This is the White Coat Investor podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high-income professionals stop doing dumb things with their money since 2011.

Dr. Jim Dahle:
This is White Coat Investor podcast number 337 – Entrepreneurship and angel investing.

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QUOTE OF THE DAY:

All right, let's do our quote of the day. It’s from Morgan Housel. He said, “Don't do anything”, are the most powerful words in finance. But they're both hard for individuals to accept and hard for professionals to charge a fee for. So we fiddle far too much. Good advice there.

All right, a couple of updates I want you to know about. One, we're having a special sale. It's just for you, it's for the podcast listeners. You get 25% off two of our t-shirts in the White Coat Investor Store. That sale goes until October 28th. You can get there at whitecoatinvestor.com/store. Those t-shirts are the VTSAX and Relax and the Liftetime Member of the White Coat Investor t-shirt there. 25% off through October 28th. Use code TSHIRT at checkout.

Also, we're going with the Champions program again. You may recall the White Coat Investor Champions program is how we try to give out a copy of the White Coat Investors Guide for Students to every first year medical and dental student in the country.

This book was written with medical students and dental students in mind. The whole thing is geared toward them and if a champion from their class will volunteer, we'll send them a book for everybody in the class and a little bit of WCI swag for the Champion.
That's it. All you have to do is pass out the books. Nothing more. It's super easy.

But every year we're only able to get to about 70% of docs because we just can't find volunteers from each of the classes. We cannot afford to mail these out individually. We need to send them out in bulk. And the only way to do that is to have a champion from the program that will pass them out. So if you're willing to be that person, you can sign up at whitecoatinvestor.com/champion.

Now we're going to try something new this year that we haven't done before. The book is not exactly written with PAs, NPs and pharmacists in mind, but we've had a lot of requests over the years to include them in the Champions program. So, we're going to try it this year.

If you are a first year in a PA program, in an NP program or in a pharmacy program, and these can't be just pure online programs so you don't ever meet with your class, you have to be able to pass out the books to your class. You can also participate in this program. Again, sign up whitecoatinvestor.com/champion.

It'll be open from now through a date in the spring. Usually sometime toward the end of March when we just need time to be able to get it to people so they can pass them out before the end of the year because these are generally print on demand books when we're ordering this many of them. So, sign up as soon as you can, you can start helping your classmates.

All right, thanks everybody for what you do. As we record this, my dad is in surgery, so I hope everything's going well. I'm super grateful for his surgeon, his anesthesiologist, the physiatrist that's been working with him, his primary doc. And it's not until it becomes personal that you really realize that the work you do each day really is beneficial. Even if it feels some days like moving widgets down an assembly line, each one of those widgets is very important to a lot of other people in the world. So, thanks for what you're doing.

We're going to talk about entrepreneurship today. I've got a couple of people I'm going to bring onto the podcast. We're going to talk with them about both entrepreneurship as well as kind of the flip side of it, which is angel investing. And I hope you enjoy the interview. Let's get on the line.

INTERVIEW:

Our guests today on the White Coat Investor podcast are Niki Kennedy, MD, MBA, the founder of ArborHive, and actually a vascular surgeon. And also, Dan Pipitone, MD. He is an ArborHive board member and a radiologist. Welcome to the podcast to both of you.

Dr. Niki Kennedy:
Thanks so much.

Dr. Dan Pipitone:
Thanks, Jim.

Dr. Jim Dahle:
Now you guys are both docs with a serious interest in entrepreneurship, but before we get into all that, I want to just take a minute or two for each of you and can you tell us a little bit about your education, your career up until this point?

Dr. Niki Kennedy:
Sure, Jim. I actually started out as a biomedical and electrical engineer. My plan was to go into PhD track. I had actually been working for a dental device company back in my graduate school days, and that's what inspired me to get into innovation and entrepreneurship.

At the end of the day, medical school was actually easier than engineering PhD work at that time and the landscape was better. Back in the 90s there wasn't a whole lot going on for engineers in my area, but there were a lot of opportunities in medical school.

Long story short, I ended up as a general surgeon, went on for a vascular surgery fellowship and decided after a few years of doing that it would be great to stretch my innovation legs again. So I started getting involved with some local groups, ended up going back to school to get my M B A and that's when ArborHive was born.

Dr. Jim Dahle:
Awesome. Dan, tell us a little bit about your education career.

Dr. Dan Pipitone:
Yeah. I always tended to have an entrepreneurial mindset and after my diagnostic radiology residency, I did a fellowship in neuroradiology and the institution that I did my fellowship at had a program for house staff to do a deep dive into entrepreneurship and medical innovation. And so, I decided I wanted to do that. It was on the limited free time that we get as trainees, but I went into that program and really loved it.

From there, I caught the bug and wanted to do more of it and started to find more and more opportunities to explore that side. And later on I ended up getting a certificate in entrepreneurship and innovation and went through some of the boot camps that CEOs go through. So, for a while I pretended to be a CEO.

Dr. Jim Dahle:
There's a lot of us pretending to be a CEO these days.

Dr. Dan Pipitone:
Yeah, it's hard work though. I definitely found that out. And so, I still stayed in clinical medicine but found a way to still feed the need to be an entrepreneur and to express those interests.

Dr. Jim Dahle:
Niki, you founded ArborHive. Give us the 30 second elevator ride introduction to ArborHive. What does it do?

Dr. Niki Kennedy:
The goal of ArborHive is to bring clinicians and innovators together. We find that lots of times there's somebody who's trying to build a better mousetrap for the healthcare field and they've never worked in the healthcare field.

And so, we are really based on the principle of customer discovery and the earlier we can introduce clinical experience into that process, we feel the better product is going to come out. It's going to improve care delivery for patients, it's going to make clinicians happy and hopefully inventors and developers can make their profits as well.

Dr. Jim Dahle:
All right. Well, you're obviously both docs with a serious interest in entrepreneurship and the most common form of entrepreneurship for most docs is actually owning their own practice, but that is rapidly on the decline, both among physicians and among dentists. Why do you think that is and what do you see as the consequences of that?

Dr. Niki Kennedy:
I actually looked into my own private practice when I first came out of my fellowship. I was offered an early position with the medical group at the health system I trained out of, which was fine, but there are different metrics that work within those healthcare systems. And I was at a newer hospital and it was truly a struggle to try to generate the RVU benchmarks that they put on a lot of new and junior faculty.

