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Joe Hage
🔥 Find me at MedicalDevicesGroup.net 🔥
June 2013
Medical Device Funding’s Dead Zone
13 min reading time

medical device conference gary rosensteel

I found group member Gary Rosensteel‘s situation so compelling, I had to share it with you here … not only to see if you can help … but because I’m sure his situation will resonate with many of your experiences, which I hope you’ll share in the comments. His story will also be the subject of Tuesday’s group announcement to 150,000 members around the world.

The story is Gary’s. I only edited it. He writes,

The top activity of almost all startups is looking for funding, but you must have the right “ask.” Not only in terms of how, but, sometimes, how much.

In today’s investment climate there’s a Dead Zone between $2–5 million. Below $2M you may be able to cobble together angel funding; just above $5M and you’re in the range of early stage VCs.

So what to do when you need $4M?

Meet Insituvue. We’ve tried to raise funds to take two versions of our Sonic Flashlight vascular access aid device to the global market.

With self-funding, grants, and convertible notes, we pieced together nearly $1.5M since early 2010. This enabled us to develop the first version of the Sonic Flashlight through three prototype versions to just short of final design for FDA submission.

Now, about nine months from achieving FDA clearance and selling into the US market, plus another six months from CE Mark certification and selling into the EU, we’ve run out of money.

[caption id=”attachment_2766″ align=”alignright” width=”232″]The Sonic Flashlight from Insituvue The Sonic Flashlight from Insituvue[/caption]We had all the funding we needed lined up. Then, shortly before the deal was finalized, the investors said funding “would be delayed” and their investment would have to be pushed into the next year. At that point, Insituvue had to start over: Identify funding, due diligence, etc. … especially difficult because we’re in the “Dead Zone.”

Worst, if we don’t get funding … and fast! … we’ll lose key talent.

To say, “This has been frustrating,” is an understatement. After pouring ourselves and our funds into the project for years, we had to suspend development so close to the “finish line.” Can you imagine how painful it is to tell clinicians and distributors around the world that, “As much as you’d like the Sonic Flashlight, we can’t sell it to you.”

Are you familiar with Bloomberg TV’s show, Innovators? They featured the Sonic Flashlight in one of its episodes. We know every time it runs.

Why? Because every time the episode airs, we get emails and phone calls to purchase or distribute product around the world. (The YouTube video, below, has nearly 5,000 views-to-date.)

It’s even worse at conferences. At the Association for Vascular Access (AVA) and World Congress on Vascular Access (WoCoVA) our exhibit is mobbed. Clinicians and distributors want it (see what happened at AVA) and several large companies already want to co-market and/or acquire the technology because the Sonic Flashlight fits their existing product line and the competitive edge it would provide.

So, despite:

  • A company structure to support an early exit at a good multiple;
  • An on-boarded team that’s ready to roll;
  • Eager suppliers, GPOs, and distribution,

Here we sit with an unrealized dream, at least $2M to product launch with little time on the clock.

What to do? I’ve about exhausted ideas here.

Have you been in a similar situation? Did it have a happy ending?

Gary Rosensteel is the Executive Vice President and Co-Founder at Insituvue, the almost-makers of the Sonic Flashlight.


Er
erubin@ibiostrategies.com
Crowdfunding is definitely one way. There are strategic partnerships Gary might want to craft as well. Like everything else in life, even if you have plan A all worked out, you need a plan B. Does Gary not have a rolodex of potential strategic partners that can be approached? Strategic partnerships are not just for R&D anymore. Yes, you may need to give up revenue but if you negotiate a short term contract just to get you past the dead zone, maybe it will be worth it, you will have to do the math. There are also other lenders you can approach, besides for banks, who will put in $$ into ventures with variable % interest based on risk. Getting your story out there certainly helps!

Joe Hage
MedicalMarcom.comx
joe@joehageonline.com
In reply to Jerry.
Thanks, Jerry. Yes, and their load times are terrible. In the grand scheme of things, they have much weightier issues to resolve first! 🙂

Jerry
directgreensystems.comx
dvideohd@yahoo.com
PS…

No contact mechanism on the Insituvue web site (hangs up….)….

so there is some learning to do here, too…..

