Devices & Diagnostics, Health IT, Startups

Royalty monetization and advocacy groups: Two viable sources of funding for healthcare startups

The money is still out there, but don’t take it until you absolutely have to. […]

The money is still out there, but don’t take it until you absolutely have to. That was the advice to healthcare startups from Fahd M.T. Riaz, a partner in Morgan Lewis’s Business and Finance Practice. He talked about trends in funding for healthcare startups on a panel at CONVERGE with Kelly Campbell Slone of the National Venture Capital Association, Joe Hammer of GE Capital Healthcare Fianancial Services, Fadh Riaz, and Elliot Menschik of DreamIt Ventures.
Sixty-five percent of his clients are emerging startups and the rest are big companies like J&J and Boston Scientific.
He brings the two groups together and finds an investment strategy that works for both of them. These were some of his most interesting comments.

The state of strategic investments
Riaz said recently he has seen big companies use a twofold strategy to invest in startups:

  1. Investing in existing venture capital funds by becoming a limited partner
  2. Creating their own funds

Sometimes big companies pick one option or use both.
“They are trying to lock up the IP or the company because they are an investor as well as a strategic investor,” he said.

Royalty monetization
Riaz said that this approach was mostly used in the energy sector, but if the product platform is far enough along, it’s an option for healthcare companies.
“These days you have a lot of players with a lot of cash and they are putting that cash in royalty monetization,” he said.

Advocacy groups and state governments
Riaz said that groups like the American Heart Association are making investments in for-profit companies in the cardiovascular and device spaces.
“I am extrapolating here, but cancer groups are another example of an organization that is interested in advancing the cure,” he said.

Riaz also advised entrepreneurs to look for states that offer economic incentives including grants, loans, free space or subsidized space.

“If you can get to proof of concept by bootstrapping, this will give you a higher valuation and make it eaiser to get money later,” he said.

Veronica Combs

Veronica is an independent journalist and communications strategist. For more than 10 years, she has covered health and healthcare with a focus on innovation and patient engagement. Most recently she managed strategic partnerships and communications for AIR Louisville, a digital health project focused on asthma. The team recruited 7 employer partners, enrolled 1,100 participants and collected more than 250,000 data points about rescue inhaler use. Veronica has worked for startups for almost 20 years doing everything from launching blogs, newsletters and patient communities to recruiting speakers, moderating panel conversations and developing new products. You can reach her on Twitter @vmcombs.

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