vcfi fund i dec-shortversion
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8/14/2019 VCFI Fund I Dec-Shortversion
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CONFIDENTIAL
DocumentDate
This report is solely for the use of client personnel. No part of it may becirculated, quoted, or reproduced for distribution outside the clientorganization without prior written approval from McKinsey & Company.This material was used by McKinsey & Company during an oralpresentation; it is not a complete record of the discussion.
Working Draft3/2004 5:15:30 PM Eastern Standard Time
4:24:16 PM Eastern Standard Time
Investing in diagnostics so vets can focus on pets
VCFI - Vets Can Focus, Investments LLCA strong investment opportunity in the
veterinary diagnostics industry
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2
Unit of measure
* FootnoteSource: Source
WorkingDraft-LastModified4/13/20045:15:30PM
Printed4/13/20044:24:16PM
Listening to opportunity knocking
Pet diagnostics ismirroring growth of human diagnosticMRI & CT industry-Minus the drawbacks!
Huge and increasingdemand at hospitals
Serendipity, timing-PetsDx Relationship
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3
Unit of measure
* FootnoteSource: Source
WorkingDraft-LastModified4/13/20045:15:30PM
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PetsDx success, more than doubling
Growth exceeding goalsMRI/CT Centers more thandoubling projections
Centers breakingeven at 12 months
Collocations start withguaranteed volume
2009 revenue growth continues
PetsDx Growth
($ thousands)
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Unit of measure
* FootnoteSource: Source
WorkingDraft-LastModified4/13/20045:15:30PM
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Blue ocean business opportunity
Pet care market is large($24 Billion in 2006) andgrowing (7% annually)
Fragmented marketplaceNo single entity accounts for more than5% of the Vet hospital industry
Competition is limited, lowquality & unorganized
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* FootnoteSource: Source
WorkingDraft-LastModified4/13/20045:15:30PM
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Demand for veterinary diagnostics
Recession resistantOn average, pet owners surveyedwould spend $688 if their pet had a75% chance of being cured
Diagnostics critical andbecoming more so..Diagnostics becoming standard,increasing vet specialization, and
convenient availability shouldincrease procedure volumes
* Sources: American Veterinary Medical Association (AVMA), theAmerican Animal Hospital Association (AAHA), and the Association of American Veterinary Medical Colleges (AAVMC)
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Unit of measure
* FootnoteSource: Source
WorkingDraft-LastModified4/13/20045:15:30PM
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Per-site modeled projections for full center
Key assumptions (1 st full year)
RevenuesInitial pricing per study $1,050MRI volume (EOY)CT volume (EOY)Growth rate 13%-33%
CostsStaffing per site 4 FTEsSalaries (fully loaded) $260,000Capital costs (debt financed) $375,000
Service contracts $100,000Variable costs $15,000
Net Sales 1,406(Cost of Goods Sold) (46)
Gross profit 1,360
Operating expensesSalaries & benefits (372)Office expenses (rent, equip,office supplies, insurance,etc.) (190)Service contracts (scanner) (100)Depreciation (85)TOTAL OP EXPENSES (747)
Net income 613
EBITDA 701
Projected Y5 Income Statement(1 st site only 000s)
* Full-service centers assume we handle all staffing, including veterinarian;limited sites assume sharing of staff with partners
35/month18/month
* limited centers plan on about initial volume
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Unit of measure
* FootnoteSource: Source
WorkingDraft-LastModified4/13/20045:15:30PM
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Actual Monthly Volume Trends trailing 12 mo.
Center 10-08 11-08 12-08 1-09 2-09 4-09 5-09 6-09 7-09 8-09 9-09 10-09 11/09
Center 1 (full) 85.5 73.5 62 69 90.5 88 69.5 90 83 87.5 77.5 56 59
Center 2 (full) 52 53.5 36.5 35.5 50 69 49 45.5 60.5 34 53 52 56
Center 3(limited)
n/a n/a n/a 12.5 7 14 16 11.5 20.5 18.5 18.5 16 20.5
Center 4(limited)
n/a n/a n/a 1 9 8.5 6 8.5 13.5 9.5 10 5.5 13
All center totals
137.5 127 98.5 104.5 140.5 157 118.5 135.5 177.5 149.5 159 129.5 148.5
Slowdown months highlighted, seasonality suggested; Very strong months in green
Surprising sustained volumes during anticipated downtime - around thanksgivingSustained growth - with minimal marketing efforts in place, opportunity to raise volumes
Volumes being reported and reviewed daily
Marketing efforts just now ramping up
By aggregated procedure volume
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WorkingDraft-LastModified4/13/20045:15:30PM
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Projected Quarterly Net Income of PetsDx Full Diagnostic Center
(200,000)
(100,000)
-
100,000
200,000
300,000
400,000
500,000
600,000
Qtr 1-1
Qtr 1-2
Qtr 1-3
Qtr 1-4
Qtr 2-1
Qtr 2-2
Qtr 2-3
Qtr 2-4
Qtr 3-1
Qtr 3-2
Qtr 3-3
Qtr 3-4
Qtr 4-1
Qtr 4-2
Qtr 4-3
Qtr 4-4
Qtr 5-1
Qtr 5-2
Qtr 5-3
Qtr 5-4
Qtr 6-1
Qtr 6-2
N e
t I n c o
Conservative Case
Projected Case
Actual Case
Optimistic Case
Cash flow from a PetsDx diagnostic center
Breakevenvolume
(
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Unit of measure
* FootnoteSource: Source
WorkingDraft-LastModified4/13/20045:15:30PM
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Projected Profit Distributions from PetsDX Operating LLC to VCFI Fund I