Jerry
directgreensystems.comx
dvideohd@yahoo.com
This is a good project for crowd source funding mechanisms.

The rules have changed – therefore go play in this NEW approach to funding… Harvest Enthusiasm!

the article does not describe specifics about costs, fundraising, and more… so it is NOT POSSIBLE to get more detailed…

************

Avoid “smart man’s disease”…. That’s where you ARE smart in ONE OR MORE AREAS… but that DOES NOT MAKE YOU SMART in others……

Crowd source funding is new… there are NEW RULES… don’t fall into the “money grabs” of traditional methods of fund raising – since it is not working for you so far….

David Guy
Makerstaker.comx
david@makerstaker.com
Gary, your story hits very close to home. I spent 4 years at a medical device startup with great success in market interest, strategic partners for distribution and a novel patented concept. We too found ourselves in a deadzone in fundraising that was more than a Bridge Round could support from our angel investors and too small for big VC’s to take interest. I called it the Goldilocks Principle. We were just succesful enough to plow our personal money into the company to keep adequate runway but our desire for a <$5M raise didn't move the needle with the VC firms. A cogent explanation one VC gave me was valuable enough to share:" The work required for a $5M investment was the same as a $20M investment. The VC prefers to put more money to work." Ultimately, licensing the technology was our best path but as other commentors have stated, Crowdfunding is the new horizon for <$1M raises. Frankly it is best suited for <$100k raises. ** Disclaimer – I am the Founder of MakerStaker a medical device specific crowdfunding site launching in Q2 2103.** The new SEC guidelines will allow equity and non equity investment in medical device startups BUT, raises above $100k will likely require audited financials. As a CEO of a startup, audited financials aren't the best ROI unless you are raising VC sized funds. It is quite expensive and laborious to have audited financials. I would be pleased to answer additional questions about the crowdfunding approach. Gary Rosensteel
Business Therapist, NuCoPro
To those following this thread, David, Joe and I had a phone meeting on Saturday discussing Crowdfunding. This is a viable option for some, but isn’t a good fit for us at this point. BTW – our MSRP on the first version of our device is under $10K, with the second version being targeted at $6K.

David Bratvold
Adventurer
Yes, thanks Joe. I’ve just sent you a msg.

I’ll check & see if I can get GE or Kimberly-Clark to speak, too. Stephen Paljieg’s very intelligent when it comes to crowdsourced product development.

Joe Hage
🔥 Find me at MedicalDevicesGroup.net 🔥
I’m going to take you up on your offer, David. Contact me privately and, if everything works out, you’ll be the subject of Tuesday’s email.

David Bratvold
Adventurer
Joe,

That’s exactly how it works (with one adjustment). With the $20,000 pledge that individual has “already” purchased it. It’s not “we WILL sell you one.”

Crowdfunding, once understood, is really quite simple. The complexity lies in the motivation of your potential funders.

So if you can get 100 people to each give you $20,000 right now, you take their $2M, build the devices, & ship them out to your 100 new customers as soon as you can (Plus I’m assuming you’d be able to build more for future sales).

I’d be happy to give a webinar. I think crowdfunding, as well as crowdsourcing, & open-innovation could be a very useful tool to this community. I know some big names who are already doing this (GE, Kimberly-Clark, AT&T,…).

Joe Hage
🔥 Find me at MedicalDevicesGroup.net 🔥
Oh, I do like this idea, David.

Gary, I believe your device will cost tens of thousands, yes? For the sake of this exploratory, let’s say it’s $25,000.

If I understand the way it works (David correct me), you could say, “If you pledge $20,000, we’ll sell you one at a 20 percent discount as soon as it is made.”

Their $20,000 donations would only be accepted once you hit your threshold. At two million, you’d need just 100 pledges.

What say you, members on this string? Does this sound exciting/workable to you?

David, if there’s interest, I may invite you to give a webinar on this topic.

David Bratvold
Adventurer
Gary,

Since your story states you have “lots of people wanting to purchase or distribute,” I think you’d be a great candidate for crowdfunding. Crowdfunding is really made for the ‘Dead Zone’ & especially when people already want the item.

