Financing and Innovation Strategies with Operators - Turned - Investors | LSI Europe '24

Scott Pantel 00:04
Music, but no thanks for joining us early this morning. This will be our icebreaker panel session. It's a pleasure to be up here with two executives that I consider friends, not only to LSI but to the industry. So why don't we do like, super brief bios? We'll start with Amir, we'll go to Tal, and then we'll just jump into some questions. And if you guys are up for it, I think we can make this absolutely open. So if there are questions, we'll get into it. Amir, yeah,

Amir Soltanianzadeh 00:27
Yeah, I'm a former entrepreneur. I started a company called Spinal Line, which was for 3D navigation for scoliosis surgery. I spun that out of Hopkins BioDesign program and then exited to a public orthopedic company. After being with them, leading a digital surgery effort, I went back to the West Coast where I grew up and started Solardis Health Ventures, which is a medical device-focused micro VC. And, yeah, you know, it's a pleasure to be here. Thank you, Scott, and Henry, and the whole team for organizing this.

Tal Wenderow 01:10
Thanks, Amir. So I'm Tal Wenderow. I started a company back in Israel called Corinthus, which was robotic. I ended up selling that to Siemens after we went public. I am now a venture partner in Genesis Medtech Group, which is a medical device company looking to invest in M&A. I also couldn't take the bug out of me, so I went back to do a CEO gig. On top of that, besides being what I call a friend of LSI, I'm trying to promote and help by putting together a new investment vehicle.

Scott Pantel 01:39
That's great. Okay, so I thought we would start with the question that's on everybody's mind, and I'm hearing different opinions as I talk to people. If I talk to three people, I get three versions of the same answer. Let's flash back one year ago, approximately. We were in Barcelona at an event just like this. We had a house full of innovators, investors, and strategics, all trying to achieve the same goals. We'll start with Amir. Is the current climate for capital raising better, worse, or the same? And give us some examples of why you feel that way.

Amir Soltanianzadeh 02:18
I definitely feel like it still has its limitations, and it's not fully rampant, but the environment definitely feels a lot better. There are more regular closes that I'm seeing. I think the companies have really taken the medicine and have really tried to adapt, you know, adjust their plans, and change their fundraising strategy. So I think the environment definitely feels a lot healthier than it was 12 months ago, which is exciting for all of us. And the M&A activity has continued to increase in its momentum, so I think that always helps.

Tal Wenderow 03:01
I will say it depends on which stage you are in. For late stage, when you're doing PMA pivotal, you see those big rounds of $40 million, $60 million, $100 million. My concern is the early-stage funnel, where there's not enough money there; the visa is almost out from that early stage. You see private equity going into those late stages because they need to come early. So I think it's better; you see M&A, but strategics are willing to purchase and buy more established companies. You see much larger M&A deals, less on those talking $30 million, $40 million, $50 million, which, in my opinion, are sometimes one of the best. So it's a mix.

Scott Pantel 03:44
And a follow-up to that. You both have sat on multiple sides of the table. You've both been operators, had exits, and you now invest in companies. Who knows, maybe you'll go back to the other side at some future point in your careers. But help us get into the minds of the investors that are here. What are they thinking this week? What are they looking for? What do they want to receive? What kind of communication? Help us get into the minds of the investors that are at this event.

Tal Wenderow 04:14
Should I start?

Scott Pantel 04:15
And you can be very candid with us.

Tal Wenderow 04:17
Yeah. Henry is not quoting me, so we'll...

Scott Pantel 04:21
Edit anything else.

Tal Wenderow 04:25
So I think first, as cliché as it sounds, people invest in people, and people need that meaning. What I like again here is that connection because I have a lot of friends in the industry, and probably, you know the feeling, 95% of them said no to me at least once, if not twice or three times. At the end of the day, when you deploy your money, whether it's your own money, your fund money, or your strategic money, you want to make sure that the person on the other side will be your partner, and you trust them, and they trust you. So I think people invest in people. That's number one. Number two, it's one of the things I learned moving from a startup to Genesis, which is not a big strategic but is growing. It's the importance of momentum and portfolio management. You can have a product that is better than the product that Striker or Medtronic is holding, but it doesn't matter because they spend so much capital, not just financial capital, within the company to promote that they will not abandon that. So I think understanding the other side and how they think is important.

