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Cracking the Code: Finding the Optimal Valuation for Successful Capital Infusion and M&A Deals | LSI USA '24

This discussion aims to provide insights from life science industry veterans on how to "Crack the Code" on managing the complexities of valuation.
Scott Pantel
Scott Pantel
Ramin Mousavi
Ramin Mousavi
President & CEO, CathWorks
Andrew ElBardissi
Andrew ElBardissi
Partner, Deerfield Management
Paul LaViolette
Paul LaViolette
Managing Partner & COO, SV Health Investors
Chris Eso
Chris Eso
VP, Global Head of Corporate & Business Development, M&A and Ventures, Medtronic
Jay Watkins
Jay Watkins
Managing Partner, Sonder Capital

Scott Pantel  0:07  
Welcome, everyone. Thanks for for joining us today. I want to thank all the panelists here. And I think this officially kicks off Chris Esau day, as I remember, this is this is the first session of two, three, I think I'm on four panels, panels today. Okay, so hopefully you like what I have to say. So we get on when he's fresh. But again, thanks, everybody for being here. Looking forward to a fun session, we a couple of years ago started talking about this untangled philosophy, which is not a it's not something we invented. But it's an idea that we believe in. And what it means to us is just, we're all here to leave more informed and more connected. So we want to make this a conversation. So we have, we had an outline we're gonna go over last night. And then I think we ended up just admiring the sunset and talking maybe briefly about what that outline was. But the objective here today is to talk about something that's on everybody's mind, which which are valuations. So we will attempt the next 40 minutes to crack the code. If we don't completely crack it, hopefully, we get started with some ideas. And I want to encourage everybody to reach out to this group, one of the things that very grateful for is that this collective group has sat on so many sides of the table, they have a wealth of of wisdom and insights. And they're here because they want to give back to the industry. We're obviously all here doing deals, we're running businesses, but we can do better together. And that's one of the objectives here at LSI is to lift up the medtech industry. So I really appreciate you guys volunteering your time and your insights and being a part of it. So Henry gave the background on the special relationship between LSI and Kath works, I'll just kind of restate it. Ramin was was the official first LSI presenting company. That was five years ago. And we kind of re envision what we wanted to do at these meetings. The company under his leadership has come so far, and really one of the success stories of our industry. So five years ago, he's on stage pitching. Now, fast go back three years ago, we're talking about what we do after the capital raise how we accelerated into growth last year, the anatomy of the deal where he really got into the deal, and broke it apart. And then again, today, we're here to talk about valuation. So I thought we would, I'll kick it over to Ramin, maybe you can give you could tee up your background and then and send it down the line. And we'll get started there.

Ramin Mousavi  2:32  
Cool. Thanks for having us and for being here. Great job to you and your team, you know, doing yourself again this year, maybe I'll just get to it quick. So then we can use the time. I think, for me, as you know, a CEO of a later stage startup, you know, one of the things that I get to experience now, working with my peers is this complexity of how do you overcome even the conversation around valuation, you know, different markets. Some people have memories of maybe how what have prior years looked like some people have different remembering of what actually happened. So I think the conversation that we want to dig into is the group that we have here put different lens on, you know, ambassadors, board members, operating responsibilities, BDS. So how do we go about opening up the conversation, so it doesn't become such an enigma, a black box, because the experience that I've had is just that first part of being able to have a productive, the structuring of a conversation can go a long way. And the absence of it creates this very ambiguous situation that you're hoping something great comes out of it. But you don't know why. So maybe with that, I will hand it to Andrew, you know, you're not allowed chance to work together for a while now. From your perspective, if you were thinking about the first step of valuation today, and maybe even doing a little resetting of 2021, how would you go about that conversation?