I thought about switching, going to several hospitals, but I realized at the end of the day it might be better just to negotiate a contract agreement as basically an independent medical provider, working as an agent of the healthcare system, then to try to invest in my own practice where I'd be paying overhead, billing, malpractice.

I was able to actually have that conversation. But I think a lot of especially newer docs find that they can get better, we'll say services, paid for. So your overhead, your staffing issues, again, malpractice is often bundled into that billing, coding, all on the backend. If they sign up for a large healthcare group, I think just healthcare economics, bigger is cheaper.

Dr. Jim Dahle:
Dan, any thoughts on that? Have you had the opportunity to partner in your group or anything like that?

Dr. Dan Pipitone:
Yes, I was actually a partner in my first group that I joined. And as Niki said, bigger is you have more leeway to negotiate. And we were a small group in radiology. The trend had been larger groups to consolidate smaller groups. That was something we always had to fight against, keep our clinicians very happy, the hospital very happy.

In radiology, it's actually very difficult to go out and hang your own shingle and start out as a new radiologist starting a new group because you have to have the contracts with different hospitals and a lot of times more established groups, larger groups can provide more of a service that is better and quicker. So, it's very difficult.

Dr. Jim Dahle:
Yeah, I tell my partners, my clinical partners all the time that we have the worst business in the world. We basically have one customer, the hospital that holds that contract. And I do like being an owner, but it's a little bit limited I think particularly with the hospital based specialties.

I'm a big fan of ownership in general. White Coat Investors know, they've heard me talk about this before. I like owning my own home, my own cars, my practice in some form, equity investments, owners tend to care a little bit more about their neighborhood, about their business. And when it does well, they reap their rewards. And if there's a windfall, they get it.

But do you think there are people for whom owning a practice or starting a business really doesn't make sense? And if so, how do you identify if you're that type of person that really shouldn't be starting a business?

Dr. Niki Kennedy:
Oh, Jim, that's a really complicated question. I think a lot of it has to do with a person's, we'll say their social situation. If you have an expensive family, if you have a lot of kids, college, cars, schooling, vacations, things that you want to do, things you want to provide, it may not be economical from both a time standpoint as well as a money standpoint to invest that much into building your own practice. It may be easier just to work for a larger group or a larger health system that's going to take care of some of that for you.

And because they've got that larger scale, negotiating power, they could probably get a better rate for your services too, because there's a time investment when you have your own business or your own practice. If you need to address billing and coding issues, you're probably doing it on a Saturday or a Sunday. We all know that EMRs are not necessarily time savers for everything, and that's both in a managed care practice as well as in a private practice.

So, I feel that there is that extra layer. But as you said, people who have a social situation that it works, perhaps they come from a family of physicians or people who have that sort of background where it's easier to have additional staffing and resources and help when you need it. Or again, if they enjoy the flexibility and the freedom, they don't have a lot of other obligations that they're planning for, again, like college educations, weddings, those sorts of things, it might be a better fit.

Dr. Jim Dahle:
Is there a type of person that's an entrepreneur or can anybody be an entrepreneur?

Dr. Niki Kennedy:
I'll let Dan take that one.

Dr. Dan Pipitone:
I think someone has to be willing to take on the roles that an entrepreneur has to deal with. So, you're going to have employees and they're going to have opinions and you have to be the captain of the ship and help people get through problems when they come.

And also you have to not be phased when challenges come. You have to take ownership of the challenges that a company will face and you have to be patient as well.

A lot of times challenges come and it takes a while to get through them, and when you want to have a result, you have to be patient with your team. And so, having those qualities, being patient, being a leader and being able to manage people is very important.

Dr. Niki Kennedy:
I'm going to add that you have to be a little crazy too, I think, to start any kind of business project or anything else, because you really have to have a passion for it and you have to be willing to let people tell you that they don't think you're going to succeed. Because I think that's what most entrepreneurs hear, especially in the early stages, and you have to be able to screen that out. And if you have a thin skin, that makes it that much harder to get started.

Dr. Jim Dahle:
You know what they say about an entrepreneur, it's somebody that's willing to work 80 hours a week in order to avoid working for somebody else for 40 hours a week.

Dr. Niki Kennedy:
Very true.

Dr. Dan Pipitone:
It's true.

Dr. Jim Dahle:
It's difficult and if you're a time card puncher, maybe you're not the type to go start a business. If the idea of working for hours after your normal workday doesn't appeal to you, maybe this isn't your thing.

Let's talk about funding a business a little bit. Bootstrapping a business has a lot of benefits. There's no debt, there's no investors to answer to or partners. And if you do it as a side gig, you basically have an infinite runway to get the business off the ground. When do you think bootstrapping is a bad idea?

Dr. Niki Kennedy:
I think at some point you're going to realize that it's limiting your growth. And I also think you have to look at your own financial situation. If you maintain a full-time paying gig and your entrepreneurial job is more of a side hustle, so to speak, you have a stream of income that can continue to bootstrap that up.

But as your side hustle starts to take over, if it's successful and starts to grow, it might be harder and harder to work at your day job. And as a result, you might have to tap into savings, you may have to cut back on your regular work hours and limit your income.

There's kind of a sweet spot there, some balance point that you have to determine when you hit it. And when you do, you have to make a choice. Either you find somebody else to help you fund this or find somebody that you can hire and then you have to pay them to do that extra work, or you have to pass it off to somebody else.

Dr. Jim Dahle:
Do you think most businesses can be bootstrapped? Do you think most of them need to chase down funding in some way, shape or form before they can really be financially viable?

Dr. Niki Kennedy:
I think that it depends a little bit on the business of the stage it’s at. I think most early stage developers or entrepreneurs are maybe better off bootstrapping because it gives you that flexibility to pivot a little bit when you realize maybe you're going in the wrong direction.

And again, get your resources in a row and more than anything else, just test out the viability of your product or your service. I think a lot of customer discovery happens on the fly after the business has sort of been formed. Sometimes you've already developed your LLC or your S Corp, but maybe you haven't. And if you're taking other people's money, they're going to start owning a piece of that. But as you again grow, you may find that bootstrapping just isn't going to be viable after a while.