Sure there’s talk of offering equity (not yet legal), but that route wouldn’t be for you. Going the “Kickstarter” route is best because you’re basically pre-selling your product.

Think about this: How many people could you line up that would be interested in pre-ordering 1 device? And how many devices do you think you could pre-sell (if some distributors pre-purchase more than 1)?

If you can offer your product to these people at a reduced rate, would the multiplication of price x qty equal $2M?

Not only could crowdfunding work in your situation, but the even bigger benefit is market testing. With the ability for your “begging customers” to put their money where their mouth is, you’ll get a good perspective on what percentage & quantity of people actually pre-buy.

I have seen products raise $2M – $10M with this model. It’s not often, but it happens.

I’d love to share more about how this would work, if you’re interested.

Gary Rosensteel
Business Therapist, NuCoPro
Tom, we are nine months from market (through FDA 510k Class II clearance). We have been running as a ‘virtual’ company with everything outsourced to a (great) team of professional firms and independent consultants.

Our team fully believes in the value and success potential of our Sonic Flashlight, and has repeatedly gone ‘above & beyond’ to help us move forward. However, they can’t work forever for free, and we need to catch up with payments to be able to restart the project. BTW – none of our partners is ‘bugging’ us for payment and some have agreed to convert fees to equity.

Tom Mariner
COO at SynchroPET
Gary,

You say you are nine months from FDA and am guessing you do not mean “since”. If you are going for PMA, yes, big bucks and big time, but the product cannot be shoehorned into a 510(k)?? If you have developed correctly and have your ISO13485 / 14971 / 62304 house in order, an inexpensive consultant and 90 days will get you 510(k) permission to MARKET. And there’s the rub — you can’t even talk about the thing until you have your clearance.

And CE — you are going to be in “Third Edition” which is a step up in effort and a gigundo step up in cost of an NRTL, if your product is safe and has all the Design and Device Histories up to speed. Six months might make it, but you’re right — I’d put aside six figures for the audit and whatever it takes you to go through the aphabet soup of regs that they require — again, before you can market.

I gotta be honest, as big a pain as that is, I would take the punishment and do it yourself — once you understand how you have to do it from the start and have the right tools on board, the next product rev or product is going to be easy.

If this stuff was easy, we would all be doing something quick and sure, like designing Dreamliners.

Gary Rosensteel
Business Therapist, NuCoPro
It’s often said that investors bet on the jockey, not the horse, which is one reason some of the ‘crap’ technology gets funded. You are correct that VCs don’t care about the technology. The investor Bottom Line that all entrepreneurs have to understand and accommodate is – How much money do you need?; When are you planning to exit?; and How much will I make?

Now, in my case, we believe we have good answers to those questions – need $4M; planning to exit within three years; worst case 3x, anticipated 10x. AND we can back up those answers! 🙂

Paul M. Stein
Chief Scientist, Inventor, and Entrepreneur – Dedicated to the Treatment of Critical Unmet Medical Needs

VC’s do “risk” capital the same way mortgage brokers “risked” when people with no income or assets got huge homes a few years ago. It was all about making the deal with these guys. I know this may seem bizarre, but they don’t care about the technology…they don’t understand the technology! If they can come up with a great deal to scam a company out of a huge chunk of its equity for a tiny amount of cash, then their bosses love them. Those medical device start-ups who never get money either are refusing to play this game, stand firm with their valuations, and walk away shaking their heads, or are just too tiny for the VC’s to even consider. Again, it’s not the technology…and when that technology eventually fails, the VC comeback is, “Hey, it was a great deal. Next?”

Bob Light
Director, Financial Systems at VBrick Systems, Inc.
A frustrating situation for sure, and the shared experiences and commentary are all to common, especially today. However, while risk tolerance is low, and it seems everyone wants to be able to place their bets when the horses are just about to cross the finish line rather than before they start (for the same odds…), VCs are by nature risk-takers, and don’t get the big paydays unless they invest their funds. Do they act like antelope trying to drink from crocodile infested waters, absolutely, because some get eaten, but they still need to drink.

Timing is always everything, persistence a necessity, and a little luck doesn’t hurt. Hopefully this post by Joe kick starts one of those 3.

