#37 Can Tech Solve America’s Drug Crisis?

I’m Josh Muccio and from Gimlet Media, this is The Pitch, where real entrepreneurs pitch to real investors.

Jillian: Hi. Good morning.

David: Hi Jillian. How are you? Pleasure to meet you.

Jillian: What's your name?

David: David.

Jillian: David. What's your last name?

David: Sarabia.

Jillian: Sarabia.

Nicole: Hi. Nicole.

Charles: Cool shoes man.

In the pitch room today is founder David Sarabia. David is here asking for 500 thousand dollars for an app that he says will help people recover from addiction. 

Drug abuse is an enormous problem in the U.S. right now … more than 100 Americans die every day from an opioid overdose. And David’s had his own struggles with addiction, so for him this is personal. But will his passion for this problem, translate into a business that investors can get behind?

Here’s who he’ll have to convince:

Jillian: I’m Jillian Manus

Jillian is a partner at Structure Capital and an angel investor on the side.

Charles: I’m Charles Hudson

Charles is with Precursor Ventures where he invests in early stage startups. 

Nicole: I’m Nicole Verkent

Nicole runs a software company and in her spare time she’s an angel investor.

Michael: I’m Michael Hyatt

Michael built and sold two Canadian companies and now he invests for himself.

Alright, on with the pitch. 

Jillian: So what have you got?

David: So my name is David Sarabia, the founder of InRecovery. And just to give you a little background on myself, I’m a tech guy. I started programming around eight years old on the Commodore 64. Been doing this forever. And kind of as a result, by 27, I had two successful exits in ecommerce. One of them, Uprinting.com which we sold to a VC firm. And the second one was an ecommerce platform that I started. So by 27, I had a lot of money, a lot of time. And I moved to New York and I was introduced to cocaine. And that was the very quick demise of my success I found myself homeless on my 30th birthday sleeping on a bench in Central Park 

Things were bad for David. And then they got even worse

David: and then my friend died in February. February 2016 my friend Jake Greenwald Unfortunately he didn't wake up one day. He overdosed. And that's when I knew I'd be next So I needed help. And I ended up checking myself into rehab that year, and that's when I had the vision for InRecovery 

Ultimately David recovered, but he was disappointed by what he saw during his time in rehab. He felt like the treatment wasn't as effective as it could be.

David: Right now treatment tends to be a very one size fits all approach, it's a very blanketed approach in the treatment industry. And the science is a little bit old and there hasn't really been much advancement in terms of the future of treatment that's one of the biggest challenges that we're trying to solve, is to figure out what kind of treatments are actually more efficient. What's better for this kind of person? Let's actually make it a more personal, a truly personalized experience.

That’s what drove David to build inRecovery … a mobile app for patients to use while in treatment...

David: We’re in pilot right now. So we have our first pilot where they’re using it with a population of 200 people in LA.

Nicole: So each patient has the app downloaded and then...?

David: Each patient has it on their device, yes. 

Nicole: And then the people running the patient center have their own version?

David: Have their back-end version which gives them analytics. It also detects when someone is veering off path, it alerts them.

Nicole: So do they give them activities to do every day within the app?

David: Yes. Right. So through the user experience, for example, w e have this user I love Cindy at this point… She's this fictitional user. So Cindy, let's say she's in treatment at Wavelengths, where I went. She wakes up every morning and she gets dinged with a meditation task to start the day And she earns her first 25 points for the day. So she starts gearing towards her goal for the day which is usually 200 points or whatever the intensity of the treatment is for that patient.

David’s app uses a Silicon Valley standby: gamification. You get points for undergoing treatment, meditating, going to therapy ... The idea is that this motivates people — and makes their rehab experience more structured. But it can also help the rehab centers. They’re able to see patients are actually getting better. 

David: And there's another part of it. So beyond the treatment, after treatment, we extend the continuum of care. So we keep the member inside InRecovery and they're paired up with a Sober Circle. So this is not something... You know, it's basically a... We're taking the whole concept of AA and bringing it into...

