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Why the Heck Can't I Raise Capital | LSI USA '24

This panel discusses one of the most important questions for early stage companies trying to raise money in Medtech. Why the heck can't I raise capital?
Speakers
Tamir Meiri
Tamir Meiri
, Johnson & Johnson
Nicholas Pachuda
Nicholas Pachuda
, Peptilogics
Deanna Harshbarger
Deanna Harshbarger
, Cala Health
Kevin Rocco
Kevin Rocco
, CONMED
Fernando Pacheco
Fernando Pacheco
, Endeavour Vision
Jeff O'Donnell Sr.
Jeff O'Donnell Sr.
, Runway Healthcare

Nicholas Pachuda  0:05  
Nick, All right, next year I'm going to put a title with more swear words in it, because obviously it seems to work. So hey, welcome to the panel to tackle the most common question or challenge I've heard in the last two years. You know, why the hell can't I raise any money? Right? So I'm Nick pichuda. I'm Chief Operating Officer of peptologics. I'm a partner at Mountain State Capital venture fund, and I'm XJ and JJ for 10 years leading external innovation. My passion is bringing transformational technologies to the clinic as fast and as the biggest scale possible look. I wanted to tackle this common question with pros that have successfully navigated these waters for years and really know what it takes. So, you know, with these folks, they've raised capital, they've raised funds. They've deployed capital, run companies, exits, IPOs. You know, it couldn't have a better panel of experts and people that I call friends. So to start, and it's going to mess up my order here, from what I prepared for but Deanna harshberger, co President, Chief Product Officer of telehealth, 20 years in the industry, building med device businesses at j&j Boston, scientific and Medtronic. Kevin Rocco, Vice President Conmed linva Tech, former CEO of biores that sold to Conmed just a few years ago, and now an angel investor as well. Tamir Miri, Director of venture investments West Coast for jjgc J and J's strategic venture. Arm Fernando Pacheco, investment director at Endeavor vision growth capital fund based in Geneva, ex striker, McKinsey, business creator and Jeff O'Donnell, one of my most respected mentors in my career and a great friend, managing partner at runway healthcare, a venture studio, plus a venture veteran of multiple startups, IPOs exits and multiple venture funds. So look, we're lucky to have these folks here for a few minutes to share their insights, best practices, war stories. So let's get this thing kicked off, right? So first thing you know, market dynamics, what in the hell has been going on for the last two years? What are the challenges in the market? Maybe, what is the investor sentiment looking forward, you know, in into the rest of this year, into next year. So maybe I'm Fernando. I'm gonna put you on the spot first. You know, what's going on, and how do you see 24

Fernando Pacheco  2:27  
I mean, I think we're in a bit of a low right, or kind of a hangover period, still right from from up until 21 for the first time in a long time, we had, you know, going public as a med tech company was an option, and it was a very attractive option, and a lot of people have made a lot of people have made a lot of money as a result. And that got that, you know, rug got pulled out from from underneath people. And we don't know where it's when it's coming back yet. So I think it's uncertain. I do. I'm hopeful that the public markets kind of open back up to medtech IPOs. Personally, I think if it happens, it happens next year. I don't think it happens this year, especially with an election happening and so on so forth. But I do think that the bar that it will take to take a company public has changed. Whereas previously it was trailing 30 million in revenue, growing 40% I think it's probably going to be more like trailing 70 or 80 or that size of scale, similar type of scale that companies had to have back in when we emerged out of the financial crisis, right, when Mako went public, and there's a couple of others that went public at that time, kind of that scale. So that, I think, will be the signal that then starts the cascade, you know, opens up back MNA and so on and so forth.

Nicholas Pachuda  3:38  
Okay, Tamir, I want to put you on the spot as the strategic investor there. How do you see this year playing out?

Tamir Meiri  3:43  
Yeah, so second, a lot of what Fernando said, looking at a lot of pitches, some of the later stage companies, everybody's talking about crossover mezzanine rounds as a prep for IPO. And I think part of them have to as part of this optionality they're trying to build as a potential bridge to an IPO. I may take Fernando's opinion bit more to the extreme. I don't think next year. I think it's maybe two or three years. A lot of it again will depend on the election, and the results of the election as well, and how much of the interest is going to go down, which a lot of bankers are saying, as well as kind of the culprit at this point there was, at least the way I saw it, I guess a bit of a more positive sentiment at jpm about two months ago, where meeting with the investors and the VCs, there was this approach, feeling that things were going to go better in the next few months. It wasn't clear what's the real timeline on that. I think by the presence in this conference, both VCs and investors in general, we're seeing more interest to look at deal flow. I'm not sure how that translates to deployment of cash. But you know, we're seeing more rounds closing than the same time last year, less hopefully companies shutting down. We're still seeing some of that is happening as well, but we're still not out of it yet, is what I'm thinking

Nicholas Pachuda  4:57  
Kevin and Jeff, look you guys, the. An angel as an earlier stage investor, you know, maybe, how do you have you seen the last couple of years? And when you're looking at 2024 as maybe earlier stage investors versus growth and strategic investor, you know, do you see this as a continued challenge or maybe a little bit of an opportunity based on, you know, given what's going on the market? Because I think what we see here this week, there's a ton of opportunity. Looks like there's a lot going on. But how do you guys see it as earlier stage investors?

