Medtech Growth Capital: What is the New Normal in Late-Stage Financing? | LSI USA ‘24

Carly Roddy  0:05  
Welcome, everybody. And thank you for that kind introduction. My name is Carly    Roddy. I'm a managing director in JP Morgan's private capital markets group. And I work with companies raising late stage growth rounds, particularly in healthcare in the medical technology space. I'm going to have the panelists here introduce themselves, and then we'll jump into questions. And if there is time at the end, we'd love to let the audience ask some questions. But let's see how we how much we get there.

Susan Stimson  0:36  
All right, thanks, Carly Susan    Stimson. And I've been in medical device business for almost 30 years, but mostly as an operator. So the the role and venture is newer to me, I'm with Casey Kay med tech. And for those who don't know us, it is an evergreen fund, who it's a single family fund, we tend to invest in commercial stage companies. But we will invest with some human clinical data in areas of which we know. And then the only other thing I'll say about us is that we are all operators. So everyone on the team has been maybe not necessarily in your specific role, but has a lot of expertise in building and running companies.

Alexander Schmitz  1:24  
And I'm Alex Schmitz. I'm a partner at Endeavor vision, where I lead our med tech investing practice. I'm based in Switzerland, but we have presence here in the US in Minneapolis and California. We're a growth stage investor. So mostly early revenue stage companies to help scale up and accelerate commercialization, driving toward either m&a or IPO. Most of the companies we back are going after large opportunities that could credibly support a public pathway, although many of them end up getting acquired along the way.

Anthony Williams  2:01  
Thanks. Hey, I'm Anthony Williams, partner HealthQuest Capital like Susan, I was an operator before I jumped over to the investing side about four and a half years ago. Healthquest is a like, it's fine. Is it purely growth equity funds, we invest in commercial stage, companies across the spectrum of health care, but primarily diagnostics, devices, healthcare 18 services. We've been around about a decade, we've got about $2 billion under management. And you do tend to like Alex, again, focus on the companies that are going after large opportunities in differentiated spaces.

Kyle Dempsey  2:45  
So I'm Kyle, I'm a physician by training. After finishing training, joined MVM. We've got offices both in Boston, as well as London. And like the prior two panelists, we focus exclusively on commercial stage businesses. We're writing checks in the 20 to $70 million range from the fund.

Carly Roddy  3:07  
Great, thank you so much. So, Alex, I'm going to start with you. And maybe from your perspective and the growth equity landscape. Would love to understand how you see the medtech landscape and sentiment in 2024. Obviously, procedures are back, give us a bit of a recap of 23. And what you see as the outlook for 2024.

Alexander Schmitz  3:33  
Yeah, no, happy to Carly. So look, it's been it's been a bumpy couple of years. 22, by any metric you look at was was a disaster, right? We were riding high out of the pandemic, and everything came to a screeching halt when interest rates went up. And that impacted a lot of the numbers. I think the encouraging news from from where we sit is that there were a lot of positive signs throughout 23. And I think a lot of reasons to be optimistic, as we, you know, work our way here through 24. From a macro perspective, you know, central banks and governments have been working to recover from the post pandemic hangover. And I think that's largely been effective. It has come at the cost of higher interest rates, and Doug talked about that on the previous panel, but we did seem to pull off a soft landing, which nobody thought we could do. Unemployment is at record lows, stock markets are back up to all time highs. And the IPO market not yet for med tech, but certainly for biotech and for Tech has reopened. So there's, I think, a lot to be encouraged by when you look more specifically at med tech. Last year, was actually a pretty good year, there was an 81% uptick in the volume of med tech m&a deals, and there was a 60% increase in the value of those deals versus 22. When you strip out the 10 billion plus mega deals. There were about eight Eat commercial stage m&a transactions that had a median value upfront of 400,000,003 of those deals were north of a billion upfront. So a lot of positive signs, despite, you know, a backdrop of continued challenges, I think we're things remained more challenging, which is relevant for this group was on the private company financing side where numbers were off about 20% on a volume basis versus 22. Less in med tech than in other sectors. So I think that's encouraging that we've we maybe don't have the highs of biotech, but we also don't have the lows about tech where Steady as she goes in the device world. But but the numbers, I think, are starting to pick up, Drew mentioned in the intro that there were a number of large private financings that completed late last year, there are a number of others that weren't mentioned, but but there's a lot of activity. I think what we did see throughout 23, though, was that more than half of the deals that got done on the private side were insider led rounds. And I think that reflects the fact that there were some valuation marks that were set during the sort of pandemic period that may be difficult to sustain. And we're still working through that. But I think looking forward, and most of those stats, by the way, gotta give credit to John Norris and his team at HSBC, who track our space. And if you guys don't follow his report, very much recommended, because there's a lot of really useful data on what's happening in our space in that report. But when you look forward to 24, I think there's reason to be optimistic on the IPO front, whether we'll see device IPOs this year, or whether that will slip into next year, I think it's hard to call right now. But the pipeline of high quality IPO candidates continues to continues to build and grow. Companies that have had to defer IPOs have continued to develop a new companies have kind of slid into the queue. So I think that's very encouraging. I think the strategics are sitting on a ton of dry powder, and need to find, you know, sources of growth. So I think that by and large, we should see a continued uptick there. And I think the private financing side of things should start to loosen up this year, as some of the hangover is worked through. So I think a lot of reasons to be optimistic looking forward and an exciting time to be building and investing in device companies. Great.

