Joe, if it wasn't for guys like you taking a risk - many of these technologies would never see the light of day. I applaud you for at least trying - despite the bitter pill.

Having been behind the scenes doing due diligence and constant checks across startup and innovation ecosystems, this unfortunately isn't uncommon. The foundation of a startup fundamental changes upon the blocks it is built on: talent, leadership, technology, software, data, hardware vs. market/industry trends.

That formula changes a lot based on the phase of development the startup is at and directly morphs with market and competitive offerings that may be at different phases. As an investor those variables really need to be understood as the core investment structure controls who, when and why people make money.

Typically the funding round changes the trajectory of the startup and requires later rounds to play risky, dilute holders, or defer return on investment for salary (which kills the startup even faster.)

While a little late... I would extend the general advice: if you are investing in a new area, be prepared to lose it all on the first run. Find lead investors who carry 90% or more of the raise and do not extend yourself pass 100% loss.

Hi Joe. When you thought you "had all of the boxes checked", you may have missed the one that was on the due diligence form to approve you as an investor in a high-risk early state medical device startup. It's the standard one that asked you "Can you afford to lose part or ALL of your investment?" It would not be ethical to take your investment without ensuring that you could tolerate the loss by asking you this question. The lesson learned here is to take this question very very seriously when you consider making such an investment.
Best Regards and Sympathy, Warren

Bummer. I made an investment in an oil project and lost it all. My wife was not happy about it like yours. It would have been interesting to have brought in to look at the challenges they were facing to see if I could have brainstormed with them to come up with an idea to avert the closure. I have started my own company called Problem Busters LLC primarily for project management consulting, but because of the breadth of my background, I could take on other problems if they needed busted.

Hi Joe - sorry about your losses! Not that it will help you with a full recovery - however - is someone looking at selling the IP ? If MDT invested, one of the "Big 3" you mentioned may be interested in the IP. Obviously, it won't bring the same result as an exit with a commercial product but it could bring some minimal "help" for the stakeholders. Just a thought. Cheers - Dave Sheppard

It's well known that the biggest gains are made by those initial and continuing angel investors. You took a shot with a compelling story with a compelling person. It sounds like the demise was due to either a boatload of corporate mismanagement. As an investor, aren't there certain assets like patents that could be sold and split? Huge investor losses occur not just investing in startups but post-IPO too or even later just before stock share prices crash and reverse splits become the norm. Nexeon Medsystems and ReShape Lifescences are perfect examples. Buyer beware.

Thanks for your comments, everyone. Dave Sheppard, I'll follow up with you directly.

Somewhat unsurprisingly, I received many personal messages today; many including sentiments like Barry's and Warren's, citing the hazards of investing more than you can afford to lose.

We didn't. We'll be fine. We don't need to sell the house, our retirement plan is intact, we have savings toward the kids' schools. But losing 100 percent of anything, no matter the size, stings.

I wrote this piece for five reasons.
1. I love to write. The piece was cathartic to write and the story was worth telling.
2. The piece may inform someone considering their own first-time medtech investment.
3. The piece may comfort others who've sailed the same boat I have.
4. The piece may bring a buyer and a seller together. The technology deserves commercialization.
5. I think the story is compelling and worthy of your time. Heck you may even share it. I know one author who would deeply appreciate if you did this article.

Hey Joe,
Thanks for the post, always a joy to read, but sorry for your loss. I think it is natural to experience the "never again" feeling when you have one, but I do hope you get back in as there is nothing better than helping lifesaving / improving companies get out of the lab and into the market - especially when you run programs like you and I do and you see so many every year. When you are ready to get back in, or if you just want to see how we do it, drop me a line.
-Alex

My deepest condolences for your loss Joe 😔. I feel your pain (deeply). Despite the movie + date night, I feel like you may have a few more months of groveling ahead of you just to get Beth to forgive you 😐. Hang in there.

This definitely seems like it was (and could still be) a great product. The issue was production costs. I am sure that if a couple of brilliant engineers can get back to the drawing board and redesign the console, they can figure how to mass produce this thing at a reasonable cost. I hope you + original team don’t just ride this off. There is a serious unmet need here that needs to be addressed.

Overseeing a medical technology business incubator, our investors hold to a hard rule when it comes to investing in startups. We never accept more than 10% of anyone's investment portfolio. If the company takes off, that 10% can outperform the other 90%, but if not, you don't end up divorced or under a bridge.

@Alex, no, I'm quite certain. We have one other medical device investment. Let's see if we do better this time.

@Robert, I do believe it will see the light of day. I certainly hope it will.

@Shara, no divorce, no bridge. On the other hand, college is expensive!

Hi Joe, thank you for the sad-but-educational story. Whether this company can be salvaged or not is a valid question, and I would reach out to Brett Naglreiter (954) 205-4787 http://nmddo.com for an opinion. Brett is a device engineering veteran with a unique type of service (and company) designed to get device concepts ready for quality at scale. It's as important to de-risk the "buildability" early in the process just as with any other risk category like regulatory, clinical, commercial, etc.

