Scott Pantel 0:07
Thank you, Henry. And good morning to everybody. It's a pleasure to be here. And I just want to welcome everybody we had a for those that can make it last night, we had a beautiful sunset, really special evening, and got this thing kicked off properly. And this morning, I'm honored to be up here with three esteemed panelists from our industry, many of you know them, I'm going to give him a chance to introduce themselves briefly. But our aim here with this panel is really just to set the stage for the course what we plan to cover over the course of the next three days, we have 200, plus CEOs of early stage companies that are all out there growing companies, seeking financing and trying to change the world, we have a very good turnout from the investment community, I hope you do some deals. And we have really good representation from the strategic community as well. So we really have all the pieces here today. And through this panel, we have perspectives from folks that have been on multiple sides of the table. We have Leslie here, running a company that's having a tremendous amount of success. And we chatted prior to this session. And we you know, we said we have multiple people here, who do we really want to focus on. And I'll admit it to you that my heart is with all of you, but it's really, really truly with the entrepreneur. So our discussion here today, hopefully shed some light on what's happening in the industry. And we want to guide everybody here. And again, welcome you for being here. So let's, uh, let's start with Jay. And we'll come back down maybe quick bios, and we'll jump into it. Yeah,
Jay Watkins 1:36
I thank you, Scott. And thank you to LSI for bringing this community together. It's been heartening, encouraging, to be able to look out over the reception last night and see the community together, which perhaps we may have taken for granted is a fantastic thing. So I'm very appreciative of that and the opportunity to be with all of you. My background, I have been on pretty much all sides of the table began in the industry as an entrepreneur founded a company that was bought by Eli Lilly. We became part of Guidant when it spun out. I thought I would stay there three weeks, I stayed there about 10 years at Guidant. subsequently went into the investment side. Today I'm with a a new venture firm called Sonder capital, where a small group of partners are trying to do very, very early stage work.
Leslie Trigg 2:46
Great, thanks, Scott. I'm Leslie Trigg. I'm the CEO of Outset Medical, I started my career at Guidant. I always aspired to meet Jay and it finally happened today. After Guidant, I did a succession of startups, mostly in the cardiology space, with a little dabble into breast cancer diagnostics, but got involved with Outset, which was originally known as Home Dialysis Plus, in 2012, as an executive in residence for Warburg Pincus, they made a very early stage small for them just 40 million series A investment for a pile of components on the table. And I remember saying to the former previous CEO, you know, what, what is that he's like, Oh, that's a dialysis machine for home. I'm like, Cool. We have a lot of work to do here. But that was 2012. And fast forward. We've made you know, a lot of progress since then. So I've been CEO since 2014.
Paul LaViolette 3:38
And thank you as well, Scott, I'm Paul LaViolette managing partner with SV Health Investors. I've been in the med tech space, since 1980 29 years as an operator now. 13 years as an investor, I didn't have a direct connection was Guidant until actually we bought it. That bill. So that was, I guess we're all in the same bucket eventually. So just delighted to be here with all of you.
Scott Pantel 4:06
All right, great. We're gonna we're gonna tee this up with Paul. Paul, you and I chatted about a year ago, you were virtual. We were there. We promised a good sunset. We delivered it last night. And I believe what's changed since last year? Top level? What are some of the key things that that have changed in your mind? Just in the climate overall?
Paul LaViolette 4:24
Well, I would say from a med tech perspective, if you think about a year ago, and if you pulled in the bankers, they would have been queuing up a list of IPO candidates. The market was hot. There was a derivative dynamic with SPACs. That was hot. Obviously, IPO valuations pull forward, private valuations. So there was a lot of fervor. I'd say a year later, that's receded quite a bit. There is still a lot of capital. Strategics are still recovering from some revenue hits of the pandemic, but cash flows are strong. But the overall I'd say, size and scale of the investment appetite is a little bit pulled back as a function of the loss of the IPO window for not only med tech, biotech the same, there's essentially no listing activity. And I would say that, that compresses things a little bit.
