Case Study $4\mathrm{.}1$REACH Health, Inc.: A Start$-$Up Telemedicine Company at the Funding CrossroadsSimon Medcalfe, William Hamilton, David HessDr. David Hess $($Chair of the Board and Founder$),$ Bill Hamilton $($Secretary and Founder$),$ and Sam Andrews, the Chief Executive Officer of REACH Health, Inc. were traveling from Augusta to Savannah, Georgia to present at a pitch session to an angel investor group. They were seeking $$250,000$ to finance their companys growth. Discussions had evolved to the point that a voluminous due diligence document had been created, and they hoped this pitch would seal the deal.We really need this investment, said Bill. Without the Technology Associates of Georgia award of $$100,000$ we would have made a loss of about $$31,000$ so far this year. A capital investment of $$250,000$ will allow us to increase business management and sales support infrastructure as well providing money for a marketing campaign.REACH Health, Inc. had been founded in early $2006($as REACHMD Consult, Inc$)$ to provide telemedicine to rural Georgia. Telemedicine was the use of medical information exchanged from one site to another via electronic communications to improve a patients clinical health status. Telemedicine included a growing variety of applications and services using two$-$way video, email, smart phones, wireless tools, and other forms of telecommunications technology. The original idea emanated from a group of academic neurologists at the Medical College of Georgia $($MCG$),$ in Augusta, Georgia in $2002.$ The telestroke system called REACH $($Remote Evaluation of Acute IsCHemic Stroke$)$ was designed and developed in consultation with rural community hospital emergency room $($ER$)$ staff. The web$-$based system included custom$-$built software integrating video conferencing, CT imaging, and patient data into an integrated screen. The system was designed with a drop$-$down screen to perform and score the National Institute Health Stroke Scale $($NIHSS$).$The following year, MCG instituted the REACH system in two rural Georgia hospitals, McDuffie Regional in Thompson, GA and Emanuel County Hospital in Swainsboro, GA$.$ The system was well received by the ER staff and the network of hospitals that installed telemedicine systems expanded to seven additional hospitals over the next three years.The original telestroke system was very effective in rural Georgia. However, in order to commercialize REACH and scale the technology to be able to accommodate and support hundreds of hospitals, it was necessary to create an updated version, REACH $2\mathrm{.}0,$ which would accommodate a higher volume of consults, provide additional user$-$friendly features, and be expandable to include other clinical applications.It was at this point that REACHMD Consult, Inc. was formed. The company was originally funded by a business launch competition award of $$100,000($Technology Associates of Georgia$/$Georgia Research Alliance$)$ and by a $$100,000$ equity investment by MCG Health, Inc., a $501($c$)3$ not$-$for$-$profit hospital. The subsequent funding plan was to build organically via customer sales, without outside investment. The business model was predicated on a telemedicine software$-$as$-$service, monthly recurring revenue model, based on contracts with hospitals$/$health systems for one$-$ to three$-$year terms. For the first full year of operations, the company was able to maintain slim margins and grow its customer base incrementally. For the first eight months of the following year, revenue was just over $$340,000.$Our business model, while strong, does not support exponential growth, continued Bill. We cannot grow exponentially relying on current revenue streams.I agree that our current business model does not support exponential growth, but I dont like taking outside money at this time. It could be very expensive while also diluting the ownership position of the founders, the option pool for the employees, and the overall construct of the management team, replied Sam. Most importantly, we would lose control of the direction of the company, Sam continued. However, I fully understand the need for exponential growth and am very concerned about the financial stability of the company. The small size of the company does not allow me the flexibility to focus on overall growth strategies, but only on day$-$to$-$day operations.I think we all agree about the fragile financial state of the company, but the way to improve that is through quickly scaling our operations and for that we need this investment, David added.Sam turned to David and Bill and said, You know, I am not so sure we need the investment right now. We can continue to grow using current cash flows without the influx of external funding. Bill, why dont you become the Chief Operating Officer and together we will institute a tight financial management system that will balance revenue and expense cash flow and allow for a sustainable organic growth pattern. We will manage a lean sales force, outsource key functions, and use a customer relationship management system to manage the operations of the company such as sales, accounts payable, and accounts receivable.We can protect the interests of the shareholders from unnecessary dilution, continued Sam, and lay the foundation for a future larger external investment by venture capital firms. REACH will be more attractive without the angel investors and also offer a company that has a growth trajectory, while maintaining a profit.By this time, David, Bill, and Sam were on the outskirts of Savannah. The company was at a crossroads. The board, as a whole not just David and Bill had agreed to seek outside funding. Sam was not enamored of this prospect, but had agreed to go down this path since he served at the pleasure of the Board. However, neither party wanted to lose control of the company at this point. They had to make a decision quickly over the future of their company. Should they aggressively pursue the investment capital from the angel investors?$1$Evaluate the option of growing the company organically, using current revenue streams$\mathrm{.}2$Evaluate the option of taking the angel investment capital of $$250,000\mathrm{.}3$Would you pursue the angel investors or grow organically?