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9 min reading time
Prolific group contributor Paul Stein was recently at a scientific society conference that had a session on entrepreneurship for scientists and engineers. The moderator asked the three speakers what their budding companies’ exit strategies were. Each one stated “being acquired by a larger company.”
Here is Paul’s perspective.
“In the last few years, the startups that got acquired had technology that fit a Giant. The rest, whose work break out and don’t fit any specific molds, like the three at this conference, well, not so much.
We all know startups creating their slide decks to introduce to potential investors must fill in the blank for “Exit Strategy.” Without the acquisition choice, several companies go the corporate IPO route later in their investment cycles. However, this has proven to be no where near as lucrative as would have been thought (GI Dynamics, Obalon, Enteromedics).
So even the person on the street would logically seek to place his or her money safely elsewhere. And, for those who invested early, their only return is feeling pain.
For the medical device industry today, perhaps that Exit Strategy slide needs to be rethought, possibly left out.
If you have technology to meet an unmet medical need, perhaps you need to think about going it alone into the future. In other words, whatever you make, you had personally be ready to sell yourself, perhaps forever.
Now, this might not be so bad once the device has passed all the regulatory hurdles. There are plenty of happy private companies out there. But what does this ultimate possibility look like to potential investors, angel, venture capital, whoever?
After reviewing the technology, they have to ask themselves how they will make their X times investment, and how long will it take?
For now, going it totally alone may have to be way from beginning to end.”
I thought Paul’s writeup was provocative so I elevated it to today’s group announcement.
Entrepreneurs and “Giants,” what do you think of Paul’s conclusion?
JANUARY 10 MEDTECH SHOWCASE in SAN FRANCISCO
I’ll moderate the opening panel at this year’s Medtech Showcase: http://medgroup.biz/Medtech-Showcase-2017
It’s an opportunity to show your innovation to an interested crowd as the healthcare industry descends on San Francisco for the 35th annual JP Morgan Healthcare Conference.
If it looks interesting for you, send me a private note at [email protected].
In the meanwhile, here’s a quick (and potentially informative) read. The event hosts interviewed me: http://medgroup.biz/Joe-Hage-interview
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To those celebrating, happy Thanksgiving.
P.S. We park the good stuff at http://medgroup.biz/MDG-SITE Register there now to stay up to date.
G. Aaron Maestri, Ph.D.
Paul M. Stein
Paul M. Stein
Even if your company is not a potential acquisition target, there are numerous ways to cash out investors in the end even without an IPO, ways that show up once your company is profitable. ESOPs, leveraged buyouts, or paying dividends are all options.
Paul M. Stein
It’s truly unfortunate that our industry has come to this point, but people need to proceed in whatever direction with eyes wide open. Stein’s First Law of Medical Devices is more relevant today than ever, “Just because something can be done doesn’t mean it should be done.”
Paul M. Stein
What does totally going it alone mean? No investors and you pay out of pocket all the way? Why do you have to be prepared to sell yourself? To whom? Or do you mean to sell your device yourself? To whom?
Do companies choose the IPO route only because acquisition isn’t an option for them? Or are there circumstances in which they choose IPO over acquisition?
As for passing “all regulatory hurdles,” name three. 🙂
I always counsel to plan for delivering a product, collecting and doing it again. Most of the startups I am associated with are terrified of regulatory. They shouldn’t be – it keeps the amateurs out — while you get a grown-up company. And leaves systems that will be easy to transfer if an “exit” is made.
Do you really think a big company would trust a product that hadn’t passed muster with 60601-1, 14971, etc?
Richard A. Lotti
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