Scott Pantel 5:22
Okay. And, Jay, you've been through a few cycles yourself, what hasn't? What hasn't changed? What what are the things that don't change?
Jay Watkins 5:29
Yeah, I I have I have the same sort of perspective as Paul, I suppose to, to an extent, I mean, there is there is there's evidence of a little bit of a pullback, but I can also frame it in a in a somewhat different context. I mean, I, I remember '96, where you could take pretty much anything public, in med tech. And we did many of those companies. Disappointed investors, I think is a kind way to say it. And, and then we, you know, we we created an experience for investors that they couldn't really make money in med tech. And I think that that experience took a while to work through if you looked at 2007-2008, you know, we had a we had a real setback in terms of capital availability, and it was quick, I mean, it it the pullback then was very, very significant. I think part of what has happened out there today, in in my view is that in that in that tenure, since I'm sitting here today, we've managed to prove a few things as an industry. One of which is that you actually can make money in med tech. And I think if you, I mean, I keep a little list on my phone of those, those startups, albeit public ones, that had managed to achieve a billion dollar valuation. That was a really short list in 1996. Today, it's with companies like Leslie's it's a, it's a somewhat larger, larger list. We have rounds today, in, in med tech, that the headline number is like what companies used to get bought for its 100 million plus round, and we didn't just have one of them in, in the past 10 years, we've had many of them, arguably. And so where where does, where does my confidence that we will have some continuation of the investment environment that we've enjoyed for the last 10 years? It comes from that I think we're, I think we've created some experiences that show we can we can create value, we can make investors money. And, and, and we've done it in a in a way, which I think will endure for a while. That said, investors, I mean, one of my one of my concerns, and I can say this, because like Leslie, I've been out. And like many of you begging for money, I've done that. One of my concerns is that when I when I talked to investors, and they go was you see what happened to the NASDAQ today and I go, man, we're talking venture capital here. I mean, we didn't even ship this thing for five years from now. So so I'd like to, I'd like to kind of reset the frame on terms of investment. And keep in mind that we're building value.
Scott Pantel 8:54
That's great. Okay, so let's transition to Leslie here. Outset is cranking, right, you guys are doubled sales from 2020 to 2021. Rapid growth. And one of the things that I didn't know that really struck me is that you joined the company when there were four employees, and I think you have well over 650 employees now, there's a lot of CEOs here who have a handful of employees and aim to get where you're at. So share with us something that you know, now that you wish you knew then we've had some some conversations about this, and I think it'd be really valuable for you to tee up one of those.
Leslie Trigg 9:33
Sure, it's hard to limit it to one, one thing I can say definitively is that I have made more mistakes than anybody in this room. So I hope that my comments can make you feel better about what you're doing. I will always be able to make you feel better. So seek me out at any time. I Gosh, because there's there are so many different mistakes, but I would say one and maybe bouncing off of something you just said around you fundraising and maybe particularly in this climate is around valuation. And I may piss off one or both of you about the perspectives of companies that you're already invested in, but maybe as a new investor, you would endorse this point of view. I think one of the things that I've learned in hindsight is that valuation can really be a dangerous game. And if you haven't, some of you may have investors around the table that are really pushing you, or have pushed you in the past to get the highest possible valuation as the goal. And I think ego gets wrapped up in that too. But but you know, in our case, we had some unnamed investors who even wanted to tie the size of our employee equity pool to the valuation that we achieved in the next round. The higher it was the bigger that employee equity pool. So we fought against that, and we squashed it. But that's how intense the pressure I know some of you guys are probably feeling is around valuation, I think it's really a Pyrrhic victory. Honestly, who cares? If you are 300 million, or 500 million, or 700 million, I would also really encourage you to which I never did, do the valuation mapping all the way through, and assume you will have many more rounds than you think. There's this adage about it taking, you know, twice as long and twice as much capital. We defy that by taking I mean, literally, I'm not joking five times as much, we ended up having to raise $450 million privately. And I am not proud of that. If I could have gotten that done for 50, I would do that all day long. But it took a lot and many more rounds, we went all the way up to a series D before taking the company public. And the only reason we went public is I'm embarrassed to say it, it's like we needed more money. We were not done. We still needed more. So now I think we're finally at a good place following an IPO and two follow up. So, map your valuation all the way through far past, if you think oh, we're going to do a series C and get bought, run it out to a Series C Series athlete try to