Jillian: A sponsor?

David: Yeah. See. And we're not making it a big Sober Circle. We're making it three people. So it's two of your peers and a team leader And what that means is that part of your Sober Circle, you have a recovery coach that always checks in on you So we’re really making their chances of staying sober much higher by having a professional that’s always in communication with them And the reason being is that I want you to have a place where you can be yourself. Where you can be honest. Where you can just say, hey listen guys, I feel like shit today. I had a big argument with my girlfriend. I feel like using. You can't go on Instagram or Facebook and say that. You can’t be honest on social media 

Michael: So let's say we step back for a second and we all agree that what you're doing is really important, we all agree that your journey is incredible and very pertinent and the reason why you're doing it. Like all entrepreneurs that are successful, that I've seen, are fixing a problem that they've seen in their lives. You are perfect for that But let's talk about investing. Can you talk to us about the business side of this? Can you talk to us about... I'm assuming you're selling it to the treatment centers?

David: Yes So we have come up with a model where we're charging basically about 1% of treatment cost to have this app in the treatment centers. So it comes out at about $300 per user for the entirety of their treatment.

Michael: So it could be, the treatment could be two weeks or 90 days. It just depends.

David: They still pay $299. Per user.

Michael: $299. And so how long is the product been in market now?

David: So we are in pilot mode right now. So we literally just launched 

Michael: But let's step into why you're here. And let's talk about investing for a second. Sell us on how much money you're raising, why do you need that, how big this market is. Give us all the math behind this business and why we should invest and what we can do together to make this a great company.

David: Absolutely. So so far, I've put in of my own money about $65,000. And I've grown it to where it is. We have two pilots in place, and we have a very good team. And what we're raising is one and a half million for our seed round. However, we're raising it in milestones. So we're raising half a million dollars in start, $500,000 for the first milestone, which takes us to six months of runway. That first milestone is going to be to rollout in treatment centers in the US. So to get about 20 treatment centers in place with an average of say let's say 50 - 100 patients per treatment center. 

Jillian: So why break it down though?

David: So that's actually something that we did because... Off of the advice of our CFO.

Jillian: Okay. What's the valuation on this first 500?

David: We're raising it at a pre-money valuation of 5 million.

Jillian: Okay. 

Charles: can you just give me a sense of what the treatment center landscape looks like? Is it highly fragmented? Are there a few... I'm just trying to figure out where can you go and get people in large bunches? Because my concern is that this is a really great idea, and I'm struggling to understand how you're going to get the product in front of enough people to actually make the business side work.

David: So one of the biggest things that happened that benefits us a lot is that there's a lot of mandates now for outcome data. So JCAHO, one of the biggest accreditors of the industry, is now mandating and also N double... Ah, I always stumble with this one.

David throws around a bunch of acronyms, but the important thing to know is that he thinks his app can help rehab centers with their accreditation … because it creates a digital record of the patient’s time in treatment... what they did while they were there, and if they're getting better. And David says that's what many treatment centers are missing... 

David: Now it's actually mandated that they have real trackable outcome data. And we're coming in at a time when they truly actually need it.

Jillian: Have you talked to JCAHO?

David: We have not yet, no.

Jillian: Okay. Because that's... That addresses your question. How do you get a big enough, how do you get this to scale?

David: Right.

Charles: Yeah. I guess I just worry that if treatment centers are small and fragmented and they're hard to find and sell, you might have the world's greatest product but a really difficult time… 

David: So we - and to be completely honest, I like to be transparent. We will have a challenge, obviously, signing up treatment centers but were are on our very core a blockchain based technology and I’m not throwing this out as a buzzword i hate that people do this so much but the reason we're doing this is because all the rampant fraud that happens in the treatment industry. It's disgusting, really. 

David wants to use blockchain technology as a tool to combat fraud… where all these shady rehab centers cycle people in and out to collect money from insurance.

