This week, President Obama signed the Jumpstart Our Business Startups (JOBS) Act into law. The act is designed to make it easier for startups to raise capital. It could provide assistance for medtech startups struggling to raise funds. Entrepreneurs can now raise money from the general public (but are limited to $1 million per year) without registering with SEC. They can do so by going through crowdfunding platforms.
For medtech startups, such opportunities come at a perfect time, since they are increasingly struggling to raise funds. Ernst & Young's “Pulse of the industry – Medical technology report 2011" was released last fall and found investors are increasingly avoiding medtech investments considered to be risky. For example, funds raised during early venture rounds are decreasing and a few mature companies drove the total increase in investments in 2011, while startups are scrambling for funds.
In this environment, the opportunities in the JOBS act could provide benefits to the medtech industry; however the industry's unique characteristics pose several challenges. An article on MedCity News looks at how the nature of the medtech industry will make it more difficult for medtech startups to raise money from novice investors. For example, the slow path to FDA approval and market launch might make investors inpatient. The complexity of medtech products might also make it more difficult for these companies to compete for funds from the general public. Creating buzz around a product and using social media to market it will become even more important in this new funding environment.