Andrew ElBardissi  4:04  
So it's a it's a very big question. Let me and I think there are two parts to it. The first part is how you think about valuation. And it actually is less about, you know, I think from an investor's perspective, you're thinking about the amount of capital that is required to really unlock major value, which would either support potentially M&A could support and IPO could support another round at an at an attractive raise. I think oftentimes, there's a disconnect between what the investors think is really unlocking significant value and what CEOs management teams perhaps other boards think is really unlocking value. And when you unpack that, you know, that number may be very large and very diluted to management teams and untenable or it may actually be much smaller, and it may require somewhat of a different business plan in order to unlock value that may not be, you know, value perceived from the eyes of a management team. In either case, that amount of capital is ultimately what's going to drive the valuation or the entry point of the new investor. And oftentimes, you know, that, you know, will require a recap. Oftentimes, the math doesn't work. And that's really the unfortunate thing. Oftentimes, the amount of capital is so significant that the value created at the end of that fundraise is not sufficient to support that amount of investment, effectively valuing a company below zero at the time of investment, that that will drive investors away, I'd say in this environment, what we're living through right now, is a somewhat different dynamic, which is, you know, when capital was free in 2021, companies were going public with no revenue and trading a billion dollar valuations. This, we, the the investment world was untethered to the fundamentals of what these companies were actually doing. And so the valuations right now, we're not grounded in anything other than the momentum that was built up during that timeframe. And so, rather than I think the sort of best advice I can give, relating to my earlier comments about thinking about the value unlock is completely forget about that time period, because that there is there is no relative value to that value, it shouldn't be viewed as well look at all the things we did since that moment in time, that was a bubble. And we're now sort of in a more realistic world where I think we need to think about it from the perspective of really maximizing the value that that capital will unlock.

Paul LaViolette  6:54  
I agree. Next. But listen, that's a very broad comment. And so I will say a couple things. Number one, you really need to be thinking about the entire capitalization of the company over time. And so what we're doing now to raise capital at a given valuation, that serves a purpose, but it's not the end game, it may not be the end game. So think about it in terms of the the arc, if you will, of capital over time, number one. Number two, I agree with Andrew, there was an there was an event right over the last couple of years. And that's we'll just call that macro economic. And so when we think about this, as investors, we think about value that the team is generating, like, Okay, you were you raised your first round at 8 million, you raise your second round of whatever you're trying to drive execution and create value. And then that's everything within your control. Now, we introduce things that are not within your control, like macroeconomics. And it's really important to separate the two not to make excuses. But to understand, listen, our expectation is to increase value over time. Our expectation is that you will execute everything necessary to do that. And then if there's a macro economic shift on top of that, and it requires that resetting, so be it. The third point I'll make and then I'll shut up is everything is relative. It's relative to the stage and the time of the company, it's relative to subsequent value inflection points, where where you might create much more value the next time around, and you're playing for that. It's and it's relative to every member of the system's self interest. Am I management? Am I a founder? Am I a Series A investor? Am I a series B investor? Am I a strategic investor thinking about being a buyer, everybody's got self interest, and valuation is ultimately some compromise within all of those interests being driven? And because it's, you know, we can calculate valuations all day long, at some point that matters, that that's a fact pattern, and then you have to drive valuation outcome based on all of those individual interests.

Chris Eso  9:15  
Yeah, I'll echo your last point, right? It you have to take each stakeholder each err, every stakeholder has a different perspective on value. Right? Obviously, the strategic is going to want as low of value as possible, but we're actually willing to pay a high value if it's de risked. And so it's just a trade off of what we're taking on at the time. You're asking us to take on how much risk there is how much risk we perceive versus how much the investor or the company believes that they've burned down. And the only way to do that right as being very transparent is having conversations with different stakeholders. The investors group, the board, the management team, In the strategic and having clear understanding of what is their key focus in what they're trying to deliver and achieve, and use valuation as a, as a flex, to be able to meet the set and satisfy what everybody is trying to achieve. And that's ultimately, to bring new technologies to market and have an impact on patients lives. Valuation gets in the way, because nobody wants to talk about it until the end, or somebody is worried that it's going to be a low valuation or worse, strategics are worried it's going to be too high of a valuation. But if you start that conversation early in the in the dialogue, it actually helps being transparent along the way.

Scott Pantel  10:44  
Andrew talked about, Jay, you've been through several, we've been through several cycles up on the stage here. And are talks about we need to put 2120 21. Behind us, do you have any cycles that compare to the one that we've recently seen? Learning from that? And then we also talked last night about like the reality of down rounds? And what that means? And maybe so maybe you can talk about? Yeah,

Jay Watkins  11:03  
yeah, a couple things. Yes, I have been around long enough to be through at least one other cycle.

Paul LaViolette  11:11  
I was there for the Great Depression.