Martin Kamerman
Managing Director at Kaman Service
My company ( I Buy Tech Patents) is interested in aquiring patents in this field and also interested in speaking with inventors who hold issued patents and with investors who can invest in aqusitions. We already have qualified investors. You can contact me at kaman@westnet.com

Todd Staples, MBA
Account Representative, GYN at Medtronic
It is interesting when you look at many of the incubators out there that cater to “life science IT” and look through the massive portfolios of companies they are invested in….many of them I scratch my head at. Surely this must be where the 9 out of 10 fail logic comes from?

Aaron Johnson
President, Westhill Group, Inc.
Gary, in all seriousness, I can use the laughs…thanks! Again, not to be too agreeable, but you continue to hit the nail on the head. I thought investors actually “risked” capital…?….that practice has at least been suspended, if not ended altogether…especially in the case of new medical device tech. Your characterization of what you need to garner funding is perfect. If I could only offer THAT! (or perhaps was trying to fund software…)

Gary Rosensteel
Business Therapist, NuCoPro
Aaron, do you sometimes feel like investors want to hear, “People all over the world are clamoring for our device. We, literally, can’t keep up with the order volume, and we have several global corporations vying over who will acquire us! We just need a small investment from you to increase capacity and inflate our exit valuation. Your X dollars today will return you 10X within six months!”

Only somewhat kidding. Risk tolerance is at an all time low throughout the global investment community; from individual, small Angels to later-stage VC firms.

Aaron Johnson
President, Westhill Group, Inc.
Gary – thanks for articulating my lengthy post (ramble)….and for the continued sound advice and insights! I couldn’t agree more about the sizzle….which gets better and better with each pitch…..

Gary Rosensteel
Business Therapist, NuCoPro
Having been engaged in the ‘Funding Follies’ with multiple companies (in various industries) across many years, I have to agree with Aaron. I’ve had situations where Investor A said, “Put X in your plan.”, then Investor B said, “Why is THAT in there? You should never put that in a plan.”

Investors, like the rest of us, are not monolithic. They have their own criteria for what is and what isn’t important. After going through the wringer so many times I’ve learned to filter the offered ‘advice’ into basic types. Then you have to plot those types against the types of investors you need. If (when) you get advice that goes against the grain of most others, I suggest you should normally ignore it.

Why, because you want your presentation package to appeal to the broadest community. If you tailor it to the 10%, then you’ve severely limited the number of potential investors, Again from experience, I know that even if you do change to suit the smaller group, you aren’t going to get funded. The reason, if those people were honestly excited about your opportunity, they wouldn’t be looking for things to nitpick!

For the most part, unfortunately, it’s all about how excited you can get investors with your opening gambit. Get them far enough ‘gone’ and they will gloss over the details of your business plan and financial projections. Otherwise they will dig in to find reasons to say, “No!”

This is why we have all seen ‘crap’ products get ridiculous investment funding, while ‘sure winners’ die on the vine – it’s all about the sizzle, baby! To quote a line from a song in the musical Chicago, “Give’m the old Razzle-Dazzle!

Of course, living in a time when potential investors around the world have their ‘wallets’ locked up in a fortress, ain’t helping anyone! 🙂

Aaron Johnson
President, Westhill Group, Inc.
This I have listened to as well Robert, on several occasions from various “experienced / successful” investors (most of whom also got where they are by building something that received investment funding from someone.) Subsequently, I never heard even a mention or a peep out of dozens of other similarly “successful” investors about this funding approach / model. In truth, I have listened to dozens, if not hundreds, of “suggestions” from as many brilliant, successful investors as I have had the privilege to sit down with.

I am inclined to believe that it is the funding white noise that leads to a roller coaster ride of highs and lows that typically does the entrepreneur and his/her great idea in at this stage of the dead zone…..constantly chasing and throwing resources at great, seemingly brilliant, suggestions….convincing your team that this one will be worth it…..staying positive and persistent and diligent….extracting those necessary very limited dollars from someone very close to you and your project repeatedly, time and again, to chase that next “interested” investor or funding opportunity.

All of this takes resources, burns cash, and takes a ton of hard work and time – calling in lots of favors usually and putting lots on the line (staying very lean)……this is how my experience has been anyway…..to me, this is the game / nature of the med device start-up / funding environment.

