What are Medtech's Leading Investors Looking for Right Now? | LSI USA '23

Transcription

Jonathan Norris  0:06  

We're super excited to have a chance to talk about what's going on in the ecosystem. And we have four amazing panelists here that are gonna fill you in on how they're thinking about things. But I thought it would be fun to maybe start with something a little different. So we're gonna start with a little bit of a quiz. So if the lights can get put up a little bit, and then we'll go to the slides. And so, you know, a lot of you guys know me, I'm with Silicon Valley Bank, I've been putting together a report for the last 10 years plus talking about what's going on in the venture ecosystem. So I thought, as a part of teeing up the conversation, we just do a quick little quiz. So it's a quiz around what's going on in the market. So we'll start with question number one. So if you think about $67 billion, were raised by US based funds to be invested into venture backed healthcare since 2020. So the last three years, what percentage is likely to be invested in medtech versus HealthTech, dx tools, pharma, and just think about med tech as implantables, surgical equipment? Imaging if there's a piece of equipment, and then also sort of non invasive monitoring? So that's kind of our medtech definition. So is it 3% 7% 10% or 18? Anyone think it's so sad show hands 3% 7% 10% 18%? Great answers 7%. So about 5 billion and dedicated venture funds have been raised since 2020, to invest in medtech. And if you think about it, you know, that ends up about 20% of all dollars that are actually invested in medtech over the last three years. So just the takeaway is there's a lot of funds outside of your traditional venture folks that are investing in the medtech companies. Second question. So in the US 2021 $6.8 billion invested into medtech venture backed companies, which beat the record of 5.8 billion in 2020, how much was invested in us venture backed medtech companies in 2022. So a 5.5 billion B, 6 billion C 6.6. billion D 7.1. billion. It's pretty evenly distributed. Answer 7.1 billion, a record number of dollars invested into medtech sector in 2022. And I think, you know, the context here is, yes, it's a small amount if you compare it to biotech, but what we've all seen in health tech, or healthcare overall, especially in medtech, like steady Eddy is what med tech has been over the last few years. But even in a down year, by most people's standards, there's actually more dollars invested in med tech in 2022. So two more quick questions. So we track step up. So you look at the post money of the previous round, or you look at the pre money of the next round that sort of a step up. What were the step ups of the ones where we found valuation information by pitch book, which is 103 data points in 2022. Is it .8x 1.5x, a few, 2x. A couple 2.5x. Two very good. Folks who are looking to be optimistic answers 1.5x, which I think is really interesting. We're still seeing step ups. I do think, you know, is interesting, even the bigger financings that we saw where they were over $70 million in terms of the size of the financing, that median Step Up was 1.9x. So some of these good companies are getting good step ups. But I will say, you know, what do we think things are going to look like down the road? I still think that that's looking at the top 20% of companies, the top 20% of companies were able to finance last year with a new investor coming in, and we'll talk more about what that means going forward. And so the last question $100 million private venture backed financings there were nine and 2020 there were 11 and 2021. How many were there in 2022? Eight? A few 11 14. A lot more there. 19. A couple optimistic folks. Answer is 19. Unbelievable. 1900 million dollar financings in the US and Europe and venture backed companies. And I just think that that's really an interesting thing we'll get into on our questions here, but we're seeing a lot of really late stage folks coming into device supporting camera initialization story. So with that being the setting the stage, we can take the slides back off. And what I'd like to do is sort of go through our panelists and have them just take a quick moment to introduce themselves and tell what their focus is on the medtech side. And we'll we'll start with Kyle and move our way down.

Kyle Dempsey  5:17  

Yeah, so I'm Kyle, and with MVM partners, we've been around a long time, we focus on commercial stage med tech investing among other areas of healthcare.

Lu Zhang  5:28  

Hi, I'm Lu, I'm the Founder and Managing Partner of fusion fund or the VC firm based in Silicon Valley mainly focus on general healthcare tech and the med tech. And we've been doing early stage investments since 2015.

Greg Madden  5:42  

Greg Madden SV Health Investors and managing partner there were a 30 year old firm that has invested over $3 billion across hundreds of companies since inception, I've been at the firm a little over 20 years, have focused most of my time at SV on med tech. And what I'm excited about with what we do with med tech is that we have a few vehicles that allow us to invest everything from series A through growth, stage commercialization rounds, and even buyouts for the most mature companies.

