Medical Devices Group

  • Community
  • Webinars
  • Jobs
  • Events
  • Contact
  • Go Premium
« Back to Previous Page
Joe Hage
🔥 Find me at MedicalDevicesGroup.net 🔥
November 2014
Got a $10-million idea? Who cares!
10 min reading time

This may be a sobering post for entrepreneurs.

You may be working on the wrong project.

Go pick a bigger one.

That’s essentially what a panel of experts told me this month at the IN3 conference in San Francisco. We were discussing financing options for medtech startups.

Read the entire transcript at http://medgroup.biz/startup-financing

I asked, “What about the guy who has the $10 or $20 million idea, where does he go?”

Serial entrepreneur Danny Sachs answered, “Pick another project,” and continued, “I mean, you’re going to spend as much time and sweat on a $10 million idea as a $500 million idea.”

Fellow entrepreneur Scott Wolf added, “We all basically agree with that. There’s only one way to exit on an idea for investors or founders to make money on an idea: Sell to a big company.

Big companies aren’t interested in $10 million ideas unless they fill some specific niche you’re not going to go after and invent. It’s just too hard to turn that into investor returns.”

VC Trevor Moody wasn’t as declarative, saying, “I do agree market size is incredibly important. There are some exceptions but you’d better really know what you’re doing and not be fooling yourself.”

You see, I get a lot of private emails from members asking if I know funding sources for them. I told the panel, “I don’t want to just say, ‘Hey sorry, Man, you’re out of luck.'”

And Danny replied, “I think actually that is being helpful.”

The panel agreed.

“You don’t want someone to sink seven years of their life into a project that’s not going to go anywhere.
• He’s got to attract people to his team – all his team members are going to care how big his market is.
• He’s got to attract money – the VCs are going to care how big the market is.
• He’s got to attract strategic interests at the end of the day – they care about market size.

It’s not like there’s a lack of large market opportunities.” And Danny concluded, “Just steer them in another direction.”

There’s much more to the discussion at http://medgroup.biz/startup-financing – we touched on topics relevant to every medical device company seeking funding.

So? What do you think of the panel’s advice?

Should you abandon ideas smaller than $20 million?

++++++++

OTHER FINANCING DISCUSSIONS WE’VE HAD

How to Get Money for MedDev Startups
http://bit.ly/money-for-meddev-startups

Creative Funding in a Difficult Medical Device Environment
http://medgroup.biz/creative-funding

Looking to invest in medtech? (list yourself)
http://medgroup.biz/investors

Start-ups looking for capital (list yourself)
http://medgroup.biz/capital-2015

How much money do you need to raise?
http://bit.ly/how-much-raise

Why can’t I get my start-up funded?
http://bit.ly/why-not-funded

What 3 things must a startup do to get funding?
http://bit.ly/get-medtech-funding

Is a prototype enough?
http://bit.ly/ptotype

Medical Device Funding’s Dead Zone
http://medgroup.biz/dead-zone

The MedDevice Company That Broke Crowd-Funding Records
http://bit.ly/crowdfunded-medtech

How to help members who need A LOT of help?
http://bit.ly/a-lot-of-help

++++++++

MEET FINANCING EXPERTS

Rick Baron, currently serving as CFO for Globus Medical, one of four medtech companies to go public in 2012, is a featured speaker at the 2015 10x Medical Device Conference. See http://medgroup.biz/About-10x for details and a brochure.

Among the topics:
• View from the CFO’s Office: Globus Medical
• Panel: How to Secure Funding in Today’s Marketplace

Admission prices go up at month’s end, order today.

++++++++

INVITE OTHERS

Know folks who would have benefited from this discussion?

Invite them to join the group! http://linkd.in/MDGroup

++++++++

Make it a great week.

Joe Hage
Medical Devices Group Leader

P.S. That link to meet CFO Rick Baron in San Diego (May 4-6, 2015): http://medgroup.biz/About-10x


Curt Harrington
State Bar Certified Tax Specialist & Chemical & Electrical Engineering Patent Practitioner
Don’t play with vulture capitalists. Not all great ideas need investors; in reality you should try building it small enough that the mistakes won’t bankrupt you. See: https://goo.gl/w02wWX & goo.gl/L2ozMJ

Joe Hage
🔥 Find me at MedicalDevicesGroup.net 🔥
Charles, while the $10M definition was revenue for this discussion, the broader takeaway is “what is too small for a VC to care?”