When you have so much at stake in a new technology and you pour yourself into the venture, every meeting, every email, every phone call can literally become the “one” that gets your technology commercialized (from whatever stage you exist in or need to get to) and makes you and your team / existing seed folks instantly “a success”.

Through this process (at least early on), you chase down anything a “successful / experienced” investor tells you….until you discover that they all tell you something different…..the only common factor is that they are telling you to do something because what you did isn’t going to garner any funding from them…..they are picking anything from your plan to simply say “No”. Even though you match their own stated criteria of invstment opportunity word-for-word perfectly.

Personally, I have always looked upon this noisy process fairly positively because every “No” meant I had something new to work with and a more thoughtful pitch or Plan going forward. My sales background has been useful in this way, but it is hard to convince your spouse/family or your seed investors sometimes that this continues to be a worthy process:) .

Again, the challenge is staying viable and capable of getting in front of the right investor(s), so having a strategy and targeting (i.e. focusing your Bus Plan or Plans on) only certain investors (keeping in mind the all-of-the-above model) instead of talking to anyone who will listen or take your Exec Summary (which EVERYONE will do because no one wants to miss the next BIG one) seems to be the logical approach, but will still come with lots of “noise”….but, who am I….I am still trying to get the stars to align and get my funding! 🙂

Rob Packard
510(k), CE Marking & Quality System Consultant
Thank you for sharing Joe. It’s painful to watch great products flounder only for the lack of capital, while other worthless ideas get funding on

Several people have suggested that Gary present a plan that requires more money to get out of the “Dead Zone”, but I would like to make the same argument in a different way. One investor I pitched to asked me a great question that I have never forgotten. This is the question you need to answer: “Ok you need $1.5M for the US Market and you are asking for $4M to get you to cash-positive. If I gave you $10M, what would you do with it?”

If you give an investor only one choice (i.e. – $4M), you will have fewer interested investors. If you give an investor a plan for what you would do with $1.5M, $4M, $8M, etc.), now your investors will be more inclined to commit because you are giving them the opportunity to invest a larger amount but they can manage their risk by giving you a tranche at each milestone. You are also showing that your plans can be more flexible and you can grow the business with what you have instead of what you want.

Paul M. Stein
Chief Scientist, Inventor, and Entrepreneur – Dedicated to the Treatment of Critical Unmet Medical Needs
David, great points. Currently, I’m in the Class III realm, where it takes millions to get any new device to market, even if the company is run hyper-leanly. Potentially, I might get into products that you suggest crowdfunding for, so I wish you and your venture great success.

David Guy
VP, Sales and Business Development
Paul, not to sound like a shill for my own company, but the reason I started a medical specific crowdfunding site is exactly for the reasons, frustrations you describe. Crowdfunding is not the option for >$1M raises, but it should help a lot of 501k exempt and Class one products get seed funding and exposure. I was very disappointed in the angel route especially when the angels don’t have a background in the industry. It is a difficult conversation to separate their funds from their involvement.

Paul M. Stein
Chief Scientist, Inventor, and Entrepreneur – Dedicated to the Treatment of Critical Unmet Medical Needs
David, thank you for your commentary. Yes, that grant is terrific, but I think that the focus of the discussion is getting the money in the first place. While the “all of the above” option for searching for money is indeed best, I just wanted to point out how people might wish to avoid putting most of their eggs into an ugly basket with no bottom and head towards places they hadn’t even thought about.

David Guy
VP, Sales and Business Development
@ Paul, we were able to utilize the Qualifying Therapeutic Discovery Project Credit Grant to get working capital. It is a 50% grant of R&D dollars spent in the previous year. There may be a cap on the amount, but my recollection is that we received around $200k back after investing >$400k in NRE to get to production. The best option is often an all of the above approach as someone stated earlier. The situation you are in is all too common for new medical devices especially as investors have migrated to mhealth and the lower risks relative to startup funds required.