look at it, which again, I did not do from more of a worst case scenario, and do the math because we got and we weren't a crazy unicorn, blah, blah, blah. But you know, we got into kind of the $600 million range on a post money basis off the Series E and then all of a sudden, we started doing math around a potential IPO at that time, too late, because it was not looking like at that time. And we got very lucky with market timing that we were not going to be able to get a valuation the public market that was we were concerned we'd even reach 600 million. So that that's one big lesson. One last thing. I would pay attention more to terms, because the other thing I wish I'd paid more I wish I'd read the charter. So for anybody in the room who's not a founder and didn't help draft the charter. If you are just a regular CEO, go back today or tonight and read your charter. I never did that. So you will be surprised you I hope you're not but you might be surprised. And so the the the some of the more esoteric terms, like is a qualified IPO in there. What's the what are the like liquidation preferences? I think everybody kind of understands, but you may have what's a requisite holder? How are the investors going to vote together? Is it series by series? Or is it a majority of your investors that can vote together on something? I mean, these things ended up mattering a lot as you're accruing dividend. I've never knew what an accruing dividend was highly, highly punitive. So terms, to me, in hindsight, are much more valuable or much more important in ultimately determining some big parts of your company's future, then valuation and valuation effects can really work against you.
Scott Pantel 13:36
That's great. Okay, that's a lot to work with. Paul.
Paul LaViolette 13:40
I agree. Listen, there's no, there's no magic I think everything was we said resonates with me. And in in the aggregate, I think about taking away from those comments. It's about balance and it's about rigor. And you learn that as you build and make mistakes you learn that as you invest and and ultimately complete a diligence and pull the trigger there is there's no there's no magic bullet it's it's not a victory right to raise a certain amount of a certain valuation in a certain series because you don't know exactly what's going to happen in the next in the next in the next series. And the the truism for med tech is it will probably take more money and more time. And so if you are balanced, you can anticipate spend time into trying to anticipate what might happen next, what might happen next. Try to factor that into your short term decision. Try to think about what you're building. What are we building we're not building the company for a successful series A that's just a step along the way. We're building a team we're building a culture we're we're building a therapy or whatever it is to make a difference. How will we ultimately attract capital the next time around the next time around? It's hard. I think that would be one other message it is it organically hard in this space to raise capital, build a success exit with a return for for everyone that participated. So don't don't assume that any step will be easy. Pursue every step with balance toward the short term achievement, but then also what might come next? And how do we preserve our optionality for the long term, and be super rigorous, whether it's reading the charter, or interviewing the ninth candidate for a role just be super rigorous in everything you do those decisions you make today, as an older, whatever statesman in the category now, those decisions you make today will, they will persist, and you'll either thrive as a function of them, or you'll pay a price as a function of them. So no decision is small and put everything into what you do.
Scott Pantel 15:51
That's great, Jay.
Jay Watkins 15:52
Yeah, I, you know, it's, if I had a nickel for every time, I've been told this is our last round. Because we've all pitched that, right. This, we've done and look, we are this is our last money. And so I think I very strongly would, would agree with Paul's comment, the way I tend to look at it is, I mean, what's happening out there in the world and comps and sort of values and kind of what's where and what was where, when these things unfold over 10 years. And, and over that period of time, that's going to move around a lot, what's not going to change are the fundamental requirements of the project that you're attached to in your startup, that never changes it, it's still the same lift you have to do. And so what when someone tells me, it's the last round, the first question I have is about the operating plan, because because it is about what we understand of what's in front of us. I would also, you know, agree with Paul's comment, unfortunately, some of that, we don't know. And so we we have to, we have to go into it with some, you know, some some level of suspicion about, you know, how certain we are about the future, and that's okay. I think you know, what, what's good about med tech, in many respects is that, look, I mean, this this community, at least this community understands what this takes. And like Paul said, it's hard. And Leslie says she's made every mistake, if we combined all the mistakes we've made up here, we've we've done all the wrong things, or at least hopefully, most of them. I still have a few wrong things left. Yeah, we might, we might, we might push the outer bounds of that. But look, I mean, we we get how hard this is. And and I think as is certainly from the investor community, you have a bridge there. It's, it's, it's okay, that this is not the last round. It's okay.