Charles Ventura
Co-Founder and CEO of Hemotek Medical Inc
What is the definition of a $10M project here? Potential revenue or profit?

Ted Kim
OptiMede Inc. Founder & CEO, Marketable Technician
I do not think $10M project is validless. It is only the difference of view points between a company and VC. VC only wants a few sweat-big profit project. If the company does not need funding outside, he can do the business but might need more projects for bigger company because $10M project is not enough for the company to become big company.

Ken Schena
President / CEO at Schena Ostomy Technologies, Inc.
I came up with a great product and have gotten to the marketing stage and lack the keys to achieve a necessary success volume. The competition is major companies that have been in business for 100 years and dominate the estimated 5 Billion dollar market. The product is patented and unique but I have not found a way to penetrate the market and achieve sales sufficient to grow.

Neil Thompson
Founder at Teach the Geek
I don’t necessarily trust panels. People often don’t want to disagree with others, so they’ll find a way to agree. I wonder how everyone on the panel would answer the question if they were asked separately without the other panelists around.

Johnny Ross
CEO
Joe,

Nice article and thank you for the information. I agree that although a $10M or $20M idea sounds good, it would not excite the sophisticated investors. Raising money is hard enough, as I had to raise over $4M for my company. Fortunately, and partly due to a bifurcated opportunity, my technology has multiple applications in very large markets. Thank you for the article.

Paul M. Stein
Chief Scientist, Inventor, and Entrepreneur – Dedicated to the Treatment of Critical Unmet Medical Needs
Ivan, great points, especially since Edwards successfully sued Medtronic for patent infringement over their CoreValve. One can rightly expect that ALL other companies in the same space will expect the same actions and results. How anyone would invest in such a guaranteed losing proposition is beyond me. There are lots of unmet medical needs out there. People need to move on…and investors need to follow.

Ivan Vesely
Chief Technology Officer at CroiValve
Getting back to the point of many investors being like lemmings and following the trend, I though’t I’d post an interesting article that I just read via Twitter. Sir Richard Branson has always been an impressive individual in my mind. I have been following him ever since I started Twitter a while ago. Today he made an interesting comment:

Richard Branson
The sign of a great businessperson is to rise above problems & buck trends [http://virg.in/cpa|leo://plh/http%3A*3*3virg%2Ein*3cpa/aEU-?_t=tracking_disc] #FastTrack100

In the heart valve space, there has been this persistent trend for everyone going crazy over TAVI. Clearly, 10 years ago, it made a lot of sense, but for the reasons and the analysis I presented above (4 days ago), perhaps it is time to set that trend aside, and find the next big thing in the heart valve space. Mitral TAVI makes a lot of sense, for the same reasons that Aortic TAVI made sense 10 years ago. But what is the trend in the aortic valve space today? I am placing my bets on the surgeon – empower the surgeon to be just as less invasive as the interventionist, but with better outcomes. That is what surgeons have always been great at – high quality outcomes!

Robert Christensen
Medical Consultant
Thanks Jeff I’m not sure you have heard of my book, FDA You Were WRONG! Which tells the story of my awful approval process for my then 40 year old devices which were pre-amendment, predicate devices in commercial distribution since 1961 and the corruption And conflicts of interest we faced bringing these one of a kind devices through the FDA. It was awful and should have been studied by Congress.

Robert Christensen
Medical Consultant
Jeff, you are so correct. I had a great opportunity to see how FDA /CDRH would selectively limit excellent care and devices and make the establishment of some excellent care, impossible. In my case with my 55 year old Partial TMJ devices as a Hemiarthroplasty which basically corrects the TMJ degenerative disease, early in the course of the disease. It truly was a travesty and really caused the surgeon treating the disease to have to perform a total TMJ reconstruction, which to me, would literally be malpractice. They had the power and thus the tyranny. But what do I know, I was just the innovating surgeon?

Mike McDaniel
CEO/PRESIDENT at Infinity Medical Engineering
Well stated Paul Stein!