David: Typically a patient's worth to a treatment center is about anywhere from 30,000 to 60,000 dollars on average. Because that's the cost of treatment. That's about a one month of treatment. And what happens is that... Okay. With all good intentions…

Nicole: I’m sorry. What’s the amount they pay for one month?

David: About $30,000.

Nicole: 30?

David: 30 to 60,000.

Nicole: 30 to 60,000 for one patient for one month?

David: And that’s cheap. There’s ones in Malibu...

Jillian: There are ones that are 200,000.

David: Yeah. It’s insane. So in regards to...

Nicole: So sorry, I thought 300 a month for your services were a lot. But now that I'm seeing...

[laughter]

The investors are starting to see the dollar signs that David has seen all along. 

With all this money at stake … and all the fraud concerns … 

David: what’s happening now is that insurance companies are just not paying. They’re saying no. They’re saying we’re not going to pay for this. This is BS. Sorry to use that language. But this is bullshit. We’re not going to pay for this, we’re not going to continue supporting this. So this is kind of a pre-emptive move for treatment centers. 

Michael: So do you need insurance company buy-in to be successful? 

David: We don’t in the beginning. But long term, yes. Long term yes, absolutely 

David’s basically saying, all this stuff with insurance companies and accreditation, is the long term play here. But what he hasn’t really explained is what happens first, how is he going to get this product into rehab centers nationwide.

Michael: Do you have any feedback at all on your pilots? Has anybody said... You know, at the end of the day, the deciders aren't you or I, it's the people using it. If I walked in there and tried to take this app away from them now because they've been using it for a month, are they going to say, oh my gosh, don't take away this app, it has revolutionized what we're doing in here. Do you have anything?

David: I think it's too early to say that.

Michael: Well, how long have they been using it?

David: We're still rolling out the pilot. So it's literally still being rolled out. So we don't have feedback yet.

Michael: So you don't know if your product works?

David: We don't know... Well, I mean, we have been developing this with a very strong team and we know it's going to work. However, obviously, you never really know - 

Michael: But you can't say that.

David: - that something's going to work until...

Michael: You can't say that. You can't say it's too early, and then say but we know it's going to work. Which is it?

Jillian: You're hoping it works.

David: Yeah. We're hoping it works.

Michael: No, I got that part. But I mean, it's fair to say that in the very least it would be smart to see if the pilot works. And how long would you need to see a pilot working for?

David: At least three months. For me to feel comfortable that yes, we have something that's extremely solid. Once we have actual feedback from users... I agree with you. I've invested in companies too in the past, and people always have this great idea, but it doesn't really... Until it's actually...

Michael: Like, I don't want* to go to that clinic, literally see it in action.

David: And see the... Yeah. And see how it's affecting the efficacy of the entire treatment center. To see it really helping. And we're hoping that it will 

It’s decision time. Jillian is first...

Jillian: I'm thinking that it's too early in terms of right here in this room for me to jump in and say I'll commit This is a... You know, when you deal with healthcare, it's a long sales cycles, you're dealing with so much friction. And yet this would be, if you were able to do this, cracking the code on one of the most - as I always say, the dumbest problems in America. Addiction. I don't want to say no because I don't think, I think there might be something we can do to at least help if not an immediate investment, I'd like to see where you are in the next six months, but see if we can help you get there a bit 

David: Thank you.

Jillian: So we will definitely keep connected after this.

David: Absolutely. I love that.

Jillian: Fantastic.

David: Thank you 

Jillian is out. Charles is up next.

Charles: I think you've been super thoughtful about the needs of your customer and how this can extend beyond the time that they spend in treatment. My one concern though is for all of the attention and time that's been invested in the product and the product experience, I worry maybe not enough time has been spent thinking about the go to market and sales strategy. And what it's going to take I think ... I totally believe the long term arc I just worry though, you need a bridge to get to that end state. And I think the bridge to get to that end state is a model for acquiring these treatment centers in a way that where the economics work out for you. And I think, I would encourage you... I think you seem like the kind of person who if you were to shift a bit more of your mental energy from the product and your customer to sales, you would have really good answers and you would have a really clear strategy.