Dr. Jim Dahle:
Let's say you do need some funding for your business. What are the options? What can an entrepreneur do and what are the pluses and minuses of each option?

Dr. Dan Pipitone:
Yeah. Entrepreneurs can be very creative with how they fund their businesses. I've run into CEOs that actually use Kickstarter platforms like that and give out samples or use their products on a free platform in exchange for publicity to build the brand. There's been entrepreneurs that they go to pitch contests and they get funding that way, and they basically pitch their ideas to investors. And if investors really like their idea, they win the contest and they get funding that way. So, it can be very interesting how entrepreneurs can obtain funding.

Dr. Jim Dahle:
What about just borrowing it? Is that an option for many or is it just too hard to get a loan when you don't actually have any revenue or product or anything?

Dr. Dan Pipitone:
Yeah, that can be very difficult, especially in today's economic situation. That also will limit growth as you have to factor in that debt when you start the business. And then thinking of the benefits of taking money versus not taking money. Entrepreneurs also have to think of when you take someone's money, they're going to want a say in how the company is run. Especially when you start getting into venture capital, angel investing. They're going to want seats on the board to help you grow the company, and that's an opportunity or a challenge may arise where you can butt heads.

Again, bootstrapping is great, but at a certain point you're either going to have a shortened runway where you don't have enough capital, and if you have employees, you have to keep your employees paid and keep the business growing and going. So that's a big consideration.

And then some technologies, there's a lot of regulatory hoops you have to jump through, especially in the healthcare realm, healthcare devices, pharmaceuticals. And it's just not feasible. You just need massive amounts of money to do the clinical testing that you need to accomplish to get regulatory approval. In some circumstances, some realms, I think it's very, very difficult to bootstrap a company straight from the ground up.

Dr. Jim Dahle:
Yeah. Your description of these spaces, pharmaceuticals and medical devices that require approvals, it doesn't sound like anybody's bootstrapping them or anybody's borrowing the money for them. They're all taking investor money. Is that kind of your feeling on it?

Dr. Dan Pipitone:
Yeah. And we're talking about companies that eventually have a huge market cap. Even as an entrepreneur that you're starting, say a healthcare startup, when you eventually exit, your exit could be in the billions of dollars. And even if you own a very small percentage of billions of dollars, you're still doing okay.

Dr. Niki Kennedy:
Yeah. Actually, I'll say we've gone on and coached and mentored and participated in a lot of different programs to try to help some of these startups, especially in the medical device and digital health field. A lot of the companies, in fact, almost all of them do look for a licensing to a larger entity as their main exit strategy. And unless it's in the tens of billions of dollars, a lot of your big companies won't even look twice at them. The numbers are just astronomical these days. If it's worth a hundred million, it's too small.

Dr. Jim Dahle:
Interesting. Walk us through the process for a doctor to go from an idea, whether it's pharmaceuticals or device or implant or whatever to actually having a viable business. Can you walk us through that?

Dr. Niki Kennedy:
I think it's a little bit different for each doc, and I think a lot of it has to do with the fact that many of your ideas, your testing, your resources, your research are going to somehow be tied to your healthcare system or your university these days. It becomes difficult for a doc to really separate that out, although many do try. If you do that, that means you're paying for laboratory space, research resources, all out of pocket. A younger doc might not be as successful with that as a more experienced doc who has more savings but they could, as you said, bootstrap that.

I think if you are looking at a doc that's doing research and trying to develop something off of their clinical life, somehow they're going to have to partner with their healthcare system or their university, probably working with their technology transfer office, developing it up to a certain point. And then what I have seen is a lot of docs will license their own technology off of the healthcare system or the university. They usually have some pretty reasonable terms for that from what I've seen, if they want to spin it off out of their organization and try to launch it on their own.

Dr. Jim Dahle:
The other side of the coin here, obviously there's physician inventors looking for funding. The other side of it is the people providing the funding. Often angel investors. Angel investment tends to be $15,000 to $250,000. It's often coming from friends and family in exchange for equity in this hopefully someday profitable business.

When you look at the numbers, something like 60% of angel investment related businesses fail within six years. Who should really consider being an angel investor in your opinion?

Dr. Dan Pipitone:
Yeah. I'll take that one, Jim. In my own personal investing opinion and the way I look at angel investing is, number one, I try to remember that angel investing is high risk investing, but potentially a large upside. I also try to remember that as Benjamin Graham said an investor should always act consistently as an investor and not as a speculator.

I try to look at angel investment like I do my personal investments, recognize that there's data behind it. And so, looking at a lot of the data that has come out recently, you can see that there are ways to de-risk and actually diversify a portfolio of angel investments.

A lot of physicians say, “Oh, I have experience with this company, they have a good product, I'm going to invest in it.” And then that's it. And a single investment is like picking a stock, probably even worse than picking a stock because it's a very early stage company that has a high chance of failing as you quoted this statistic.

You really have to say if it's going to be something you're going to pursue, make sure it's in your investing plan and you're going to do it with a small part of your portfolio like 5% because it is an area of investing that is high risk. I wouldn't recommend anyone put all their eggs in the angel investment basket, so to say.

Dr. Jim Dahle:
A small percentage of your portfolio, and of course, lots of them fail, so you need multiple of them. You're going to need, I don't know, 10, 20 of these investments. That's
a lot of time to evaluate all those. I feel like I have somebody pitching me some type of angel investment once or twice a month and I tend to turn them down just because I don't have the time to evaluate them, much less participate in them in any way as some sort of an advisor or something. What do you think it takes to really be successful doing this?

Dr. Dan Pipitone:
Yeah, I really think you need to be with a group that has the passion for it and the ability to evaluate different companies. It takes a lot to actually evaluate a company. You have the financial side where you're actually looking into the company's financials, doing a deep dive into that. You do need to have expertise in the realm that you're investing in. So that's why for physicians, they have that going for them.

Knowing the healthcare space is beneficial. So you introduce even more risk if you're investing in say financial technology or something that you're not as familiar with. And you have to kind of resign yourself to the fact that you're going to need more investments to even just break even. I would say 10 investments you have a good chance of breaking even. By 20, you should have a good portfolio to actually make a decent return.