(300,000)
(200,000)
(100,000)
-
100,000
200,000
300,000
Qtr 1-1
Qtr 1-2
Qtr 1-3
Qtr 1-4
Qtr 2-1
Qtr 2-2
Qtr 2-3
Qtr 2-4
Qtr 3-1
Qtr 3-2
Qtr 3-3
Qtr 3-4
Qtr 4-1
Qtr 4-2
Qtr 4-3
Qtr 4-4
Qtr 5-1
Qtr 5-2
Qtr 5-3
Qtr 5-4
Qt6-1
Conservative Case
Projected Case
Actual Case
Optimistic Case
Quarterly profit distributions from a PetsDxdiagnostic center to VCFI, Fund I
Initial investment in new full center of $220k
Principal returned(Optimistic and
actual Case)
Principal returned(Projected case)
Principal returned(Conservative Case)
Breakeven volume is hitand distributions begin
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8/14/2019 VCFI Fund I Dec-Shortversion
10/1510
Unit of measure
* FootnoteSource: Source
WorkingDraft-LastModified4/13/20045:15:30PM
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VCFI Fund I raising up to $1.3MTotal investment receives 60% of fund valueVCFI parent company retains 40% of fund valueInvestors get first out distribution rightsPreferred terms for >$500k commitment
Minimum investment of $50,000 $50,000 translates into 2.31% of total VCFI Fund I equity interest $100,000 already committed
Right of first refusal in VCFI Fund II* Distributions anticipated to start in year 2
Investors overview
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Unit of measure
* FootnoteSource: Source
WorkingDraft-LastModified4/13/20045:15:30PM
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Investors return projections
INVESTMENT: $1.3M Optimistic Actual Case
Based on currentgrowth to date
Pro-forma Projections Conservative
Ramp ( months to breakeven @ 59 scans) 1239% ann. Growth
1235% ann. growth
1825% ann. growth
24(20% ann. growth)
Distributions to Investors - year 2 453,000 568,000 146,000 20,000
Distributions to Investors - year 3 1,325,000 967,000 833,000 134,000
Distributions to Investors - year 4 1,403,000 1,036,000 711,000 587,000
Distributions to Investors - year 5 2,136,000 1,724,000 841,000 665,000
Distributions to Investors - year 6(with exit)
48,983,000 29,434,000 10,885,000 4,497,000
LP Exit by selling centers(ebitda Multiple)
15x 10x 7.5x 5x
Annualized (IRR) returns with no exit 78% 68% 38% 13%
Annualized (IRR) returns with exit 135% 115% 73% 40%
* Estimates only* Optimistic scenario accounts for marcom expenses in yr 2* First out investor distributions included
* Does not include variability of actual timing of center launches
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Unit of measure
* FootnoteSource: Source
WorkingDraft-LastModified4/13/20045:15:30PM
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Investment structure: VCFI Model
VCFI, LLC
InvestmentManagement
Company
VCFI Fund I
$1,300,000
Membership Interests60% Investors40% VCFI LLC
(future)VCFI Fund II
TBDFor investment in
PetsDx centers 6-10
PetsDx
Center 1
PetsDxCenter 2
PetsDx
Center 3
PetsDxCenter 4
PetsDx
Center 5
Investors Rightof First RefusalTo participate
First Out distributionsof cash flow & gains
for VCFI Fund I Investors
Capital
Qualifiedcenter
Y/N
Diligence
Invest $Monitor
advisorysupport
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8/14/2019 VCFI Fund I Dec-Shortversion
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Unit of measure
* FootnoteSource: Source
WorkingDraft-LastModified4/13/20045:15:30PM
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Exit strategy: investment returns
Healthy cash flow distributionsFlows begin year 2, growing so that per center earnsover $700k per year to investors by end of year 5
Exit multiples (5-to-15 x EBITDA)Largest public, VCA Antech (NASDAQ: WOOF), hasrevenue of $1.01 billion, market cap of $3.2 billion,enterprise value $3.55 billion, 431 centers, EBITDAof $217MM. At 431 centers, VCA has 2% of market.
Several exit options & candidates:Petwatch, WOOF, IDXX, Rollups, (or be Acquirer)
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14
Unit of measure
* FootnoteSource: Source
W
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Management Matchup
PetsDx Management : Ex-Navy Seals
Currie P. Crookston, CEO Director of Marketing , Medrad
Deep experience in human MRI and diagnosticimaging market,
business development Pet Specific IP development solved coil problem
MBA - U.S. Naval Academy, Virginia U.S. Navy SEAL
Glenn P. Matamoros, President McKinsey & Company, Engagement Manager
Experienced in optimization of healthcare serviceoperations
strategy and product development
MBA - The Wharton School U.S. Navy SEAL
VCFI Managers: Entrepreneurs Michael Beirne Co-Manager
The Acceleration Group, Founder Global Angel Investor network
Serial Entrepreneur Founder of businesses inecommerce, security, web tech, and others
CEO & Exec Coach CEO of up to 100employees; has coached/facilitated 100s of CEOs
Private Equity Investor - Investments includereal estate, retail, service, technology
BSME, Engineer, Univ. TX; US Army Officer MIT Entrepreneurial Masters Program
Tom Heffernan Co-Manager MMR MRI Imaging Board member- led much
of expansion of MRI Scanning enterprise from2 to 23 Facilities
ZOE, CEO - Retail service chain CFO & Advisor to several companies Serial Entrepreneur & Investor BA, UConn; US Army Officer
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15
Unit of measure
* FootnoteSource: Source
W
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Lets dig in to the details of how this works
We are happy to meet to get much more in the weedswith more detailed data, analysis, and strategic plans