INVESTMENT PROCESS

FIRM OVERVIEW

With more of our own money at risk than any of our limited partners, we are primarily motivated by generating attractive financial returns from our investments. Our due diligence process often enables us to invest with the knowledge that our limited partners have an active interest in becoming significant customers of a company. With our experience investing in private equity dating back to 1970, we have confidence in our instincts and process. Attributes that are common among deals we find attractive include the following:

• Management – HEP has a strong preference for backing serial entrepreneurs who have grown and successfully exited prior companies.
  
  
• Revenue / profitability – We generally do not invest in pre-revenue companies. We prefer companies that are profitable or have a very clear path to profitability within 12 to 18 months.
  
  
• Investment size – Up to $10 - $12 million per company, but with the ability to fund larger deals with co-investors that we can identify.
  
  
• HEP ownership – Typically a significant minority or occasionally majority ownership position. Together with our co-investors, we will generally have a majority interest.
  
  
• Target sectors – Healthcare services and healthcare information technology. Specific investment themes change with market dynamics and input from our strategic investors. Current investment themes include:
  
  
  • Wellness and prevention
    
    
  • Management of chronic conditions
    
    
  • Enhancing the productivity, quality and consistency of care delivery through novel physician employment models, particularly in sub-specialties with acute physician shortages
    
    
  • Error prevention
    
    
  • Measuring, benchmarking and broadcasting clinical outcomes
    
    
  • Interoperability and exchange of clinical information
    
    
  • Streamlining the billing, adjudication and payment / collection of claim
    
    
• Target customers – Generally hospitals and / or health plans
  
  
• Board representation – HEP typically serves on the boards of its portfolio companies and attracts one or more world class independent directors with domain experience relevant to the company.
  
  
• Growth potential – We typically do not rely on leverage to generate financial returns. We seek companies with very robust growth and high operating margin potential.