And that's all evidence-based. There are studies out there that actually have looked at how many companies in a portfolio you should have and what returns you can reasonably expect.

But there are so many risks to an early stage company that may not even just be from the technology. You may know that a product has a good applicability, say you're a surgeon and you would love to have that product, but companies also face risks from competitors from even the management team itself.

So, it's very important to have a good group, an angel investment group that can do some due diligence and has the passion for it as well. I think for someone to get into angel investing, you have to be interested in it.

Similar to real estate, you have to know something about buying and selling houses and real estate market and location. And if you're going to have tenants, how to work with tenants. Same with angel investing. You can't just go in and expect to know everything about it and be successful with only a few deals.

Dr. Jim Dahle:
It sounds like you need to be pretty wealthy too. If I just take the numbers you've thrown out, if we're talking about putting only $15,000 into each investment and it's 20 investments and you want to limit that to 5% of your portfolio, we're talking about people that have a investible portfolio of $6 million or more. It’s very hard do this with a relatively small portfolio.

Dr. Dan Pipitone:
Yeah. Angel investing is not cheap. You can find groups that can do it cheaper, but you also have to take into the cost of those investments. As we were talking about, doing the due diligence also costs money. You're going to have to pay the staff to do the due diligence, and that's also a lot of times factored into management costs and how much the group will take in carried interest. So, it's not cheap investing, it's definitely active investing. This is not passive investing and there are managers to pay. So yeah, this is not something that you would start into with just starting out in your investing portfolio, getting your portfolio together. You really have to have the cash to back it up.

Dr. Jim Dahle:
Yeah. There's no angel investing index fund at Vanguard, is there?

Dr. Dan Pipitone:
No.

Dr. Jim Dahle:
All right. There was a 2007 study, it looked at about 3,000 investments by over 500 angels that showed average returns of 27% which is pretty awesome. Do you think that's a fair expectation of a diversified portfolio of angel investments?

Dr. Niki Kennedy:
I think it's going to depend on how well you pick your portfolio. You can easily pick 15 companies that you want to invest in, but again, as Dan was saying, if the due diligence doesn't quite line up, and especially if it's something that's not in a field of which you have some familiarity, so you can kind of understand if you think this technology or service is going to have a market or not. I think it would be easy to not pick an ideal portfolio, but I do think you just need to hit a couple that are really going to hit the jackpot there and you can get some pretty sizable returns. That is the advantage of investing early. You take on all the risk, but you also reap the reward.

Dr. Dan Pipitone:
Exactly. You also have to take into consideration that this is over a long period of time. Some investments can exit in two to three years, but other deals won't mature until a decade after the investment. So, you have to take that return over a period of time. But also know that in your portfolio, this is an illiquid investment over a long period of time. But as Niki mentioned, there is a very high potential upside

Dr. Jim Dahle:
That same study gave some recommendations for those who had the higher returns. They said, first of all, angels who put in more due diligence time, and they said 20 to 40 total person hours per deal had better returns. Angels who had expertise or access to expertise in their investing areas had better returns. And angels who interacted with their portfolio companies at least a couple of times a month with mentoring, coaching, providing leads and monitoring performance had better returns.

When I hear all that, especially if I multiply it by 15 or 20 companies, that's a lot of work. Is there a shortcut and what price do you pay if you take it?

Dr. Niki Kennedy:
I'm going to let Dan take this one because I know what he's thinking. The short answer would be yes, there's a shortcut.

Dr. Dan Pipitone:
Well, yeah. You just introduce more risk. Some people get lucky and the first one they invest in turns out to be a home run. But to properly de-risk, you need to do all that due diligence and have a diversified portfolio. The way to do it as a shortcut is to have a lot of investors. Angel groups will have a lot of capital that they can deploy and the staff that can do the due diligence. And that's really the best way to maximize your chance of returns, which is what you're doing here.

But on the upside, if you really want to be intimately involved in your investing, this is the area where you can do it. You'll know a company so much so that if you are really a key opinion leader, that you may be asked to be on their board and they will go to you for advice on how to make the product better or how to advertise the product, how to interface with hospitals and companies, and you can put your network to work with these companies. So, there's really a very unique opportunity to get very intimately involved with a company that you actually have skin in the game and money with.

Dr. Jim Dahle:
It's interesting you mentioned that because a lot of angel investors that I've talked to, they really don't say they're doing it for the money. Obviously, these people are generally wealthy to start with. They're doing it more for psychic reasons. They want the opportunity to build something, be part of something.

What percentage of angel investors that you've met would you put in that camp that really aren't doing it for the money? And if they're in that camp, how should that affect how they invest?

Dr. Niki Kennedy:
I think that pretty much sums up what we do with ArborHive. We got together because we were docs who are interested in innovation and we wanted to make an impact. In terms of money making potential, generally we look for the opportunities and when the opportunities present themselves, our docs try to work with companies, sometimes as an advisory position, sometimes as an investor. It's not necessarily about getting paid for all those hours of due diligence with the return on investment eventually. It's about having an impact with that company that you believe in.

You think it's doing something right for the world, so to speak. It's a little altruistic, but if you believe in that company and you're willing to go for the map for it and spend your extra time and put your money into it, hopefully you actually think that what they're doing is for a good cause. And that in itself sometimes is not a bad reward to have.

Dr. Jim Dahle:
Let's step away from the investing side and go back to the entrepreneur startup side. You guys do consulting on startups. I can't imagine that's a very inexpensive service to purchase. What are the benefits of a consultant to a startup?

Dr. Niki Kennedy:
Well Jim, you'd be a little surprised. When you're working with a big company, like a Medtronic, J&J and Boston Scientific, I think you're going to see some pretty nice consulting fees. When you're working with a startup that is still trying to raise funds, sometimes your compensation is just your goodwill. And again, you have to do it because you love doing it. You have to do it because you believe that these companies are going to make an impact.

Dan and I have worked with multiple startups, dozens easily, over the past few years and some of them have gone on to do some really great things. Some of them are still working on it. Some of them have decided they're just going to call it quits and move on to other projects. So, it's interesting to see where those founders, those CEOs go with their plan.