Jay Watkins  11:15  
stock market crash. So So look, the good news is we have been around some of us long enough to see this movie before. And I'd offer just a couple observations. tactically and very specifically to follow on Chris's comment with or mean, talk about valuation early. Okay. As Paul said, you know, it's a conversation in the end about valuation. And so, sometimes I think the worst outcomes are garnered, when we don't we don't surface valuation as an issue. That said, this time that we're in, I think breaks into two pieces. One is Chris's job is really hard, okay? Because he's a strategic, okay. And, and let that word sink in for a moment, it means it means this, it means his outcomes are binary, he either gets that property, or he loses it. Okay. And the history of our industry is made up of the people who got it and the people who didn't get it. And I can say that, because I was a guidance when we to turn down PVT, in addition to the other three large caps you mentioned. And so as a herd of strategics, four out of five of us were wrong. Not wrong by the 10% valuation calculation, but we were like, big time wrong. Okay, we misjudged the strategic importance of something that turned out to be very meaningful. That binary situation doesn't exist in the realm of venture investing. venture investing is a totally different realm. I was in a event not too long ago with a bunch of investment bankers. And they said, Well, you should have a more realistic conversation in the boardroom, about valuation. And I was thinking, Well, okay, so we're doing plus or minus around numbers like 100, you want it to go to 30? Do you want to go to minus zero? I mean, where do you want it to go. And the real, the real problem, I think we have transactionally in the venture world, is we're not playing the game of the price elasticity of capital with respect to valuation. That is not the game that these periods of time like 2008 and 2009 have this picture this differently, picture it more like musical chairs, there's a certain amount of capital out there. And then there's a certain amount of places for it to go. Okay. And unfortunately, there are more chairs, or there are fewer chairs than there are players, okay. And at the end of the day, it's that mismatch that is driving the fact that everybody's here now, my sincere hope is that two years from now, we have a runaway backdrop, lower interest rates, open IPO market, and we won't have a valuation session. Because it'll, it'll be where it belongs, in my opinion. It's the fundamentals of these companies that drive value. And that's where we're going to end up living for a while. I think. That's

Scott Pantel  14:45  
great. Okay. Let's come back maybe to the beginning and remain you you've been through multiple rounds. And let's talk a little bit about how we, there's so there's a variety of ways to do evaluation. Is it art is it science, what did you You've learned through your experience. And if you're a CEO here at this event, demystify the process for us. Is it a complicated process? Does it have to be?

Ramin Mousavi  15:09  
I think it is a complex process. I think, in my opinion, it's an art that you need to back it by science. And I'll be very curious to get your guys's take, but at the end of the day, no matter and there are four fundamental models of doing valuation. You know, it's easy to understand which one it is. I'll be curious if you guys think that it's good for the person who's trying to raise money to know which model you're using. And you always use the same model or not. But what I do know is what Jay, you were touching on. And I think for you, and Paul and Andrew, specifically, were very interesting to get your take on. Having that conversation early on my experience is that requires a little bit of courage to go wrong with, you know, because you have to be comfortable if you're the management team, to either acknowledge that the value creation is not where you said he was going to be last round, because that's where the reality hits, or you actually believe, and you're willing to basically take that risk. It's not a easy conversation, but I totally relate to do it early rather than because the last thing that you want to do is that you know, and maybe you shine some light on this, because we've lived together on this one, to get to the end of a long process and be disconnected on value. Now you're actually wasting the time that you can recover from, well,

Chris Eso  16:30  
it goes back to this as a long road, right. And there's a relationship that you've established with either the strategic or the, or the startup, or, you know, the venture community and the board members. And, and building on that. And fostering that relationship over time, allows you to build that trust so that you can have those conversations, I think back to last year, when we sat up here and talked about the deal of anatomy, right? The Anatomy of a deal, right? It was a lot of conversations that I was having with Andrew of like, hey, let's How are you thinking about this? Can you help me solve my problem? Can I help you solve your problem? As we go through this, right, and we were bouncing ideas off left and right on how we can figure out a structure that works for the investment community works for the company and the employee base, but also works for us and what we're trying to solve. That wouldn't have happened if we didn't have trust between the two of us. Also, if we never had those conversations, that would have never happened. Yeah,

Andrew ElBardissi  17:35  
I totally agree. I don't know why you're shaking your head. Jay, you seem to disagree with something that's been said, I want to push back on this. So I'm going to shake my head at one of the comments you made, which is you should discuss valuation very early. That's a very difficult thing to do until you've actually done your work. So now, I think it's okay for management teams to say, hey, look, we're looking for a valuation between x and y.

