Category: Medical Device Venture Capital

The lean medical device startup compensation policy

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A great coder with a great idea can start an amazing web 2.0 business. In the web startup world, college dropouts create billion dollar businesses by their mid-20’s. In the medical device industry though, experience counts. You’ll need a VP Regulatory Affairs that has several FDA approvals in the last 10 years. Your head of product development should have driven several products successfully to market. Your head of marketing should be a creative product launch veteran. I hope your manufacturing team has built many medical device products before.

“Ramen profitable” doesn’t work for medical device companies.  Medical device companies need experienced talent. Experienced talent deserves fair compensation.

What’s the right compensation policy?

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Monitoring NE Medical Device Startups

Developing new products to improve patient care is the best part of being in the medical device industry. Who can argue with that?

You’ll find the most exciting devices being developed in venture-funded start-ups – a structure that provides the single-minded, do-or-die focus needed for success, along with the risk capital needed to fuel the work. Here in New England, we have a great medical device start-up ecosystem, with dozens of companies working to solve significant medical problems with great new devices.

Each quarter, the MoneyTree Survey lists virtually all venture financings in the US. The 2011 Q1 numbers just came out. Reviewing the data, I thought it would be a good time to look back at the New England medical device companies started in the past several years.

I was surprised by what I found.

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Fresh Money: 2011 Q1

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According to the Boston Globe, the top New England venture-funded sector in Q1 2011 was medical devices and equipment, at $145 million.  That’s great news and a testament to the local medical device innovation economy.

On the other hand, life science venture capitalists in New England closed no new funds in Q1.   That’s not great news.  There has been some fund-raising activity, so we can hope for a better Q2.  In fact, Bessemer Ventures closed a $1.6B fund in early April, which will include medical devices as a target investment sector, so Q2 is off to a good start.

If you’re raising money, you should know which life science funds actually did raise money in Q1 2011.  How do you find out? Continue reading “Fresh Money: 2011 Q1” →

Medical Device VC Funding: Slide Deck – Part 2 – Platforms

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Platform technologies have a certain allure. Look at MicroCHIPS, poised to revolutionize glucose monitoring and drug delivery (starting with osteoporosis, diabetes and cardiology drugs). Look at Seventh Sense Biosystems, hard at work developing rapid, simple-to-use diagnostics that measure “several classes of analytes including small molecules, peptides, proteins, and nucleic acids.” Medical device geeks like me can’t help being impressed.

Broadly defined, platform technologies are families of IP that enable multiple distinct clinical applications for distinct patient populations. MicroCHIPS and Seventh Sense are great examples.

Because platforms address multiple market opportunities, the revenue potential of a company with a platform technology can be several times that of a single application company. Does that mean platform technologies are easier to fund?

Pitching platform technologies to VC’s can be challenging. First, cool new technologies need lots of explanation. Second, presenting multiple market opportunities takes lots of time. One of my most popular posts has been “Medical Device VC Funding: Slide Deck – Part 1,” which covers a company developing a single medical device product to address a single unmet need. How should companies with platform technologies present to VC’s?

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Venture Capitalist Bloggers

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You can’t be a credible social media venture capitalist if you’re not an active social media user.  Blogs and twitter are the social media of choice, and VC’s have created a lot of content worth reading.  On my blogroll I’ve included some of my favorites, but now you can find the comprehensive list of all VC blogs at the Venture Capital (VC) Blog Directory – 2011 Edition, put together by Larry Cheng of Volition Capital.  Thanks to Ty Danco for pointing it out.

Note that only a handful of life science VC’s have blogs.  Savvy tech VC’s have figured out that blogging and tweeting can help build their VC (and personal) brand, creating dealflow and entrepreneur interest.  Life science VC’s are once again behind the curve.  Let’s hope for a change in 2011.

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Medical Device Entrepreneur Readings

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Over the weekend, a friend asked what one book I would recommend to guide a first-time entrepreneur. I replied that just one book was not sufficient. My friend suggested Michael Porter‘s Competitive Strategy, which I agreed was an excellent choice. I also told him I’d address the question more fully on my blog, so that’s today’s post.

The Launching Tech Ventures Reading List

Fortunately, local entrepreneur and investor Ty Danco recently pointed out an amazing reading list for first time entrepreneurs. Harvard B-School Professor Tom Eisenmann is developing an MBA class called Launching Tech Ventures, and he posted his well-curated course reading list on his blog Platforms and Networks. As Ty says, the list makes me wish I was back in school.   While you’re working through the list, don’t skip Eisenmann’s earlier compendium of the web’s best advice for entrepreneurs.  For tech start-ups, Eisenmann’s recommendations are unsurpassed.

For medical device entrepreneurs, Eisenmann’s list isn’t quite enough, so I’ve put together a few suggestions from my own experience. Leave me a comment telling me what I missed or if you disagree with my choices.

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Fresh Money: 2010 Q4

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On his blog, Michael Greeley recently wrote “My guess is the VC industry will have raised between $10 to $12 billion in 2010 ($28 billion was raised in 2008). From 2008 through 2011 we will have witnessed the VC industry being cut in half.”  Ouch.

Less money raised means fewer deals will be done. In addition, longer times-to-exit force VC’s to reserve larger portions of their funds for each portfolio company.   For medical device startups, the fundraising environment is as rough as it has ever been.

All the more reason to raise money from VC’s that have relatively new funds. These new funds have longer time horizons, and don’t have to support past (aging) VC firm investments. How do you find these funds?

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Ardian – A Case Study in Value Creation

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I’m surprised that there hasn’t been more written about Ardian since their sale to Medtronic last month. It may be the largest venture-backed medical device exit to-date. Ardian’s $800M-plus-milestone-payments may end up being larger than Medtronic’s purchase of CoreValve for $700M-plus-milestone-payments in 2009. Even more unusual was Ardian’s relatively early-stage. At the time of sale, CoreValve had implanted devices in 2,600 patients at 125 centers in 25 countries. Ardian exited much earlier, with about 150 patients treated.

Overnight sensations don’t happen overnight. While Ardian seemed to come out of nowhere in 2009 and exited large in 2010, the truth is that the company had been hard at work for almost 10 years. Ardian achieved more than 10X return on $66M invested – at least $732M of value created, before milestones. While the end of the story is still unwritten, Ardian’s first few chapters form a great case study for medical device entrepreneurs and investors.

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Stock Options – Wilson’s Rules

Fred Wilson of Union Square Ventures
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One of my most popular posts concerns employee stock options  (see Stock options – everybody in the pool).  Last week, Fred Wilson of Union Square Ventures described his formula for granting employee options, on his blog AVC. Everyone gets options, according to his transparent formula.  Makes a lot of sense to me, and I’m sure it will for you.  Read his post here.

Come Back When You Have More Data

Museum of Bad ArtOver the past several months, I’ve had the privilege of meeting many entrepreneurs who are raising funds for new medical device startups. One common VC refrain they hear: “Come back when you have more data.” Many times this can be a VC’s way of saying no without saying no. Sometimes though, the VC really means what s/he says: the current proof-of-concept data hasn’t proved the concept. It’s not just startups that face this challenge. I’ve seen weak proof-of-concept data in bigger companies too. How can you make sure your proof-of-concept data is solid?

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