9 min reading time

We had a discussion, “Got a $10-million idea? Who cares!” at nearly two years ago.

At the time I asked a panel of VCs, “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.”

The comments on that thread are worth revisiting.

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Fast forward to last month. I asked another panel almost the same question as part of a larger discussion. But they came back with a different answer.

I captured the whole discussion on video at http://medgroup.biz/10MM-revisited where you can listen to it in context.

Dave Vachon, Founder of Novion Technologies: “You’re not going to get a VC to fund it but you can actually raise non-dilutive funds,” adding, “I don’t think NIH (National Institutes of Health) will scoff at a $10MM idea that solves a problem…. You don’t always have to go through someone to invest in your company.”

Mary Waiss, President/CEO of Precision Image Analysis: “Sometimes it’s hard to know how big the market really is…. As people become aware of your solution, there are other applications you may not have even thought about.”

Phil Fraser, CEO of Innovative Dental Technologies: “We are in that boat. We raised $325,000. We started with one concept and through relationships with other dentists, other idea generators, partnerships… in 18 months we’ve developed an additional five products and now the company’s valued at $7 to $8 million.”

Randy Hamlin, Vice President for Point of Care at Philips: “We don’t have a fixed number about size. It’s based on puzzle pieces we’re putting together for a complete solution. That piece may be a relatively small element but when you add it to the other pieces it represents a huge opportunity,” concluding, “I wouldn’t hesitate if something is a $5MM opportunity as it stands by itself because it could represent, as a puzzle piece, much bigger.”

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Both viewpoints ($10MM is too small • No it’s not) seem valid, based on your role in the industry.

For discussion, what do you think of the discussion above?

At what size is an idea too small? Is there a level?

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ResMed CEO Mick Farrell Will Keynote Our Next 10x Medical Device Conference

I’m very happy to welcome Mick to our annual meeting (San Diego, May 1-3).

Early bird tickets now available (prices go up November 1). Full refund through Valentine’s Day if you need to cancel for any reason, so lock in at the lower price today!

See http://medgroup.biz/10x for the agenda which is still coming together.

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Make it a great week.

Joe Hage
Medical Devices Group Leader

P.S. We park the good stuff at http://medgroup.biz/MDG-SITE Register there now to stay up to date.

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Julie Omohundro
Principal Consultant at Class Three, LLC
Ken, ok, so that approach worked out quite nicely for Roche. What was the end results for patients? Did the different PCR applications get to market any faster as a result, or did it still take the same time to invent and gain approval for each one?

Ken Powell
President
Thank you Willi. There are many, many more examples such as the one I described above. Imagine the market potential for an obscure PCR based test compared to licensing PCR technology to many markets for virtually unlimited applications. This is exactly what Roche Diagnostics did after acquiring the original PCR patents and building out its PCR IP estate. BD did the same with lateral flow technology IP and made a substantial amount of bottom line revenue each and every year throughout the lives of their patents. Singularly, both technology applications may not have appeared attractive in t, but the extensive licensing strategy in its totality generated over $800 million in annual royalties for Roche Diagnostics for decades according to industry reports. Had they tried to invent and gain approval for each PCR application, they never would have achieved revenue levels such as these and as we all know, royalties hit right on the bottom line contributing to profits.

Willi Glettig
Owner of LCC Engineering & Trading GmbH and co-owner of Koldsteril
Dear Ken,
Great example.
Most new technology companies perceive their target market with their own perspective and then build their business plans around it. As soon as the product/technology hits the market they realize that they either misjudged the real world, that the market environment has changed or the industrialized technology was not the same as the prototype and so they have to adjust their business accordingly. This requirement for possible adjustments is often used by VC to either strengthen their power over investors and entrepreneur or to replace the entrepreneur with a person of their own choice.
Entrepreneur owned companies may preempt that such a deviation may happen. They often have a strategy B in their drawers or discuss this possibility with their investors before they commence the project. Entrepreneurs that have gone through such painful experiences are often much more durable.