David: Absolutely, I agree. If we shifted to product...

Charles: Yeah. And you're in that stage. You're in pilot stage. You're spending your time and attention on the right things. But for me to be really comfortable, I'd want to know that you had a clearly defined hypothesis and strategy on how you're going to get the first ten, hundred clinics in a way that was remotely cost efficient. so for now, with where the business is, it isn't quite right for me and I pass. But I would be happy to revisit the conversation once you've got a bit more clarity on how you plan to attack the market.

David: I appreciate that a lot. That's really cool of you 

So Charles is out… for now… Nicole is up next...

Nicole: I would echo what Charles has said in that I think you want to just get focused on the first ten and then the next 100 and the sales strategy and this kind of narrow thing. Just kind of nail that down. So the number one thing I always look for is if I think it’s a real problem, and it’s a real problem that hurts. And you go way beyond in that. I think this is a real problem that needs to be solved. We’re really facing an epidemic in North America with addiction and fentanyl and I really do believe that. And it has, I think all of us probably have one or two people that are pretty close to us that have faced these issues. So I think that’s, I mean it’s incredible. What I’m struggling with, and I would invest a small amount of money, is I’m just struggling with where I could even help you. So I do have to pass, But I applaud what you’re working on, and I think you have the right foundational things here. I think it’s just that next step, to Charles’ point, about your go to market, your sales, and then from there get it right and then scale. Don’t scale on quicksand, right? 

David: Thanks, I appreciate it.

Nicole: It's been great to meet you. And I feel...

David: Yeah, you too. Absolutely.

Nicole: I feel like you’re working on something that’s so important.

David: Yeah. I agree 

Nicole is out. Michael is the last investor left

Michael: So, um, necessity is the mother of all invention right? And this is, you're perfect for that. You've invented this because you want to solve a problem that you had. Like I said before, and this exactly where great businesses all start. And that's what you do. I see a lot of companies come in here or just see companies that develop a product and then run around trying to find a problem. And that generally doesn't work. So let me give you some advice of what I would do if I were you what you don't know is what you don't know. And what you don't know is if what you're doing works. You'd like to think it does So I would ask you to do is the following. I would get, for example, your pilot into this test center in LA, and this sounds a little off, maybe. But I would literally almost move in there if I were you. And I want you to see exactly how people, literally, you're going to be literally observing the animals on the savannah like in an experiment. You know what I mean by that? You're going to be literally observing them in their natural habitat and how they're behaving with your technology, and see if it really really works.

David: Truly works, right.

Michael: so that’s my advice to your entrepreneur to entrepreneur

David: I am so down. I actually love that. I would totally go live in one of these recovery homes.

Michael: I know you will. 

Jillian: that’s brilliant, Michael. That’s brilliant.

David: Yeah, I love that. I actually hadn’t thought of that. I’ll actually go in there as a patient. I think that’s the best thing, and just completely...

Michael: I think undercover is even better.

David: To truly actually understand what’s going on. That's actually much better.

Michael: Anyways, thanks so much for coming in.

David: Yeah. So nice to meet you guys. I'm super happy to meet you guys.

Jillian: Really, really appreciate it.

David: Cheers, thanks so much

David leaves the room without any concrete investment… but the investors aren’t done talking about the pitch... 

Jillian: This is one of those times where of all the things that you see we hope this succeeds 

Nicole: Charles, I think it’s a good fit, sounds like, based on what you’ve invested in too, if they get that sales piece.

Charles: Yeah. And we’ve done a lot of digital, I mean, we’ve done a lot of digital health investing at Precursor. And a lot of those companies, because as Jillian said the sales cycle and the deployment cycle is long, we’ve made some bets that, hey, this is going to work. But in all those cases, the company had, I think, a strong sense of go to market. And my sense is that he has a good plan in his head, it just hasn’t been his priority. And if I could hear even a semi-reasonable thought to...