Carly Roddy  7:19  
Thank you, Anthony. You know, as we think about milestones, and potential, you know, exit for some of the later stage companies, private companies, what are some of the key milestones that, you know, from your seat, you know, companies should be looking to achieve before a successful exit? By The Numbers, I think we've seen only 12% of companies exit before commercialization. What else do you think's important for, for people to evaluate ahead of, you know, a potential successful exit?

Anthony Williams  7:51  
Yeah, what a, what a great question, especially for their conference like this one. The reality is, I think the panelists could spend the next 32 minutes talking about this question alone. I'll take a stab at it, you know, when I think about what may be most critical, and I have my panelists, so weigh in, after I'm done rambling on, I think there's, you got to think about maybe four or five things right that companies at the growth stage, let's assume that we're commercial stage. So we're in the 88% of those that exited after commercializing. And so, you know, as I think about it, you're the first thing you maybe feel a little bit obvious, but you know, really important to have a differentiated product and a large market, or at least a large addressable market, even, it's not being served today. And so, you know, and you think about differentiation in a lot, lots of different forms of that, of course, you know, better patient outcomes. It's, you know, it's amazing, right? Well, we can do that through med tech or otherwise. But there are other ways to get there, right, I think about differentiation in terms of better patient outcomes, better economics in the healthcare system. And so even if it's, you know, same patient outcomes, but you make the procedure shorter, or make it less expensive, or make it more consistent, you eliminate the outlier cases, then, you know, I think that's really helpful for a strategics think about how in their bag your solution is going to perform. You're moving beyond that one, you know, I think Product Market Fit demonstrating product market fit is really important and you know, not nothing against or pilots and is to early adopters in the like, but the reality the reality is, you know, being able to demonstrate high customer retention, low churn you know, is really, really important to a buyer dabblers and and the like are, are just not super helpful again, as they think about extrapolating from where you are to where there presumably much larger sales force will be with your product. Third Eye Say, consistent, and ideally diversified growth. You know, when you even though mathematically may not make sense. But intuitively, you know, a business that grows for a couple of years in a row at 50% year on year growth is just going to be more attractive than one that grew 100% One year and 20% the next. Even though on the top line basis, that ladder company is going to have more revenue, right? Again, they're trying to extrapolate and believe that that can continue, even though at some point, larger numbers will catch up with them. And then diversification there, you know, if all your revenue is coming from one customer, it's going to be hard for that strategic to be really excited about the opportunity to sell large volumes of your device to a lot of customers. How many is that three, four, this one largely, not largely, but occasionally gets missed and is really important. And that's reimbursement market access. You're not always required, maybe that your device, you know, fits in the DRG. And it's, you know, well covered or your existing codes and pathway. But a lot of times not. And, you know, buyers aren't going to want to take all of that on and they're not going to want to take on the prior off knife fight that comes with a lack of coverage. And that doesn't mean that you need to have national coverage, all your payers are paying for it. But you know, coding in some pay or adoption is showing this, you know, being paid and getting good outcomes and maybe more importantly, anything else, that you have the data that you need. To turn on those additional payers, you really need to you know, if you need to add boards or something like that, to just understand what those payers are gonna need to see, in order to reimburse for your product, you're going to need to have that before you sell at least if you want to get a premium price for your asset. And then last, but certainly not least, is path profitability. You know, most med tech companies yet time they're sold or not profitable. That's not a surprise, super expensive to run med tech company. But you know, before the pandemic, the rule from probably every strategic I talked to was deals gotta be, especially if they're publicly traded, deals got to be EPS accretive within 12 months. Now 2021 rolled around, and that get, like, very sloppy on that roll right is 24 months, maybe it's 30 months, I don't know, as long as it's adding revenue, well, 12 months back. And so, you know, the, you need to have a business that can be profitable at a certain scale inside the hands of the buyer. And again, generally 12 months, and you know, where that gets maybe most important, what drives up most actually gross margin, right? Because they're gonna, you can, you know, in private hands, or, you know, in your company's hands, you can come to starve clean rag or other, but the buyers not going to do that. And so they're up x can be what their op x is. And so you have to think about manufacturability, right, you know, the materials use where you manufacture it, you really, you know, does it need all the features you built into it? Maybe the answer is yes. But you have to think about those gross margins, because it probably needs to be in the 70% range in their hands at scale. So, again, I probably could keep rambling on but I'll stop there and invite others to, to weigh in at anything they'd like to add.