Joe,

I read your heart-broken story about your recent investment loss. I am so sorry. I
understand this on several levels because I have been through a very similar
situation myself. I have many things to share about Start-Ups and product launches,
and hopefully some of them will be helpful & hopeful during your remorse. Please,
you must read on.

First, you cannot fault the technology or your belief in the purpose. From an
Electronics & Instrumentation point of view, it is quite easy to actively regulate a
“gravity drip” with a micro-pressure sensor, a mass flow meter, and a stainless
solenoid valve. Whether your inventor used these exact components or not, what is
required for this device can be priced out at about $1800-$2400 a set, plus
packaging and medical grade components, ~about $3200-$3400max per each manufactured prototype.

A product like this would be very easy to mass produce, which would definitely cut
your O.E.M. product costs in half with volume pricing of the main components. As a
product engineer, that part is a no-brainer from my point of view, and it validates
your original belief in a solid product investment.

Given an average starting production launch of 100 units per month, the unit cost
could easily be kept under $2200 each, leaving a workable profit margin in the
medical market. There is no way this product could not be profitable from a simple
engineering and marketing analysis.

The real problem was not with the technology or the ability to manufacture it cost
effectively. The real problem lies in Human Dynamics and “sharing”
with the existing Market Sharers.

There is a fine line in any product launch as to how much you share about the
product before it becomes a product. Obviously every product developer has to share
some amount of info to get interest and investments, but to whom and how much are
completely different considerations. These “considerations of confidence”, or
selective NDA offers, are critical in developing the business plan from the
beginning.

There’s an old adage, “Never tell your competition what you are planning to do.”
-and I might add, “~especially when you have the technology that can obsolete them
all….”

By attempting to leverage off the only 3 existing competitors in the marketplace, as
to who would sign up first for this new product & market share, -playing three
against each other… -that approach may have inadvertently opened the door to a
fourth, unforeseen possibility; -that all three would team up and obsolete you
first, keeping their status quo intact, and avoiding a “market upset” for them.

There definitely seems to be some level of corporate sabotage going on here,
arranged behind closed doors with lawyers acting somewhat fraudulently to ruin a
valid business Start-Up. Had you&company come up with the extra $8-10M as suggested, they would have sucked that dry too, just on legal expenses alone. No, you have a right to get your money back, not from the inventor, but from the people who sold you out and cancelled the project. You didn’t lose your investment because the
inventor or technology failed; you lost because someone else stole the whole
operation from you.

While advice in hindsight is always a bit late, I can only suggest that when a
company has a new technology that can obsolete the rest of the marketplace, -do not
tell the rest of the market place about it until the product is on the shelves.
-then they get broadsided, not you. Only then do they have to react by “catching up”
to your advanced product; -anytime before that, and they will dig their heels in
hard and stall that Start-Up completely.

There are dozens upon dozens of real life stories, -just in the automotive industry
alone, about people who invented new fuel-saving engines that just “disappeared”.
The Medical Industry is no different; in fact, probably worse, considering the
massive investments made in new biotech & anti-resistant pharmaceuticals these days.

What this really means, is that your Start-Up hit the ‘big-time’; your Start-Up it
hit a nerve with the ‘Big Boys’ and it pissed them off. That means your Start-Up did
something right, and it scared them. If you look at it sideways, this validates your
threat level in that market place, suggesting you can take over all three and
replace the market entirely.

This is one of the first indications that you have a truly “disruptive technology”,
when someone goes out of their way to disrupt you first. It’s not the best of
affirmations, -but does suggest that you’re on the right track. There is no reason
to give up this effort after the first flushing.

This situation would be worth an additional legal investment. Should you be able to
prove a level of illicit, fraudulent, and/or criminal behavior from the “other
investment group” (with the help of SEC & others…), winning the case would be worth
the original investment capital, plus treble damages after that. (-that’s a
four-fold return on your original investment, for all investors and inventors
involved, minus court fees and such… -there will be a lot of time preparing for
court. Try to find a lawyer that will work on contingency, for a higher percentage
of course.)

An outside engineering consultant, such as myself, could review the original
invention documents; and as an Expert Witness, could testify that this ‘brain-drain’
device could indeed be mass produced at an economical price for the medical
marketplace. From there, it is much easier to show & prove that the reasons for
shutting down the product by the “newly installed” CEO were completely fraudulent,
and were possibly pre-arranged behind the scenes without the knowledge of the
stakeholders, the investors, or the originators.

You deserve to get your money back, plus treble damages; and there is a lawyer out
there who can help you do that.