Juan-Pablo Mas  6:13  

One problem mas partner with action potential venture capital, which is a stage agnostic, medical device fund focused predominantly on historically on neuromodulation by electronic medicines, we invest off of GSK, his balance sheet, and more recently have broadened our mandate to include, you know, some drug device combinations, diagnostic imaging, AI and precision diagnostics. But we're a rather small team, three people, 11 portfolio companies, and we're on all the boards very involved with our companies.

Jonathan Norris  6:48  

Great, thanks, everyone. For the intro, I think I want to dive in on you know, talking about what 2023 is gonna look like on the financing side, you know, what, what we've noticed is what we call a series A cliff, where if you go back, you know, the last two years have been a lot of series A activity and medtech with a corresponding decrease in the number of Series B's that are being done. So you would assume that the bees were being done, but what we're seeing is, you know, a lot of insider support, and and sort of pushing these companies to move forward, which sets the stage for 2023 for like, the next financing and what that is going to look like. And, you know, my question to you is, you know, how are people thinking about milestones and milestone achievement that unlocks the next round in 2023? You know, do you think insiders are going to be continuing to sort of foot the bill here? And is it going to be traditional venture that comes in? How are you thinking about 2023? Financing? And we'll start with you, Greg, maybe can lead us off?

Greg Madden  7:50  

Sure. So I think it's given the change in the economic environment, I think it's inevitable that insiders are going to have to carry companies further, whether they do it inside lead Series B, or bridge financing. There are other pockets of capital available for companies in the series A and Series B stage, corporate venture capital, which I know, John, you cover in your data as well. And we've seen in prior downturns that corporate venture capital has helped fill a gap when fundraising has slowed for traditional venture capital firms. I'm not convinced based on what I'm seeing right now that that will emerge in this in this trend only because are in this environment, only because we've really seen a dramatic decrease in corporate venture capital dollars, particularly for series A Series B companies in the last really since the onset of COVID. You know, I was surprised also at your data that you put up about, you know, 80, or 70, or 80% of capital coming from other sources than non traditional medtech. If anyone in this room knows who those people are, please see me immediately after the panel. But in all seriousness, you know, we've seen this movie before. What happens in environments like this, are that the tourists flee from the segment. You see VCs traditional VCs, like us, I've been dedicated to the space for three decades, batten down the hatches increase reserves for existing portfolio companies. And, and you see, later stage valuations come down. And when that happens, all of a sudden, it's it's much more attractive for me to get a derisked Series B or Series C asset as compared to the higher risk series A because evaluations comes down and it gets closer to series A like valuations. So I expect we'll see that again. I think that will continue to be to the detriment of series A's. I do believe series B's will get done. It'll be insiders. I think there will be some money that flowed into areas like non invasive monitoring that may get reallocated to other traditional segments of stuff that version on digital health may move into orthopedics, cardiovascular or other other segments. And I would say the final thing that I'm, you know, the optimist in me wants to see is that for years, we saw a migration of capital outside of medtech, probably to the benefit of biotech. And the data that John showed of 7% of the money flowing to medtech, for the first, at least half, if not three quarters of my career. That was about 20%. And with the shine coming off of biotech, I am cautiously optimistic that there'll be a rotation back towards medtech, particularly in those middle Series B stage type rounds.

Jonathan Norris  10:41  

Yeah, great, I'd love to hear other folks perspective. And just the idea also of as the insider support of doing inside rounds grows, you know, that obviously, you know, diminishes the amount you have reserved for support at that company. But does it also affect the number of deals that you're going to do going forward, I just would love to hear how folks are thinking about where the where the market is going to go and where we go from here. And if anyone wants to jump in, we have

