At Advamed 2013, industry leaders met and discussed how startups and innovation can beat the odds without much chance of gaining venture capital at an extremely early stage. Here are realistic options for medical device companies looking to fundraise early rounds without venture.
1. Raise enough for each round.
Remember that truism from Mark Twain about my home state’s favorite drink? “Too much of anything is bad, but too much of good whiskey is barely enough.”
When Investment Rhymes with Canada
Canada has a proud history of achievement in the areas of science and technology, and the field of biomanufacturing and life sciences is no exception.
“Raising capital is the same way,” Ryan Drant, general partner at New Enterprise Associates, said.
“Think about each milestone that is going to get you to the next milestone, then multiply by 1.5 or double it,” Jeffrey Hoffman, managing director and head of West Coast Healthcare Investment Banking for J.P. Morgan said. You don’t want to run out of money and have to go into the next round of funding without reaching that next milestone.
2. Plan on being acquired? Hope your product or platform fits nicely with existing technologies at the big guy you’re eyeing.
Major players aren’t expanding much in white space right now. While Medtronic (MDT) hasn’t turned totally away from these sorts of innovations, the company is mostly “looking at new technologies that enhance our existing businesses,” Gary Brothers, senior corporate development director at Medtronic said.
3. Mezzanine funding, royalty funds, sovereign wealth funds, angels and grants (early on) or if you dream big, an incubator: your options before you hit up venture.
But remember a key point Drant made, “What we always remind ourselves about debt is: It ain’t equity.”
4. Do you need data? If you have to ask. . .
“There are no shortcuts any more,” Drant said. “The sooner you start planning for that the less time and money you’re going to waste.”
Illuminoss CEO Dirk Kuyper said to start collecting clinical data on day one. Long-term data is an item many startups overlook.
5. Platforms are great, but don’t underestimate the power of a single device that offers a serious solution.
“Take the low-hanging fruit and prove it out first before you become scattered,” Hoffman said.
Brothers said platforms are great, but when pitching them for acquisition, the company needs to point the bigger business to the “first opportunity.” Which technology is the first, most important step?
6. Be in touch, but don’t be annoying.
If you’re looking for an outright sale, it doesn’t usually make sense to approach a big company early on, Brothers said. However, if you’re looking for investments, that’s a different story. “Information gathering costs you nothing,” he said.
“I think it’s always good to be educating your buyers, your peer group–as long as it doesn’t put you at a competitive disadvantage,” Hoffman said. “Don’t call them every two weeks, but if you’re at a conference you might as well give them an update. . . . Educating them along the way without putting a for sale sign out . . . is always a good thing.”
7. Pick a board that will give you good advice.
As Scott Weiner, transactional partner at Pappas Ventures, said, “You need an A-Team.” (Cue the music.)
Hoffman said valuation should only be one criterion for picking board members. “Pick the board member who’s going to give you good advice,” he said.
8. Your technology isn’t the whole package. Have a serious plan for commercialization together before approaching strategics.
“One area I think companies are over-weighing in our discussions is the technology. . . . And we love that, of course, but its all these other things we also want to know,” Brothers said.
Those other things include the data (or how you’re going to get the data), what you’re able to measure and the device’s value proposition.
