What are alternative ways of VC funding for a medical devices start-up?
July 24, 2014 6:42 AM Subscribe
We have developed a prototype for non-invasive blood glucose measurement and have problems finding funding. What are the alternatives?
The problems are:
1. This field is very controversial. Many people have failed.
2. We are currently EU based but we can also partly move to the US (I am a US citizen) and incorporate there. (I know this is bad)
3. Medical devices are out of favor with the VC crowd.
The good things are:
1. University associated company with high class scientists (professors)
2. Several patents and peer-reviewed publications.
3. Working first generation prototype exists.
It blows my mind that we can not get funding. I was told now to look into Kickstarter and Crowd funding options. I am not sure if we are eligible for kickstarter due to the medical nature of the project. How promising is funding with a company like Wefunder? It costs quite a bit to get a decent listing there. I am sure it is worth it - IF you get funded.
My questions are:
1. Can anyone recommend Wefunder or similiar websites?
2. Are there other options to raise money?
The problems are:
1. This field is very controversial. Many people have failed.
2. We are currently EU based but we can also partly move to the US (I am a US citizen) and incorporate there. (I know this is bad)
3. Medical devices are out of favor with the VC crowd.
The good things are:
1. University associated company with high class scientists (professors)
2. Several patents and peer-reviewed publications.
3. Working first generation prototype exists.
It blows my mind that we can not get funding. I was told now to look into Kickstarter and Crowd funding options. I am not sure if we are eligible for kickstarter due to the medical nature of the project. How promising is funding with a company like Wefunder? It costs quite a bit to get a decent listing there. I am sure it is worth it - IF you get funded.
My questions are:
1. Can anyone recommend Wefunder or similiar websites?
2. Are there other options to raise money?
Best answer: My dad has worked in VC-funded early stage medical device companies for years and the consensus among his peers is unless there is literally not a single other job or business you would be excited to work on instead, don't do medical devices. The funding environment is really horrible, largely due to the insane multiples people are seeing on less-capital-intensive companies in software/hardware for markets that don't have the regulatory hurdles that medical devices do. So yeah, I don't have a lot of advice but maybe it's comforting to know it's not just you? Folks who have done this their whole careers are struggling to raise money for anything; it's just really really hard right now.
There might be some clever ways around being a traditional medical device company; Tidepool has always interested me as a new model. Lots of differences obviously but might be worth trying to have a conversation with someone there.
Are the strategic-type folks (eg big medical device companies who might acquire you someday) not biting either? It's obviously a hard sell too, they don't like risk any more than VCs do, but sometimes you can get them to put in some money to get it to a stage where they might acquire it.
In the US, the SBIR process is widely considered to be good money and relatively easy to get. If you were here, that door might be open to you and could finance you for a period of a year or two, depending on your team size and capital requirements. You're squarely in the area of the sort of thing they might like to fund.
posted by heresiarch at 6:59 AM on July 24, 2014
There might be some clever ways around being a traditional medical device company; Tidepool has always interested me as a new model. Lots of differences obviously but might be worth trying to have a conversation with someone there.
Are the strategic-type folks (eg big medical device companies who might acquire you someday) not biting either? It's obviously a hard sell too, they don't like risk any more than VCs do, but sometimes you can get them to put in some money to get it to a stage where they might acquire it.
In the US, the SBIR process is widely considered to be good money and relatively easy to get. If you were here, that door might be open to you and could finance you for a period of a year or two, depending on your team size and capital requirements. You're squarely in the area of the sort of thing they might like to fund.
posted by heresiarch at 6:59 AM on July 24, 2014
Best answer: The thing that leaps out at me from what you wrote there is that you have a prototype device (and it's a device and technology I think I'd be interested in, I've been wondering what happens to me when I'm bicycling), but you don't have a prototype product.
By that, I mean: What does the market look like for this? What's your channel to the consumer? Are you planning on building these and selling them to drug stores, direct to consumer, through doctor's offices? Are you going to develop the technology and let someone else brand and sell? And then what regulatory hurdles do you have to clear? Are they different for different markets? (ie: Glorified bike computer/quantified self has different needs than glucose monitoring for diabetics?)
And from there, you can figure out how much money you'll need at each stage: Hit up your extended friends network for enough to build a hundred devices to to get some validation vs measurements from diabetics who are already doing invasive testing? Get devices on "quantified self" geeks to see if there's useful information can be gleaned there?