Scott Pantel 18:16
That was great. We had an interesting conversation we were talking about, you know, we're often thinking about m&a as our exit. And Leslie, you talked about this idea of know who you are and who you aren't. And your path was a little different. Can you can you talk about what you mean by that know who you are?
Leslie Trigg 18:34
Yeah, well, it maybe it goes back to my background. So it's done a couple of startups in, in cardiology and, and was lucky enough to have some good transactions there, you know, m&a and IPO. So I think I spent too long wishing that Outset was in the cardiology space. Because I'm like, where all the acquirers and I think, in the very early beginning, and maybe some of our earliest investors, because it was probably also there was not really an open IPO market at that time. We're kind of assuming that will eventually this company would get bought, it was unspoken, but you know, and so the more I realized I was, I had this mindset of, of being somebody who we were not. So we had a weird dynamic, which is an enormous market, but highly consolidated. And very, very few if any, acquires because one of the acquires was fully vertically integrated through services and equipment. So they were sort of off the map. So you know, it kind of came down to like, really, when you stripped it all the way to people, and I think I spent too much time pretending like that wasn't true. And versus I think, probably what I would advise everybody to do, it's hard. It's easier said than done, but to really take a hard look at your market dynamics, and your industry specifics. And really try to be as honest as you can, about who you are and who you're not and a part of who we were to was highly capital consuming because we were the technology was very, very hard. There's like over 3000 components in this thing. And then we had a really special relationship with gross margin, which was going to take us years to sort out, we went public with a negative 50% gross margin, like people should we just put it should have put in like a CD and people would have made more money. It was just a checking account. You know, I don't think those exists anymore. But, um, so I think the overarching, I guess lesson for me is be if I think I would have saved myself some time and been a little bit more efficient. If I had realized earlier that I was actually not in cardiology anymore with a plethora of acquires to go to. That's great.
Scott Pantel 20:40
Anything you guys want to add?
Paul LaViolette 20:42
Well, we have always built in, in med tech, I think assets for acquisition, IPO, as a window as a phenomenon comes and goes. And it's gone much more often than then it's available. So I do think the basic question for a company is what what do we do with ourselves. And if you are building for m&a, that's great, but you you cannot sell the company, right? The company has to be acquired, you can't make a strategic launcher and so the real challenge is building for some durability buildings for for your own sustainability. And if if and when an event comes across, great if if there's a optimal time to sell the company fantastic. But more often than not those those events don't align and you have to be focused on what's my sustainability plan. If you if you do that, if you stay focused on building and executing, you'll have more m&a prospects than you ever imagined. If you wake up in the morning thinking about what are my m&a prospects, they probably won't come. So stay focused on the business. Let the external events occur as the as they will.
Jay Watkins 22:02
Yeah, I I just offer a couple of observations there. I think to Paul's comment, you got to focus on the business. There are some there are some things that have changed. I mean, I recall a time when when the boardroom conversation was, well, we can't we can't field the salesforce. I mean, who could do that you can't I mean, we leave that for j&j and Medtronic, because they have sales forces. We are the other guys were the were the front end for those sales forces. And that's what that's what creates this arbitrage opportunity on m&a. And so so that conversation was rooted in some assumptions about what small caps could do. I would submit that some of that has changed. And in fact, if you look at the last decade, we have built sales forces, some in cardiology, some in other areas where entrenched competition was was sort of stuck to some degree, and where the technology platforms really did warrant the kinds of investments to build salesforces. What, what's that part of my other observation is, it's gotten easier to scale. It's still hard to invent. And it's still hard to prove that something that you invented is valuable. But it's gotten generally easier to scale. We saw Dale's presentation on on recruiting, there was a time when recruiting lead times were really long, because we didn't have a lot of these resources. And so if we look at ourselves as a capability in aggregate in the community, we have a lot more capability now to scale. And so I think to Paul's point, it creates some optionality that you all as entrepreneurs have, that perhaps wasn't there in times past where it was a little harder. And you kind of, you know, you could do it, but you got boxed into that position. So I think you do have choices. And and they're, in some ways, they're better choices than you had a decade ago.
