FUNDRAISING
“I’d characterize the environment by saying that there will be challenges, but also emerging opportunities, on both sides. You have companies still figuring out how the reimbursement world works today – and that is obviously changing. They’re figuring out how to get to market and their value once they’re in the market – which ultimately impacts the returns investors get,” Frank Jaskulke, VP of member services at the Medical Alley Association, told Medical Design & Outsourcing. The Minneapolis-based trade group represents the largest U.S. medtech cluster. From an investor’s point of view, the environment is always full of other possibilities and opportunities, Jaskulke told us. That includes biotech, pharmaceuticals, the tech industry and a wealth of different industries to pursue as they look for a major return on their investments. “There’s a lot of things that investors – who are thinking, ‘Where do I put my capital?’ – are very attracted to,” he explained. “The investors are working to make a return. They’re not scientists, they’re not necessarily involved because medtech will help people – that’s a great benefit of it, but they’re making returns for their partners.” In the past, VCs were a go-to funding source – the most powerful arrow in an early-stage medtech company’s quiver. But times have changed. There has not been a quarter since 2013 in which seed- or early-stage medical device and equipment companies raised more than $100 million in venture capital; it’s been running at about $50 million a quarter recently, according to data from the MoneyTree report by PwC and CB Insights. In response to these lower numbers and a constantly shifting regulatory, reimbursement and general healthcare environment, young companies are diversifying their incomes to stay competitive. “I think it has always been just one arrow in the quiver; it was just the most prominent arrow before. But other sources of capital that also weren’t available some years ago are now also there,” Jaskulke said. “Now, instead of the option being VC or corporate, there’s VC, or corporate, or [angel investing], 48
Medical Design & Outsourcing
Funding Feat_5-17_Vs3-CN-FINAL.indd 48
5 • 2017
HOW TO GROW YOUR MEDICAL DEVICE BUSINESS THROUGH ITS LIFE CYCLE While every medical device company founder daydreams of pre-revenue exits and unicorn valuations, it is imperative to plan for the long and unpredictable haul. By Richard F. Mattern, Bass, Berry & Sims PLC Despite the starting point being nearly universal (founder sees a clinical need, a promising market opportunity and a path to regulatory approval or clearance), a business’ opportunities, challenges and capital can vary significantly. Your corporate focus and related legal needs can shift through your medical device company’s life cycle as it grows. Surviving the burn (early stage) While operating initially on a shoestring budget is possible, the initial funding, whether in the form of a “friends and family” raise or out of the founder’s pocket, will be quickly exhausted. Furthermore, medical device startups regularly find themselves in an extended and ever increasing cash burn position, which often exceeds $500,000 per month. Thus, the company will likely have to raise a significant amount of capital from professional investors. Despite the tendency of the terms and structure of those investments to evolve over time and by investor type, the capital raising tips below are generally applicable. • Be prepared. Professional investors will need a concise presentation and a specific plan for the capital supported by reasonable projections and assumptions. Don’t overstate the opportunities or understate the challenges. They will know. Finally, since raising capital can
be a time-intensive process, start the process as far in advance as possible, and have the deal team and data room ready to go. You can’t afford any time lags. • Assemble the “right” team. The management team is crucial to an investor and the long-term success of the business. Investors want a management team that has industry experience and the skill sets to grow the company. Similarly, the company should engage experienced counsel who understands the industry and current market terms. The initial raise is very important as those terms (especially the unfavorable ones) will find their way into future raises. • Get more than money. Taking on a professional investor is the beginning of a long-term relationship. Don’t be blinded by prestige or the largest checkbook. Instead, find the partner who shares your vision for the company and the industry, has a complementary skill set, is willing to dig in when times get tough and has relationships that will open doors in the future. • Raise more money than you need. If you have access to capital on reasonable terms, (continued)
www.medicaldesignandoutsourcing.com
5/8/17 12:11 PM