The Three Cs That Can Get Your Next MedTech Venture Funded

Learn about what investors are looking for when deciding whether to invest in a new medtech venture.

May 8, 2013

3 Min Read
The Three Cs That Can Get Your Next MedTech Venture Funded

I spent the better part of my work day attending the annual IBF MedTech Investing Conference in downtown Minneapolis Wednesday and here are the key lessons I came away with.

As an entrepreneur, founder or early stage firm, there are three C's you need to keep in mind if you want to be successful in getting your venture funded. [The same three C's apply for even established companies trying to get new products adopted]

And they are cost, clinical outcomes/comparative effectiveness and CMS (or reimbursement).

Cost was a recurring refrain referred to by nearly every speaker. The question is 'How can your product take out costs from the system?'

"For us, the bar is now economic evidence," said Noah Lewis, managing director of GE Ventures, a corporate venture fund.

Lewis's counterpart on the traditional venture capital side - Kirk Nielsen with Versant Ventures - chimed in with this observation:

"The litmus test is, 'Would Kaiser [Permanente, which is both a provider and a payer] pay for this'"?

Josh Baltzell, managing director with Split Rock Partners talked about how back in the day, your product needed to be faster or better or cheaper.

"Everyone wants to save money and you have to be faster or better and cheaper," he said. 

In other words vowing potential investors with cool technology alone doesn't cut it anymore, especially at a time when the pool of venture dollars is rapidly shrinking.

Next on the list of what investors and even potential buyers of your technology - hospitals - want to see is clinical evidence. Just tweaking a product and charging a premium for the new bells and whistles is not going to win in the marketplace. Data is king. Providers want it and payers are demanding it.

As Stacy Enxing Seng, president of Covidien's vascular therapies business pointed out, it's not about building a "better mousetrap" any more because companies now have to show clinical performance. The question they have to successfully answer is 'Are patients doing better by using your product than current legacy treatments already available on the market?' Comparative effectiveness research is key to gaining this insight and the data.

Enxing Seng also talked about the third component that is as important to an entrepreneur as to an established company like Covidien - reimbursement as set by CMS and private payers. Will the Centers for Medicare and Medicaid cover this procedure is the question that is top of mind of providers. Understanding the reimbursement landscape and what CMS is doing is equally as important as getting your product approved by the FDA, she said.

All of this is of course challenging, especially for early stage companies who now have to juggle multiple priorities simultaneously. Yet there is a silver lining for those startups that can demonstrate their command of all the three Cs: they are the ones that will get funded.

"This is the best time for early stage opportunities," said Mike Carusi, general partner with Advanced Technology Ventures (ATV). "There are fewer deals that are being done, but those that have capital are going to fare well."

-- By Arundhati Partner, Senior Editor, MD+DI

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