Alexander Schmitz  13:33  
I just emphasize your comment on on the path to reimbursement. I mean, that's just, it flows into so many considerations in the eyes of the strategics. That I think whatever stage your your your company's at understanding realistically, and I emphasize realistically, because sometimes we, we hear well, we can draft under some existing code that was never really intended for this product, but there's payment for it. And that's our reimbursement strategy. And it's like, okay, but that's, that's only gonna get you so far, to be attractive to an acquirer, or to be viable as a standalone company, you've really got to have a sustainable reimbursement pathway that's specific to your to your product. And if you're not there, given the stage you're at, you should just be very clear on what you need to do to get there, then almost start with that reimbursement goal in mind and work backwards. Because if you figure out how to get paid for your product in the US, if you've got a business and if you don't, you probably will struggle because it's just unfortunately, so critical in terms of how technology gets adopted and therefore in terms of what buyers are looking for that that I don't think you can ever start thinking about that too soon. And reverse engineering toward that end state of on market. I've got great data and I can get paid for it or physicians. didn't get paid for it when when they use the device or, or the service. Yeah,

Susan Stimson  15:04  
what kind of I can add on the reimbursement frontier, and we probably will hear it a lot in this conference. And I agree, it's, it's never too early to start thinking about it. But I think when a lot of it, when we see companies come in a lot of them think about coding, only, here's how we're gonna get a code, here's how we're gonna get a code. When you really need to think about coverage, and especially if you're in a market that is predominantly commercial payers versus Medicare, but even in Medicare, what you need to do to get coverage may or may not be in line with your initial clinical study. But there may be aspects of your clinical study that you can add in, for example, in a sec, d and t, we did, or we added to our inclusion criteria, failed medical management, now wasn't a big deal. We were in surgery, every physician was like, of course, they failed manage medical management, we're doing surgery. But it was really important because in the payer policies to cover that surgery, which we are going to be in are going to be replacing their criteria to pay for it was failed medical management. So it was really important to just add that one little inclusion criteria into our study. Does that mean they're automatically going to cover it? No. But just little, little things like that, that you can add in are can be really important.

Carly Roddy  16:34  
Great, very helpful perspectives. So we talked a little bit of positioning, potentially for successful exit, just want to touch on another route, which is, you know, the potential, you know, IPO market. And it probably won't surprise anyone to hear that we haven't had a med tech IPO since 2021. But do you see and we've, you know, sort of seen the comeback of the biotech market. Do you see the reopening of biotech IPOs as a leading indicator for med tech? And maybe, you know, Susan, what are some of the things that you're advising some of your port COEs to be prepared for? Or what would it take to even think about the path to IPO for some of your port goes?