Because that's what investors are looking for: not "how cool is your device?", but "how does your product turn into an ROI?" and "what's the path from where you are right now to that ROI, and the risk and cost at each stage?"
And it doesn't matter how cool your device is, unless you can tell a story about how that device gets to market and makes money, nobody's going to be excited.
posted by straw at 7:01 AM on July 24, 2014 [1 favorite]
By that, I mean: What does the market look like for this? What's your channel to the consumer? Are you planning on building these and selling them to drug stores, direct to consumer, through doctor's offices? Are you going to develop the technology and let someone else brand and sell? And then what regulatory hurdles do you have to clear? Are they different for different markets? (ie: Glorified bike computer/quantified self has different needs than glucose monitoring for diabetics?)
And from there, you can figure out how much money you'll need at each stage: Hit up your extended friends network for enough to build a hundred devices to to get some validation vs measurements from diabetics who are already doing invasive testing? Get devices on "quantified self" geeks to see if there's useful information can be gleaned there?
Because that's what investors are looking for: not "how cool is your device?", but "how does your product turn into an ROI?" and "what's the path from where you are right now to that ROI, and the risk and cost at each stage?"
And it doesn't matter how cool your device is, unless you can tell a story about how that device gets to market and makes money, nobody's going to be excited.
posted by straw at 7:01 AM on July 24, 2014 [1 favorite]
Best answer: How much money do you need? NIH SBIR grants will give you $100K for 6 months for a Phase I and $750K for 2 years for a Phase II. Overview powerpoint here.
US Science funding is not doing terribly well, but last time I looked SBIR approval rates were better than R21/R01 rates, so you'd have a shot at it.
posted by Comrade_robot at 7:06 AM on July 24, 2014 [1 favorite]
US Science funding is not doing terribly well, but last time I looked SBIR approval rates were better than R21/R01 rates, so you'd have a shot at it.
posted by Comrade_robot at 7:06 AM on July 24, 2014 [1 favorite]
Response by poster: @heresiach
"people are seeing on less-capital-intensive companies in software/hardware for markets that don't have the regulatory hurdles that medical devices do. "
You are to the point here. On the other hand, the next social networking site does not bring us really ahead.
posted by yoyo_nyc at 8:05 AM on July 24, 2014
"people are seeing on less-capital-intensive companies in software/hardware for markets that don't have the regulatory hurdles that medical devices do. "
You are to the point here. On the other hand, the next social networking site does not bring us really ahead.
posted by yoyo_nyc at 8:05 AM on July 24, 2014
Response by poster: @ straw
Thanks. I will look again into this. The last time I looked the topics of the SBIR grants did not to be suited.
posted by yoyo_nyc at 8:06 AM on July 24, 2014
Thanks. I will look again into this. The last time I looked the topics of the SBIR grants did not to be suited.
posted by yoyo_nyc at 8:06 AM on July 24, 2014
Response by poster: @Straw
"and it's a device and technology I think I'd be interested in, I've been wondering what happens to me when I'm bicycling"
The first generation is too big to be transported (desktop computer size). Only a second generation device would be small enough. This being said, a professional athlete told us that he would be more interested in his lactate levels. In principle, we should be able to measure this too.
posted by yoyo_nyc at 8:09 AM on July 24, 2014 [1 favorite]
"and it's a device and technology I think I'd be interested in, I've been wondering what happens to me when I'm bicycling"
The first generation is too big to be transported (desktop computer size). Only a second generation device would be small enough. This being said, a professional athlete told us that he would be more interested in his lactate levels. In principle, we should be able to measure this too.
posted by yoyo_nyc at 8:09 AM on July 24, 2014 [1 favorite]
Have you considered just nailing down the patents and then licensing the technology to an existing medical devices company? That doesn't get you as much money or glory, but it could be a lower-cost lower-risk way to get your valuable technology to market, and it could still be quite lucrative.
posted by alms at 12:49 PM on July 24, 2014
posted by alms at 12:49 PM on July 24, 2014
Well, here's the thing. Something like 1 out of 400 pitches that VCs receive end up being funded, so I would not be too surprised that you're not getting funded. You're committing the same flawed reasoning that I see in a lot of entrepreneurs (I work with them professionally; contact me at the email address in my profile if you want details on what I do): they think that because their service/product/software is amazing, they will get funded.