Nonetheless, I completely understand your wife’s viewpoint, which is very valid
indeed. BUT! Given the unique position you have in promoting the development of
useful medical devices & products, You Cannot! give up on the premise of Start-Ups.
You are a Star and a Beacon to many medical product developers and inspired
inventors, myself included, who are looking for advice, contacts, resources, and
experience to help them bring a better device, a better solution, or a better
product to the market for the better health and wellbeing for us all. You have been
doing a most excellent job of being that inspirational resource for medical product
developers across the world.

Do Not Stop! Do Not Lose Faith. Endure for the sake of us all. Halleluiah!
Can I get an Amen!

I’m not saying you should invest again yourself, I’m just saying you are in a unique
position to keep encouraging others to invest in new & viable medical products
–while avoiding certain fraudulent pitfalls, and knowing what actions to take to get
one’s rightful money back after corporate sabotage.

While I have a bit of experience in this area, my resources are still somewhat
limited. Nonetheless, learning to mitigate this level of corruption in Start-Ups and
finding legal avenues for recovering lost investments due to fraudulent activities
of competitors, -could be a vibrant topic of conversation with MDG for the
foreseeable future. With enough public interest, our network could flush those salty
dogs out to sea, and get your money back in triplicate.

Again, I am sorry for your loss, I have felt that much myself. Just remember, the
people you originally invested are still your friends, & they are still right,
decent, and valid. They weren’t the ones that short-changed you out of your
collective investments. They are still a valid, solid group. And as this group,
collectively you are much stronger in challenging the one infiltrate who stole all
your money. Do not mistake this difference and lose your class action legal
advantage.

Re-Group and re-take your market position back. Don’t sit back and say, “Oh, that’s
what the newly appointed money-man said we had to do…” as the con-man walks out the front door with your life’s savings.

You still have a viable product that can still obsolete that entire market. You do
not need their permission to make money for yourselves. Without any patents or IP contracts as of yet, no one can stop you from making these devices for yourselves, -just find a different source of funding other than trying to license to your competitors. But do it sooner, because there’s nothing stopping them from building it either.

Your group is the first to make the product and thus has the most ‘tribal knowledge’
on the subject, and about a 2 year head-start. This timing advantage won’t last for
long if they start development work of their own, and you sit on it and wait.

There are many design firms, including myself, that can help make this product cost
effective enough to sell directly to clinics and hospitals.
If there is one last gasp of internal private funding, it is still possible to get
this viable product into a short production run.

I know how hard it is to get back up and keep pushing on with something you believe
in after you’ve been kicked in the gut by the powers that be; -but this is still a
viable product, and a worthwhile opportunity. Take a deep breath, re-group, and come up with a different strategy that shortcuts these three competitors from the start, without their prior knowledge or permissions. Like I said, you’re playing with the
big boys now, -start with the knee-caps and work your way up from there.

-and, as always watch each other’s backs.

Again, your group did something right, and there’s no reason to stop there. Give
them a run for your money, and don’t look back until they are flat on their face in
jail.

God Bless and God Speed, -let me know if I can help,

Greg Bender
Inventor of MetalliCure*, a range of Super-Oxygenated Metallic Compounds, SOMC’s, that can replace the failing Penicillin family, solve the antibiotic resistance of MRSA, and possibly obsolete one third of the Pharmaceutical Industry. Depending on which side of the AMA, the Consumer Advocate, or the big PharmaCo one sits on, I am either a villain or a Super-Hero. All I know is that I can save a lot of lives, and if any of those folks object to that, well, -that fault lies with them.

*Trademark, 2016, G. Bender & Future-Spark R&D

Joe,
Thanks for sharing this story. After 4 to 5 startups its been my experience that follow through and company evolution is not always addressed. Early stage companies are often focused on technology and regulatory, as well they should be in most cases. It turns out that this focus is often at the expense of production planning and risk management for commercialization. I have seen several instance where the leaders and investors in med tech startups assume that once they achieve regulatory clearance that the production setup is only an after thought. Its understandable due to the high technology and regulatory risk encountered in early stage med tech startups. Often the minimal of focus on revenue commercialization results in long delays due to production scale up and validation or even longer delays if design for manufacturing is left to the last minute. It is certainly a big ask for management to raise money for production design, manufacturing tooling, logistics infrastructure and customer support organization and other investments related to true commercialization. The need to invest in these resources before it's needed instead of after it's needed important but often overlooked.
At this point, I would consider finding out if its possible to commercialize the existing IP as it lays and what the true cost of putting a fully supported revenue product on the market. There may be opportunities to put together a deal to take the cleared device to market with other investors.

Very tough story, and I loved the Aquaduct idea. My son has a VP shunt and had 4 revisions in 2000-2001 and another 4 revisions in 2006. When they have to go to an external shunt due to infection (takes 2 weeks to treat with Vancomycin) or because the implantable shunts are not working, it is really tough on the child and parents. One detail missing in your explanation – what kind of evolution occurred operationally regarding COGS. Did a previous design not work? How did they miss so badly regarding COGS projections?