Begin With The End In Mind

Wow – two big medical device exits were announced in the past week: Boston Scientific bought Sadra, and Medtronic bought Ardian. Most successful medical device startups are ultimately acquired, enabling their investors to achieve a financial return and reputational enhancement. (With sufficient return and reputation, the investors will be able to raise another fund and keep their jobs.) Relatively few medical device startups remain standalone businesses, earning a return for their investors by going public or throwing off profits. Still, it’s usually better to build your company to be successful standalone, as it puts you in the best negotiating position vis-à-vis acquirers if and when they come.

There are likely to be four to six potential acquirers for your company, although there are occasionally less and sometimes a few more. Who are they? Continue reading “Begin With The End In Mind” →

Fresh Money: 2010 Q3

Chinese 1 Yuan Coin, Macro Photo — Image by Ivan Walsh via Flickr

Fresh money means that VC’s and PE firms need to make new investments, to put their fresh money to work. So, if you are looking for investors, look for those with fresh money.

Here is an updated list of VC fundraising activities for Q3 2010. Disclaimer: this list is likely not comprehensive, as firms don’t always announce new funds.

Continue reading “Fresh Money: 2010 Q3” →

Lean Medical Device Startup: Product/Market Fit

How did we survive for so long before web applications like Gmail, Facebook, YouTube, and SalesForce.com? These web 2.0 applications have dramatically changed the way we live and work.

These web 2.0 companies are also dramatically changing the way startups are managed and products are developed. Eric Ries coined the term Lean Startup, to describe a new way of thinking about startup companies, their markets and their products. These Lean Startup concepts can be applied to medical device companies too. Let’s start with one of the most critical concepts: Product/Market Fit.

Continue reading “Lean Medical Device Startup: Product/Market Fit” →

Keep Your Board On Board

NYC: Federal Reserve Bank of New York — Image by wallyg via Flickr

If you think that follow-on funding from your venture backers is guaranteed because they reserved additional funds for your investment, think again.

Recently, Fred Destin of Atlas Ventures warns that normal venture fund practices will favor some portfolio companies and negatively impact others. Check out his blog post here.

So, how do you keep your board on board? Continue reading “Keep Your Board On Board” →

CardioMEMS – An Earn-out With a Twist

Earn-outs – tying part of the acquisition price to the achievement of future milestones – have become increasingly common in medical device M&A. In April 2010, Start-Up Magazine reported that earn-outs were used in 9% of the medical device acquisitions in 2008, 13% in 2009 and an astounding 31% of deals in the first quarter of 2010. As an example, in August 2010, Hologic completed its acquisition of Sentinelle Medical for $85 million, plus an earn-out tied to a multiple of incremental revenues over the next two years.

On 7 September 2010, St. Jude Medical and CardioMEMS announced a milestone-based deal with a twist. St. Jude made a smaller than usual up-front payment, and received an option to purchase later, at a fixed price. Why this deal structure? Continue reading “CardioMEMS – An Earn-out With a Twist” →

It’s a Great Time for Medical Device Venture Funding

[NOTE: This post was first published in AccountAbility Outsourcing newsletter. AccountAbility is a strategic consulting firm that provides onsite outsourced accounting, finance, tax, and human resource solutions]

Raising venture funding for medical device companies has never been easy. Given the current economic environment, a more conservative FDA, and uncertainty about healthcare reform, the gloom index is at an all-time high. Bijan Salehizadeh of Highland Capital blogged recently of shrinking fund sizes and fewer med-tech deals closed. In July, Mark Heesen, president of the National Venture Capital Association (NVCA), lamented the “Darwinian environment in which the venture industry is operating.” One might think that the venture capital window is practically closed.

On the contrary, it’s actually a great time to raise money for medical device companies. Trend data from the NVCA and PricewaterhouseCoopers (PWC) indicate an increase in medical device venture funding in over the last four quarters, back to historical levels. Several life science venture firms have recently closed new funds and are beginning to invest, while several more are fund-raising and expected to begin investing later this year or early next year. While there won’t be a repeat of the 2006-2007 bubble, the next two years are shaping up to be the best in the past eight years.

Continue reading “It’s a Great Time for Medical Device Venture Funding” →

Early Customer Validation – Sell first, spend later

I just read Jason Cohen’s recent post on customer validation “Yes, but who said they’d actually BUY the damn thing?” (here). Given all the startups I’ve seen recently, this post really struck a chord. If you are starting a company or developing a new product, read Jason’s post and take his advice: Find 10 customers who will say “If you build this product, I’ll give you $X.” For medical device products, this is just a start towards early customer validation.

Continue reading “Early Customer Validation – Sell first, spend later” →

Stock options – everybody in the pool

My friend and serial CEO Dan McNulty encouraged me to write about stock options. My experience is that stock options encourage employees to “think like an owner. ” I have always found that my colleagues are motivated by the potential of their options, and are interested in the drivers of their stock’s valuation. So it’s an important subject and I appreciate Dan’s suggesting it.

Stock options are a subject that has been extremely well covered on the web, particularly by VentureHacks and Mark Suster of GRP Partners. So, in this post, I’ll mostly point you to other blog posts. Read them. I’ll also try to provide some helpful information specific to medical device companies, and share a couple of thoughts from my experience.

Continue reading “Stock options – everybody in the pool” →

Your addressable market? Bottom-up!

Over the past few months, I’ve been privileged to meet many talented scientists and physicians who have created wonderful technologies for improving patient care, but who have little experience determining whether their technology could be the foundation for a successful new business. One recurring challenge is quantifying the addressable market – not a skill that is typically taught in science, engineering or medical school. Here’s my approach, using a hypothetical example.

Continue reading “Your addressable market? Bottom-up!” →

Fresh money

Fresh money is the best money. Fresh money means that VC’s and PE firms need to make new investments, to put their fresh money to work.

Here’s my list of Life Science VC and Private Equity Fundraising for 2009 and the first half of 2010, culled from news articles over the past 18 months. Enjoy.

My list is likely not comprehensive, as firms don’t always announce new funds. I plan to post updates to this list quarterly. Also, I plan to make a table of 2008 and 2007 vintage funds for an upcoming post. Leave a comment if I am missing a fund raise in this table, and I’ll update it.

Continue reading “Fresh money” →