Nicole: I think you're going to get that in four months.

Charles: Yeah, I think they're going to get that… 

In a first for the show, we have the investors suggesting that a founder go undercover to find out if his product actually works … when we come back, David tells us what happened next ... 

[break]

Welcome back. Three months after his pitch, we called David up to see how things were going.

Josh: end of the show, you have a suggestion from Michael Hyatt. Do you remember that suggestion, what that was? 

David: To go back to rehab for a little bit and I was like, "You know what? That's actually a great idea." And I ended up doing it.

Josh: You actually went back into rehab?

David: Yeah, it was actually a really, really good learning experience.

JOSH: That’s crazy how long were you in there total? How many days?

David: Okay, so ... so I was there 15 days but it was a little bit 

Josh: 15 days. So when you ... so like, did the other patients did they know, like, that you weren't ... like, that you were undercover?

David: No, and they still don’t

Josh: Oh, wow.

David: Yeah, and they probably will never know.

Josh: Oh my gosh! Well, unless they listen!

David: Unless they listen or research me, yeah they probably will never know. But yeah I mean, the actual usability of the app, I mean if we want to go into deep dive, like, people actually loved it.

Josh: Really?

David: However, I learned how to improve it. Yeah, yeah, I mean … No, not to be cocky, Like, I'm really good at UX. But you know, it's ... it's really like, there were certain things that I learned there that are gonna make this app a hundred times better.

Josh: Like what? What did you learn?

David: So ... so one of the main things is really that people don't like to type. So we're going to add voice notes we're still going to have the journaling app that we have inside the app however, we're going to make a recording functionality where you can actually just record your voice and then we'll transcribe it. However, the really cool thing about that is that I'm going to up that with an API to a company called Affectiva which does automated sentiment analysis. So we'll be able to really understand what that patient's going through. You know, like On a text-based journal, we can only get so much. But out of voice you get so much more in terms of, like, actual emotion. So ...

Josh: yeah, you can tell if they're faking it, if they're saying, like, all the right things but like, in their voice they're saying something different.

David: Yeah, exactly. So that's really, really exciting. You know, the app itself, people loved it. Like, they were checking in, they were really engaged with the whole daily points thing. They were motivated to actually participate, to be on time. 

Josh: Yeah. Like, did ... did anyone ... like, were people actually like saying the words, "I love this app?" 

David: I couldn't solicit that, but like I was hearing it. Not like, "I love this app," but it was like, "This is really cool." Like, people that had been to rehabs, like, multiple times were like, "Oh my God, like where has this been all the time?"

Josh: Yeah.

David: So you know, it's really shocking that this hasn't been done yet, you know, because it really does make the whole rehab experience a dynamic experience versus a very static one as it is right now.

Josh: Right.

David: And then for the actual staff, I think the biggest thing that they're excited about is the reports that we're going to be generating. So we'll be able to give them reports that they'll submit to ... when they're submitting their insurance billing, they'll have a report from in-recovery that actually tells them this patient was here, time-stamped, GPS location. The patient's feedback on top of it. So again, it goes back to the whole idea of, like, a lot of the insurance fraud that's very much in the news right now. The treatment centers that are actually ... that are actually legit and actually want to do a great job, the solution is perfect for them because they actually have now an additional layer of data they can submit to the insurance companies, which I think is really exciting for them 

Josh: Yeah. I am kind of curious, like, I want to talk more about the ... the fraud piece of this. 

David: Right.

Josh: And I’m wondering… like because treatment centers will be held accountable. like will it actually be harder to sell to them, like they’ll want to avoid that accountability?

David: Yeah, and you know the thing is that…. The bottom line is this: there are treatment centers that are fly-by-nights, that are here to make a quick buck. Those come up really quick and they disappear just as fast. They're not real businesses. The ones that are actually legit, that do operate properly, that do have the right kind of staffing, that actually care about their patients? They're gonna want us. They're gonna want to use inRecovery. And, you know, those are the kind of treatment centers that we're targeting anyway. We're not really, you know, we're not gonna waste our time and go after treatment centers that we know are fraudulent.