Susan Stimson  17:15  
Well, I heard I certainly hope it's a leading indicator. I know we've seen it in the past. It's not always the case. Sometimes it's different investor bases, different analysts. I think what's encouraging is been some of the statements by the large med tech companies. I know your colleague, Robbie Marcus, interviewed Kevin Lobo, CEO of Stryker recently, and he was very bullish on patient demand for procedures and even saying that it's stronger, the demand is stronger than going into the pandemic. And then it's not just, you know, built up demand, it's truly a higher level of demand. And so I think statements like that can help as well and and hear your investor base hearing. The larger companies give confidence to it. What do we advise companies to do? I think some of it's what we would advise normally of that early in your commercial launch, you need to know all about predict, you want it to be predictable. And if you want to IPO you need to set a number that's predictable. And so in any case, you know, and if you've got less funds and less money, just go to a few handful of markets and prove your model. What's the right physician target? What's the right sales rep profile? How long does it take to get on the shelf? When you're on the shelf? How long does it take to get reorder? What's the normal? You know, what can you expect from adoption level? What can you expect from, you know, how soon do your reps pay for themselves, you ideally want enough data. And again, it doesn't have to be the whole country can be concentrated, but you want to make it a math problem. So you can tell the story that if I pour more fuel on this fire and add more sales territories, this is exactly what's going to happen. So I think, you know, regardless, but you might just do it differently if there's less capital, and you've got to prolong your time till you have the IPO window open.

Kyle Dempsey  19:17  
I guess just to just add another piece to this, putting my public market investor cap on. You know, I think most public market investors want to see scale. So typically, you know, the 30 to $50 million range is when you can start to think about a med tech IPO. They want to see a large addressable market. And the reason for that is that they want to believe that despite your current scale, there's still opportunity for you to continue to grow. If you raise capital three, they want to see a clear path to profitability. Because public market investors are always thinking about future dilution. And so if that path to profitability isn't clear, it will make them very nervous that in the future, you'll continue to raise capital and that will Add dilution and push the stock price down. And, you know, I think those are some of the other key components that people will be looking for.

Carly Roddy  20:09  
And kind of right back at you for companies that, you know, stay private longer. And I see this a lot around the balance of thinking through the different financing options, equity, convertible debt financing. What advice are you giving to your portfolio companies about a framework for how to evaluate what type of private financing could be the right path?

Kyle Dempsey  20:36  
Yeah, so these discussions are always somewhat subjective, and there's never a perfect answer to them. But I think there are a few things to always keep in mind. One is the amount of capital that's needed to is the presence or absence of upcoming catalysts that might significantly inflect value in three is the relative cost of capital across those options. So those are the general principles you should keep in mind to make it a bit more practical. Maybe starting with debt, because a lot of people will go to that first, because it is oftentimes the lowest cost of capital, I do think there are a couple of principles that everyone needs to keep in mind in relation to debt. So depending on your cash needs, debt may or may not be an option. For revenue stage med tech companies, the debt providers typically use the following rule, they say that if you have more debt than your trailing 12 month revenue, then you likely have too much debt. So if your debt already exceeds your trailing 12 month revenue, that path of raising future debt is unlikely to be open. And if it is, it will come at very harsh terms. So that's one thing to keep in mind. Another thing to keep in mind is that most debt providers will want to see 12 months of operating cash on your balance sheet at the time that they put a new debt facility in place. So as you think about the cost of capital of the debt facility, it's not just the negotiation of what the interest rate will look like on the debt or other terms that that debt comes with. You also need to think about the cost of capital related to that cash that you have to raise to put on the balance sheet which will come either as equity or a convertible note. And so when you think about debt, it's important to keep all those pieces in mind because they all weigh in on the total cost of that capital. The other two paths, whether it be a convertible note, or equity, I think that optimal path really just comes down to one simple question. And it's do you really have a truly important catalyst on the horizon that will meaningfully inflect value? If you do, it may well make sense to use convertible notes, because those notes will ultimately convert with a discount. But if those notes get you through that truly value, inflecting catalyst, then the valuation you raise out in the future will be so high, it will offset any discount that those notes received. If on the other hand, you don't have a real clear catalyst that's going to inflict value. And you're simply using convertible notes to avoid a market price equity deal. I think that that is essentially a path to Nowhere you're bridging to nowhere in that scenario. And my observation is a lot of companies have pursued that path over the last couple of years. And unfortunately, it's resulted in pretty painful resets on their valuation and on other terms. So I think convertible notes make a lot of sense. If you truly have something like a regulatory approval, a really important clinical study, perhaps a new commercial partnership, you're going to announce something like that that's on the horizon. But in the absence of it, I think it's better just to go with go with equity.