A lot of the consulting we do, again, can help them determine if they're going in a good direction. We've tried to introduce them to different groups within the healthcare world. Sometimes it's within the manufacturing field because they need resources. Sometimes it's with different investment groups because they're looking for funding. Again, what they put together and their vision, I think makes a huge impact in terms of how far we're willing to go to try to help them out. I don't know if you have thoughts on that, Dan.

Dr. Dan Pipitone:
Yeah Niki, a lot of our members have gotten instead of cash for what services they provide. Companies have a warrant pool or an option pool that they're able to give our members and really take them on as a consultant with the company. And when there's a good match there and the physician is very passionate about what the company is doing, it really works out as a benefit for everyone because down the road you're helping patients. That technology is going to be used by physicians, you're helping physicians.

I look at a lot of the EMRs we use and you see yourself working with it and a glitch comes up or it's so cumbersome to use and you wish maybe if this company would have had the insight of a physician who is using it every day, maybe it could be better. So, just making healthcare better with those little tweaks and opinions I think is very valuable.

Dr. Jim Dahle:
All right. Well, our time is getting short, but I have one more question for you. You spend more time in this space obviously than I do. What else have we not talked about that you think our audience should know?

Dr. Niki Kennedy:
I would just say to your audience that if they have interest in innovation to just get involved. Look for your local groups, look at your universities, look within your own healthcare system. Most places these days are trying to get that experience that clinicians have to offer out into the innovation field. It's so valuable and it's really hard to create a product if you're not involving your customer in that development. And in this case, your customer would be your clinical provider. That's who's going to determine if that product or service is something that might have utility for their patients.

Even if you don't want to do it full-time, you don't have to do 20 to 40 hours with the company. You can do a half hour phone call with a young company and just give them a little bit of experience that you've had over the years and that can make a huge impact on which direction that company goes. Just that little customer discovery interview.

Dr. Dan Pipitone:
Yeah, and I would also say if you have any interest at all, try it out because you'll be amazed at how much companies value you. Especially in our day-to-day clinical work, it can tend to feel repetitive and especially in radiology, when you don't have direct patient care, you can be isolated and maybe not feeling that you're having an impact or a value.

Well, you'll be amazed at how these companies really value a physician's opinion and that a physician even takes the time to actually talk with them and give their opinion. And really that's been very fulfilling for myself working without ArborHive and the different companies I've been fortunate enough to help and mentor.

Dr. Jim Dahle:
We've been talking with doctors Niki Kennedy and Dan Pipitone. You can learn more about them and their work at arborhive.com. Thank you to both of you for your time and for coming on the podcast today.

Dr. Niki Kennedy:
Thanks for having us, Jim.

Dr. Dan Pipitone:
Yeah, thank you very much. Great pleasure.

Dr. Jim Dahle:
Okay. I hope you enjoyed that. Obviously, angel investing may not be for everybody, particularly if you don't have much money or don't have much time, you're going to need some of both in order to be a successful angel investor. But I've certainly met a few docs that are into that style of investing.

I think Dan gave some good advice when he basically said limit it to a small percentage of your portfolio. If you really like fiddling with investments, if investing is a hobby for you, this is a good way to do it with some small percentage of your portfolio. You can get really involved and you're far more likely to make a difference in some tiny company than you are picking individual stocks like Apple or Amazon.

All right, a couple of things I mentioned at the beginning of the podcast. Don't forget the t-shirt sale. A couple of our t-shirts, it’s 25% off, you can pick them up through October 28th. They make great gifts and they're great to show that you're a White Coat Investor. It's our VTSAX and Relax t-shirt, which is our most popular one as well as the Lifetime Member t-shirt that are both on sale through October 28th for podcast listeners only. Use the code TSHIRT. Pretty simple code but easy to remember because hey, this is the podcast. It's got to be easy to remember.

Also, don't forget about the Champions program. If you're a first year student, MD program, DO program, dental program, PAs, NPs and pharmacists this year too, you can sign up whitecoatinvestor.com/champion.

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All right, thanks for those of you leaving us five star reviews. It always helps, it helps us get the word out to other people. It puts it in front of them so they can become White Coat Investors.

We had one recently just back in August from Tom from St. Louis who also wanted to plug his favorite team. It says, “Go Cardinals.” He says, “Jim helped me drop my financial adviser. Great show for anyone wanting to take control of their finances. I’m a stay at home Dad. My wife is a surgeon.

I’ve learned so much from this show. We dropped our adviser, and now have low cost broad based diversified index funds. My adviser never told us about tax loss harvesting, or the back door Roth. I’ve learned how to employ these strategies and much more by listening to Jim’s podcasts. Thanks Jim!” Five stars. Very kind. We appreciate the kind words and the five star review.

Okay, that's it. We've come to the end of the podcast. I hope you're having a good day. If you're on your way into work, your way home from work, you're working out, I hope things are going great for you. If not, well, maybe tomorrow will be a little bit better.

Keep your head up, shoulders back. You've got this and we can help. We'll see you next time on the White Coat Investor podcast.

DISCLAIMER:

The hosts of the White Coat Investor are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.

This is the White Coat Investor podcast Milestones to Millionaire – Celebrating stories of success along the journey to financial freedom.

Dr. Jim Dahle:
This is Milestones to Millionaire podcast number 140 – Vascular surgeon lives like a resident.

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All right, welcome back to the podcast. This is the Milestones to Millionaire podcast where we celebrate your milestones. We want to use what you have accomplished to inspire others to do the same. Apply to come on the podcast, whitecoatinvestor.com/milestones.

We have a fantastic guest today who has hit not just one but three milestones and really demonstrates a lot of what we teach here at the White Coat Investor about how you can jumpstart your financial journey right at the beginning of your career. So, let's get her on the line. Stick around afterward, I'm going to talk to you a little bit about auto insurance. I know it's not that exciting, but you want to make sure you're doing it right.

INTERVIEW

Our guest today on the Milestones Millionaire podcast is Danielle. Welcome to the podcast.

Danielle:
Hi. Thank you. Thank you for having me.

Dr. Jim Dahle:
All right. Like with every episode, tell us what you do for a living, how far you are out of training, and what part of the country you're in.

Danielle:
Yeah. I am an academic vascular surgeon. I'm about four years out now. I'm entering my fifth year and I live in the southeast.