Paul M. Stein
Chief Scientist, Inventor, and Entrepreneur – Dedicated to the Treatment of Critical Unmet Medical Needs
There are lots of unfortunate things going on right now. In a herd mentality, angel investors and venture capitalists are drifting away from medical devices, as it is seen as too risky after they invested lots in some pretty dubious ideas that then failed miserably and they lost everything. There is a minority out there who may risk, but only after some “lead” investor comes in…and that rarely happens. In the end, everyone must know that if these folks are looking to invest, they are out there to look for deals for themselves by significantly devaluing your efforts and worth to gain the most equity for themselves, making ABC’s “Shark Tank” look a game of Candyland…and that is like taking cyanide to cure one’s ills. (Their greed and lack of science and engineering knowledge produced this money debacle.)

So, what is left? Besides NIH or NSF SBIR grants, which are extremely competitive at less than a one in five chance right now, private investors who have money to burn, who are frustrated with their former usual places to put their money, such as telecommunications or real estate, and are looking for new excitement. Finding such people is a very long, frustrating path, requiring lots of education to make a perfect, compelling story, but it seems to be the only path right now.

Gary Rosensteel
Business Therapist, NuCoPro
First, thanks to EVERYONE for taking the time to respond and your thoughtful comments! Sorry about the delay in responding – I was tied up with other business matters since yesterday morning.

To provide some more background on our situation, the Sonic Flashlight technology is licensed from the University of Pittsburgh. We don’t ‘own’ the IP’; however, we have an exclusive, world-wide license on its application.

This is an important fact, because the IP also covers usage in MRI and CT areas, plus there is a large R&D project ($2M+) going on right now (funded by NIH) to use the Sonic Flashlight technology in ophthalmic applications. So, not only do we have a very real, huge market potential with the first products we are bringing to market, but there is an even bigger market for future applications. Also, we have our own developments to add to this – algorithmic software to automatically highlight the nerves within a real-time image!

Investors note – your small investment in our current needs buys you considerable back-end potential!

I just reran the numbers and it still projects out that we need $4M to hit cash-flow positive. We need at least $1.5M now to get the first version of our Sonic Flashlight technology on the US market, which we can achieve within about nine months – we are THAT close!

I am happy to share all of our information with interested parties – you can reach me at gary@insituvue.com, M: 412.491.7747, Skype ID: gary.rosensteel

Regarding the ‘bundling’ proposal. I understand what is driving that, but believe it would actually be a negative from an investor’s viewpoint – lack of focus.

Phil Seeney
Drug Delivery Devices and Intelligent Healthcare Specialist – helping clients achieve patient and commercial benefits

Aaron hi
I am sure there are many people out there with fantastic ideas; a few less with early prototypes and a smaller number who have gone through the effort and pain you and Gary have shared with us but proven more and are ready to really go for it.

My situation is simple, I have clients who ask me to identify specific areas of technology (in different stages of development) that they can buy, license and or develop to meet their specific needs. However, more recently one of my contacts is struggling to find enough sufficiently ‘winning’ developments to use up the available funding from private investors. So there is cash out there…simply because the cash rich need to invest in ‘things’ these days…banks are a disaster!

The secret of course is identifying the right ‘things’ but healthcare can still be a high return area if the risks are known and managed and for example, not totally dependent on a new as yet unproven drug (which might still fail). The combined device and therapy/drug deal is of course the greatest reward but in the future, doing more with exisiting drugs and providing better healthcare with exisiting portfolios (but next generation devices) will be a key area of focus…we need to do more with a lower total ownership/treatment cost and then share the savings/benefits with the solution providers…so as far as I am concerned, the device market is looking very healthy and very positive in the future…it is where the solutions to lower healthcare costs lie. Good luck in your endevours!

Aaron Johnson
President, Westhill Group, Inc.
Gary’s story is a timely, soul-soothing post for all of us entrepreneurs toiling on med device projects in this tough medical and economic environment. Thanks for sharing it Joe!

My pre-hospital med diagnostic device IP is in the same tough funding / valuation / development “dead zone”. We have poured ourselves and our money into the early-stage efforts over the past 3-4 years (securing IP, engineering a concept, roadmapping our FDA / global regulatory pathway, securing best-in-class vendors and scientific advisors, and aggregating all of the relevant players / licensees / distributors who are eager and ready to invest in the technology once it is market cleared) and find ourselves needing the meet & potatoes funding for the next major development milestone – essentially, through our excellent research, planning, and preparation, we put a downpayment on, and uncovered, a massive funding requirement to see our project to market clearance and the end of the rainbow.