Ken Powell
President
There was a very intriguing opportunity I discovered at one of my former employers. Considering annual company revenues of over $12 billion, it was regarded and a “niche” business idea. We termed the idea of a single needle safety device a “spider web” or a crack in your windshield that can rapidly expand . We persevered in commercializing this idea and we were right. Needle stick safety devices generate over $1 billion annually and much more for all the competitors in this medical device segment. It grew from one product/division idea to a comprehensive, corporate wide strategy that led to other health care safety strategies including infectious disease prevention (MRSA), company acquisitions and the Needlestick Safety and Prevention Act signed into law by President Clinton in November of 2000. If you have the vision and the ability o see over the horizon, amazing things can happen regardless of the often unappreciated size of the initial business opportunity.

Willi Glettig
Owner of LCC Engineering & Trading GmbH and co-owner of Koldsteril
A business needs stability to grow. Hiring & Firing achieves the opposite. Firing people is a sign of bad recruitment or or incopetence to direct people. Entrepreneur owned companies have often less staff turnover compared to VC controlled companies. The best example for all above assertions is Karl Storz Endoscopes. The majority owner and entrepreneur Mrs Sybill Storz takes full and personal responsibility for some 6000+ employee through a company legal construct of “GmbH & Co KG”. It is a construct which exposes all of her personal wealth. Entrepreneurs are leaders and not managers.

Willi Glettig
Owner of LCC Engineering & Trading GmbH and co-owner of Koldsteril
Dear Julie,
To the title question and to the “VC or not” question there are no black and white answers. The answers are culture based and driven by individual needs. Since mid-seventies an assertion is emerging that entrepreneurship is not a skill but knowledge that can be taught and learned. Another assertion is that large companies have a better success rate in life sciences.
I am convinced that for good entrepreneurship you need the right aptitude and then education. 200 years ago an educator in Switzerland by name of Pestalozzi said that acquiring a sustainable profession requires the head, heart and hands. With this philosophy Switzerland has emerged one of the best educational system and one of the most stable economy. I have many entrepreneurial friends who own small companies that manufacture unique specialty products for export world-wide. They are all passionate Entrepreneur that control marketing, know how creation and capital.

Julie Omohundro
Principal Consultant at Class Three, LLC
Willi, thanks for the additional info. I’m in no position to disagree with your basic assessment. Parts of it are consistent with my own limited personal knowledge. That said, everyone’s personal knowledge is limited, so until there is a large database of VCs that can be appropriately sampled, I will decline to repeat 1% as a legitimate statistic.

There are also other issues here, which character and time limits prohibit me from addressing. I will say that I don’t see any problem inherent in founding entrepreneurs not being CEO or President by the time of IPO. I don’t take it as a given that what makes for a “successful” founding entrepreneur also makes for a “successful” CEO/President at IPO.

Willi Glettig
Owner of LCC Engineering & Trading GmbH and co-owner of Koldsteril
Dear Julie,
Ask a number of VC how many business plans they study per year and then ask how many they finance . You will get a figure of 0.1 to 1 % . An then ask how many they finance directly and to what degree? You will find out that the majority are brokers to another VC. And finally you ask how many founder entrepreneurs in their successful venture have made it as company CEO or President to the IPO. ( Abe Abuchovski founder of Enzon Pharmaceutical. told me that when his company had a TO of 4.5 Bilion a VC throw him out of the company. ) Can you still respect this Industry?

David Kershaw
At Kershaw Technology Services
How big is big enough? 20% larger than required……..

Julie Omohundro
Principal Consultant at Class Three, LLC
Willi, do you have a source for the 1% probability?

William Thoma
Director of Non-Clinical Sales at Kubtec
The latest MedTech Frontiers (http://www.tripleringtech.com/october-6-2016-venture-capital-recipe-changing-secret-sauce-silicon-valley/) had an interesting take on this situation. An interesting slide in the deck (hopefully they are able to post all of Chris DiGiorgio’s talk, showed that Angel Investors are putting as much money in as the VC’s.

Debbie Black
Focus on Health
Miss being there 🙂

Julie Omohundro
Principal Consultant at Class Three, LLC
Joe, okay, but then the original answer, pick another project, doesn’t make any sense. It’s like telling someone who wants to go to Philadelphia, hey, if you are going to bother to make reservations, pack, put your mail delivery on hold, etc, you may as well go to Paris. That’s fine if you just want to go somewhere, but if you want funding for *your* project, “pick another one” is useless advice.