Jeff O'Donnell Sr.  5:27  
Well, I think the opportunities are there for us as investors. I think the disconnect is some of the terms that the entrepreneurs are walking around with, they're just not realistic. You know, the interest rates have changed, right? So when you walk around with a 20% discount and an 8% coupon, I can get 5% at PNC, right? So we have to change, and we have to adapt to the environment we're in. I also think that, you know, the market is going to be depressed for, you know, a couple of years, but I think for me, it's an opportunity, you know, we're an accelerator, we're a venture studio, and, you know, we want to take advantage of the market the way it is, and we think we're very, very cash efficient, so I'm not afraid of it at all. Okay,

Kevin Rocco  6:14  
awesome, good. Kevin, oh, just quick, from my perspective, I would say I have anecdotal data from my own portfolio companies and companies that I'm helping trying to raise money. But if you all haven't been on Silicon Valley bank's reports that I think they're actually a very good resource. So take a look. They actually quantify a lot of this. It is true that there are 45% less active investors early stage today than just two years ago. So it is very real, but there's also a lot more, I think, dry powder. So when I'm looking at a company at an early stage, at an angel stage, or a series a stage, I'm really trying to, trying to bet, can they raise their next round? And that obviously is dependent on if these guys downstream are going to, are going to do that. So something I'm watching closely. I do think that, as Jeff said, there are good opportunities for investors today, because a lot of companies are doing flat rounds, bridge rounds, and so on the investor side, that's great. And for the portfolio companies and the companies that are raising money, just stay alive, just it's totally fine. Just got to weather the storm.

Nicholas Pachuda  7:14  
Great. Thanks, guys. So look at my day job at peptologics. We're getting ready to close on a pretty large C round, but that's been two years of just an incredibly difficult slog. So it was never easy. It is certainly tougher now, but there are people are having success. You know, one of the, one of the trends that, I guess, that I've noticed, is there's a gap forming from what what startups need and what investors are actually willing what risk they're willing to take, right? And there's the thought of risk is moving downstream a little bit. And, you know, I wanted to see if that's like a real, a real sentiment. And you know, maybe Deanna starting with you, since you're, you know, in the midst of raising capital, have you seen the typical investors sort of holding on to their money, protecting their portfolio and maybe being less opportunistic on new investments.

Deanna Harshbarger  8:05  
Yeah. So I think what we've seen really is depending on the stage that has been a big factor, and I sit in the unique spot of calhealth right now, and we're actually in a commercialization stage. And so in terms of that, I think people are more open to have the conversation versus something that is in earlier stage. I do think from what I've seen in the conversations and with our current and existing investors, they are interested in those new opportunities. But you have to really think about how you're going to spend that money for that round, and ensure that you're focusing laser, focused on the key aspects that are going to show the growth, or to be able to get it to the first milestone, which is, you can imagine the timing with everything. It's really focusing on, what will your cash runway be? And can you ensure that you're focused on the 123, things that have to get to that next milestone, which are probably longer out?

Nicholas Pachuda  9:03  
Okay, I'm going to comment on that one. I hear a lot of pitches, anybody that's pitching, and the when someone asks, what are what are you going to do with the money? And if the first answer is, runway, stop. Okay, take that word back out of your mouth. What is the value creating milestone that you are going to hit with that money that's going to make it investable and more investable at a higher valuation in the future. Do not say, unless you're runway health care, right, right, there you go. But for God's sakes, don't say your primary objective is runway. Now look, everybody's trying to extend the runway, but that is not why an investor wants to give you money. That actually is a huge red flag to me. Yes, I want you to have more runway, but I don't want, I want you to create value for everybody. So, so guys, you know, Tamir and Fernando, you know, on this risk shift, you know, you guys are downstream. Do you. See, you know, is this a real thing for you guys? Have your metrics, you know, Fernando, you've talked about this earlier. Do you guys see that there's truly a shift downstream, and your people are holding on to cash for their strategic or growth? Is that real? And, you know, I guess, how is that going to change in the near future, if at all?