Dr. Jim Dahle:
Four years out is all. Okay, well, here's another doc out there who's done way better than I did. All right, tell them what your three milestones really that we're celebrating today are.

Danielle:
Yeah. The first one that's most recent, I guess I finally got my public service loan forgiveness letter August 9th. And so, I got my student loans forgiven is the first one. And then the second one is hitting my milestone of net worth of a million dollars, which I had a goal of doing before I was age 40 and I did it three days before I was 38.

Dr. Jim Dahle:
Oh, awesome.

Danielle:
And I'm trying to think of the third one.

Dr. Jim Dahle:
Well, you paid off your student loans. They weren't all forgiven, right?

Danielle:
Right. Yeah. Oh yeah, half of them are forgiven and half of them I actually paid off, which is a little bit more tough I guess.

Dr. Jim Dahle:
Wow. Okay. And you're married, right? Any kids?

Danielle:
Yes. Married. We just welcomed our first baby girl this past December, so she's eight months.

Dr. Jim Dahle:
Congratulations.

Danielle:
Thanks.

Dr. Jim Dahle:
All right. Approximate household income over those four years.

Danielle:
Yeah. When we first got out and I was half of a resident salary and half attending salary, me and my husband made about $235,000. And that subsequently has gone up a little bit every year to the last year it was about $425,000.

Dr. Jim Dahle:
Okay. Let's talk about the student loans to start with.

Danielle:
Yeah, for sure.

Dr. Jim Dahle:
How'd you pay for medical school? Was it all borrowed money? Did you get some family money? Was there scholarships? How'd you pay for med school?

Danielle:
I took out student loans for the whole thing. I actually did a master's right before med school where I also took out student loans. And at the time, it's really funny to say now, I put my head in the sand and told my husband to go to the financial exit meeting. I wanted nothing to do with it.

Fast forward, I trained at an academic institution and did three clinical years. And then during my research years I was like, “Wow, I have all this debt and I need to figure out what to do with it.” I went to the library, got some books on CD, started listening to your podcast, read your book. And at that point I got really serious about paying them back.

And at the time I had put my certification in for public service loan forgiveness and they gave me a letter saying, “This is great, but half your loans don't qualify and half your loans do. Great, you've been paying for three years, but if you want them all to qualify, you have to consolidate. But we will erase three years of payments.”

Dr. Jim Dahle:
Ah.

Danielle:
I spent quite a few hours of my life on the phone with fed loans and realized at the time that I would maybe take the route of have half not go for public service loan forgiveness because I didn't know if it was actually going to work out at that point. And then half go for public service loan forgiveness. So, that's kind of where it all started.

Dr. Jim Dahle:
Split the difference. Were they all federal loans or some of them private loans? How come they didn't qualify?

Danielle:
Yes, they were all federal. I think they were a different type of federal loan that at the time if you consolidated, if you just did that one step at the beginning, it would've been fine. But I just failed to realize that that was the critical step. And at that point I was already three years in and my residency was going to be a seven year program. And so, I thought I would just split the difference.

At the time my father was seeing the interest every month, even though I was paying income base go up. And so, he helped me and then I paid him back and that's what made it a little bit easier.

Dr. Jim Dahle:
Cool. So when you came out of med school, how much did you owe?

Danielle:
It was $235,000-ish.

Dr. Jim Dahle:
And when you finished your training, how much did you owe?

Danielle:
When I finished my training, oh man, I'd have to go back and look.

Dr. Jim Dahle:
Was it more or less?

Danielle:
It was more because of the interest. I guess after med school it was over $200,000 but probably not as much as $235,000 because the interest was just 6.8% the whole time. I think it was 6.5% because I had signed up for automatic payment.

But the other thing that happened when I was in my lab time was when I went to go get my master's during my research time, they did me a huge favor by putting me into automatic forbearance without me realizing it and said all my automatic payments for months would not count because I was in academic forbearance. After that it got me really angry and I started giving all the residents a talk about what to do when you're in the lab and to make sure that they don't put you in academic forbearance. So, that was another barrier.

Dr. Jim Dahle:
Wow. What a journey. All right. For all you young bucks out there that don't have this issue anymore, this might be a surprise to you, but from 2012 until 2023, your loans grew during residency. Now everyone's enrolling in save and so all the unpaid interest is waived. Basically your federal loans anyway won't go up during residency like they used to.

Before 2012, a lot of us had subsidized loans and those went away in 2012. For a period of about a decade there people would finish med school owing $200,000 and they'd finish residency owing $300,000. And thankfully that's kind of gone away.

All right. I should also put in an ad here for student loan advice. If you're in as complicated of a situation as she is, pay a few hundred dollars, get some advice from this company we started studentloanadvice.com and you might save lots of money. They're telling me the average client is saving $190,000 there. So, don't be pennywise and pound foolish when it comes to getting advice about that.

Okay. Let's move on. Well, I just want to ask you how you felt when you got that letter from public service loan forgiveness.

Danielle:
It was surreal. I was like, “Wow, this actually worked.” I was pretty excited. I still didn't know if it was really going to go through and that's why I didn't apply to the show until it completely went off and was paid.

I think the other thing that was hard to see, which is good for other people, had the other half of my loans had I kept them in federal instead of having help from my dad and then paying him back, I would've actually probably gotten the waiver when that was passed and I probably could have gotten them all forgiven, which would've saved me $130,000 to my loan to my dad. But it is what it is.

Dr. Jim Dahle:
It's really hard to do student loan planning when they change the rules every three months, isn't it?

Danielle:
Right, for sure.

Dr. Jim Dahle:
Yeah, exactly. Okay. Well, congratulations on that. Just that alone is a fantastic milestone you should be very proud of. But you have also somehow magically become a millionaire four years out of training on an income ranging from $200,000 to $400,000-ish. This is no small feat.

Danielle:
Yeah.

Dr. Jim Dahle:
Tell us about how you did that.

Danielle:
I think one of the big things was when I came out of training, I had already read your book once and I reread it and when I graduated, I know my husband really wanted to buy a house. The classic American dream, we need to buy a house, it's going to be an investment, but I was going to a different part of the nation and I didn't know the area and I told him no, we have to live like a resident at least the first year.

And so, I convinced him to rent a house that had a yard, but we saved significantly that year. And I was able to put over $120,000, which essentially is all after tax that I had a way to save for the house and we lived really on his income.