Comments on the old thread are indeed worth revisiting. The comments on this thread are excellent too.

Willi Glettig
Owner of LCC Engineering & Trading GmbH and co-owner of Koldsteril
I just wanted to finish off my above thoughts as follows:

Entrepreneurs priority is to create functional and competitive products and then to build personal wealth with such products.
VCs priority is to quickly create personal wealth. An entrepreneur is much more likely to return some fund to the taxpayer than a VC

High net wealth investors may soon discover that they better support entrepreneurs and ventures that they believe in. Such a construct can also leverage their capital through central banks to maximize investment or run an IPO.
Joe, you should change your title to: “Which high net wealth investor would support an entrepreneur with a 10 Mio revenue Prototype?” or “How can you build your own 10 Mio company ?” The first title would not get any responses because no investor would expose himself on such a forum but they are around.

Theodore Kucklick
CEO and founder Cannuflow, Inc, Author “The Medical Device R&D Handbook”
For a $10M opportunity the VCs are a waste of time. However, patients and the medtech strategies need these things. The VCs won’t fund them. The strategics won’t work on them either. Too expensive to do internally, and it takes them forever to design and commercialize even a simple product. Here is a strategy that can work: Get a good product idea that can exit for $10M and get angel funding. Those are how these deals are getting done. For this to work you MUST have 3 things 1) Something you know is on he shopping list of a strategic and can drop straight into their sales bag. 2) Industry relationships at an acquisition decision maker level 3) Something you can spin up in less than 2 years on less than $2m. Preferably much less. You need to have a surgeon or relevant medical specialist on your team, and someone with real sector experience. Also don’t count on the venture paying you much, or anything until you cash out. With this, and a clear line of sight to a liquidity event, you can probably attract angel funding.

Willi Glettig
Owner of LCC Engineering & Trading GmbH and co-owner of Koldsteril
Dear Joe
Nobody will finance an idea be it 10 or 500 Mio. You need at least a “proof of concept” or a prototype with sound scientific data before you can raise equity investment.
Joe, you assume that the future of medtech industry is in the hands of VCs. That is a perspective of a manager or government employee. An entrepreneur that owns a 10 Mio venture is most probably much better off than a CEO that runs a company owned by VCs. I dare to assert that 5 entrepreneur owned 10 Mio companies have much larger economic and job creation value than one50 Mio. VC controlled venture.
The probability to raise capital from VC is less than 1 %. No real entrepreneur chases business with 1% probability of success.
Most high tech creation and developments are financed by tax payers. Governments would be much better off by forming a public-private fund for real entrepreneurs.

Joe Hage
🔥 Find me at MedicalDevicesGroup.net 🔥
To attract funding to commercialize and scale your operation.

Julie Omohundro
Principal Consultant at Class Three, LLC
Big enough for what?

Kyle Murphy
Consultant on the Japanese Health Care Industry
Both the small and large project should be valuable, if you are thinking about the role of the project in the delivery of health care. Unfortunately, the small niche project is often over promised and hyped into a project it never can be. For instance, clinical trials are conducted where the project has only limited chance of succeeding . This is forced by investors who are trying to increase investor “value.” The result is missed end points and a project which could play an important role is lost.

Michael Weiner
Chairman
Joe, I appreciate your posting this article. It is on the money. One of the problems in modern day healthcare is that the innovators and entrepreneurs are fixated on the $100 million milestones and billion dollar deals. The entire food chain, from venture capitalists to acquisition managers, are focused on big dealitis, so the small, innovative, disruptive ideas are ignored.

This is about to change, with the acquisition of St. Jude by Abbott, and an upcoming acquisition by J&J in that space, the other side of the coin will shine. When an industry segment, such as CRM, has limited market access, maintaining lucrative cash cows, innovation suffers. Competition is the lube that keeps capitalism healthy, as we saw when mainframe computing was disrupted by Microsoft.

With the exciting potential that is in studies for photobiomodulation, transcranial magnetics, ultrasound, and neurofeedback for Alzheimer’s, TBI, and ADHD, and PD, the next chapter will revolutionize medicine.