Paul LaViolette  18:02  
Which, thank you very much. Yeah, thanks. Yeah,

Andrew ElBardissi  18:06  
yeah, no, we oh, well, thank you for that guidance, we'll do our work. And maybe we'll end up there. And by the way, as you do your work, and you track either within that range or lower than that range, then it opens up the door to say, We're never gonna get there. Right? This is a very similar to, you know, a lot of the discussions that Chris and I had around, you know, Cath works. You know, having that open transparency, but don't ever expect the investor to say I think the value is going to be, you know, 80 million, or 100 million or 120 million, because if you're having that discussion, at the intro management meeting, or even a week after you've been introduced to management, it's worth nothing. Because no one's no one's done the work to validate that number.

Paul LaViolette  18:47  
Andrew mentioned three or four times right there do the work. And I think the the underlying message there is, it's the assumptions about the business, what do we believe about the business? When do we think you're going to commercialize? How much money do we think it'll take to get there? When you launch? What will the uptake be? What is the size of the addressable market? Those are the things that really drive valuation. From there, you build a model from there, you can run it through different valuation models. Congratulations. Now you're now you're talking about finite differences, but to the point about trust and transparency, if the team is there saying, we're going to launch next year, and the investors are saying, There's no way that's going to happen, and then you say, Oh, we're gonna have 75 million of first year revenue, and everybody says, you know, that's never going to happen. Now, you're in such different area codes, that the valuation methodology is completely irrelevant. And then you say, Okay, well, what would make me narrow those gaps? I have to believe in the team. You have to have done your work. You have to have built a model you have to have every assumption thought through, there has to be an execution plan that investors or some strategic somebody in the outside world is going to believe. Now, if we're all in agreement on that, okay, great, now we're pretty close, we can figure out what's fair market conditions, cost of capital and things will vary. But to me, it's much more about those substantive issues doing the work and have the buyer and the seller of equity in agreement. Yeah, that's kind of the business we're trying to build. And that's, if you can build that and we think you can. Now we're getting close. Great. Now let's have the valuation discussion.

Jay Watkins  20:38  
Yeah, and I, you know, Andrew, you and I probably agree more than disagree on this. When I say talk early, I'm really talking about have a conversation about what drives value. Okay. The, the, the ability to go into that conversation, and we see this as investors, we see this all the time, right? Because when, when someone presents, you can, you can actually draw them into that conversation about how do you look at value? Which, which doesn't need to be well, what was your last round? And oh, I'm sorry, it was in 2021. It doesn't, it doesn't need to be that it can be how do you look at value in terms of what your driving assumptions are, and how you're going to create it? You know, price is a weird thing. Okay. And just, you know, taking it, you know, abstracting it from the circumstance, whether it's the strategic or, or a venture round, the way I've always thought about price is that it's, it's the point at which both parties are equally unhappy. But a deal gets done. Okay? And think about that. All right. So if if you, if you really embrace that notion, what it means is, there's there's a dialogue, you got to be in the dialogue. And so when I say lead with price, I don't mean sticker it, okay? I mean, start the conversation around price, because you need to navigate that dialogue. Because in the end, I'm, you know, if I want to buy low, and you're selling high, I'm gonna be unhappy here, and you're gonna be unhappy here. Okay. That's, that's the nature of the beast. So. So what you're trying to get to is that that crossing value at which both parties are going to be unhappy, but a deal actually got done. And that's a dialogue. And it's okay, if a deal doesn't get done. If it doesn't get done, it doesn't get done, because you couldn't reach that.

Chris Eso  22:49  
And Jay and I have been on, you know, over many years had a lot of conversations about shockwave before it went public, right? We couldn't see eye to eye from a valuation. I couldn't get there. Right. And I was wrong. I'm so I'm so happy you couldn't get there. And he's happy about it. So I'm upset that I didn't get there.