Scott Pantel 24:21
That's great. I asked many of the CEOs that are here to weigh in if they had any questions, and there were a couple of common themes that came out of it, and one of them was, are we going to see some of the funds come in earlier? Some of the corporate investors come in early? I know it varies, depending on the the thesis of the company or the fund, but generally speaking, we'll start start with you, Paul, are we gonna see earlier investments? Is that a fairy tale? What are your thoughts on that?
Paul LaViolette 24:49
I hope not. I hope it's not a fairy tale. We'll see. I'm an early stage investor. So listen, it's the hardest part right? And so that to me, the biggest question is how much total early stage capital is available? And what is the appetite for one single idea? I think there is a mismatch between early stage investing and a an idea that, by definition is likely to take 150 or $200 million, it's very difficult to aggregate that that kickoff capital, if if the overall capital consumption of a given story is reasonably modest, I actually think there's a fair amount of capital available for that. I do think strategics. And, you know, we've always focused on the large five or 10, there's really a next generation of strategics now that are large enough to stand up external innovation vehicles, whether it's venture business development, what have you, build to buys, there's more and more of that. And I and I think entrepreneurs should not be overly worried about partnering earlier with strategics. It's an important verification of the value proposition, it's an important source of capital. And, and strategics. Understand that still, for the most part, they don't innovate. You all do.
Scott Pantel 26:12
That's great. Okay. One of the other. So we're, I'm gonna, I'm gonna let us wrap up with closing remarks here, for anybody who would like to make them we ran a little bit short on time, and we want to stay on schedule. One of the other themes of questions I got here, it was really directed at all of you guys, was that you weren't logging into the partnering app and accepting enough meeting? So if you could consider doing but no, in all seriousness, we have we have three days of a terrific sessions lined up. And I hope everybody sticks around and gets a chance to ask the questions of this group that we weren't able to get to. But I would like to go through and maybe we'll start with Jay and work our way back. Hopefully, this turnout is an indicator that there's there's some health in our industry, but I'd like your, your genuine take on where we're at right now closing remarks, and give us your view on the outlook short term outlook for us.
Jay Watkins 27:05
Yeah, thanks, Scott. And I, what's my view of where we're at? I've been doing this long enough to sort of look at this room and, and what I see is what this room does in five years, because that's really what the early stage piece is all about. When you apply yourself to the various needs that you are identifying out there and in healthcare, and, and we all know, there are a lot of them, okay, you're gonna you're gonna be able to find spots to apply your talents and the talents or your teams. That's not a that's not a question. And so, I, you know, where am I with respect to the industry in our, in our outlook? I am, I am very, very optimistic. What makes me what makes me optimistic about that, we have a number of forces at work. And you know, one of which is you have a technology tool set that generations, you know, of entrepreneurs would would be would be jealous of. You've got these convergences of technology, whether it's, you know, components off the consumer side of the computer industry, or whether it's, you know, the whole digital world. I mean, you know, you can ask the question, Well, what happened to digital health? Well, it became all of us. And so, I think there, there are some things that are macro positives in that whole environment. And on the capital side, I don't see a major shift a ground shift and in, in terms of, of capital, capital availability, I think we'll be smarter than we were in 2007, 2008, 2009. I don't think the pullback will be, you know, sort of all stop if there is one at all. I think there's a, there's a, there's a an appreciation, I think out there in the investing portion of our industry for the fact that these times can create opportunities that are that are stellar. And and for those investors who are patient and and dedicated to it, and there fortunately, as Paul is we're early stage investors. Fortunately, there are a chunk of us who are playing the game early, because we do believe that that's where that's where we can kind of get started on creating, creating massive valuation. It's