Based on reflections from Wendy Pease, owner of Rapport International, LLC, a full-service translation and interpretation company based in metro-west Boston, who recently attended a MassMedic program on “Current Thinking on How to Fund, Grow & Exit a Medtech Company” (February 27, 2014).
The MassMedic presentation was an enlightened look at how entrepreneurs and investors are facing fundraising challenges for growing medtech companies, especially in light of the unreliability of the FDA’s approval process and the lower interest in medical devices investment. After listening to interesting and informed presenters like Ned Goss (Emerging Company Services PriceWaterhouseCoopers), Todd Dollinger (Chairman, Trendlines), Marc E. Goldberg (Managing Director, BioVentures Investors), and Tony Shuber, Founder of Exact Sciences and Predictive BioSciences), to name a few, I was struck by the international tone that permeated the gathering. Only ten years ago, discussions mainly centered on US investors and testing. Now, companies mention investors in Israel, development in China, and fundraising in Mexico, which makes the need for solid, reputable translation companies even more important.
As the owner of a language translation company in metro-west Boston that focuses on servicing the medical device industry, I have seen increased demand for our services and I understand how important it is to present current research in multiple languages so every one from investors to government agencies can comprehend the risks and benefits of emerging technologies. (As a side note, all the speakers seemed to agree that meeting regulatory requirements definitely makes blood pressure rise and getting CE marks and FDA pre-market clearance makes blood pressure fall!) Clear communication is essential in the process of developing medical devices, but so is research funding. In order to grow a medtech company, based on what I heard, these five options are worth considering:
1. Selling Rights To Patents
Although selling a patent guarantees a quick payoff and eliminates the expense of starting up a business, it also terminates the possibility of future profits. But, if it’s done carefully, the selling of a patent can facilitate future development of the product.
2. Government Grants
Considered “good” money for funding, this strategy doesn’t dilute ownership but it does entail tracking, management and reporting requirements that can be difficult to manage. The biggest mistake, according to presenters, was reviewing financials of owners that show a guaranteed grant. The panel’s recommendation was not to include the funding unless it is secured, especially when presenting to other investors.
3. Crowd Funding
On-line fundraising sites like Kickstarter – which appear as a “limited partner” on a balance sheet – are the current go-to mechanisms for generating interest and seed money for various efforts, including everything from musicians wanting to record CDs to medical researchers trying to develop new products. Lesser known sites, like OurCrowd, an Israeli site that’s raised over $30 million so far, are options as well. Although crowd funding is popular now, there is a hesitation on how it will work in the future. Current thought suggests that to protect on-line investors, more regulations or prohibitions may enter into play. And truthfully, from an inexperienced investor’s standpoint, it’s a bit like playing the lottery. Typically, investors understand the industry, company, and individuals involved with the device.
4. Angel Funding
This is still considered the best funding option for seed money for medical technology companies, although many angels are starting to skip the earlier investment in seed stages and waiting to invest in start-up phases. Affluent individuals interested in being angels typically provide capital in exchange for convertible debt or ownership equity. A small, but increasing number of angel investors is organizing themselves into angel groups to share research and pool their investment capital, as well as to provide advice to their portfolio companies. One cautionary note is that steps need to be taken to protect angels when venture capitalists enter later in the development phase as investments can be flattened. To minimalize these risks, some angels are syndicating and investing in later stages of the development process.
5. Don’t Ignore Venture Capitalists
Many venture capitalists have aging portfolios right now and they’re looking for good deals. Although they aren’t planning to fund through the whole medical device development stage, these VCs do want to define benchmarks and come in and out as the development reaches certain milestones.