Jay Watkins  23:12  
You know, there's high and there's low, and then there's the price at which a deal actually gets done. Okay, so. So again, it's this is, there's not there doesn't need to be a lot of angst and mystery around this, this notion of value. These are crossing values. It's the currency around which we transact and we, we move things forward. Okay. So as entrepreneur and, and, and I was one, believe it or not, that was a long time ago. But

Chris Eso  23:42  
look, I under cycles ago, at least three

Jay Watkins  23:45  
cycles ago. But I understand that kind of deer in the headlights thing when it comes to valuation. But honestly, I would tell you both from a corporate Stanford as a venture guy, Hey, let's, let's at least start talking about how you're thinking about it, what you're anchoring it to, and what's driving it, because, honestly, a deal won't get done unless we can kind of find that place at which we're equally unhappy. I'd

Ramin Mousavi  24:13  
like to record to reflect that when we announced that Catholic still Andrew Curtis and I were all unhappy as a state. So we were not the happy place. But Paul, you said something that I think is very relevant, because and I think actually, you know, Scott, and I talked about this, you know, when you get CEOs presenting companies, there's some fundamentals that goes into, you know, how far you are in value creation. You mentioned, Tam, how much money does it take for you to get clearance? How much money does it take for you to commercialize, and then what does that ramp look like? And I think that sometimes is where the challenge starts. Because most of you guys have experienced this enough that when I come and say, you know, for $20 million, I'll give you $100 million next year, you know, By December, the polite people just smile and some people just walk away. How do we overcome that? Because I think that's part of the valuation problem, at least from my perspective, is knowing that what you're pitching is not passing the litmus test because the other party has experienced this enough that yes, there are some PVT, outliers. But most of the time, that's not the case. You know, most of the time, it doesn't pan out Ha, from a from a, I guess, maybe from a board member perspective, what's the best way for the management team in advance of getting to a place that is, you know, you're disconnected pitching this to the outside investors, you overcome that challenge?

Paul LaViolette  25:42  
Well, at least two things. One is the quality of the team. And then the second would be the details of the assumptions. If you have a team that's sitting there, that's with all due respect, let's say early stage technology oriented, saying we're going to take this to market and here's, here's, here's the revenue build, you'll look at that and say, you know, it's possible, but this group has never done that. So why would I believe, on the other hand, if that management team has hired a Chief Commercial Officer and three other people that have done five launches like this in a similar market, and have super high credibility, and that group has then taken the launch assumptions and built them out to refine detail, and has integrated assumptions from prior launches, and has a lot of experience in building teams, and say, You know what, now now, we have to make a judgment, the market supports it, the team is really good. It's an execution risk, am I willing to take the execution risk? All right, well, at least we've isolated the risk, and we know what we're betting on. So I think it can be overcome. And, and great teams can do that. But if you start with a team, that's kind of hoping wishing prayer, and has a valuation expectation based on a launch plan that is, is long odds, no one's gonna get there.

Andrew ElBardissi  27:04  
I want to use your framework for a second. So high quality team, great technology, the investors are very unhappy with the valuation that they ultimately invest in, and the team is very happy. Not well suited management team, great technology or mediocre technology, investors are thrilled with the valuation and the company and management teams aren't and like that is such an important variable. In terms of, of what drives valuation, not because you believe you can invest in a low valuation and a management team that doesn't have credibility, but because there is no credibility, it's going to require more work, there's going to be wider error bars put on what that business plan look like, and what capital consumption looks like over a period of time, which is supposed to obviously impact value creation. And so that is such a critical variable. And that, that you know, that that foundation gets built the first time you meet a management team. And it's very hard to shake once you've lost that credibility.

Jay Watkins  28:08  
Anyway, yeah, I, you know, just to a comment on the ruin your question about, well, what if we say 100 million next year? And we? And you can sort of you can sort of think about this as quick how many of the models we've both built and read and invested in were right? Not many, honestly, I'm not sure. I'm not sure I can think of one offhand. Okay. Our models are models, they're not what's going to happen. There have a mechanism by which we can talk about the assumptions. That's all they are. Okay, they're going to be wrong. Okay, so what matters? I believe what matters is really the question, is this worth it? Okay, because the model is going to be wrong. And actually, we're maybe not going to get to 100 million, we're gonna get to 20. Okay. But if we're firm and clear about why we're on that path, and why we've undertaken the journey, and the risks of all of those elements that have to go into success, if we know that that goal makes sense, and is by itself worth it, then you can have a lot of variation in the model. Okay. So I

Chris Eso  29:33  
was just going to ask on that framework, where does the market come into that assessment for the investors because obviously, strategic spends a lot of time thinking about the market and the market opportunity and the size? And then we look at the targets and the company and the technology and the management? Do you guys look at it from that lens as well?