Our strategy has been an all-of-the-above strategy to seek out funding from a variety of logical sources – private (ideally family trust-type investors), public / institutional (we align quite well with federal medical countermeasures programs in US – find your ideal federal program and get at them), trade-out with vendors (for lack of a better term – allowing any of our best-in-class contract vendor/partners to work for equity to lower the cash burden and realize progress which is worth its weight in gold to other funding sources), and most importantly, we placed ourselves squarely in front of very relevant large pharma companies that would directly benefit from our technology and whom absolutely need it to drastically increase their drug sales (targeting potential co-dev / licensing deals.)

In addition to this, I have looked into a possible combination (device & therapy) investment strategy which might make it more interesting to the VC of the world simply because it is a much larger project as Todd and Joe commented on. There is some preliminary interest in this model as well, but it appears all of the diligence will be on our shoulders to determine its validity with VC (i.e. an entirely new business plan with some alternate research, etc…..timely & costly.)

All of these current strategies do not include traditional angel groups or VC for the good reasons Gary outlined in his experience (they were my experiences as well), which is a common problem for those whom I believe are building their med device business in the right way…..the thoughtful way…..the way in which they will have downstream success.

All of these strategies continue to create interest and allow us to maintain several “irons in the fire”, and a couple of these strategies have been very close and vetted quite thoroughly so we know they could and eventually will work, but time is money and money is always needed and needed always.

Perhaps Phil would be willing to explore our opportunity and see if he can help us as well?

Dr. David C. Chilvers
Business Creation Transformation & Growth
In 2010 I had so many products and start ups with similar financing issues that I decided to approach other organisations that I thought could be in a similar position. The idea was to see if we could bring products/companies together that could provide a larger critical mass and better medium term opportunities for investors. The idea was met with enthusiasm and I met with several organisations mainly in the USA to review possibilities. We all agreed that it should be possible to meet the requirements of investors but because of the diversity of the medtech sector we could not find appropriate assets to bring together at that time. The idea may still be valid and with the proliferation of medtech incubators in the USA and better opportunity screening there may be possibilities.

Todd Staples, MBA
Account Representative, GYN at Medtronic
You are hitting pretty close to the head of the nail in this particular case Joe. Strategic partnerships and collective portfolio power when aligned properly can be leveraged in many ways – early stage to get funding, and late stage to grow a brand and develop sales.

I think this kind of adaptive thinking is what drives companies like MakerStaker and my own, TASSMA (to name just two) to bring creative service solutions to market as well. As much as physical devices, service companies need to adapt and adjust their business models to address the changing realities of this economy.

Joe Hage
🔥 Find me at MedicalDevicesGroup.net 🔥
Building on Todd’s idea, is there a concept in bundling “a few Garys” together?

The VC could spread the risk among a few promising concepts and the “ask” will go above the Dead Zone.

Too “out there” or something worth exploring?

Todd Staples, MBA
Account Representative, GYN at Medtronic
Gary, nobody else has suggested this, possibly for good reason but I am reading through this thinking why not expand your market analysis and perhaps address a few other market opportunities for the technology, making a case for 8 Mil instead of 4?

I completely agree with David’s comment describing how investments by VCs require the same amount of work regardless of investment size, so if you can expand your applications of the technology, and thus your sales forecast as well, you may be able to make a compelling argument for how 8Mil will get your company to the profitable stage faster and thus the investors their return faster.

From what I have seen and heard about the technology there is nothing “small time” about it – I’d consider making it bigger on the VC radar by asking for more based on delivering more. Of course I have no idea what your sales forecasts look like now, and I am sure they are huge, and the return is big, but since the requirements are low it sounds like you are being overlooked out of hand. Just my thoughts.

Yuri Sokolov, MSc, PhD, MBA
Entrepreneur, Investor, Business Advisor
Hi Joe, thank you for the post! Gary, my heart goes to you, and I wish you to make it! Please don’t give up; the world needs your device!