Carly Roddy  23:53  
Great. Anthony, I want to talk a little about investment committees and ICS and maybe how they've evolved over the past couple of years. Obviously, the pace of deal velocity has slowed down dramatically. So maybe ICs are getting quite as inundated. But what how would you sort of advise some of the folks in the audience to best position themselves for ICS in today's more capital constrained environment?

Anthony Williams  24:19  
Yeah, you know, so maybe let's live in the in the bucket. That is not the insider rounds I was talking about last year, just because you're keeping your portfolio afloat just has a different bar right then than a new in vestment. Some may start with a proposition that generally speaking, investors have gotten a little more conservative within class right so your venture guys progress guys, you know, they've shifted a little bit later, which is not surprising cost capital goes up and you know, little macro environment uncertainty. Everybody looks to go risk off right and we this is high risk in the So times, right and so it's, so we're seeing everything shift a little bit later. And so it means the a little more scale, a little more proof points a little more, whatever. And I would say, you know, probably another thing that you've become, at least for us curious of others is true of others is we've maybe refocused a little bit on efficient capital deployment. And so, you know, again, these businesses we invest in are generally not profitable. And so, you know, finding you having businesses that are designed to extend runway to that meaningful, you know, value inflection point, is really important. You know, the days of raising capital, and then, you know, nine months or 12 months later, thinking you're gonna do another big round, those days just aren't where we are right now. And so, you know, having a long enough runway with the round that you've raised, to really change the outcome in terms of the value of the business. And then maybe inversely, because we don't know what the future holds. Having a business because again, we're thinking in terms of commercial stage right? Here, having a business that if times get tough, that you can retrench you right size the business and either extend runway or ideally get to cash flow, breakeven, even if the growth goes away or allergic goes away, as a result, really provide some optionality. If if we didn't avoid that soft landing, and we've just kicked it down the down the road a little bit? So I think that that. Yeah, I mean, you know, certainly, things continue, but maybe the ones or maybe two more things, again, is some, you know, curious of others, is this true, we are far more focused on the exit pathway, you know, we are not in the building, and they will come sort of hypothesis. And so, we're going to talk to buyers, when we're doing due diligence on the front end, you know, who the likely buyers are. And we probably need to hear somebody say you got the right scale, I really need to own that strategically. And so that's really important. And then maybe last but not least, up and down the diligence checklist. Confidence requirements are just higher, right, the bar is higher. And as a net result, it's just taking longer, right deals to get done, new deals get done, they're getting done, but they're taking a lot longer.

Carly Roddy  27:43  
Anyway, anyone want to add any special tips from their ICs? How to get through anything else? Okay. So maybe there's an alternative, sort of pulling on that thread around what Anthony mentioned around sort of underwriting that exit to a strategic sale? Could you talk about maybe two things, what sort of typical returns look like what you're trying to underwrite towards, and then maybe sort of attach that to, you know, valuation and how there's been an evolution around private valuations in today's market. And, again, what you're underwriting to, in terms of return and exit profile?

Susan Stimson  28:27  
Yeah, because we're a little different as a as an evergreen funds, which means essentially, we don't have some of the same time pressures, you know, we don't need our return in a specific period of time, we would like to, you know, win, turn it down. But we we like to continue to fund businesses to increase in value, and we'll stay in that business, you know, through a crossover and even through into the public markets. What we also look for, though, is companies that are, that are truly can grow and be a self sustaining company. We're not looking for, to invest in a product that's going to be in, you know, really designed for a large strategics bag. There's a lot of great success in that strategy. That's not where we are. So we actually, it hasn't changed much, because we're always looking towards, you know, either privately or publicly, but business that's self sustaining. I think one question I don't even have for the panel, too, is, you know, now you hear especially Oh, if the if and when the IPO window does open, you know, the company really has to be on track for profitability. And that used to be something that was said, but you didn't necessarily need to do it. And I think, you know, where I struggle with some of these companies is if you really want to prioritize getting to profitability, a lot of times, that means cutting off your pipeline. And I think for a lot of these companies, if you go public, you know, you're going to grow at the rates Anthony was mentioning, you know, that's great. But if you don't have a pipeline, it's hard to keep doing that. So I think I struggle a lot with, you know, the sentiment of you must get to profitability, because I think you could end up being a public company with no pipeline. And and, you know, just taking a nosedive, I don't have the right answer for it. But maybe you all can speak to that, too.

