Krishnakumar Raman
Bangalore, KA (IND)
Role(s):
Founder/Owner/Principal
Osmosis Consultancy Services Private Limited
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Startup
Location:
Bangalore
Industry:
Consulting
Year Founded:
2007
Number Employees:
1-10 people
Description:
We have been nurturing an idea for over 10 years now. The present credit crisis has increased the potential for success immensely.
Idea:
Pre-Funding Pharmacy Receivables
Opportunity :
To have a go at an Enterprise Valuation of over $ 300 million in the third year of operations…(URL removed)rt small, prove metrics, take roots, expand and dominate.
Overview
1. Estimated prescription drug sales in the USA during 2008: $ 297 Billion.
2. Existing Pain: …..$ 6 billion to $ 12 billion being left with the obligors of health insurance plans as pharmacy revenue bleed (2-4%).
3. Capitalize on this opportunity, use a technology swab and take a piece of the $ 6-12 billion by not leaving it with the obligors and thus earn money in the safest possible manner. How much of it that you can swab entirely depends upon one’s ability to raise the working capital.
4. We can start small, prove it beyond doubt and then scale it up to the extent possible.
5. Others, including a big industry player, have tried this earlier in the late nineties and failed.
6. We have understood from their failures and we go with a proven technology swab (which they lacked) and succeed from day 1.
Business Model
……Buy Pharmacy Receivables from small/independent pharmacies at a discount without recourse.
….. Put these receivables through our proven platform (swab) and recover close to 99.7%+ . This would leave a spread per cycle
….. This when rotated around a 25 day cycle (against a proven 18 day cycle), can give us contribution margin of over 70% in the year.
….. Minimum costs resulting in excellent EBITDA (45-65%) for this risk profile (receivables backed by A/AA/AAA rated insurance companies/obligors) to form the basis for a robust business plan.
Market
The total US Pharmacy Revenue is $ 297 Billion.
Top 30 chains like Walgreens, CVS etc…(URL removed)upy about $ 134 Billion.
Balance $ 163 Billion comprises medium and small chains/independents/mom_pop shops numbering over 22,000.
Our target space: the lower half, where the advantage of scale and ability to raise funds near LIBOR is lacking (as opposed to the top half).
To-day the situation has exploded with most of the small businesses driven out of Banks to high cost lines such as factors.
Plan
Go with cash and buy pharmacy-receivables without recourse at a discount. We then use a proven platform (a technology swab, with whom we have an agreement to have the processing of the transactions done for a fee) for maximum recovery of the receivables with faster turnaround and earn a good profit each cycle. As we gain experience, we plan to buy the technology platform. We have an exclusive right to buy this tech platform at a valuation to be decided at a time convenient to us (with a valuation cap) and with a right of refusal vested with us .
First Year: Proof-Of-Concept…we take small amount of funds ($2 million) and prove the working of the concept for at least 10-15 cycles in a chosen State in the USA.
Second year onwards: Increase the available pool of funds (additional equity and small debt) and spread to at least 4 States; Increase EBITDA in each year.
Third Year: Increase the pool of funds (more of equity and small debt)and coverage to 10 States.
Fourth Year: Go National. Get aggressive and Dominate the space.
Profitability: Excellent with a potential for an exponential growth.
Valuation: The valuation for this enterprise can cross $ 330 million in the fourth year of operations.
Competitive Advantage:
Use of a proven platform during the proof-of-concept phase; and buy the platform at a convenient time for us with a valuation-cap fixed now.
Automated, Scalable and Adaptable
Barrier to Entry:
Exists. Can be explained as we move forward in interactions.
Team:
We have lined up a team with meaningful experience and ready to go.
Will be able to adopt Total Quality Management.
Risk:
We can show that the risks are minimum and the returns for the kind of risk profile that is being taken is exponential.
We are using minimum burn and using most of the initial funds as working capital (cash/Receivables).
If after 5/6 cycles the project viability is under suspect, we can terminate with least burn…(URL removed)t under $ 0.25 million.
Upside:
This is expected the generate profit each cycle. Cash +ve each cycle brings risk down significantly. Once proven, the business model will work at all levels of input, as the platform is scalable with ease. Thereafter, the business will grow entirely depending upon what funds are raised to go after the business….. More funds raised, better dominance achieved.
With least investment, we have a shot at significantly high valuation in just three years.
We buy the technology platform at the end of two years of successful operations. This would give us the necessary edge to move towards domination.
What do we want:
We want angel/VC funding of $ 4.5 million. Initially $ 2.5 million, which includes $ 0.5 million for burn and balance $ 2 million for working capital. Once the milestones are proved, angel/VC should disburse already approved balance $ 2 million at the end of 12 months from start.
We have Private equity and funds waiting to help us out in the successive rounds of increasing equity as well as debt to scale up gradually each year.
Looking forward to interacting with like minded people to make this venture a success.
Every Problem Is An Opportunity In Disguise
Challenge The Pharmacy Revenue Bleed