Amir Soltanianzadeh 05:32
Yeah, I couldn't agree more. I've been rejected thousands of times, and I was generous, mostly by Tal. Many of the stronger supporters in the end were people who started out with, "Hey, it's not the right time. I don't think this is the right time, but keep me updated." Those who actually follow up on the "keep me updated" stay humble about it. They're really doing their homework to get feedback at any stage and try to always perfect their craft. I think those entrepreneurs always tend to succeed. I was just, you know, after a few LSIs, I started seeing so many familiar faces, and I think that's part of the beauty of this community. I was meeting some folks last night who weren't a perfect fit for us, but I keep seeing them improve, follow up with updates. They're actually hitting their milestones, inching towards where they need to be, and they listen to feedback. I'm eager to help them, whether it's through our vehicles or helping them connect with warm intros to other VCs that might be a better fit. Yeah, and I think that's a really important part that entrepreneurs need to remember: it's all relationship-based, and sometimes there's nothing better than a VC saying, "Hey, Amir, this company and this entrepreneur is amazing. They've been knocking on my door for a year, two years, and it's not a perfect fit for us, but I think now they're at a really good time. It might be a perfect fit for you." That's generally a very productive conversation that ends up going somewhere. So I think that's kind of the most fresh advice from last night that rang true.

Scott Pantel 07:34
And I couldn't agree more. Josh made a comment last night about just sort of the culture of our community, and that's that people want to help each other. There's a feeling that I think we all have after these events, which is a little bit of exhaustion but also even more hope and inspiration because of that culture that I hope that we've created and continue to build on. It is a tricky time for some companies, or in a really, really critical situation. Keeping the operator hats on in this part of the conversation, do you have any advice for those companies that are trying to really survive through this next period? Any things beyond the obvious that you would be thinking about as an operator?

Tal Wenderow 08:25
I think I can share what we said when we boarded last night, or Monday night, or Sunday night, whatever it was: listen, right? I remember myself thinking I knew everything, but I didn't. I think it's obvious what you need to do, right? Get the prototype, GLP animals, clinical trial, whatever it is. But listening to people that have been there is crucial because what you think are the value inflection milestones are not necessarily what the investor thinks or what the strategic thinks. There are several ways to get there and have a contingency plan. So my best advice is just to listen, get advice, and get someone on the board who is an operator, not just an investor, so you can call them and say, "What do you think, and how do you strategize about that?" Not just have the board filled with investors who are only looking to advance the company but also protect their investments.

Amir Soltanianzadeh 09:23
Yeah, I couldn't agree more. I feel like the best moments for me as an operator were moments where I assumed I didn't know something, and I learned something from someone more experienced or had a different perspective, someone smarter than me. That always helped me get that next inch forward. I was thinking about this a lot this morning, kind of how I was talking to an entrepreneur, and they were asking, "What type of person do you look for?" I was trying to think of a phrase that was clever, but it's basically, I kind of want a gracious loser that's a very sore winner. What that kind of goes by is to be super humble. You can have confidence, and it's not like you have to assume you know nothing, but really go seek people's feedback. Seek people that will tell you why your plan sucks; at least try to push them to poke holes in it and really challenge you to make you better. Learn from others, other entrepreneurs, strategics, investors. The worst thing you can do is not talk to people because eventually, if you just stay in your bubble or stay with people who are constantly supporting you, you're probably missing the mark. Yeah, that's kind of my best advice.

Scott Pantel 10:47
Okay, and keeping the investor hat on, let's shift maybe to an even more practical question here. I cannot tell you how many times I speak with entrepreneurs, CEOs, and founders that are trying to navigate an event like this. They want to get access to the right investors; they want to maximize the time while they're here. Not all of them have the luxury of warm intros or built-in networks, and this week is a big, critical week for them. What is the best way? I know there's no silver bullet, but what are some of the things, some of the advice you would give them to maybe do and maybe not do as they approach a week like this?

Amir Soltanianzadeh 11:37
Yeah. I mean, I think my first LSI, you know, I spent more time on the East Coast, and that was my first event. I knew some people, but definitely not everyone. Now, you know, every LSI, it's added more and more. I feel like always just start small, say hi to the person next to you. You never know where they're from, what company they work at, what they do, or who they know. I feel like all my interesting LSI connections were some random interaction at the coffee table that then ended up being some other connection. We had something in common, even if it wasn't work-related, and then that ended up kind of building a relationship. So definitely, just start small. Don't be afraid to talk to people. Definitely don't over-pitch. I think one of the best pieces of advice I ever got was always focus on the relationship and how to get the next meeting, as opposed to saying, "We have three minutes in this hallway; I'm going to throw you the kitchen sink and hope it works." That often doesn't, even if your startup is Google. So I think, you know, just really walk before you run, and the momentum will build with some time.

