah, that's a very different podcast. Yeah, that's a different episode. That is the end of our FanBlitz questions. Again, those come from our YouTube community. You can go over to youtube.com slash upflip, join the community, post questions to future podcast guests. James, a few more questions from me. I'm curious, as you kind of go into the fundraising process, how do you determine how much you're going to need to raise? Yeah, that's actually interesting because the answer isn't actually as clear as a lot of people make it think. You know, you think that if you look at entrepreneurs who raise a certain amount of money, you're like, wow, they had this perfect plan A that they executed on and they got exactly what they wanted, the valuation they wanted, and everyone's happy.