Finding VC Funding for Medtech Projects in a Tough Environment

At the IN3 Summit held recently in San Francisco, a panel of venture capitalists shared their thoughts on the VC funding market. While acknowledging that the dust is still settling from 2008, there is still funding to be had—if your firm is well positioned.

The panelists were:

The panelists agreed that few VC firms are doing Series A investments these days. By contrast, there seems to be a strong push for later-stage investments because they represent a lower risk. “We like to work with later-stage companies given how long it takes to move things along,” one panelist remarked. In addition, most VCs like to see some clinical data when considering potential medical device investments. In virtually all of the Power Point presentations that are presented to VCs, there is a regulatory or reimbursement slide, one of the panelists noted. Companies seeking funding that have already made it through the long journey with FDA and are prepared to commercialize products are typically well positioned to find VC backing.

Looking to Be Amazed

Late-stage investments aren’t the only projects getting funding, however. “We hear people saying they won’t do early-stage but, [I recently spoke to several people who] said they would," said Gerard van Hamel Platerink of Accuitive Medical Ventures. He added that his firm has funded some early-stage projects recently. For example, the firm recently decided to fund a company based only on a PowerPoint presentation. “Every doctor we talked to about that idea said ‘That will never work, but if it does work, that will be amazing,’” he said. “That is what we look for.” Wowing VCs seems to practically be a requirement to find early-stage funding in this market, however. The idea you are presenting has to be interesting enough for the VC to want to own the asset. So it's important that your idea stands out from the crowd.

Companies Stuck in the Middle

Despite the difficulty early-stage companies face to find funding, it is, perhaps, even more difficult for companies that are somewhere in between early and late stage. There are many start-up firms that received funding early on but are in need of more cash to pursue their business strategy. “For companies in the middle, it’s very difficult,” a panelist explained. To help with the process, companies should sit down and figure out how much money and time it will take to before commercialization occurs.

General Recommendations for Attracting Capital

Startups that want to pitch ideas to VCs should plan to meet with them early on. There needs to be a clear strategic vision to attract funding. Although it wasn't mentioned specifically at the event, startups should be conduct a thorough freedom-to-operate assessment to make sure the technology being developed won't infringed on any patents. They should also clearly understand the benefits of the technology to the patient. Patients, as they become more active in educating themselves about their health, are wielding growing power in shaping the direction of their treatment.  

While thoroughly considering the viewpoint of the patient is important, so is understanding the perspective of the venture capitalists. “For series A folks approaching corporate folks, tailor your approach to your audience,” Evan Norton, director, venture investments at Abbott Ventures recommended. Really know your audience, he advised. Understand their interests and make sure that all of your reimbursement plans are thought through. “VCs don’t want to see a slide about how they will get a 12x return on the investment,” he said. “Consider what the product might look like in a significantly large medical device company. Think about what you can contribute to the company from a revenue standpoint.” Ask: “Is this idea going to move the needle?” If you start trying to think like a VC, you can anticipate the kinds of questions they will ask. And you’ll be able to provide better answers to them.

Although it is helpful to understand a VCs mindset, it’s not a good idea to try to come up with a financing strategy as a medical device firm. “It's very unusual for a company to come to us with a plan. Typically, we would do all of that financing work,” one panelist said. “These things happen in a way that is kind of hard [for non-VCs] to process.”

—Brian Buntz

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