going to swing. I was I was a corporate venture capitalist in one of those recessions. And I have to tell you, we went from Who are you guys? When I was a guidance, I ran the venture portfolio. i No one came to see us. And as soon as the recession hit, we had a line outside our door. It was crazy. And so so the, the corporates will get an opportunity to work with you and to lean into this period of time, if there's any pullback at all. And, to Paul's point, I would, I would, I would cultivate those those relationships where they can be, can be developed and prove useful to you. Because it ebbs and flows. And this is about cycles. In the end, it's about cycles. And, and I think you've got, I think you've got everything you need, frankly,
Leslie Trigg 30:45
Just two quick pieces. I'll be quick, two quick pieces of advice. One, personal advice, I read a chapter I didn't read the whole book, but I did read a chapter is very proud. But it was it was written by Ben Horowitz, who went on to Andreessen Horowitz, but he was an entrepreneur for many years, I don't know him. But the one thing I took away there was only one from this chapter was the the he said the most difficult job as a CEO is to manage your own psychology. And I really, that really resonated with me. And so if you, you have to be able to go the distance. And no, again, no one's been been turned down more times than I have for financing nobody in this room, like over 100 times. So managing that psychology staying true to the mission staying staying true to the vision and and not giving up it sounds like trite advice but but I've always that's it I've always carried that with me it's just manage manage your own psychology if you do that, well, you're you're gonna get there. Fundraising advice is there was an article that came out, you might want to look it up, it was about Tiger global, and one of our investors D1 capital. I don't even remember how big Tiger is D1 is like 30 billion. They're actually going earlier stage earlier and earlier and earlier. And so when we did our first crossover round in 2015, nobody really was those crossovers. We're only doing biotech crossovers, not med tech. So point one, that's all changed in a great way. Now it's very common for, you know, fidelity, T Rowe, Janus, etc. to be in med tech. But what I see and what I'm hearing from those public fund guys, is that they are going way into kind of series B, even series A so so don't be afraid, I guess is that don't be afraid to reach out to funds that you think are perhaps in an altitude that you can't fly at. You never know. And what I'm hearing just conversationally is that as as public multiples are starting to, well, not starting to, we are contracting, those pools of capital may be moving to earlier stages in med tech. So go for it.
Paul LaViolette 32:49
Whether you believe you can or whether you believe you cannot, you'll be right. So I'm an optimist. I don't know any other way you wake up in the morning, you have to be optimistic you have to be in a position to go for it. That doesn't mean you won't reach setbacks and doesn't mean your your willingness to be right is going to change the environment. But it gives you it gives you a chance to succeed. And so you have to be optimistic if you're not optimistic, you're in the wrong room. Point number one point number two, I believe in cycles. But overall, if you look at the last 20-30-40 years, med tech has just continuously expanded as a relatively still small part of the overall healthcare expenditure. We are you all are a part of the solution. And there there still are tremendous pools of capital, not just investment capital, but expenditures in health care that need to be dislocated to more cost effective alternatives. And and were a big part of that. So you should assume that over time, not just in the next 3, 6, 12 months, but 5-10-15 and 25 years, our categories will continue to expand because we are a necessary part of the cost effective shift in overall delivery of health care. And the last point I would make is that in Jay alluded to this, we are moving at a faster pace decisions get made faster investments, speed to market, although regulatory clinical, none of that has has necessarily shortened overall pace of change is faster than it's ever been. And it just demands that you be agile. There's there's it's it's a young person's game in a lot of ways, but if you can stay at it for a long time, the one ingredient that will determine your success is your ability to be agile in an in a marketplace that is evermore demanding for speed.
Scott Pantel 34:55
That's great. Jay, Leslie, Paul, thank you for helping us set the tone for this meeting. Everybody here thank you for participating Thank you