And so, because of that we were able to learn the area and not necessarily be pressured to buy a house when we had to be moving in a certain location. And I felt like it gave us more negotiating ability, number one. Number two, I knew exactly how much we had and when my husband said, “Oh, look at this house”, I said we can't afford it. But I said, “Well, why not? Let's just negotiate.” And I probably negotiated way better than I ever would've just knowing that I had more control.

Dr. Jim Dahle:
Yeah. Plus it's your money. You're like, “I saved really hard for this money and I don't want to give any way that I don't have to. So, I'm going to negotiate.”

Danielle:
Yeah. And so, we had saved really 20% down, which I know a lot of people don't do nowadays. So, that first year, basically the $120,000 I saved was for the house. It really wasn't towards loans initially, but that was what I had to do when we were talking with my husband about buying the home.

That was really the first year. And then we really got lucky because one we negotiated when it was right before the housing spike. We have quite a bit of equity in the house now.

Then the second year was when I said, “Okay, well, now I know I can save over $100,000 a year.” My second year goal is to pay off the $130,000 that I had an IOU to my dad. So, we did that. And at first I was just throwing little chunks of change and then I really got serious to the point where I wouldn’t want to eat at all in the hospital. I would sit, bring my lunch to work, my husband thinks I'm crazy but I was able to pay off that $130,000 in the second year.

And then our equity in our home obviously got higher. And at the same time, I know a lot of people say “Do you invest or save or pay down loans?” And I kind of was doing everything initially at least with retirement accounts. The first five months I was an attending, I had a meeting with HR and I said “I want to max out all my accounts.” And they said, “We've never had someone do this. Are you sure you're able to live off this amount of money?” And I said, “Yes, we can do this.” So, I maxed them all out.

Dr. Jim Dahle:
I love this story. This is a great story.

Danielle:
Yeah, I did it all pre-tax because I didn't realize at the time I should have done that Roth. Because the next year my salary went up. But I maxed them all out. And so, I was maxing out all our retirement accounts and I told my husband you're going to have to put 80% of your salary in your retirement bucket and I will give you money so that we can get all three buckets filled because we have a 457 available.

We were doing all of that at the same time, which also helped towards this net worth goal which like I said, I was trying to do by age 40. So, we were able to get there 3 days before I turned 38.

Dr. Jim Dahle:
So, it turns out if you live like a resident, you actually can do it all at once. Is that what you're telling me? You can save up a down payment, you can get rid of your student loans, you can max out your retirement accounts?

Danielle:
Yeah, I think so.

Dr. Jim Dahle:
Yeah. It's weird how the math works, isn't it?

Danielle:
Right. I think just be aware of the creeping lifestyle is what our motto is.

Dr. Jim Dahle:
Yeah. So, how's your lifestyle changed from year one to now you're four years out?

Danielle:
Yeah. I feel like other than our mortgage is a little bit higher than what our rent was and I was a stickler for what that max would be. We put the property tax, the insurance and the house payment. And I went backwards with the mortgage people. I said this is the max I want to spend. So, that is higher but our monthly budget is essentially the same.

My husband does all the grocery shopping and so we now buy Jasmine rice instead of normal rice. We get Sargento cheese instead of Great Value. So a couple upgrades there, but for the most part it's about the same. I just joined a gym other than Planet Fitness recently, which is a big deal for me because they have a pool for my little one. But for the most part we've kept it the same.

And the other thing from your advice when we bought cars when I came out of training, I really didn't want a new car to be that typical attending, but my car was leaking from the roof and it was just bad. So, I had to get a new car, which I paid cash for after just saving a few months. And then with the welcoming of our little one, we bought an SUV with cash as well.

Dr. Jim Dahle:
Is there anything you've done wrong?

Danielle:
Yes.

Dr. Jim Dahle:
Maybe the student loan management a little bit, maybe you should have used Roth that first year, but basically you've done everything right.

Danielle:
Because of your books and your podcast, to be honest. I think the student loan management, I definitely had a hiccup, but for the most part I've followed what you preach and it's definitely done wonders for sure. And I'm also really, really frugal by nature. So, that has helped.

Dr. Jim Dahle:
I did an interview earlier this morning. It won't run for a few weeks after your interview, but it's basically a doc on the other end of his career who's basically a multi-deca millionaire. Very, very, very wealthy. And listening to his story, he basically did what you did the last four years.

How do you feel knowing that that's probably what your future looks like? That you're going to be so wealthy, you're not going to know what to do with the money, you're going to be able to help others and give to charity and leave huge inheritances for your new baby or whatever you want to do. How does that feel looking forward to that?

Danielle:
I feel really blessed. I think we're in a position with a higher income that if you do the right thing with the money it can grow and you can help multiple charities, which I'm excited about. I know going through medical school I wasn't always able to say yes to the charity at the Walmart cash register. And I'm excited about giving more in the future.

And I think having that wealth will give us flexibility of maybe cutting back and spending more time with family and traveling when we're younger and healthier. I feel really grateful and lucky to have that problem. I think the other more mathematical problem is really trying to figure out if I'm truly a super saver or not to figure out Roth versus not. But that's first world problems.

Dr. Jim Dahle:
Let me give you a hint. You are, unless you're planning to retire or cut back very soon, you are. I'm curious how you feel about your career now that your financial ducks are kind of all in a row. Has it changed the way you feel about your career in any way?

Danielle:
For sure. I think even as a young faculty, I kind of feel where burnout would be a problem. And so, I kind of detected that early in the medical field in general with not just my specialty but other specialties. There's just going to be a shortage of vascular surgeons and we have a lot of emergencies. We work in the middle of the night a lot and I wanted to have the med school debt shackle off. I wanted to be able to say, “You know what? I can't take this anymore or it's not for me and be able to exit if I want to.” And now that I have my financial ducks in a row, it's made me really enjoy my profession that much more because I don't feel like I am owing anyone anything.

Dr. Jim Dahle:
All right. What advice do you have for somebody that's four years behind you, six years behind you, told their spouse to go to the financial exit meeting, has their head in the sand? What advice do you have for that person if they're listening to this and they're like, “Wow, I wonder if I can do that?”

