Raising Medical Device Capital: Two VCs Discuss Tactics

The demand for capital far outpaces the money available to medtech, but these strategies can help startups get a piece of the pie.

Heather R. Johnson

June 5, 2024

4 Min Read
Venture Capital concept illustrated by dollar sign, mechanical gears, and an arrow that reads: venture capital
Image by: designer491 / iStock via Getty Images

Mike Hill, managing director of Octane Capital Markets in Newport Beach, CA, kicked off StarFish Medical’s recent Medical Device Playbook conference with a chilling story:

An emerging medtech company raised $20 million to develop a device designed to treat heart failure patients. The company completed a successful first-in-human clinical trial.

The company has a solid advisory team and an “unbelievable” chief medical officer. Hill’s team was tasked with connecting the startup with a strategic partner that would potentially acquire the technology.

One potential partner agreed with Hill that the startup had a remarkable device with market opportunity. “But we’re betting against them,” the potential partner told Hill. The company didn’t think the startup’s team could execute, specifically, in regulatory.

Hill shared that story to illustrate how important it is for startups to have both a clear regulatory roadmap and a strong team that can execute that roadmap. According to Medical Device Network data, total venture financing deal value sank 31% in 2023 compared to 2022. This year has started a bit stronger, but activity remains low.

How to persevere when funding is hard to come by

To persevere when funding is hard to come by, Hill and the speaker that followed—Jeffry Weinhuff, managing partner and CIO of Visionary Ventures’s Visionary Venture Fund, a later-stage fund focused on ophthalmology drugs and devices—offered the following suggestions.

Related:The New Frontier of Early-Stage Medical Device Funding

  1. Investment is not tuition. “Nobody wants to invest in a company who's going to use that money to learn how to execute strategy,” Hill said. “You must have well thought-out roadmaps for how you’re going to take a product all the way to commercialization.”

  2. Build a team that can take it to the finish line. Medical device founders must assess whether their advisory team can take the product through from development to commercialization. Contract with experienced consultants or CROs with proven expertise to fill in gaps. “We believe, when we finance a company, that we need to take it to commercialization. Do I want to do that? Not particularly,” said Weinhuff. “It’s going to take at least one extra financing, maybe two, and another few years. But if we don't, we won't have buyers. The path to success is having something that's developed well, does a focused launch, shows good traction with adoption and repeat business, and can show a strong trajectory out of the gate. If you can't show that, you don't have anything to sell.”

  3. Write an investment story. The investment story—how the VCs will make money off the product—is the primary story to tell when seeking funding. The clinical story is the subplot. Can you show investors how they will get a 9 to 10x return on their investment (ROI)? Write that story.

  4. Be realistic with valuation. Valuation must be accurate and fair, because it helps investors see potential ROI. “The companies that die are the ones that think a high evaluation equates to success,” said Weinhuff. “A high valuation makes it harder to get the next round of financing done. You need a plan to finance all the way through. And if the next round of investors can't make money, either you won’t get the money, or they'll do a reset on your capitalization.”

  5. Align the capital. Pursue venture capital firms that specialize in your niche. Visionary Ventures focuses on ophthalmology. Other VCs focus on cardiology and/or orthopedics, while other firms hold more broad portfolios. “Knowing who your right audience is takes waste out of the process of raising money,” said Weinhuff. “It's critical.” He suggested emerging medical device founders explore resources such as Pitchbook, network via communities like Octane, or consult colleagues and industry partners.

The demand for capital far outpaces the money available to medtech; however, the first quarter of 2024 shows signs of improvement. PitchBook’s Q1 2024 MedTech Report reports a total deal value of $3.3 billion—about half of the $6 billion of Q1 2021, but up from last year.

To get a piece of this capital, medical device startups will need more than a compelling product. They’ll need a solid business plan, a clear path to commercialization, a market access and reimbursement strategy, and a motivated team that can execute those plans. With the practical pieces in place, startups stand a much better chance of watching their product make a difference in patients’ lives.

About the Author(s)

Heather R. Johnson

Heather R. Johnson is a consultant and writer for the medical and clinical technology industries. She’s based in the San Francisco Bay Area.

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