Juan-Pablo Mas  11:09  

a bit of a different dynamic in the sense that we have sort of more of an evergreen fund, and so reserve management as it has more flexibility. But that said, we're in a variety companies and we manage our portfolio, as if we didn't have an evergreen fund for you know, and we do, you know, try and be judicious around how much we cover as insiders bridging companies, through, you know, my perspective is to bridge a company to avoid a down round is not the reason to bridge a company. I think bridging companies to meaningful milestones that really de risk the asset and attract all sorts of types of new investors is is why you do this. You know, you do see some insider led rounds, where the The hope is to just hang on to evaluation. And you know, more often than not, you're better off, taking your medicine resetting price, making it easy for other investors, new investors to approach the company. And, you know, it's not a fun thing. Most investors don't get into venture to sort of walk around given down rounds to everybody. It's not, you know, you're not usually everybody's best friend doing that. And so if you have sober view on your own valuation, and you've been priced up in a in a very hot environment, either, you know, repricing the company yourselves as insiders, if you're gonna go through that process or signaling very clearly, you know, to new investors, especially in the last, you know, the Fed just raised interest rates today, you know, there's this, it's not getting prettier, quick. So do yourself a favor, give yourself as many pitches, you know, shots on goal with new investors and tell people listen, you're open to price resets, if that's what the market is saying. And that's kind of our approach.

Jonathan Norris  12:57  

Yeah. And actually, that sort of dovetails into the next question I wanted to ask, and maybe Kyle you can lead this off. When you do thought talk about valuations, I think, yeah, we are starting to see folks understand that, you know, one, I heard this in another panel that, you know, valuation is what someone values you at, and that while that's trite, I think the idea is trying to disassemble that from you and your company, and all the positive milestones you may have hit, because you may have hit everything that you set out to achieve. Yet still, the valuation discussion may be something that you're you're you're not liking. And so Kyle, when you think about valuation, you think about where things are gonna go. Obviously, when you look at public market comps, there's a huge difference in where we were two years ago. How do you think about that in the market as an investor? And then how do you talk about that with your management team, in terms of having them understand that how important new money is to come in? And that at the sacrifice evaluation is sometimes maybe the right way to go?

Kyle Dempsey  14:09  

Yeah, I think it's really important for everyone to level set and just understand, at least from our side of the table, how valuations are set, because a lot of times it feels like they just come from nowhere, that they're arbitrary. I think most people setting up here and most people in the industry actually take a much more nuanced approach. And just to kind of walk you through it. Most of us think about all the different scenarios that could play out for a company. So you know, in some scenarios, companies fail, you know, they don't hit a regulatory milestone. They don't get financed, you know. So that's one extreme right, the company ultimately fails. On the other side, there are cases that look even better than management's plan, right? There are cases where things go better than everyone expects. And then in between, there's a whole variety of of scenarios that play out with different degrees of pobabilities. And so what we do is we try to model all of those major scenarios, and then assign probabilities across them based on the likelihood that we think they are to occur. And then when we do that, each of those scenarios, in turn has an exit valuation attached to it, those exit valuations are driven by what we think the revenue or EBIT da or whatever the the marker is, at the exit point, along with some sort of trading multiple or, or a cash flow analysis or something along those lines. And so there's a distribution of outcomes that we're considering, at any given time, and the ultimate exit point, whether that's an IPO, or a trade sale, it is impacted by things like the public market multiples. And so to John's point around, how does this all feed back into the process, I mean, at a very granular level, this is where it plays in. Because as you think about those multiples, that you're assigning to those different exit scenarios that may color, how you how you think about those. And so it definitely does have an impact. And, you know, my perception is that a lot of companies that have done Series A, and are now looking to do a significant commercial round. My perception is that a lot of times people are surprised by the valuations that come out of these exercises. Because as has been said, a lot of progress can be made a lot of important milestones, regulatory clinical excetera. But you know, a slightly different way to think about it using this framework of probability weighted distributions is that sitting where we sit, we now know that there's a whole segment of outcomes, that is not likely to happen, meaning, you know, when you're pre regulatory, or when you don't have all your clinical data, there is a reasonable probability that once you get that approval, somebody buys you out immediately. Like, if you are really important strategically to another entity, they may buy you at that point in time. Well, now that you're past that point, it's clear that that part of the distribution falls away. So that quick exit that requires very minimal capital is no longer on the table. And as a result, the distribution of outcomes changes. And in turn, that's what drives the changes, it changes in valuation. And so for why people may have very different perspectives on on valuation, it really just comes down to how all these different things are playing out in the background. And hopefully, this makes it feel a bit less like a black box.