Andrew ElBardissi  29:54  
Yeah, and honestly, I think from an investor's standpoint, you know, the activity we're seeing in the market is there's really two groups of companies, the haves and the have nots. And the haves are the ones that really have everything buttoned up, have a history of executing, and really have built up a tremendous amount of credibility, where there's a high degree of conviction that those teams will continue to execute in the future. They have no problem raising capital, even at a very difficult market, and then the have nots, you know, some of those boxes aren't checked. And it is really, really, really difficult. And, you know, I think maybe this is a little bit different than your see Chris, which is like, the technology is a part of it, but But honestly, if you don't have that credibility doesn't matter how amazing the technology is. Because ultimately, we're trying to invest in something that could create optionality. And that could be optionality as a standalone business, or that could be as something being acquired. And if you don't build that, on day one, you're you're cutting off optionality which restricts or caps your upside. Yeah,

Jay Watkins  31:02  
it's got to run. It's got to run.

Scott Pantel  31:06  
Chris, last night, I don't want to skirt the issue on the down rounds, if we're looking at a down round as the end of the world. And then as we bottomed out, so I'm curious everybody's perspective on this.

Chris Eso  31:14  
Yeah, I mean, part of the conversation last night, right is, in this type of environment, a down round isn't a dead round, right? It's a round. And sometimes you have to do that. Sometimes you have to recap, in order to get back on to that trajectory of value creation. So look at it in terms of all the things that we've talked about on your evolution and your journey of generating and creating value for your shareholders, for your investors and for a potential strategic to take on. And if that's the right thing to do in order to get to that next inflection point, then you should contemplate it. I don't know. I would love to hear others. Well, I

Paul LaViolette  31:54  
agree with that. Have we bottomed out, there are two answers to that one on an economic and cost to capital basis, maybe. But a lot of companies raise bridge capital and or lowered burn and kick that can down the road. And so you're not out of the cycle until the last company has completed its financing. And so there's still a lot of those difficult medicines to take that are out there that may not some of those may not flush to the system until 2025. You know, how long can your next your last round of capital last you and maybe by then terms will be better. And that's what a lot of investors tried to extend to the point where they thought the environment would improve. But we may have troughed overall. But whatever company you're in, you're still faced with that dilemma. Do I take the money now? Do I bite? The joy, accept that lower evaluation now? And just build for the future? Or do I push and delay and try to wait until there's some miraculous improvement in lifting of all boats? Such that I'll avoid a down round? Like that still may be a year or two out before that's flushed through the system?

Jay Watkins  33:12  
Yeah, down rounds, not a tool. In other words, you don't sit there and go, Oh, God, everything else is terrible. Let's just lower the price. Okay. I mean, that's, that's my point about elasticity. The capital, if it's not there at 100 million, it's also not there at 50 In all likelihood, okay. Because the capital just isn't there for what you're doing. Okay. So I would focus not on trying to find that point, that sort of crossing value with a down round. But focus, as I think we've been sort of consistently say, focused on the fundamental values of that property that we're talking about here, this thing that that has to have a price set, I'd focus at focus there, don't use the notion of down round as a tool. Now, true confessions, as a venture capitalist, we have marked some of our companies down that we think the world have, and we've marked them down by 10%, or 15%. Because investors, other investors in this environment, expect the optics of a down round. And so we're sort of doing this to ourselves, in a sense, but in this environment, why should I pay? And so we've done it almost for optics, if you will, even on our best properties. So and then there's the rare ones where we haven't had to do it at all.

Scott Pantel  34:44  
Outlook let's we put down about four minutes here. What's the what's the outlook for the next one to two years? We'll start with Remy.

Ramin Mousavi  34:52  
I know we last year we heard that this will be better in q1, I think, I guess there's still 10 days left. Maybe it Well, based on everything that we see, I mean, I haven't seen any, you know, public market movement, it's like 30 months since we've had a big medtech. And frankly, when I look at the list of the companies that are ready for that, there's actually a healthy list that is there. I think we just need one to break away. My hope is that, you know, we'll see something happen now before the end of the year, that will open up the door for next year. And I do think that there is a chicken and egg that when that happens, it will impact everything else. Because all those limited partners are sitting on the side waiting for capital liquidity.