As it’s well known, time to market/revenue is crucial, and the best route is the shortest one to revenue. A 510(k) can be submitted well before the completion of a pre-production prototype, needed for regulatory testing before product release. The process may take a number of iterations, depending on the FDA’s questions. There are ways to make this shorter, but given that each response takes 90 days, the process may still take a long time. Long enough to complete regulatory testing and release the product to market. Hence, the 510(k) can run in parallel with the development – saving valuable time, so that the clearance and product are complete at more or less the same time. In my experience, we actually had clearances before we could ship.

Once the clearance is obtained, you can start taking orders. If the product is as hot as you describe, you can sell it on a pre-payment basis – either 100% or at least partial, say 25-30%. Moreover, you may quote longer delivery terms – 90 days or even longer. Customer deposits would significantly fund building the early batches. To start selling earlier, you may also consider markets with no regulatory requirements. As you start selling, you may also obtain an operating line of credit which will help ramping up production and sales. I found orders, customer deposits, and revenues the most convincing arguments for investors. Of course, caution is needed to avoid selling “raw” products, as they may back-fire with customer complaints and bog the company down with fixes and handling complaints. The product needs to be really ready.

Licensing may be an option, but then you wouldn’t be manufacturing the device. If you do want to manufacture, another option may be a distribution agreement, but you wouldn’t be marketing and selling it. In both cases though, in return for the rights, you may negotiate funding to complete the development, as well as defending any potential IP disputes. So, it could be a win-win.

As to the $4M, it may be a good idea to analyze the project once again and try splitting it into smaller stages, with the first one aiming orders and customer deposits/revenues.

Joe Hage
🔥 Find me at MedicalDevicesGroup.net 🔥
David, let’s talk and, if you haven’t yet, please list yourself at [http://medgroup.biz/investors|leo://plh/http%3A*3*3medgroup%2Ebiz*3investors/9kAx?_t=tracking_disc].

I’m excited about the potential for crowdfunding. In fact, Gary, I wouldn’t be surprised if you could raise a million or more on KickStarter. How much time do you estimate you have, exactly?

Can you imagine if we found eight Medical Devices Group members, each in for $500,000? (Unfortunately, I’m not one of them.)

I am open to using the Medical Devices Group any way we reasonably can to get your product introduced. What a meaningful way to use this forum!!

David Guy
VP, Sales and Business Development
Gary, your story hits very close to home. I spent 4 years at a medical device startup with great success in market interest, strategic partners for distribution and a novel patented concept. We too found ourselves in a deadzone in fundraising that was more than a Bridge Round could support from our angel investors and too small for big VC’s to take interest. I called it the Goldilocks Principle. We were just succesful enough to plow our personal moeny into the company to keep adequate runway but our desire for a <$5M raise didn't move the needle with the VC firms. A cogent explanation one VC gave me was valuable enough to share:" The work required for a $5M investment was the same as a $20M investment. The VC prefers to put more money to work." Ultimately, licensing the technology was our best path but as other commentors have stated, Crowdfunding is the new horizon for <$1M raises. Frankly it is best suited for <$100k raises. ** Disclaimer – I am the Founder of MakerStaker a medical device specific crowdfunding site launching in Q2 2103.** The new SEC guidelines will allow equity and non equity investment in medical device startups BUT, raises above $100k will likely require audited financials. As a CEO of a startup, audited financials aren't the best ROI unless you are raising VC sized funds. It is quite expensive and laborious to have audited financials. I would be pleased to answer additional questions about the crowdfunding approach. Stephen Glassic
Available: Biomedical Equipment Technician, Field Service Engineer, Electronic/Electromechanical Technician
With all the things that must occur, between the initial conception to bringing a device to market, it is amazing how many devices make it. I can only imagine the number of ideas that never even make it past the conception phase and then beyond. Hopefully someday the process will go smoother. The biggest roadblocks I see are the cost of funding a new technology and the potential financial harm to existing technology.

Phil Seeney
Drug Delivery Devices and Intelligent Healthcare Specialist – helping clients achieve patient and commercial benefits
Gary
This is a universal problem….but….similarly there are investors out there still struggling to find worthy projects. Please contact me…I might be able to help. I have tried your link but it will not let me connect to you.

Regards
Phil

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