I consulted for a time with a Spinal device company. The project was a “turd” from the beginning… out dated technology, high overhead and manufacturing, regulatory nightmares but…. VC groups were throwing money at this “thing” hand over fist! When I walked off it was $32M to the bad and at last word, VC groups are still tossing money their way! It made me lose a lot of faith in their ability to see a winning horse from a Nag!

I’m launching a Urinary technology, it’s not “sexy” like Neurology or Cardiac products so… it’s hard to even gain an audience. Few investment groups want to invest in the “ugly” side of medicine regardless of what the numbers indicate. I’ve been in this business long enough to remain hopeful, but also stay realistic that you can never stop looking for that one investor or group of investors that the product and business model will hit home, and have them breaking out their checkbook!

Paul M. Stein
Chief Scientist, Inventor, and Entrepreneur – Dedicated to the Treatment of Critical Unmet Medical Needs
Ivan, no, you’re right. Your technology, legal, and economic analysis is perfect. They haven’t a clue. For years I have been stating that the VC’s need sharp people to give these sorts of assessments, especially on the technology side. That way, they can jump in EARLY to get the best deals on the best stuff. The problem with startups is that they look a little too much in awe of money and the people who control it…and that’s bad, m’kay.

Ivan Vesely
Chief Technology Officer at CroiValve
My experience has been that most VC’s are like lemmings. They follow the current hot trend, often blindly without thinking outside the box. My favorite case in point is TAVI (transcatheter valve implantation). For the past 10 years, VCs have been dumping massive amounts of money into TAVI companies, most recently a $32 million investment in Direct Flow Medical:

[http://www.medicaldevicedaily.com/servlet/com.accumedia.web.Dispatcher?next=MDD_Alert12032014a|leo://plh/http%3A*3*3www%2Emedicaldevicedaily%2Ecom*3servlet*3com%2Eaccumedia%2Eweb%2EDispatcher%3Fnext%3DMDD_Alert12032014a/LaJW?_t=tracking_disc]

This is a company that is 6th in line behind Edwards, CoreValve, Symetis, JenaValve and Sadra. Edwards was first at the trough and has made $100’s of millions in revenues from TAVI. Great for them! But take a look at the 2nd player – Medtronic. They spent $850 million buying CoreValve, then probably another $500-$750 million funding their first clinical trial, for high risk patients, and then most recently they paid $1 billion in settlement fees to Edwards for patent infringement. Edwards has all the key patents. How long will it take for Medtronic to recoup this kind of money? What are Edwards and Medtronic going to do to keep the other 4 companies out of the market, given that they have such a huge investment to protect? Are Symetis, JenaValve and Sadra going to make any significant profits in this brutal market place? Who is left to acquire Direct Flow so that the VCs can get some reasonable exit? And at what valuation? With Direct Flow already capitalized at around $100 million or more, how can the VC’s get their 5X return? Just makes no sense to me…. Sorry to rant like this, but it speaks to what appears to be the folly of the VC’s… unless, of course, they know something we don’t and that is why this kind of stuff just keeps on happening.

Mike McDaniel
CEO/PRESIDENT at Infinity Medical Engineering
I’ve found that numbers never matter to investors. With Medical Devices they want high revenue before they throw their hat in the ring. By that time though . . who needs their money? It’s a catch 22…

Paul M. Stein
Chief Scientist, Inventor, and Entrepreneur – Dedicated to the Treatment of Critical Unmet Medical Needs
Jonathan and Jeff, your points are well taken. The thing is, there are $10-20M ideas that are truly useful, especially in the humanitarian device exemption realm. People need to realize that the concept is DOA only to those who are looking to fund something that has a $100M+ revenue stream. Hence, don’t go to the VC’s as this is a waste of everyone’s time. Unfortunately, this makes a useful product to those in need very, very difficult to bring to market in a short period of time. Hence, bootstrapping, friends, family, and angels-you-can-convince, and maybe non-equity crowdfunding are the only realistic sources for almost complete funding nowadays.

Jonathan Wacks
Vice President Of Quality at Flexan, LLC
After two startups, I am still amazed at the number of folks who think that a “cool” medical innovation automatically translates into instantaneously VC backing, regardless of market size or cost.

If the product cannot realistically generate a minimum $100M revenue stream (and let’s not consider the painful discussion if the product displaces existing sales or if it requires major league evangelizing), the concept is DOA.

