Joe Davis sees a business opportunity in helping senior citizens around their houses.
“A great marketplace,awesome demographics,” said Davis, president and co-founder of AccentCare Inc. of Irvine. “We have demographics that are built in until the year 2050,the number of 65-plus-year-olds won’t level off until 2050. We have a big market.”
AccentCare was founded 2 1/2 years ago by Davis and Chief Executive Robert Prosek, who saw a need to provide care and life-management services for frail seniors who prefer to live at home rather than going to assisted-living or nursing facilities. Services provided in-home by AccentCare include meal preparation, bathing, dressing and toileting.
AccentCare has raised around $45 million in venture capital funding in its rather short existence. Much of that money,$25 million,came in May, at a time when venture capital investors had tightened their purse strings after technology stocks melted down.
Prosek had a concise answer when asked why AccentCare’s been able to raise money, even with venture investors exercising more caution.
“Market, model and management,the three M’s,” said Prosek, who has spent some 35 years in the healthcare business.
AccentCare has received venture capital infusions from several sources. Three Arch Partners of Menlo Park and Highland Capital Partners of Boston led its latest round with $20 million.
Returning investors in the round included Cardinal Health Partners of Princeton, N.J.; Mission Ventures of San Diego; Piper Jaffray Ventures, the Minneapolis-based venture arm of U.S. Bancorp; and Salix Ventures, with offices in Nashville and San Francisco.
Earlier this year, Three Arch partner Richard Lin said his firm invested in AccentCare because of the backgrounds of Davis and Prosek, the company’s business model and “a very big market to address.” Lin is on AccentCare’s board.
Wyc Grousbeck, a Highland Capital general partner and AccentCare director, also mentioned management, calling himself “a fiend” when it comes to focusing on the quality of such people.
“And that’s no exaggeration,” Grousbeck said earlier this year, adding that AccentCare’s management impressed his firm.
Seasoned management is one large key for venture capitalists’ participation, according to Davis. In fact, Davis and Prosek were introduced to each other through Mission Ventures, which participated in AccentCare’s first $8 million round of funding.
“You’ve got to remember, what’s happened in the last couple of years is that they funded a lot of 25-year-old kids with good ideas that didn’t go,” said Davis, who’s a youthful-looking 38.
AccentCare’s primary target population is the frail elderly, most typically defined as a woman 80 or older. On the issue of referrals, Davis noted that the business is “very needs-driven, it’s crisis-driven (and) very episodic in nature.”
About half to 60% of AccentCare’s business comes through referrals from institutions such as hospitals, social agencies, skilled-nursing facilities and aging agencies. Another 15% comes through the phone book, with the balance coming from relationships with “large aggregators” such as health maintenance organizations.
AccentCare has offices in California and Arizona. It is poised to enter greater New York after the first of the year via a pending acquisition, according to Davis.
AccentCare’s regulatory environment will vary from state to state, Davis said.
“In California and Arizona, there’s no state or federal oversight,” he said. “That’s both good and bad. It’s good in the sense that you don’t have a regulatory body telling you how to run your business. The bad side of that is there’s not a level playing field, if you will.”
By contrast, Davis noted that New York state is heavily licensed and regulated, meaning AccentCare will have to go through a process as it seeks to operate there.
AccentCare’s services also are not subject to the vagaries of health insurance in most cases. Most of its payers are clients or their adult children, with some long-term care insurance.
“Actually, we like the fact that we’re private-pay,” Prosek said. “Because along with the Medicare coverage and things comes a lot of regulations.
“I’m not saying we would never do that, but at this point we have not done that,” he said.
Davis also mentioned that MediCal, which covers healthcare needs of the elderly in certain circumstances, “is difficult reimbursement. So that’s why, to date, we’ve shied away from MediCal. But if you take New York state, where we’re going to be entering, Medicaid is a very favorable payer.”
AccentCare employs around 1,700 people, including 40 in its corporate office off Irvine Center Drive. The privately held company expects to have around $35 million in revenue by the end of its current fiscal year.
On going public, Prosek said: “Given that no business has control over the availability of public markets, all we can do is build the best business we possibly can for the long haul.”
But he also said the traditional route for venture-backed companies is to provide liquidity for investors and that the public markets are a low-cost capital way of doing that.
As for competitors, Prosek mentioned Kelly Assisted Living, which he called “a very small division” of Kelly Services Inc., the Troy, Mich.-based staffing conglomerate. But he also said, “There are also roughly 4,000, 5,000 other businesses like this out there,none of any real size,that are focused exclusively on this marketplace.”
One of the reasons AccentCare came about was because the market space is fragmented, according to Davis.
“There’s an opportunity to consolidate the market,” he said. “There’s an opportunity to enhance the professionalism, bring standards, raise the bar of quality.”
The idea for AccentCare germinated while Davis was president of ARV Health Care, a division of Costa Mesa-based ARV Assisted Living Inc. He recalled that around three years ago, he began noticing certain things about seniors and what kind of services they were seeking.
“A lot of people who came into assisted living chose not to rent an apartment and live there. They said, ‘I want to stay at home,’ ” Davis said.
The other trend, he said, was that seniors would come into ARV facilities not needing assistance, but with the intention of seeking assistance as their frailty got worse.
Davis’ group eventually wrote a white paper in 1998 suggesting that ARV become involved in buying or starting a personal-care company.
“About the time we put all this together, ARV went through a big recapitalization and the new investors decided to exit the healthcare business. They wanted to focus on the core real estate-assisted living-hospitality side'” Davis said. “And I thought, ‘Gosh, I’m going to go do this. I like the personal-care space.'”
Davis put together a business plan in 1998, and met Prosek shortly afterward.
“Mission Ventures wanted a real brand-name, top-tier CEO to complement me,” Davis said.
Prosek’s background included running CarePartners, a provider of home infusion therapy and interactive home medical monitoring services, and Psicor, a provider of cardiopulmonary services to hospitals.
Prosek and Davis then spent the next few months refining AccentCare’s business plan, and they raised its first round of funding in March 1999. n