Lu Zhang  17:29  

Yeah, yes, the champion there, because that's a really frequent conversation we have with our founder about how to really look at valuation. Also, because I was an entrepreneur turned investor, I was an entrepreneur, myself, and also the whole team at Fusion will have an entrepreneur experience. So one thing will always tell founder is, valuation is a illusion, valuation does not 100% reflect that value of your company. So the thing really matters to founder is the ownership right? There are so many different way, if you really achieved a milestone, if the company do well, you know, the border investor definitely want to maintain certain ownership for the founder to give them incentivize, to continue to work harder that. So sometimes what there are founders and difficulty surviving is the most important thing. And as you said, getting new money is important, because that's a different type of market validation versus purely go to the same insider to raise money again, again, and the way you have the money going. And regardless of the valuation, you have the dry powder to continue, run and also grill. So that's the first thing. Another thing is really, you mentioned about the different dynamic right now in the market, looking at how to give valuation to the company. Good and bad, I think, especially growth stage investor, they're really have this hard dry line inside looking at commercial capability, which I know is a little bit unfair to Medtech company, because we need to go so clinical trial after approval is now easy as enterprise SaaS company to quickly get revenue. But any indication at early stage, even just a pilot program is a pay service contract with a potential customer, that would give a stronger confidence for investor to put in bigger check in the growth stage, it just the market dynamic is different now. But on the other side, based on your number, that's also actually what we saw in the market. There's dry powder in the market, it just it's more concentrated to the top company. So companies who perform well still are will be able to raise a lot of money, but it just the percentage in average will be much lower.

Jonathan Norris  19:32  

And then you have those conversations where you have maybe Greg and Juan Pablo, you guys have some gray in your beard like I do. Like how do you have those conversations with management during this time where you can leverage maybe the stories of folks in the past that have had those bumps along the road but end up having great outcomes. Do you find that it's hard or do you find that in the sector, people understand that you know, sometimes you have to make some sacrifice is in the long run, to make sure you have the right capitalization.

Greg Madden  20:06  

So in my experience, there's a couple things that happen. One is we priced the deal wrong. And that's a harder conversation than if, either before us or after us softer money came in. And, you know, we all felt like we were, you know, stealing something with the valuation we had. And in those cases, I think the conversation is more about, we need to think about this as a blended cost of capital over the life of the company, versus, you know, this interim mark down, that doesn't really mean anything. In cases where we have priced something wrong, it's typically because, you know, the company got Off Plan, or we underestimated the risks. And we ended up at a lower case scenario, as Kyle was describing. In those situations, it's a, it's a shared responsibility. And what we usually tell our founders is similar to the advice we've heard from this group, which is, the market is the market. It's a point in time, it doesn't devalue you or your technology, but it is the price at which capital is being invested today, and it's about selecting the right partner, that can work constructively with us to to get to the promised land, then this, you know, interim markup is painful for everybody. And usually, it's investors like us to get squeezed in the middle more than the management team, which if they're executing, typically get re upped in some way through options, even though their solutions to their dilution to their founder stock.

Juan-Pablo Mas  21:38  

Yet only add that, you know, I think there has been, I've seen some first time founders or first time CEOs maybe make the false assumption that if they're not seeing valuations, they like After testing the market at a new round, that the insiders are just going to carry the round, and lets you know that we're going to need you guys to do this. And I think the more experience entrepreneurs and CEOs know that that's, you know, you may get that you may have the discussion with your board, and you may get that support. But it is far from a fair assumption to anticipate, because some of these rounds, of course, you know, either are significant in size, or dry up all the reserves, that these investors have to protect their positions in the company long term. So, but more typically, when we're seeing term sheets, and that founders don't like, it's not like, we're sitting there staring at five and six term sheets and going, let's take a low valuation, because you got one, if you're lucky, or you got one, maybe maybe there'll be a second one. And people are saying, you know, can you bridge us just a little longer, I need to talk to a few more investors and optimistic. And I think, you know, when if founders aren't hearing that, and, you know, I know, there are many in the room as well. But I think you've kind of alluded to in the way you ask a question, having them speak to more seasoned founders that have lived through a variety of cycles to hear how, you know, this could be in their best interest long term, just to keep the company alive, Lu, you said, right, survive? So yeah,