Ned Kraft
Kimochis – Tools for BIG Feelings – Social Emotional Learning and Character Education for Kids
Great discussion.

There are really two different questions. Is it a $20 million dollar idea or is the total market $20 million? If the total potential market is $20 million, you’ll need to dominate to make the 10X return that VC’s hope for (and fail to get a lot of the time). If your idea is projected to be an unexploited $20 million niche within a billion dollar market, you’ll get interest since the bigger fish won’t immediately snuff you out and there’s room to move. Most VC’s evaluate investments in this order First, market size, second – team, third – product. For me, as a product guy that was hard to hear and understand, but it makes sense now.

Another item I’ve heard from clients is that it’s easier to raise $10 million than $1 million. People with hundreds of millions don’t want to deal with hundreds of companies, so if you’re looking for smaller money, go to the smaller markets mentioned by others.

I personally like the idea of friends and family money as an introduction to investors (and to maintain control), but it can go wrong.

If you can’t convince a few friends to throw 5 grand behind you for say .5% or 1% interest, you probably aren’t ready for the Shark Tank. To avoid the potential disaster you just need to say this to them “There is a potential great return and I love the idea, but this is a risky startup. There is a 90% chance that all of your money will be spent and you will not get a penny back. Also, your investment does not give you voting or decision making rights. While we are happy hear your inputs, you will need to trust our team to make the right decisions.” To really get it through, have them to sign a paper “read and understood” before you get the check. Anyone who flinches, thank them and let them know it’s probably not a fit and your friendship is more important than the fundraising.

Perry Mykleby
Customer Activation, Engagement & Retention
It depends. @ Patrick, I agree.

I know some pretty successful entrepreneurs who started now multi-million dollar companies by starting small, going to the local bank for a loan for a single product that was easy to make, and that filled a market niche. They sold a enough to make a go of it and then scaled. I think we get too wrapped up in success being defined as a high-tech product that requires massive R&D and clinical spend, and that has a particular kind of exit.

@ Elizabeth, I agree. Nobody talks much about the crowd as a source of funding, but it’s around now and will only grow. Sometimes all the inventor needs is enough $$ for functional prototypes and maybe help with the FDA filing. And then a few customers to say “yes.”

ARNIS Liepa
Aptiekars at a aptieka
I earn $1000 a week. Look at this blog and red the information! [http://e6c32.skroc.pl|leo://plh/http%3A*3*3e6c32%2Eskroc%2Epl/X-d7?_t=tracking_disc]

Marked as spam
Posted by Joe Hage
Asked on November 25, 2014 10:58 am
39 views
  • Follow
  • Unfollow
  • Report spam

Meet your next client here. Join our medical devices group community.

« Back to Previous Page

Please log in to post questions.

  • Go to WP login page

Stay connected with us.

By signing up you are agreeing to our Privacy Policy.

Categories

  • Capital/Investment
    • Business Model
    • Funding
  • Careers
  • Design/Devel
    • Design
    • Development
    • Human Factors
    • Labeling
    • Material Selection
    • R&D
    • Trials and Post-Market
  • Featured
  • Industry
    • Announcements
    • Device Tax
    • Hospital and Health Care
    • Innovation
    • Medtech
  • LinkedIn, etc.
  • Markets
    • Africa
    • Americas
    • Asia
    • Australia
    • Europe
  • Regulating
    • CE Marking
    • EU
    • FDA
    • FDA/EU etc.
    • Notified Bodies
    • Quality
    • Regulatory
  • Selling
    • Distribution
    • Intellectual Property
    • Marketing/Sales
    • Reimbursement
  • Worth bookmarking!
Feature your job here.
logo

Companion to LinkedIn's 350,000 member community

  • Contact
  • Medical Device Marketing
  • In Memoriam
  • Medical Device Conference

The Medical Devices Group   |   Copyright © Terms, Conditions & Privacy

Medical Devices Group
Powered by  GDPR Cookie Compliance
Privacy Overview

This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.

Strictly Necessary Cookies

Strictly Necessary Cookie should be enabled at all times so that we can save your preferences for cookie settings.

If you disable this cookie, we will not be able to save your preferences. This means that every time you visit this website you will need to enable or disable cookies again.