Alexander Schmitz  30:37  
I don't, I don't think I've got an answer to it. But I think I think Kyle hinted at it, which is it, it comes down to expectations around future dilution. So how much additional cash you're going to need to get to profitability. And I think as long as that is a reasonable amount, in a reasonable timeframe, I think you can sell the story even without being, you know, profitable in the next 12 months. I personally, even though there's a lot of TierPoint talk about it, I don't, I don't think we're gonna see a lot of med tech companies that go public, with projections that show them turning breakeven within 12 months of their IPO, I, maybe. But I think that would be a pretty high bar to climb. But in the past, I think it was a little bit more No, someday. And we have no idea when or how much cash it's going to take. And and I think again, it just goes back to cost of capital, when money's free, you can wait forever, money is no longer free. And so you got to sort of have a sense of how much you need and what the time horizon is. But I do think that, you know that that's possible. But but it has gotten harder. I mean, no, no, no, no doubt about it, it's going to be a much narrower window to sort of navigate through in terms of having enough top line growth, that it's exciting. And yet having enough visibility and confidence towards breakeven that it's bankable

Kyle Dempsey  32:05  
in, you know, I think a lot of CEOs, hopefully, there are some in the room, it's important to be introspective on this. So if you are, you know, clear eyed view of your business is that it won't be a billion dollar business someday, that that actually may be perfectly fine. Maybe it's going to be $100 million $200 million niche business. If you still have ambitions to do an IPO someday, or to go public, or at least to keep that option open with a business that's more in that sort of addressable market, it just becomes very important to think about a strategy to bridge to a larger addressable market. And the one thing that hasn't been mentioned would be inorganic opportunity. So if you find other products in your space that could leverage your same sales force, that could be another way to supplement that story such that you can make it more exciting to a public to public market investors.

Carly Roddy  33:03  
Great, Kyle, maybe just thinking about strategics from a minority investment perspective, you know, how should companies think about that path? There's obviously a lot of, you know, companies and cap tables with a sort of a foothold stake. Is that an important thing that companies should think about sort of developing those relationships? Or is it sort of a nice a nice to have? And what's what is some advice that you'd give to companies who are thinking about taking capital from strategics?

Kyle Dempsey  33:35  
Yeah, my advice would be to tread very cautiously, very, very cautiously. And so I think there are three things in particular, you have to be cautious about when considering a strategic investment. The first is information rights. Second is right of first refusal. And the third is the sentiment that it's going to add to future potential equity investments. And so just to pick that apart a little bit, so on the information right side, that terminology kind of plays out in a number of different ways. As it relates to a strategic, sometimes it means that they want an observer seat on your board, sometimes it means they want a board member. And sometimes it means that they just want access to your board decks and to other materials, that provide them insight into the nature of your business, insight into the nature of what you're investing in the sales strategy you're using, etc. Now, a lot of that may sound benign on the surface, because, you know, institutional investors that have, you know, no underlying strategic interests might might not use that in a in a negative way or a way that might harm the company. But you always have to keep in mind that strategics May, at some point, decide that they want to go into the same market you're in and they may in fact, want to design a product that competes directly with yours. And if you've given them information rights, they're going to know your customer bases, they're going to know where you're investing, they're gonna know your product development plans. So that can be a really big competitive threat over the long term. And so you have to be really thoughtful about those information rights. The second is writer first refusal, that's often requested, it seems benign on the surface, because, you know, if they decide not to purchase, the company doesn't seem like a big deal. But the issue is that it will ultimately cause other strategics to stay away from the company. So just imagine your BD person at a different strategic and you look at your business, you seem somewhat excited about on the surface. Now, you've got to go back to your home base and advocate to deploy both your team members, as well as you know, $100,000 worth of diligence fees, you go through that whole process. And once a work, you put in your offer, and at the end of it, the entity with the right of first refusal just says oh, yeah, that seems like a great deal, I'm going to buy it, that is going to deter a lot of strategics from taking a serious look at your business. And so those can be quite dangerous in terms of, you know, the the repercussions that they have on future strategic interest. The third thing about investor sentiment is that if you are a new equity investor, like any of us sitting on this stage, and you see that there's a major strategic on the cap table, you're always going to ask yourself the question, what does that strategic know that? I don't know? And why are they not buying this business? So if this is truly a strategically interesting business, and there's already someone that's a strategic on the cap table, that probably knows a lot more information than we will as external investors looking in? What did they know that we don't know? That question really gnaws at investors. And I think it can make it challenging one to get interest from them. But to if they do, if you do get interest, it's going to create an even higher diligence hurdle. And it's likely to result in terms that may not be as favorable. Because if you know that strategic knows a lot about the business and has decided not to buy it, it also means that there's one less strategic out there to buy the company when the when the time comes, which means that your exit valuation will likely be lower.

