WSGR 2014 Medical Device Conference – Funding Strategies for Early Entrepreneurs

Medical Device industry has been facing enormous and unprecedented challenges during the last several years.  Only now it is emerging from the dark tunnel of funding dryout, layoffs, and lackluster job scenario.  The 2014 Wilson Sonsini Medical Device Conference reflected some cautious optimism based on recent uptik in the industry.  The challenges are not gone but companies have learned to work with the complexities.  The conference this year focused on understanding the challenges still facing the Medtech startups and the new strategies that are emerging as response to these challenges.  The conference was a sold out event with 600+ attendees that included CEOs, venture capitalists, investment bankers, market analysts, and industry strategists.  Below are the highlights from one of the panels.

Funding Strategies for Entrepreneurs

Dried up funding continues to be a challenges for medtech start-ups.  This panel was moderated by Casey McGlynn, Partner, Wilson Sonsini Goodrich & Rosati.  McGlynn said he is increasingly seeing companies getting funded, even PMA projects are getting funding.  One of the strategies for PMA is to have a believable path to an existing market in Europe that will adopt the product.  Building product is not the challenge, but for these, the regulatory approval process in the US, becomes a big hurdle.  For bite size consumer facing, wearable type, or health IT projects, crowdsourcing could be a good strategy, said McGlynn.  

The panelists included CEOs who shared their experiences in search for capital.  The panelists also discussed how interests of the investors are changing.

Laura Dietch, President and CEO, BioTrace Medical, shared about the technology that emerged from the Stanford BioDesign program.  BioTrace is developing a temporary cardiac pacing device to treat reversible symptomatic bradycardia, during general surgery for percutaneous valve procedures.  This is a 510K device.  BioTrace raised $3.5M from 5 investors.  Dietch’s advice to the entrepreneurs?  “You have to be tenacious, have good target partners, be willing to take a lot of rejections, be organized, and be creative.  She also advised entrepreneurs to stay lean, whenever possible, have a physician on the team, and be clear from the beginning regarding the exit strategy.

Qool Therapeutics offers patented cooling technology to induce therapeutic hypothermia.  This minimally invasive technology has applications in stroke, cardiac arrest, traumatic brain injury, sports injuries and so on.  President and CEO, Beverly Huss shared how the company raised $1.5M from small investors that included COO at American Airlines, General Counsel at EBay, an executive at Dish Network and so on.  She said these relationships were developed over the years.  “Early stage investing is a labor of love and can come from people who believe in your ability to deliver on a technology they like”, said Huss.  She also advised that entrepreneurs be relentless and follow every path and see where it takes them, and be open to learning the lessons from each path they pursue.  What has changed is how we are bringing therapeutics devices to a consumer market, said Huss.

Dr. Daniel Burnett, President and CEO at TheraNova also talked about how the climate has changed.  With his first company, they raised funding without any animal or human data; next company required huge clinical data and since then most companies need some human data, before money can be raised.  TheraNova turned to corporations and also had 4 SBIR grants.  Since 2006, Burnett raised or helped raise, over $95M for six venture-backed TheraNova spinouts, BAROnova, Novashunt, Velomedix, EMKinetics, Channel Medsystems, and Potrero Medical.  For Channel MedSystems, he partnered with Mir Imran’s Venture Health Crowdsourcing platform.  His advice to entrepreneurs was to be lean and mean and to focus on both cost saving and improved outcome.  Burnett said he avoids PMAs.  Angel investors have been beaten up badly and still recovering but he advised that entrepreneurs can go to crowdsourcing platforms like Venture Health or DealLabs.

Doug Wall, Managing Director, Volcano Capital talked about some of their portfolio companies.  All in all, market for early stage investors is pretty lonely, said Wall.  There was virtually no competition from 2009 to 2011 but that is now changing.  There are some VC funds now taking an interest in early stage deals.  Most successful companies are the ones that think outside the box.  Answering the question regarding what would be more important market or people, Wall said, “we are flexible on market size, but most important thing to us is the management team, and then we look to see if the milestones are thoughtful, and if the team shares the strategy to be capital efficient”.  He said, they avoid PMS entirely to mitigate the regulatory risk factors.