April Connect Northwest Investor Forum
Chris Kelly
June 23, 2006
How often does
a startup from Coeur d'Alene become the generic term for a
product or service? Tom Friedman introduced millions of
readers to "nighthawk radiologists" in his 2005 bestseller,
The World Is Flat. In his flat world, a radiologist
in Sydney, Australia, could read an X-ray from a patient in
New York in the middle of the night because even
radiologists need their sleep.
Friedman
was talking about Nighthawk Radiology Services, founded in
2001 in the beautiful lake town a short drive from Spokane.
The total investment was
nothing more than a line of credit from a local bank with a
personal guarantee from founder Paul Berger. The
radiologists knew very little about running a business, but
they did know their market. It turned out that radiologists
all over the world need their sleep. The company built
state-of-the-art interpretation centers in Sydney and Zurich
to handle night-time reads from North America. The company
was cash-flow positive in the first year and just five years
after founding went public at a valuation of $770 million.
Dr. Berger, who coined the
term "nighthawk radiologist," after nighthawk helicopter
pilots on night flights in Vietnam, was the keynote speaker
for Connect Northwest's April Investor Forum. The panel
discussion that followed his talk included Kevin Cable of
Cascadia Capital, the investment banking firm that packaged
Nighthawk's presentation to venture capitalists, who were
brought in to expedite the initial public offering (IPO).
Showing the value of the
connections that Connect Northwest hopes to maximize,
Nighthawk's law firm, Preston Gates & Ellis, introduced the
radiology business to Cascadia Capital, calling the company
"the Microsoft of North Idaho." Paul Berger saw venture
capitalists as "sharks" who wanted to steal the company, but
he soon changed his mind. Cascadia presented the business to
eight venture funds, seven of which were interested in doing
a deal. After reviewing letters of intent, Nighthawk chose
to work with Summit Partners, a firm with offices in Menlo
Park, London, and Boston, which assured Paul that management
would retain majority ownership at the IPO.
Now investment banks clamored
to make the deal. Eight banks made proposals, including
Morgan Stanley, UBS, and Piper Jaffrey. Nighthawk chose
Morgan Stanley. The excitement then spread to investors. The
I
PO in February, 2006, was oversubscribed. The proceeds have
made possible additional expansion plans, such as a new
interpretation center proposed for Dubai.
With all this global activity,
people ask Paul why the founders chose to live in Coeur
d'Alene. "Because we can," is his simple answer. It's the
flat world at work.
The panel discussion built on
the experience Nighthawk and other local companies like
Purcell Systems had in putting together funding and
liquidity strategies. Kevin Cable of Cascadia served as
moderator for TJ McGill from Evergreen Pacific Partners, a
leveraged buyout group specializing in medium capitalization
companies; Jim Simmons, founder of hedge fund ICM Asset
Management in Spokane, and original seed funder of Purcell
Systems; and Tom Simpson, managing partner of Northwest
Venture Associates, a Spokane venture fund which has
invested in over 30 regional businesses.
Jim Simmons discussed the role
of timing in finding a winning investment, remembering an
opportunity to invest in a little coffee house called
Starbucks. This was before his success with ICM, when he
could barely afford a cup of coffee. In spite of his
interest, he had to pass on the opportunity. Tom Simpson
recalled that founder Howard Schultz had come to NWVA
looking for funding, and they had turned him down. On the
flip side, Jim made Purcell Systems possible with initial
funding, for a very small percentage of the company, that
brought them to profitability in the first year.
NWVAinvested in Packet Engines, which was bought for over
$300 million by Alcatel.
Kevin Cable pointed out the
number of successful regional businesses, including Purcell,
Itron, Ambassadors International, and ReliOn, which indicate
the growing level of regional success. The panelists pointed
out that investors are more concerned about finding a
talented management team than with the location of the
business. Purcell and Nighthawk are clear evidence of this
trend. By developing our regional network through efforts of
organizations like Connect Northwest, we are beginning to
see the kinds of synergies that will accelerate the growth
of local startups, leading to many more successful equity
investments and IPOs like that of Nighthawk Radiology.
For more
information on the Capital Formation,
please contact
Bill
Kalivas
at
billk@connectnw.org
or call 509.358.2113.
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