I attended the SVASE (Silicon Valley Assoc. of Startup Entrepreneurs) sponsored event entitled “Financing Strategies for Medical Device Startups in an Uncertain Economy” the other week. The panel consisted of Frank Rahmani from Cooley Godward Kronish, Ted Driscoll of Claremont Creek Ventures, Albert Cha of Vivo Ventures, and Michael Bates of Life Science Angels and Band of Angels. There were a lot of interesting conversations, but the discussion on different financing opportunities is important to highlight. I’ve listed some of them below:
- Government – SBIR grants are a great way to finance a startup without diluting equity, but the grant process can be time consuming and competitive.
- Incubators – For a stake in your startup, incubators provide lab space, administrative assistance, strategic guidance, etc. Although incubators usually don’t provide direct capital, they will assist in finding angels and VCs to invest. Attending the meeting was Mike Partsch, entrepreneur and former VC, who has successfully launched a few medical device companies from his incubator. The Foundry is another medical device incubator with a number of companies that have been financed.
- Angels – Angels typically provide seed-stage financing to startups that are “too early” for most VCs. Raising money from Angel groups is like “herding cats” to paraphrase Michael Bates, but the members are usually seasoned entrepreneurs, who can provide very valuable advice to early-stage startups. Angel networks commonly work closely with VCs and can also assist in obtaining VC financing.
- Venture capital – In addition to providing cash, VCs offer strategic guidance, help recruit management, etc. When trying to raise money, “VCs are not all the same,” as one panelists stated. Some firms focus on early-stage companies, while others invest in only health care IT startups. It’s important to identify the right match. Also, make sure that there are no conflicts in the VC’s current portfolio, i.e. companies with competitive technologies.
- Corporate investors – Corporate investors usually wait until most of the risk is removed from a startup before investing. Depending on the deal terms, a corporate investment may limit the number of potential acquirers in the future.
Other financing options not listed above might be available. For example, private equity might be an option depending on the stage of the company. Keep in mind that this was not meant to be a comprehensive summary of the event. I just wanted to highlight some of the important topics discussed.