Anthony Williams  37:07  
Maybe extrapolating from that on that last point, you know, so even if you work out the information rights, there's no right to first refusal, maybe there's right at first negotiation or something like that. You do also have to keep in mind, well, what if they don't buy you? Right? And then their competitor comes in? You've engaged with them, maybe you've got a banker? and think, Well, wait a minute, is sort of the same question. You said in terms of what investors ask, Well, what do they know that? I don't know? Yeah, maybe this one's not for me, right? Because if they're not buying it, and they know a lot more about the company than I do. So, you know, the reality is, you know, job one is keep the lights on, right, and you gotta raise money from where you can get the money, especially market like this one, but you do have to keep these things in mind. And I

Alexander Schmitz  37:53  
think just just building on that. So the best option is, at least to Yeah, zero or zero. Yeah. Because that that can help neutralize some of the, you know, information, asymmetries and signaling issues that Kyle alluded to, right. And if it's, if it's truly strategic, there should be at least, you know, to either balance sheet or corporate venture arms that are interested in investing in if there aren't, then then that may also tell you something about the potential buyer universe. So I think that's probably the best. And it also, I think, helps then minimize the information rights. And you're not going to give every strategic and observer a board seat, but it's hard and to Anthony's point, you got to you got to keep the lights on. And sometimes you in that process, make trade offs that have certain advantages and certain disadvantages, but I think it's good to go in and kind of clear eyed about some of the downsides. And I think Kyle did a nice job in terms of the seemingly innocuous requests that that have some embedded challenges. And we've it's not theoretical, I think we've probably all had experiences I know of one at least in in our case, where strategic did create a competitive product, you know, while still showing up to board meetings. So it's, it's a tricky dynamic to manage.

Carly Roddy  39:15  
Great, final question, I'm gonna go down the line here. Maybe you could just share some of the key KPIs that your ICS evaluate. That's important when you sort of think about whether to make a new investment and doesn't have to be all in all, you know, all encompassing, but maybe just share a couple with the audience that are important to your committees.

Susan Stimson  39:38  
I'd say anything related to traction, reorder rate, utilization, repeat business. There's many, I'd say the bigger red flag is if they're not tracking a lot of data period. So collect data, but yeah, really, really drive it towards you know what's going to demonstrate traction.

Alexander Schmitz  39:59  
What's isn't it? Yeah, it's really important. And it's never too soon to start thinking about what those metrics are, and how you're going to track them over time. And in the early days, you have small numbers and limited data and limited resources. So it's easy to sort of defer it, but but baking that into your commercial infrastructure, and then tracking progress over time, will help you make better decisions as a management team. But it will also help attract investors and eventually acquires because you can explain why your business is growing and how it's growing, not just hey, it's up or it's down.

Anthony Williams  40:37  
So I'm going to pile on there. I unequivocally agree with that same store sales, right? How are accounts growing new users and existing accounts are, to me more interesting than one user and a new account, although both are great, don't get me wrong. But you know, really shows that you've got something there because some clinician in an office or in a hospital, told his or her friend or colleague that you've got to start using this.

Kyle Dempsey  41:04  
Yeah, the only thing I agree with all that the only thing I would add would be looking very specifically at churn rate, it's a great way to very quickly figure out where to shine your your magnifying glass. If churn rate seems quite high, then the first question you ask is like, Okay, why are so many of these users stop? Why are they stopped using the product? In which case you phone them up? And that's how you get to the bottom of like, okay, what really are the core strategic challenges of the company? And is that something that we can help solve with our capital and with some of our expertise?

Carly Roddy  41:38  
Great. Well, I think we're between this panel and drinks are networking. So thank you everyone for joining and appreciate the time. Thank you.