Vine Brook Capital Case

To: Hardina Smythe

From: FT35312

Subject: Vine Brook Capital

Date: November 17th 2012

Summary:

Vine Brooks Capital closed in April 2009 with $350 Million of investor commitments and though the last decade had been one filled with highs and lows, the firm realizes that they need to play a bigger game in health care market. However firms were generally taking a longer and more cautious approach with the idea that they want to provide more than just initial seed funding but also provide enough to get the product from the earliest stages to the market. (Rhodes-Kroff, leamon, Strope, 2011)

The Investment Choices:

(1) Always Covered Software: A software system for hospitals to manage an auction based registry

registry for nurse and other clinical staff.

Key Features, Pros and Cons:

Always covered Software (ACS) is already moving in a positive direction. It has already been implemented in 4 mid-sized hospitals and the reviews and feedback has been very positive. They already have and interest from top-tier customers and they also have a clear competitive advantage of being first to the market. There were also high switching costs and a clear exit strategy with a possibility of being acquired by a large health care software provider. Also the CEO of the company had a depth of experience. However the competitive advantage may not be sustainable. The software could easily be replicated. It would be difficult to generate sales immediately as it generally took large hospitals and unions about a year to implement functional and technical changes. Attaining approvals would be an arduous task starting from senior management to the IT departments. (Rhodes-Kroff, leamon, Strope, 2011)

Hypotheses on Value Propositions:

Points of Parity: Always covered software would have a huge advantage in this area

as they are they first to the market. However the issue is that the software would be easy to replicate and could be replicated by the hospital itself.

Points of Difference: This software would essentially be taking on the costly job of scheduling and via a web interface match job requirements to staff. $3 million spent on filling shifts would currently be saved. It also allowed for greater system wide visibility. Minimizes the need for outside agencies. Possibility of expanding to other areas as well.

Testing Plan: The big advantage that ACS brought to the table was that it had already been successfully implemented and had received positive feed-back across the board. Further testing would be to conduct primary market research on the implementation of the software. How feasible would it be to change a hospitals entire staffing system? Will Unions be on board? Do the features of the software align with the objectives of the Unions? What are the barriers to entry?

Customer Segments and Testing: The overall plan for ACS would be expand to different markets such as other parts of the hospital, other staff heavy organizations. The software could also be potentially used by the government, insurance companies, public offices, call centers. Following the success in the health industry the software could be testing out regionally in small companies first before moving on to large corporations.

(2) BioChallengers, INC (BCI) : A biotech focused on commercializing therapies for MS.

Key Features, Pros and Cons:

BCI has already an extensive amount of financing due to clinical trial success of the drug.

The current drugs on the market were accompanied by severe side effects and didn't last as long as BCI's drug XD10. There was good reason to believe that the company could enter an IPO as early as 2012 and had a clear exit strategy. Apart from the XD10, the company had a portfolio of other drugs attract strategic investors. On the down side the lack of knowledge in the industry was a hindrance, and the success of the phase trials were risky and had to be validated in the US and by the FDA. Also VBC was not being offered any board rights. (Rhodes-Kroff, leamon, Strope, 2011)

Hypotheses on Value Propositions:

Points of Parity: There were other drugs on the market that claimed to work on systems of MS. Both XD10 and the competition were not completely void of side effects. There were similar other new drugs in development.

Points of Difference: XD10 lasted longer, potentially worked better and had lesser side effects. It already had the backing and financial commitments from the company's original backers for the phase 3 trials.

Testing Plan: Testing in the market