Tal Wenderow 13:05
I completely agree with you, and I would summarize it as: don't make it transactional. When you look at the numbers, and I switched a couple of years ago, I see all the requests an investor gets to meet. There's a lot, right? And there's a limit to how many companies you can meet. But the key point is, in my opinion, one is do your homework. Go to the app or the website beforehand to see who is attending. Look at their portfolio. See who they invest in, who their connections are, and how you can get connected to them. Really look at that analytically. When you come here, use that to make that personal connection, and definitely do not pitch. If you think about it, again, we don't have a big fund; we're investing a little bit. If I come and every time someone pitches, I'll just walk around saying, "Scott, what do you think about the Red Sox last night?" which I hate watching the Red Sox. You don't want to be pitched. At the end of the day, we all come here to have fun and advance. So it's that personal connection. Whether you are someone in college or a different company, if you both love basketball, bikes, or whatever, find that hook and use that. I think it's so important, more than pitching because if you put on an investor hat and fast forward to next Monday, the inbox is like 100 emails, right? You have to start sorting through. You're going to pick the one that you memorize and remember and had a connection with, and not about what the product is; that's secondary.

Scott Pantel 14:38
Do you guys go outbound? Do you guys filter and go outbound? Or are you waiting? I'm curious about both. How do you do it? What's your process for that CEO that gets a request from you to them?

Amir Soltanianzadeh 14:59
Yeah. I feel like I review all the requests because it's always ironic. When you're the entrepreneur, you're sending out 600 requests. When you're the investor, you're getting all those requests. So I try to read through them, find whoever might be a fit, try to respond to those that aren't, and then I always read the list, at least the blurb on what every company does. I really like just sitting in the back of pitches because sometimes something may sound interesting, but you're not sure if it has that spark yet. Sometimes during that pitch, you can get a better sense of, "Oh, that's what they meant." Then I try to reach out to them after that. So sometimes, you know, always have that mentality: you don't know who's in the back of the room listening. I feel like half of my investments have come from me being in the back of the room hearing something that was pretty interesting that I didn't consider before.

Tal Wenderow 15:59
If you put the strategic hat on at Genesis, there's a team that actually analyzes and sends them the list. They look at which companies we want to meet, are interested in the phase, and what we do. Then you reach out and schedule meetings. As an investor, you get so many outbounds, you don't have time to look unless it comes from Amir, saying, "Hey, I looked at that company. What do you think about that?" Then I'll say, "All right, I'll have time." That's the reason I keep reinforcing that connection. Investors want to work together; sometimes they hate being in a silo. So it's more inbound than outbound right now.

Scott Pantel 16:35
Have you had the same experience as Amir, where some of the intangibles, the organic sitting next to somebody at an event, are you having the same experience or a different experience? I mean, you're very hard to approach, so maybe people are afraid.

Tal Wenderow 16:46
Really, unfortunately, yes and no. It's all circles and community, whether it's my Israeli community, my Orange Juice community, or my strategic communities. People that actually know you reach out. It's very rare to sit in the back of the bus and listen to something and then connect it. But you never know, right? I think going back to companies, unless you have a tuck-in product, a lot of companies actually do pivot during their careers and move indications. You saw a company in cardiology, and then suddenly, "Oh, you know what? If we shift to that, we can do lung cancer for the same technology." That's interesting because you already have a pivot asset that you can reassess and deploy.

Scott Pantel 17:39
Follow-up question. This is our eighth meeting, third year in Europe. It'll be our sixth meeting in the U.S. You both have been attending regularly. Are there companies that you may have seen a few years ago that were interesting but not ready, that may be getting closer? Are there any examples like that? I mean, Amir, you talked about not being a good fit for you now, but maybe for somebody else. What about not being a good fit for you then, but maybe down the road? Or are we too early in the cycle with this community?

Amir Soltanianzadeh 18:04
Yeah, no, I already feel that way about a handful of startups from my first LSI until now. It's night and day difference. They've achieved so much; they were very early then, not to their fault, or they had fundraising strategies that were not refined. Now, you can hear them pitch because you already heard them before, and you hear them talking to other people. You catch up with them, and you really see all the progress they've made. I'd say a sizable portion of LSI startups from a few years ago are really progressing.

