New medical device companies need much more than money to get their businesses started. A medtech-specific accelerator can help with seed funding and positioning for a Series A round.
Shai Policker, MEDX Xelerator
As we dive into 2020, the medtech sector will continue to offer tremendous opportunity for innovators and investors alike, with growth projected at over 5% every year and annual sales expected to reach $800 billion by 2030, according to KPMG.
However, for every medtech startup that succeeds, how many will fail to get their devices into the hands of healthcare professionals or even reach clinical trial phase?
Taking your first step toward success depends upon the stage of your venture. For medtech startups raising their Series A funding, most investors expect a perfect dish to be served, with all the key ingredients accounted for in any pitch.
For earlier-stage startups pitching to an angel or an incubator for seed funding, some of these will surely be missing. The right seed investor will be able to see beyond those gaps and help you bridge some of them — except for the first key ingredient — a clear unmet clinical need.
‘Focus or die’
Oftentimes a great, skilled, even brilliant engineer who is unfamiliar with the clinical environment designs an advanced piece of technology with no clear application. In these cases, we hear entrepreneurs use words like “platform solution” and “multiple applications in parallel” to try and sell the innovation as the total solution to address many of the world’s health challenges. This makes investors nervous.
“Focus or die” is the only advice we give entrepreneurs who think like this.
The unmet need is the basic ingredient for success. This isn’t necessarily a medical problem without a solution, or an improved clinical outcome for a particular clinical condition. An unmet need can also be a solution that saves money or time compared with the standard of care.
After identifying an unmet need, you’ll be able to start asking yourself questions like, “What is the minimal viable product that we can take to a clinical trial and to market?” and, “What specifications will be enough to satisfy an important part of the unmet need?” Once those questions are well addressed, you are more likely to define your plan and budget and get your idea off the ground with initial seed funding.
However, to progress to a Series A raise, here are the five ingredients to add before trying to serve it up to investors:
Very few investors will be okay with just a concept, but a prototype with feasibility data will really make our hearts sing. Unlike with the “unmet need” element, entrepreneurs sometimes mistakenly believe that they (or their hired engineers) can reinvent the laws of physics or biology to address the problem. This is rarely the case. Those considering a serious investment need to see a certain depth in the solution relying on strong science and a mechanism of action that is backed by some good data.
IP is a common “project killer” for us. But, it’s important to differentiate between “freedom to operate” and “patentability.” In simple terms, if there is no way to build your product without stepping into a minefield of 100+ issued patents, then investors will blanch. However, if you are not at risk of infringing someone else’s patent but your idea is hard to protect with a patent, you may still be able to come up with strong IP in the development process or find another moat. Make sure you use a top-notch IP lawyer experienced in healthcare/medical devices. This is not the right place to save.
Business model and market potential
Investors will want to see that you have a reimbursement strategy in place. In the world of value-based care, you must shape your project to fit well into an easy-to-evaluate clinical, as well as economic, value.
Early-stage investors also want to see a market potential of at least several hundred million USD. Otherwise, even an early-stage exit will leave them with too small of a payout to take an initial risk with you.
An experienced team
The quality of your team will dictate most of your chances to succeed. It’s always nice to invest in an idea that comes with a well-rounded team. However, an idea without a team also presents an opportunity to get the right people on board early on. An incubator with shared and very qualified resources spread among several companies is also a good way to run the first mile in a capital-efficient way. When it comes to securing funding for a Series A, however, you must have this A-list team already in place.
It’s crucial to validate commercial assumptions with someone experienced in selling in each of your target markets. An incubator may be connected to strategic players active in the right target markets who are happy to share commercial insights and data, in exchange for getting an early glimpse into the new innovation pipeline of the incubator.
Early-stage funding for medtech ventures isn’t always easy, but a team with the right solution for a large enough clinical unmet need should consider raising seed funds from an investor that can provide value beyond the funds to help them either fail fast or reach significant milestones quickly and efficiently. This will position new medtech ventures well for a series A round with everything necessary to satisfy investors.
Shai Policker is CEO of MEDX Xelerator, a partnership of Boston Scientific, Intellectual Ventures, MEDX Ventures and the Sheba Medical Center working under a license from the Israeli Innovation Authority. For over 20 years, he has led development, commercialization and investments in innovative medical devices for various indications.
The opinions expressed in this blog post are the author’s only and do not necessarily reflect those of Medical Design and Outsourcing or its employees.