Having a great product (even if it is one that, contra the latest social networking app, does something beneficial, like a medical product) is not enough. Having traction (revenues, customers, etc.) will interest a VC a lot more. I know you're reading this, thinking to yourself, "how the hell do I get revenues and customers if I don't have the money to build this product?!" and, while that's a fair question, it's also a question that all other entrepreneurs have had to contend with, so you're not in some unusual position.
That said, what has been the feedback, if any, that you have received from VCs? Is your presentation good? Do you understand the market? Do you understand your market? Do you understand the regulatory constraints and inherent costs involved in the medical product market? Do you have a board of advisors that includes at least one doctor who specializes in the illness/condition that your device is meant to treat/manage?
Finally, your location in Europe puts you at somewhat of a disadvantage because most VCs are in the United States, and most VCs (but not all) invest only in the United States.
posted by dfriedman at 3:29 PM on July 24, 2014
Having a great product (even if it is one that, contra the latest social networking app, does something beneficial, like a medical product) is not enough. Having traction (revenues, customers, etc.) will interest a VC a lot more. I know you're reading this, thinking to yourself, "how the hell do I get revenues and customers if I don't have the money to build this product?!" and, while that's a fair question, it's also a question that all other entrepreneurs have had to contend with, so you're not in some unusual position.
That said, what has been the feedback, if any, that you have received from VCs? Is your presentation good? Do you understand the market? Do you understand your market? Do you understand the regulatory constraints and inherent costs involved in the medical product market? Do you have a board of advisors that includes at least one doctor who specializes in the illness/condition that your device is meant to treat/manage?
Finally, your location in Europe puts you at somewhat of a disadvantage because most VCs are in the United States, and most VCs (but not all) invest only in the United States.
posted by dfriedman at 3:29 PM on July 24, 2014
Hey yoyo_nyc, I'm U.S. based and have worked on engineering teams building medical devices in the past, and have also worked as a technical advisor to a couple of VC firms. My advice is going to be very U.S.-centric, though I imagine that there are EU parallels.
First of all, as I'm sure you are aware, there is a certification process with the FDA in the U.S. that can be pretty egregious to work through (generically referred to as 510 (k)). I'm imagining there is something equivalent in Europe. I worked at three different companies making devices in the 1990's and all had someone whose sole job was to deal with the FDA regs. Having been on both sides of the 510k process (before and after), where you are at in that process is going to make a big difference in the risk calculus for an investor, as it can add uncertainty (what if you don't get approval?) and increases the time to a potential exit (what if it takes a year? two years? to get approval).
Second, VC funds specialize, both in how far along the investments are (e.g. seed stage, A round, etc.) and in specific areas (e.g. social media, logistics, security). Neither of the two funds I worked with did medical, so the chances of them making an investment in a company with a medical device idea were zero. By zero, I mean, they wouldn't even let you pitch the idea. The reason is pretty simple: too much risk, because they don't understand the business (of medical devices) well enough. Because of the regulatory complications I mentioned above, I would say that would be true for *any* VC fund: if they don't explicitly say they do medical devices, the chances of them investing are also zero. So if you are going to continue to pursue the VC funding angle, you'll absolutely want to target VC firms that specifically have expertise with medical devices *and* invest in early stage companies.
posted by kovacs at 8:22 PM on July 24, 2014
First of all, as I'm sure you are aware, there is a certification process with the FDA in the U.S. that can be pretty egregious to work through (generically referred to as 510 (k)). I'm imagining there is something equivalent in Europe. I worked at three different companies making devices in the 1990's and all had someone whose sole job was to deal with the FDA regs. Having been on both sides of the 510k process (before and after), where you are at in that process is going to make a big difference in the risk calculus for an investor, as it can add uncertainty (what if you don't get approval?) and increases the time to a potential exit (what if it takes a year? two years? to get approval).
Second, VC funds specialize, both in how far along the investments are (e.g. seed stage, A round, etc.) and in specific areas (e.g. social media, logistics, security). Neither of the two funds I worked with did medical, so the chances of them making an investment in a company with a medical device idea were zero. By zero, I mean, they wouldn't even let you pitch the idea. The reason is pretty simple: too much risk, because they don't understand the business (of medical devices) well enough. Because of the regulatory complications I mentioned above, I would say that would be true for *any* VC fund: if they don't explicitly say they do medical devices, the chances of them investing are also zero. So if you are going to continue to pursue the VC funding angle, you'll absolutely want to target VC firms that specifically have expertise with medical devices *and* invest in early stage companies.
posted by kovacs at 8:22 PM on July 24, 2014
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posted by shothotbot at 6:57 AM on July 24, 2014