Tal Wenderow 18:45
Especially as they progress through clinical development and clinical trials. In the end of the day, unfortunately, we're in medical devices, not in cyber or search, but we actually need some evidence and clinical trials. As they progress, they reduce the risk, and the data looks better. The challenge is that when the data looks better, they need more money to deploy to the pivotal, which is $60 million, $70 million, $100 million. But yes, you definitely see that progression.

Scott Pantel 19:13
I'm going to open it up for questions in a minute, but the first question I asked was, what's the climate right now? Better, worse, same? You guys gave your opinions. What's your forecast? After they answer these questions, if anybody has questions, let's open it up for a little bit of dialogue here. What's the forecast for the next 12 months?

Tal Wenderow 19:34
We are startup guys, so it's not a fair question because we're always optimistic. We always have a full glass, so that's kind of in the DNA. Because we have been operators, we always think positively, so it has to be better. I'm just concerned about the early-stage funnel because the VCs are not playing there. I spoke with a family office yesterday from France, and they said less and less they want to invest in early stage and not revenue-generating new generation. The family office. So who will fund that early-stage innovation? That's my biggest concern. There are a lot of companies in the pipeline that strategics will like. So I'm very optimistic, but we need fresh capital, I think, in the field.

Amir Soltanianzadeh 20:14
Yeah, I totally agree. I think it'll continue to improve. I'm curious if the M&A trend will continue, where you are seeing bigger, more mature deals because that also shifts the envelope of interest. I think there are still a sizable amount of early deals, pre-FDA, pre-sales, or early sales deals. I think those are really healthy for the ecosystem to balance it out. I think the shockwaves are fantastic for the whole ecosystem. But I think those that are exiting during a pivotal or even pre that help every window to be interesting enough to get funded.

Tal Wenderow 20:59
I actually don't like the shockwave deal as an operator investor because there's less strategic to buy companies. That's why I say that. So it's more consolidation. There's less strategic. There's a limit to how many deals they can do. Shockwave just hired Rob, you know, from LSI as well, that was about to start making acquisitions, and now they have different hats, so it'll take time for them.

Amir Soltanianzadeh 21:20
Well, from the standpoint of the funds, you know, getting those returns they can redeploy, but if you can balance those with some smaller tuck-in deals, I think that's what will really spur the early investments to keep going.

Scott Pantel 21:37
All right, see who founders and CEOs, raise your hand if you're a founder or CEO in this room. Okay, let's start with you. Who's got a question for investors or event operators, please?

Unknown Speaker 21:55
I have a question about coaching and guidance. I'm wondering, does it make sense for us to spend time on American investors? In other words, I haven't seen many American investors investing in Europe. Can you comment a bit on that?

Tal Wenderow 22:16
I think it's an investor will invest in the right company no matter where it is, right? I'm putting my Israeli heart into this. I was born and raised in Israel and moved to the States 18 years ago. There's a lot of U.S. investment going to Israel. So I think it's more of a question of how your product fits the U.S. market and their growth, less about geography. Obviously, as an investor, you want to invest in people that are close to you, not just geographically but also personally. They want people in Europe to invest, but the big money, unfortunately, is in the U.S. from a reimbursement and market growth perspective, and that's what drives the valuation.

Amir Soltanianzadeh 22:54
I think, I mean, half of our group's investments were in Europe and Israel. I feel like our condition is that their primary market is the U.S. market just because it's more known for us. But, you know, I think it all depends on the team and how they go about it. I think there still is a sizable amount of U.S. interest in European and abroad companies.

Tal Wenderow 23:18
There are some limitations sometimes that you have to do a U.S. Delaware corporation position. If the thought is going to the U.S. market, you may want to start with a U.S. entity first with a subsidiary in the Netherlands and then flip it down the road.

Unknown Speaker 23:42
Hi, I'm Roger from Met Team, doing software as a medical device for spine surgery. I'm wondering if you have experience with a successful business model for software as a service in the medical area, how we sell software and how we make money. Do you have experience with a successful company in this area?

Tal Wenderow 24:05
That's your expertise there.

Amir Soltanianzadeh 24:06
Although it's fine, it's your meaning to take CathWorks as an example. Again, LSI alumni, Ramin was here. They have software that does FSR for cath labs, and it's sold as a medical device. I think I hate to put boxes around it. It's more about what's the value? What clinical outcomes, economic outcomes does the software deliver? The answer is yes. If it's just a nice-to-have and the physician just gets information that cannot act tangibly, that's hard. So it's all about what the software does, more than a general question. I don't know what you guys are doing specifically.

