How To Fund, Run A Lean Medical Startup After The Great Recession

A medical device co-founder and CEO shares her advice on running a lean startup and raising capital during the Great Recession.


Back in 2012 when Kimberly Vogel, co-founder and CEO of Medina Medical, began to look for venture capital funding, she confronted a rather harsh landscape.

Venture capitalists were licking the wounds wrought by the Great Recession, and it was far easier to squeeze water out of a rock than get them to invest in an early stage medical startup founded just the year before. The Menlo Park, California company had raised $2.7 million in seed capital from friends and family in January 2012, but needed more soon after to develop its Athena embolization coil to treat brain aneurysms.

A Series A, institutional round was in order, but VCs weren't biting.

"Investors are still recovering from really bad portfolio returns," Vogel recalled in a recent interview of the 2012 timeframe. "So you are going into these meetings where there isn’t a chance that they are going to invest with you. Or they are in the middle of raising a new round and they don’t want to invest yet. Or they want to invest with C-stage companies, not an A."

Vogel knew the company had to pivot and fast. She chose a rather unorthodox path of capital investment for a medtech firm. Vogel decided to approach family offices - these are investment entities created by wealthy families to professionally manage their wealth. Vogel was familiar with such investment groups having run a private family office herself previously.

Private family offices, unlike venture capital firms, do not have access to innovative startups and most often need to be introduced to them, Vogel said. Knowing that, she decided to actively target them and seek meetings. All typical investment strategies include stocks, bonds and alternative investments, which includes hedge funds, and Vogel began to pitch an investment in Medina as an alternative investment.

"And what I argued when I went to meet with family offices or endowment funds was you have a percentage of your portfolio that you are going to be dedicating to an alternative investment. Why not make it a medical device investment? Why not make it something meaningful for your investors?" she recalled saying. "And it was a concept that was really new to them. They were like 'Wow, we never thought of it this way.' "

In the end, the Series A round that closed in October brought $6 million of fresh capital into the company. Earlier this year in January, Medina Medical closed a $8 million Series B round of investment. In all, out of the $16.7 million the company has raised since inception, not a single dollar has come from traditional VCs. Friends and family, angel investors, doctors, family offices and one corporate venture capital group make up Medina Medical's investors.

"We are not afraid to do things differently," Vogel said. "I think one of the things that hold companies back is just the fear of the unknown. This is the way it’s always been done and I have to do it this way, and our thought is 'Why?'"
But it's not just a matter of raising the money. It's knowing how to do more with little - an attribute that comes in handy these days when capital is not flowing the way it used to.

"I am also CFO," Vogel said. "It’s important to know where our dollars are and where they are being spent and understanding how far it’s going to take us when we go back out for another round. The lean model has worked very well for us. We don’t have fancy offices. We don’t have multiple layers, we don’t have a top-heavy organization. We spend money when we need to spend it and that has been making the difference."

For instance, for years Medina's website has remained stark and sparse with little or no information on the product being developed. Many other startups devote a certain level of resources to having a flashy website. Vogel said a more detailed website will be forthcoming, but frankly that hasn't been the priority.

"We are a technology company," she declared. "We are not a sales and marketing company."
So what should a lean and mean startup spend its precious cash on?

"There are a couple of things you really want to spend your money on - really good attorneys, really good IP because you want to be able to protect your product and actual employees. Your employees are the most vital thing you will find, so you’ll always want to spend money on attracting and retaining the most talented people."

As for IP-related expenses, you need to have an attorney who not only understands the concept but has some litigation chops too, Vogel said. Given the advent of patent trolls in medtech, this is timely advice.

Now Medina Medical is waiting to get FDA clearance and CE Mark on its Athena embolization coil to treat brain aneurysms. 

The marketplace will be the final arbiter of to Medina Medical's ultimate fate, but the company has already been noticed by VCs impressed by its ability to operate in a lean manner. 

Vogel said the company would not have gotten this far without raising capital and urges entrepreneurs to tell a story that moves instead of solely relying on dry facts like clinical trial results and journal publications. In Vogel and her co-founder's case, both had been touched by death and injury of close family members who suffered from brain aneurysms, which became part of their pitch for fundraising.

"There’s a lot of psychology around the investor. What gets them motivated? Why do they invest in our company? And I tell a lot of entrepreneurs you have got to show them a compelling story." she said.

Once the capital comes, entrepreneurs need to maintain accountability and investor trust.  

"We took a page out of the book of nonprofits. When a nonprofit comes to you asking for money … they’ll tell you when you donate this money, this is what it gets you," Vogel said. "[So the question is] if my investor invests this money, what can he or she expect that is reasonable that we know we can do? Each milestone we set out at Medina Medical we’ve achieved."

[Photo Credit: user iqoncept

UPDATE: This story has been updated to remove descriptions of the device and its potential to change how brain aneurysms are treated today. A company representative said the information provided was outdated and as a result, incorrect.  

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


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