At the March 6th meeting of MassMEDIC, the association of the medical device industry, two expert panels discussed both the key attributes which an early stage company must have to attract financing, and the landscape for obtaining that financing.
Requisite Attributes: A panel including Mass Medical Angels, an institutional investor and a large strategic industry investor shared a fundamental viewpoint: you need an appealing story which is well told and understandable, initially in a brief presentation or slide deck (it need not be a full offering memorandum), describing the problem, the solution and its novelty. Intellectual Property should be identified but need not be dwelled upon. For an emerging company, the core team may be important but it can be reasonably small; successful emerging companies are very parsimonious with money, and many problems (such as regulatory and reimbursement) can be farmed out. Good founders are imaginative and make due with short dollars in early stages.
How important is the team? For the angels and the institutional investor, seemingly quite important. When you get to a strategic acquiror, even one which purports to invest in early stage and no-revenue enterprises, the founders are important but, let’s face it, a strategic is liable to impose its own management team, or integrate a company into its own management structure, pretty quickly.
One interesting side note: general consensus that if there is more than one founder, the back and forth process generally creates a superior company than in a single-founder situation.
Where Is The Money? There is hope for financing life science companies, including medical device companies in Massachusetts. One serial entrepreneur on a second panel noted that money was more easily available on the East Coast than in Silicon Valley in the life science space. The venture fund on this panel, Norwich, noted that about half of their investments are in companies run by first time entrepreneurs, so there is hope for that cohort.
Some other interesting take-aways on finance:
No one was big on crowd funding. It is not intelligent money, and a large number of investors will scare away institutional future rounds.
For the new emerging company, angels can often provide sizable amounts of money. There was also advantage in being in an accelerator, and the Boston Medical Accelerator and M2D2 (the accelerator at University of Massachusetts at Lowell) were mentioned.
SBIR grants, while slow and difficult to get, can fund pure startups with no traction. The phase one disbursement of up to $250,000 is often a stepping stone, if progress is made, to phase two funding of up to $1,500,000, although it was suggested that on a strong showing of prior progress some companies might be able to jump directly into phase two.
Other issues in attracting capital (weighted differently as between angels, venture fund and strategic investor): Is the product buildable? Is the idea proven or is there an understandable road to proof through clinical trial? Have the founders thought about a logical exit (the exit may change over time, but are they sensitive to the fact that there has to be a pay day somewhere down the road)?