Danielle:
Yeah, I would say 100% you can do it. Get your head out of the sand. You want to stay up to date with student loan management, it’s huge. And I would say go through your Fire Your Financial Advisor course because that also is huge going through and making my financial plan and actually setting goals.

And live like a resident. If you can live like a resident and you should be able to, because you've just been doing it, you've delayed gratification this long and you can still give yourself a little bit of a raise. But if you live like a resident and you set your financial goals and get those ducks in a row and stay up to date with the changing policies on student loans, I think you can 100% do it.

Dr. Jim Dahle:
Yeah. You're exhibit A that it can be done, that the process actually works. So, congratulations to you on your success. You should be really proud of what you've done.

Danielle:
Thanks. Thanks.

Dr. Jim Dahle:
And I appreciate you coming on the podcast to inspire others to do the same.

Danielle:
Thanks.

Dr. Jim Dahle:
All right. Great interview. Live like a resident, right? That's lesson number one. If you do that, you can do everything in your life. You can save up a down payment, you can buy the house of your dreams. You can afford to have a kid and afford to replace a car and max out your retirement accounts and get rid of your student loans in less than five years. It works, the process works. It's just math. Run the numbers, it'll work for you just like it worked for her. You can do this.

Other lessons there. Go into HR, don't be afraid to learn about your retirement plans. What a bummer that she goes in there and says, “I want to max out my retirement accounts” and they're like, “We've never had anybody do that before.” Really? How many other docs are there?

Max out your retirement accounts. You'll be amazed what happens over the coming decades for having done that. That money is not only tax protected, it now grows without tax drag on it, but it's asset protected. If you get sued, this is unlikely admittedly that if you get sued and it's above policy limits and is not reduced on appeal and you have to declare bankruptcy, you still get to keep your retirement accounts. They're asset protected in pretty much every state. Every state for your 401(k)s and other ERISA accounts, most states for your IRAs.

So, max those out. Don't be afraid to negotiate. Negotiate your homes, negotiate your salary at your job. Don't be afraid to do that and pass the lessons on to those following you. This is what we are. We are docs. We teach, we have trainees and apprentices coming up behind us. Let's pass on the knowledge to them.

FINANCE 101: CAR INSURANCE

All right, I promised you we're going to talk about car insurance. And car insurance is important. The main thing I want you to do with your car insurance though, is recognize that your car is a huge liability in your life. Bad things happen with cars. And if you've worked in a trauma center, you know this. Bad things happen. Cars go fast, they're big hunks of metal. They're not always driven by people who are paying attention or who are competent or who are sober and things can happen.

It's a huge source of liability for you. When you look at the data for umbrella insurance, 80% of umbrella insurance claims are auto related. The big liability is your car, not people tripping on your sidewalk in front of your house. Not you libeling somebody, it's something happening in your car while you're driving it, while your kid's driving it, whatever. That's the big liability.

The first kind of insurance you need for your car is liability insurance. And what's wild about liability insurance is how low the state required amounts are. In many states, they're $50,000 or even less.

And imagine how much damage you can do with your car in a fraction of a second. Imagine you are driving down the road and you come across a CEO making $2 million a year driving a Tesla with their three kids and you smack them. And they all go to the ER and one of them ends up in the ICU for a month and that CEO is disabled and got to work for five years and the Tesla costs $120,000 to start with. How far is that $50,000 going to go? It's not going to go very far, right? That's the sort of liability you have.

Yeah, you might hit a $3,000 Accord and not hurt the person at all in it and maybe they only make $20,000 a year anyway. So, maybe there's not much liability when you hit that person. But there's some expensive people on the road and some expensive vehicles and $50,000 isn't going to cut it.

The first thing you need to do with your auto insurance, if you're like most people who are hearing this for the first time, is increase your liability insurance. You increase that. Typically you're required to increase it to something like $300,000 in order to get umbrella insurance.

Umbrella is personal liability insurance. It sits on top of your auto insurance and your homeowner's insurance and provides additional liability protection. So, recognizing that you're going to need an umbrella policy and don't worry, it's much cheaper than your malpractice insurance. Talk to them about how much do I need to have in order to get umbrella? And it's going to be a lot more than you probably have right now. You probably have $50,000, maybe $100,000 if you are really splurged on it. But you probably need a seven figure amount of liability insurance on that car.

The other main part of car insurance is comprehensive and collision insurance. Collision obviously pays in wrecks where it's your fault. Your fault pays for your car. If it's their fault, they pay for your car. If it's their car, your liability coverage covers it. So, it replaces your car when it's your fault in the accident. That's what collision insurance is. And also comprehensive is like all the other things that happen to your car. A tree falls on it or whatever. So, that's the insurance you use.

Your homeowner's insurance actually covers the contents of your car. If someone breaks into your car and takes all your stuff, that's not your auto insurance, that's your homeowner's or your renter's insurance that covers that. A lot of people don't realize that, but that's where you make that claim which is unfortunate because to the damage to your car, you have to pay another deductible to your car insurance company.

Do you need comprehensive and collision? Well, we like keeping it on at least one of our cars because then when you go rent a car, it usually covers that and you don't have to pay extra for the ridiculous insurance. And because we travel a lot and rent cars a lot, that's a big deal. It usually doesn't work in foreign countries, but as long as you're renting in the US you don't have to pay for the insurance. So, that's a nice benefit I find of having it on at least one vehicle.

But the approach most people take is they insure the expensive vehicles they have. They got a car that's still worth $50,000, they carry a comprehensive collision on it. When it's worth $4,000, maybe they don't, they figure they can self-insure that. You'll have to make those decisions yourself, but as your car becomes worth less, obviously that insurance isn't worth as much.

But yeah, go take a look at your auto insurance, make sure it's set up properly and if not, add some insurance to it. You need to insure against financial catastrophes. You don't need to insure against that stuff that you can self-insure. But most of us cannot self-insure running over a CEO and disabling them for life. So, get that insurance.

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That's it for this week's podcast. We appreciate you, we value what you're doing out there in your life. It is important work. Keep your head up, your shoulders back. You've got this. We'll see you next time on the White Coat Investor podcast and this division of it, the Milestones to Millionaire podcast.

DISCLAIMER 
The hosts of the White Coat Investor podcast are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.