Andrew ElBardissi  35:39  
Yeah, I think from my seat, it's may not feel like it. But I think the environment has improved significantly since last year. No one was looking to do new and no one being new investors. Were looking to do new investments last year, and people are now starting to really look and dig in. And I think that's only going to improve when the public markets open up for med tech, which hasn't really happened yet. And we had one but that was that wasn't exactly kind of the growth story that med tech is is, you know, historically been. But the banks feel like that window is gonna open and I think with kind of better market sentiment IPO window potentially open. Hopefully the first couple out of the gate are very successful, that's going to that's going to be a tremendous tailwind to what I think is already an improving environment. I

Paul LaViolette  36:31  
think it is improving. I think there are three elements. The first is capital flow, venture funding, we did a series a investment in in January, we're open for business. Obviously, we're investing in companies today that will exit you know, three or four or five years from now. So there's a little counter cyclicality there. I think the second is, frankly, when we underwrite deals, we don't think so much about IPO. It happens on occasion. We've never seen that really as a driving force in medtech. It's a valuation. tailwind, for sure. But it's not the principal reason we build companies we built for M&A. And we saw the X Onyx announcement. Of course, that's a late stage deal. But I do think the strategic performance is really strong. There's a lot of big companies growing eight, nine 10% valuations are healthier. They want to continue to drive that with multiple enhancement. And they've got a lot of cash, because underlying med tech, cash flow has been very strong. So I think early stage or venture is is going to recover kind of first is happening now. I think what I'm looking for is really med tech M&A second, and then IPO third, I do think IPO will improve. I'm not holding my breath for it. I think it'll take a while. And then and even then it's fragile, right? You get one you get two, is it a class? Or will those perform well? Is the water really safe to open the window fully? I think that's going to that's going to be a longer time.

Chris Eso  38:06  
So I guess, being the only strategic here, I gotta have the different view. So I do think it's going to be better than last year for sure. Right. I do see positive trends. But I also see a couple of headwinds, right, you got the election, you got interest rates, you got inflation. So there's all those things that strategics are worried about and thinking about. We're coming out of a period of time of supply constraints, and so that's positive. But on the other side, you got, you know, labor costs are increasing, and all those other things. So do I think it's going to be as good as you know, 2021 2022? No, do I think it's going to be better than 23? Absolutely. I think it will be positive, and it'd be a positive trend. I do think, you know, the IPO window opening up, if it does in the second half here will be a very positive tailwind. I'm just not sure it's going to happen. And that, you know, waiting to see that that play out.

Jay Watkins  39:08  
And I completely agree with Paul's comment that it'll be led by M&A In all likelihood, not IPOs. You You've got a lot of these companies that are maturing, and you've got a lot of cash. If you're a strategic, so you're going to have to wait for for, for for growth, right. And so some of these stories are getting are getting more mature as they're off the market. So I think we're, we're gonna see that. I would also echo Andrew, your comment, we're seeing a more positive mindset from LPs and from our, our large source of our capital is family office capital at Saunder. And you're just seeing people a little more positive I think And people feel like it's the turn Roman, even if you can't mark it in the q1, you we can feel it on the venture side from our investors. And so I think that bodes well for the ecosystem.

Scott Pantel  40:15  
That's great. I think the conversation will carry carry over into the rest of the event. We have a lot of first time founders here. Rami, and you've come a long way. And not only are you running a company, but I know you're also very actively involved with early stage companies, notably through Cleveland Clinic, any parting advice for those that are ambitious to be in five years, the next Kath work setting up here cracking codes on things, any parting advice for a first time or any founders?

Ramin Mousavi  40:43  
First, Chris, congrats on the big job. Before we get off there. Thank you for being with us on the first PC. So first, I, you know, he's gonna say is it the there's no eight ball that you can predict? You know, there's a lot of things that you don't know, perseverance is what it's going to take and being willing to listen to the things that didn't work for others, you know, we all have a habit of thinking that we will do it differently. If we did it, and it's true, not true, you know, we actually make the same mistake. So my only suggestion is that just you know, being open to get the feedback and, you know, continue to improve the work. I do put a big, big, big egg in the basket of what everybody said about the team that you put around it, because if there's one thing that I think we did write a cat works is we had the right team, and we not only would have not been able to do what we did.

Scott Pantel  41:34  
All right, well, thank you, panelists. Another great session, I'm sure again, it's going to carry over. Thanks, everybody for joining us. Have a great day.


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