Greg Madden  23:09  

I think I'd add to that, you know, reflecting on it is that, you know, I have seen companies in founders, not only for their own preservation, but out of respect for the people that put in the money early to try and hang on to a to a post money valuation. And they rip through three quarters of the, our addressable market. And once someone says, No, it's no, there's no going back, even if you say, Oh, actually, we weren't serious about that valuation, we're willing to accept something lower, people have moved on. And so you have to be very careful how you have those conversations, and be realistic about about the expectation.

Jonathan Norris  23:46  

Great, those really good advice, really appreciate that. And maybe let's talk a little bit more about what I've seen out here looking to looking at a lot of the companies that presented at this conference over the last couple of days, it's really, you know, the intersection of hardware and software and AI and and sort of the the digital aspect and and what you guys see in in medtech around that and and Lu you can lead us off in terms of how you're thinking about that. What's exciting now where do you think things are gonna go? And and what's the promise?

Lu Zhang  24:18  

Yeah, I think you already mentioned one key word, which is digital, you know, we talk about the whole trend here is a digital transformation across all different industry, and the industry will really want that digitalization to be done the most is the healthcare sector in general. So we're seeing lots of the, you know, traditional medtech companies start to implement a digital platform, which is actually really valuable because on one side, you know, there's lots of data to be decoupled from the data to provide personalized health care products and services. And on the other side, we also mentioned that in terms of the potential exit value for a med tech company in which acquisition some time is limited. With a digital platform, you'll be able to bundle different types of medtech company make a portfolio So the potential exit value could be over a billion dollar or even become an independent IPO candidates. So I think that's all the opportunity brought in by the digital to the medtech in general. So for us since last year, we've been investing in digital like diagnostic and diagnostic for a long time. And since past couple years, we're more focused on digital diagnostic, especially for medtech company focused on cancer and also mental disease. That's a really interesting area. And also lots of data could be leveraged lots of new technology could help us find out better solution. Another sector is digital therapeutics, I think there's lots of thing going on in digital Therapeutics is very promising. FDA is catching up insurance companies working on the potential reimbursement side, and also loss of the technology, hardware side software side is ready. So that's another area we'll be looking at. And in general, you also mentioned that a key word is AI in the US I know generative AI being so hot in the past couple of months is, and especially a general AI application for healthcare, that's a big opportunity. So we already have company focused on medical imaging, integrated generative AI very good result. Generative AI solution for platform for life science, and also for other different aspects in the medtech sector. So that's that actually that upcoming trend.

Jonathan Norris  26:22  

Interesting. Anyone else want to talk a little bit about what they're seeing?

Kyle Dempsey  26:26  

I guess just a general observation, or a couple. One is that AI is definitely having a profound impact in terms of the opportunities that are getting created across all these different sub sectors. If you're a company that's operating in that space, just one thing to really reflect on are barriers to entry. So we've taken a look at a lot of promising companies. And unlike med tech, and unlike some other areas, a lot of the AI type solutions are not able to get intellectual property that's meaningful. And what we've seen in a couple of different segments at this point is basically rapid, rapid, rapid commoditization across those so you know, things that have been very innovative delivered very significant clinical impact and a lot of value for a lot of people, but not being able to actually capture that value due to a lack of barriers to entry. So if you're involved with that industry, or you're working on a solution related to and I think, step one is to think very, very carefully about how you're going to protect your solution, because my general observation is that creating a new algorithm is something that a lot of people can do, and they can do it quickly and get it through the FDA relatively quickly. So thinking more creatively about how to create those barriers is important.

