Devices & Diagnostics, Pharma, Startups

Entrepreneurs: VCs want to see (now more than ever) that you’re a good money manager

A financial investor, two venture capitalists and a corporate venture investor had different perspectives but […]

A financial investor, two venture capitalists and a corporate venture investor had different perspectives but all agreed on one thing at the MidAmerica Healthcare Venture Forum on Tuesday – the importance of capital efficiency in companies they look at.

“We’ve tried to be very careful about keeping the spend rate down,” said Bill Gantz, an entrepreneur-turned-VC who founded PathoCapital.

Kathy Tune, a partner at Thomas, McNerney & Partners, said being lean has become increasingly important as the length of time it takes a drug or medical device company to get a product to market has lengthened. At the same time, the number of venture capital dollars being invested in those companies has dropped.

One audience member asked the investors an important question on behalf of startups: What kind of things show that a company is “capital efficient?”

Nicole Walker, director of venture capital at Baird Capital, mentioned smart use of outsourcing at the early stage of a company. “Early on, it’s looking at if you’re getting to the critical questions, and how you can get to that answer quickly,” she said. “It’s less about mechanics and more about, do you have tools to get to that demonstration of proof of concept?”

In Gantz’s words, that means doing the key experiments first. “I’ve seen people spend too much money doing things that aren’t directly furthering their program,” he said.

For example, hiring marketing or sales team members before scientists.

Tune mentioned that if there are patterns of high spend and big teams in the company or entrepreneur’s history, that may signal a lack of capital efficiency that may sour the potential for a deal.

Geeta Vemuri, head of Baxter Ventures, added that she looks for whether a company has tapped as much non-dilutive funding as possible as another sign of capital efficiency.

[Image credit: @chathri]

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