Amir Soltanianzadeh 24:46
Yeah, I think it's typically the question ends up being: is the business model making sense? How does this look in the eyes of the commercial side or the strategic side, and less so of the software? I think the benefit of software is you can kind of move very quickly in certain domains, but then the issue becomes: have you achieved the right use case, the right product, and do you have a business model that comes with that? That's typically what I see with the software companies.

Unknown Speaker 25:28
Well, Mohamed from Precision Cardiovascular. We run heart failure remote monitoring. Thank you, first of all, for a great kickoff to the day. My question is, as investors, following slightly from Roger's question on boxing, what do you feel about a startup that's looking at other options beyond strategic acquisition, maybe pharma collaboration or B2B data licensing? Are you kind of skeptical when you hear that because predecessors may have gone the traditional route of strategic acquisitions? What do you think of someone trying to do that?

Tal Wenderow 26:05
Definitely not skeptical. I think it's all about meaning. Pharma collaboration is amazing. The question is: is it sustainable? Is it a one-off? To me, it's a revenue stream, and if you have a good revenue business, you can find secondary acquirers, like private equity. You don't need the strategics. But it's all about: is it sustainable? Can it repeat itself? Pharma has a ton of money. They're paying a lot for clinical trials for AI, digital twins, and so forth. So if you have that, absolutely.

Amir Soltanianzadeh 26:35
Yeah, I think it definitely depends on what your strategy is and why you believe that strategy is the right path, as opposed to the strategy itself. I think it's very simple to be in the M&A bucket because it's often pretty black and white, and it's easy to understand. But if you have a very viable case that is well thought out for licensing deals or collaborations or JVs, I'm sure any good investor would listen.

Tal Wenderow 27:10
I'll even argue that the M&A bucket is more challenging because there's, again, not a lot of strategics. They only buy three or four a year, and they're all seeing, think about how many people are here—750, right? They see all of them, and LSI datapoints and others. There's a limit to how much they can do to have a path to profitability for collaboration, absolutely.

Scott Pantel 27:33
All right, we're coming down on time. Unless there's a burning question, one more burning question, then we'll wrap things up.

Unknown Speaker 27:44
Thank you. Charles from Duke M Tech Labs. What's the position where a company has developed a foundational technology that has applications both in medical and consumer? How is that viewed by investors? Obviously, we're always told to focus. What would be the position there?

Tal Wenderow 28:05
If you have a technology that is applicable to both consumer and medical, what's the position?

Unknown Speaker 28:08
Yes, for example, like a PPG sensor. For example, companies that first innovated their PPG sensors are now in everyday devices like the Apple Watch, Fitbit, etc., but also are being used for core medical devices. If a company had invented such foundational technology, how would they go to market in a way that satisfied the investors' desire for early revenue but also the long-term opportunity in health?

Tal Wenderow 28:35
It's a very good question, and I'm not sure I have the full answer, but I think if you have a VC, it's hard because they want to put you in a bucket. This is the use case, and that's who the potential acquirer is. So you need a use case for that. It may be more fit for family offices or private angels that are looking into how do I return 2x or 3x and just get to the revenue base. Similar to the question below, on the collaboration, typically, med tech technology by itself is not good enough. You need to see how it goes because of the regulatory aspect of that and who will take that to market. If the burden is on the other company to take it all the way—510(k), PMA—they get the value, not you. So it's not an easy question.

Amir Soltanianzadeh 29:17
Yeah, it's definitely difficult already when companies try to go for multiple indications. Sometimes there are really good justifications, but I think it becomes exponentially even more challenging to underwrite when they're looking at completely different markets, medical versus consumer. The team expertise is different; the strategy, the cycles, they're all different. I don't think any investor would ever say no completely, but your strategy definitely has to make a lot of sense. Your focus kind of outlines how we divvy up our time. Is it a subsidiary? Is it kind of on autopilot? Are you splitting your time completely across both? I think the details really matter about how that's being balanced. But yeah, it's an issue I've seen with a lot of startups, and I think it all comes down to what your strategy is.

Scott Pantel 30:18
All right. Well, that's going to wrap it up this morning. Amir, Tal, thank you very much. Thank you all for getting up early and being a part of this early session. This was the first pancake we talked about. Sometimes the first pancake doesn't turn out well, but I think this was a pretty good first pancake. Please come by and say hi to the guys, and I hope you have a wonderful rest of the week, and it's productive. If there's anything we can do to support you, we're here. Thank you very much.

Unknown Speaker 30:42
Thank you.