Juan-Pablo Mas  27:46  

I think regulatory strategy, maybe even reimbursement strategy is a possible barrier to entry in AI. And we've we've not done a lot, we've done one actually in oncology more recently. But you know, the ability to get paid like a medical device software as a medical device also is a bit more of a, even though it's a new space and a new era, there's a little bit more predictability perhaps about, you know, what that business model looks like, though still many levers to pull in. And I think to your point earlier, the traction, early traction helps validate this for investors, the other business model that we see occasionally, and I think may, you know, we're always intrigued when we look at it in digital health, and is our Trojan horse type business models where you know, you're selling one thing to the hospital or to a customer and serving a real need and generating revenue from that, perhaps, but aggregating a lot of data and finding a way to sell future products that may not be the most obvious, you know, initial business model.

Jonathan Norris  28:50  

Interesting. Maybe maybe one more question that I want to turn to the audience in case there's some questions there. But, you know, one of the slides I showed was 19 100 million dollar plus financings in venture backed device and 2022. And when you look at who the new investors that are coming in, you're seeing late stage growth investors, you're seeing crossovers, you're seeing hedge funds, you're seeing crossovers that traditionally do biotech coming into device and funding a lot of these folks at large commercialization rounds. And I guess the question is, you know, is this Do you see this as transitory cash? And what does that mean for the companies that do get funded? That right now, you know, it's all fair to say that the IPO window is fairly close, if not firmly shut right now, what does that pose for those companies and what does it pose for the companies that are looking to raise those 100 million dollar rounds? In 2023? Do you think the capital is still there? What's the what's the prognosis for sort of late stage device? For 2023? Maybe Juan Pablo, you want to kick it off? I think you've had some true Bigger financings are some of your portfolio.

Juan-Pablo Mas  30:01  

Yeah. Yeah. So we've had a few in the last few years, you know, attracting groups, like many of the logos on the slide, you shared with Fidelity and T Rowe, and BlackRock and a variety of others, and redmile being actually an RA Capital being sort of more healthcare centric groups. You know, I think that to take a page out of your book, because I've heard you say this before, you know, the high quality companies will probably still be able to attract those financings and those investors, but it is they are being squeezed, no question, and it is going to be harder. And the same valuation discussions are happening there. I think, Greg, you mentioned earlier, maybe later stage deals start to look more attractive. And so you know, there's also a mentality from some investors, maybe not these crossover types, but that, you know, if I can invest in some early stage things, now, I have a little bit longer time before these companies have to be exposed to the public market dynamics or the crossover stage dynamics. So, you know, we'll see how that plays out. But I do think you're probably better off if these firms have already invested in your company, because they're more likely to follow on those dollars, if they still believe. I think it'll probably be harder to attract them, you know, at first pass. And certainly, if they think that, you know, many of them say it's, you need to IPO within 12 months or so for us to be interested. And that's a hard sell right now. So

Greg Madden  31:29  

yeah, the only other thing I'd add is, I think the 100 million dollar plus rounds was more a symptom of the markets failing top line growth, you know, you could raise $100 million, you could have 20%, gross margin, and people were throwing money at you. That's not happening anymore. Those days are over. And I do think we're gonna see more rational financing plans for later stage companies focused on getting closer to profitability showing high gross margins, investors will come more selective looking for those things. And as a result, I don't think you'll see 100 million dollar rounds, I think you'll see late commercial rounds be more in the $50 million range. Because they're funding businesses that are fundamentally profitable. And the markets rewarded businesses for a long time that could grow 50 to 100% a year, but we're fundamentally unprofitable.

Jonathan Norris  32:23  

And maybe anyone else who wants to jump in on that.

Lu Zhang  32:26  

Yeah, sure, probably provide some sewer lining like units for the founder, we have this X on network, we have lots of this global ones out and companies stay to work with us recently, well heard most of them talking with saying that there are lots of discussion on the board level about increasing their budget from the to the CTO office, then the CTO could have bigger budget either to give contract out directly invest into the startup companies or even do merge acquisition. I think this is relatively new topic because other companies realize, okay, now it's really the booming of the tech trend right now. Meanwhile, because of the financial market, the valuation will be more reasonable for them to come into the market. So my B become a new south of the source of capital for growth late stage a company to consider an ounce I do think the reason you also mentioned that there's some new additive new money manufactured bow tag came into the Medtech, I think one push was also related to digital transformation, because how to collect the data. You also mentioned the car also mentioned that okay, what is a barrier for even a healthcare company, algorithm gender to AI essentially gonna be similar between different company, unique data Library is a key differentiation. And the work is the entrance of the data is actually device is actually the hardware layer, how to control the entrance of data. That's also one critical question for lots of investor in the company to think about. So I know gonna be hard this year gonna be hard in general for other founders to raise money, but I think there's some good momentum happening right now.