Josh: Yeah.

David: Those guys will be ... they'll be gone. You know, insurance is cracking down so hard on that that they'll be gone in a ... you know, in a couple months. I don't foresee them surviving beyond this year.

Josh: Yeah.

David: But I don't ... again, I don't foresee us ever having to deal with treatment centers that are going to be more on the fraudulent side. 

Josh: You think that they just won't sign up for inRecovery, unless they're ...

David: They just won't sign up you know, like it doesn't make any sense for them. it's gonna expose them a little bit in terms of ... of what's going on inside their treatment center. Yeah. 

Josh: kind of going back to like your experience in the treatment center, was there ever a moment where you felt like, "Oh, I shouldn't ... like, these people didn't opt in to, like, have their data collected." Like, they opted in to use the app but then like, "I'm watching them and like, they still don't know." That didn't ever feel icky to you?

David: 'Icky' in terms of, like, their data being collected?

Josh: Well … Not that, but I mean like, it was kind of like a study. Like you were doing a study on, like, how someone is using your app. But like, they didn't opt in for that study, right? Like, they only opted in for the app.

David: Well they'll never know. I mean, that's number one. Number two is that ...

Josh: But that doesn't make it okay just 'cause they'll never know, right?

David: It doesn't make it ... it doesn't make it okay but we're not using their actual, you know, names. We're not using their identities at all. They knew they were using an experimental app, they did sign a waiver that, you know, they ... they allowed this app to ... to kind of record their usages and stuff. So they are kind of aware but, you know, they're not aware that I was there ...

Josh: That you were watching them?

David: Yeah.

Josh: how's the round going? You were raising $500k. How ... how are things going with that?

David: So I've managed to raise almost that amount. We have so many VCs that are so interested in us right now that I think that we're going to end up, just securing, a seed round ... a proper seed round of $1.5m umm 

Josh: So you've got close to $500k, like, in the bank? 

David: Yes. 

Josh: That's awesome. You said ... you said, like, you have so many VCs that are interested in you and that's why, like, you're ... you're doing ... you know, plan to do an even bigger seed round. 

David: Right.

Josh: Like, first of all, that must feel great.

David: Yeah, it is actually. We're ... we're not approaching any VCs, they're approaching us, which is a nice place to be at.

Josh: And all the entrepreneurs out there, that are, like, hustling and sweating it out are like, hating you right now.

David: [laughs] it happens, I guess 

David also told me that he’s still in talks with Michael Hyatt as well as Jillian Manus and the team at structure capital. So there’s a chance he might end up with some investment down the road.

It’s still hard to say if InRecovery is the app that’s going to remake the addiction treatment industry. But David sure seems confident. And if his product can actually help with all the fraud happening in the rehab world, … that seems pretty big. We’ll just have to wait and see.

Our show is produced by me, Josh Muccio, Kareem Maddox, and Molly Donahue. We are edited by Blythe Terrell.

To our long time editor, Devon Taylor who has been with the show since before we came to Gimlet. Back when The Pitch was an independent podcast, just trying to find its place in this world. We say thank you for all your hard work, your well orchestrated puns, and for always pushing us to be better, faster, stronger... We will miss you, even though you’ll still be in the building with us. Keep doing good work! 

And to our new editor Blythe Terrell. Welcome to the team! Let’s do this.

We are mixed by Enoch Kim. Original music composed by The Muse Maker. Our Theme Music is by Breakmaster Cylinder.

Thanks to Lisa Muccio for planning the recording of this pitch.

We discovered In Recovery because of an introduction from Mark Liber from Startup Health. If you’re a startup founder hoping to make it on this show, you can apply at thepitch.show/apply

And as a reminder, no offer to invest is being made to or solicited from the listening audience on today’s show.

All right -- you’ve been listening to The Pitch from Gimlet Media. We’ll be back with a brand new episode, next Wednesday.