The culture of funding medical device development and getting them on the market is changing.
Startups and investors would do well to take note or risk joining the vast majority of failed medical device ventures.
That was one of the messages shared by investors in the medical device industry.
Startups need to make sure there is an unmet clinical need before developing new devices, said Christine Gibbons, a consultant who has spent her career as an investor and part of entrepreneurial management teams. It seems obvious, but sometimes there are nuances involved one may not understand without advice from physicians or other clinicians, she said.
“The second-worst thing is your technology doesn't work. The worst thing is it works and nobody cares,” said Chris Rizik, founder and CEO of the Renaissance Venture Capital Fund.
The more bureaucratic health systems and hospitals have become, the less doctors can make decisions about using new devices. Now, the decision widely goes through administration, which means not only does a device have to fill a need, but it has to save money, said Dr. Tom Shehab, managing partner of Arboretum Ventures.
It’s true that the majority of successful medical device developers have one or more failures under their belts, Rizik added. The trick is to understand when something’s not working and then pivot or move on.
“There's no shame in failing,” Rizik said.
Medical device startups don’t get bank loans for their ideas, Shehab noted. Initial funding typically comes from friends, family or angel investors before approaching venture capital funds. Traditionally, venture capital investments strictly were defined in series categories by amount, but it’s not always as precise anymore.
And when making investment agreements, Shehab said it’s important to remember the two companies will be in a relationship for the next three to 12 years.
“So, I think those of you folks who want to get a good deal on either side of this thing maybe want to do it in a way that is cooperative,” Shehab said.
While there is a lot of innovation in the area coming from places such as the Grand Valley State University Innovation Lab and Spectrum Health Innovations, and those startups are able to get some initial funding in the area, Shehab said there still is and likely always will be a need to pursue out-of-state investment. That’s one reason why it’s important for the community to cultivate relationships and keep those doors open.
Investors always want minimal risk, and they highlighted ways startups can ensure that. Throughout the process, creating and gathering data is important to show effectiveness and comparability.
Gibbons noted the importance of having the right people working on a project.
“It always boils down to the teams being able to execute the vision,” Gibbons said. “Hire slow and fire fast.”
To those with generalized or specialized skills in the industry, Rizik would encourage they help guide some of these new companies toward success.
“There is a whole generation of entrepreneurs who are doing this for the first time, and they really need mentors,” Rizik said. “That could be the difference between success and failure.”