Want to be a med-tech success story? Venture capitalists offer advice
September 27, 2019
TORONTO – Venture capitalists and private investors offered free advice to medical tech entrepreneurs who gathered at the MaRS HealthKick conference in early April. The take-aways?
- Be tenacious, because you may have to knock on the door many times before you find an investor who is willing to lay down some cash.
- Get ready to re-structure your start-up, because the people needed to create a company aren’t necessarily the ones who can scale it up quickly. That means even you, the founder, might be out as the top gun.
- And finally, for Canadian start-ups, be prepared to step into the bigger U.S. or European waters quickly, as vencap investors agree the home market is too small a pond.
“Canada doesn’t rate,” commented Kelly Holman, Managing Director of Genesys Capital. At least it doesn’t, he explained, when it comes to quickly building a business that can provide investors with 10 to 20 times return on their capital.
The MaRS technology accelerator in downtown Toronto hosted five days of presentations and meetings that aimed to enlighten would-be medical-tech entrepreneurs about becoming the next big thing, and offered introductions to financiers, consultants and potential partners.
It was all part of the city’s annual Health Innovation Week.
A session on ‘Early Stage Digital Health and Medical Device Investing’ was moderated by Sheryl Thingvold, Senior Advisor at MaRS Venture Services.
On the topic of fast expansions to the United States, the financial experts noted that you’ve got to think differently. “In the U.S., it’s a complex payment system, with many payors,” said Gerry Brunk, Managing Director of Lumira Capital. “You have to show them how you can drive down costs and create savings. It’s not just about clinical efficiency,” which might be the case in Canada.
Help is often at hand in the form of partnerships with larger companies. Indeed, multinational companies are often looking to fast-track their own creative process by partnering with innovative but financially shaky start-ups. “They’re desperate to innovate and to grow, and they’ve got huge pools of capital,” said Brunk. But he warned entrepreneurs to “make sure your IP is looked after.”
Holman observed that a partnership with a multinational can give the fledgling company some stability, both financial and managerial. It can also provide an entrée into new markets and into the meeting rooms of new customers.
At the same time, the financiers noted that entrepreneurs must be wary of large companies and shouldn’t be too willing to sign away their intellectual property rights. If possible, don’t sign over exclusive rights to the technology to one company, and if possible, have two large strategic partners.
“Get more than one, if you can,” said Holman.
Another way to get into the U.S. market is through an American accelerator.
On the panel at HealthKick Invest was Bill Carpou, CEO of the Orange County Technology Accelerator Network (OCTANe), located outside of Los Angeles. He told the crowded room that each year, OCTANe accepts 40 companies for coaching, training and assessments of their technologies, and it’s welcoming Canadian innovators into the fold.
“We see 350 to 400 a year, and we select 40,” said Carpou, noting the companies then go through a 16-week mentoring course. Since its inception in 2009, OCTANe has worked with 571 companies. “And 86 percent have been funded afterwards,” said Carpou. “It’s kind of unheard of.”
Not only does OCTANe guide the companies, it also assesses their technologies, management and market readiness in 30 areas and creates its own metrics. “We need the analytics to back up what we’re saying about these companies,” said Carpou. “We give investors a set of analytics that compare the start-ups with successful companies.”
To get in the door, however, a company must have the backing of a clinician. “All deal flow comes through physicians,” said Carpou. “We don’t look at you without physician endorsement.”
OCTANe’s motivation is to bring more medtech jobs and innovation to the Southern California region. He says that Canadians don’t necessarily have to leave Canada; instead, they can use Southern California as a U.S. base.
And the organization has ties with the major hospitals and schools in the area, including Cedars-Sinai Medical Center, UCLA, and USC.
Of course, companies can go through drastic changes when expanding from a start-up with an interesting technology to a mid-sized or large competitor with major contracts and sales volumes. That means the founder of the company may have to step aside and let executives with marketing and management acumen take charge.
“We start with the science, but usually, the scientist is not the CEO,” said panellist Sam Ifergan, Managing Partner of iGan Partners. “Different skill sets are needed.”
That can be difficult for the founder – but if he or she really wants to grow the company, they must be willing to take on a different role.
Ifergan noted that it must always be an open discussion about the management strategy. “It’s an unwritten rule that you don’t surprise anyone.”
Still, he said, you need to discuss from the start who will be running the company, and whether the founder will be required to let go of the reins.
How do you even get through the doors of a vencap company? “Call us,” said Lumira Ventures’ Gerry Brunk. He cautioned that an initial meeting will likely not result in an investment; indeed, it may take years. “We followed one company for 11 years, and then invested.” Realistically, it normally doesn’t take that long, if a company has an impressive technology, clinical endorsements and a few small tests that show promise. But it’s key to show tenacity and resilience.
Said Holman: “I wouldn’t dissuade you from cold calling until you get the no.”