Juan-Pablo Mas  33:57  

Great, maybe I'll just tag on one quick thing. And I think this is more for the audience than to hear myself speak. So I'll, I'll add on here. But I would say one thing we're seeing where valuations may be tricky, is investors that are going to put in bigger checks. And you know, there's Deerfield on stage a moment ago and others you know, there are some financings that may help bridge this valuation pressure, but still get you to milestones if you can find a later stage investor that does structured financing with tranches. You know, you could very well and we're seeing some of our companies entertain these words evaluation you can get comfortable with and it gets you to a much later stage milestone than you were even initially considering fundraising for you just to be able to talk about commercial and launch or FDA approval versus just talking about first in human experience can change the equation on what valuation and post money looks like and get people to the table in a way that and that's not easy, but if you have that angle, at least don't limit yourself Just one universe of investor when you're talking.

Jonathan Norris  35:02  

Right? And you should, let's not forget how much capital has been raised by traditional venture folks over the last couple of years, and that needs to get deployed. So we only have a couple of minutes. But I was wondering if there's some burning questions from the audience? Yeah, actually, I'm just gonna hand you the mic.

Audience Question  35:21  

Just curious, where you come out on the viability of a SPAC, the SPAC transaction as a possible source of capital, or liquidity event, public listing all the above, if that's something that you ever entertain as a potential outcome for any portfolio companies.

Greg Madden  35:39  

So I've got a little experience in this area over the years, I would say, SPAC or that approach to going public, I think came about because the barriers and the hurdles to get public in a traditional sense are probably too high. And I think the SEC, probably needs to spend some time there. I think there's two different types of SPACS, there's a spec with committed capital. And it's a vehicle for turning the company public and building for the long term. And then there's SPACS to raise capital from retail investors. And that those are the specs that aren't happening and are unlikely to come back anytime in the near future. Because retail investors are not coming into this space any longer. And there was a real disconnect between the incentives that the SPAC sponsors were reaping versus the pricing that the retail investors were funding. But I do think as a structure, it is not a it is not a bad vehicle. But the capital needs to be committed upfront, and be secured, versus hoping that somehow retail investors will it'll be a way to get cheap money from retail investors. And if our money is committed upfront, the investors have committed the capital aren't likely to redo.

Jonathan Norris  36:51  

Okay, we are right at time. One super quick question. Last one.

Sharief Taraman  36:56  

Hey, Sharief Taraman at Cognoa. No, I was gonna piggyback off this back conversation, which is, you know, I really do post mortem on some of this SPAC stuff. Is it? The ones that failed? Was it the overvalued themselves? They didn't have enough revenue that they went prematurely dispatched? And maybe that's why they should have waited to do IPO? Would love to hear your thoughts? 

Kyle Dempsey  37:22  

Yeah, yes. Yeah, I just say you really got to think about everyone's incentives that are involved with these facts, you've got the spec founder sponsor, you then got the people that are putting their money into the SPAC that could redeem or not based on the quality of the assets that's found. And then you've got the bankers and the bankers are, of course, telling you that the spec is gonna go through with 100% certainty, and that your company is only going to go up from there. All of these people have very different incentives. And so it's important to always keep each of those distinct incentives in mind when working through whether or not it really makes sense for your company. For most of the companies in this building today. I think SPACS don't make a ton of sense because at the revenue stages of most of the companies that are at LSI, you're likely to have a relatively low valuation by public market standards, meaning that if you're below 500 million in valuation, you won't get top analyst coverage, you're likely to have very low liquidity, which will then make it very difficult for you to increase your share price and to raise capital in the future if you need to. So the grass isn't always greener in the public markets and I would be a little bit weary of anyone who tells you otherwise.

Jonathan Norris  38:28  

Thanks, Kyle, and I that's all the time we have for today. If you can just join me in thanking our panelists did a fantastic job. Thank you guys.