Fernando Pacheco  10:19  
So I think there has been a shift downstream, right? I mean, we'll take, take our example. We have we're now in our second medtech Growth Fund, but in our previous fund, we had a couple of pre commercial companies. In this fund, we had one which is now commercial at this point as of a couple weeks ago. So like our own appetite for risk of what we define as growth stage, investment has also shifted downstream. But I don't think it's something that's three months old. This is something that's been happening for the last 678, years as the I mean, it starts with the M and A Right. I mean, on the M and A side, if the M and A is pushed to the right, then the late stage investment gets to push the right, and the mid stage investor gets pushed to the right, and then it kind of creates a gap on the early stage which I am not smart enough to know how to fill, but I do think there's a shift, but I will say, and this is also from our own learnings, a shift downstream to more commercial stage companies. It doesn't mean there's less risk. It's different risk, and in particular, when you're spending, you know, you spend 10 million a year on sales and marketing or 20 million a year on reps, right? A sales miss or a gross margin miss is a big, big deal, right? Because it may mean you cannot raise that next round as a result, right? So it's not binary risk, because you're going to fail a clinical trial, but you've got to be sure about about that or or have buffer about that, so it's still risk we're exposed to, and we've had some challenging situations in our portfolio as well. As a result,

Tamir Meiri  11:51  
I'll add, I mean, I think from a strategic investor perspective, or a strategic player in general, right? You look not just at J and J, but our competitors in the med tech space, very evident by a lot of the reports that are coming from the hsbcs, svbs of the world. You're seeing, first of all, the cvcs have been very active in the last two years, very opportunistic, in the sense that, you know, they're the ultimate buyers at the end of the day. So if they can, you know, put small amount money, put a fixed price option, or buy one of these companies, and be opportunistic, they would obviously do it. So you're certainly seeing more CVC deals being done in the admin of VCs, doing less and less deals. On the other front, though, have things moved downstream for us? I think in most cases, on the metech side, they've actually moved upstream for us. We're being more opportunistic. Companies that are finding it very difficult to fundraise will certainly take the brunt of it. And obviously we don't have the problem taking a majority of the round. And then we're also seeing a lot of things shift towards bill to buys, so we would be, sometimes a sole investor in the company, funded, and just get a fixed price option or right first refusal and get it in. So I think a lot of it is, again, for us, and I'm assuming for the rest, really around the strategy. And does it fit the, you know, the playing cards that we're playing? But we're seeing a bit of both, but mainly actually moving earlier than later

Nicholas Pachuda  13:06  
on our fund you just touched on the opportunity, given what's going on with valuations, whether it's in a note cap or a priced round or an exit valuation, valuations are down. What kind of opportunity does that present to the folks? I'm just going to open it up to whomever. How does the lower valuations right now open up opportunity?

Jeff O'Donnell Sr.  13:26  
Well, I think it's a good opportunity for the entrepreneur and the investor. They are going to be down now, but we're going to tranche the money in. So we want to get involved early, and we don't want it. We want to invest the least amount of money we can for the maximum uptake right to hit the milestones that we think are going to be the flat value inflection points. So I think that, you know, for us, we like, if you have a ten million budget, you're going to get a check for 2 million, and then you're going to get another check for 2 million, and we're going to see how this goes. So I think again, it's just changing with the environment that you're in,

Fernando Pacheco  14:01  
anybody else in that one? I mean, I will say so it's a bit of a double edged sword right around I agree with you. It's an opportunity. But, you know, as an example, we have 14 companies in our portfolio that are suffering from the same problem, right? So it's too many companies, maybe, maybe, right? It's, I mean, valuation is definitely not a science in this space, right? It's, you know, to put it really mildly, is, take the value you think you can sell it for, divided by three, add a buffer. And that's kind of the last valuation round right before so, and it's so the error bars are so broad, and so it's, yeah, there's no perfect answer to it, but yeah, there's a lot more flat rounds happening. There's a lot more bridge rounds. I think there's also going to be situations where a lot of companies got marked up in portfolios of. Venture funds, and those are hitting a bit of a cliff. And so it's, it's LPs are gonna get very concerned about that, I think for a number of venture funds, especially given the 2021, kind of frenzy, we'll see how that, how that all plans out. So there's, it's opportunistic, but there's a lot of pain coming for not just, you know, the entrepreneurs 

Kevin Rocco  15:23  
Nick I'll just comment on the earlier side. It's unclear to me where valuations are at, because I think having a valuation is usually an indicator that either you're doing a flat round or you have a new price round, and that's a, you know, that's a success, that's a win. There's a lot of convertible debt and even safes that are sort of just kicking the can on valuations. So I'm trying to figure that out myself.

Nicholas Pachuda  15:45  
So, you know, the next topic, I think, is really the keeper of, you know, the pearls that we want to really share here is about best practices. So, you know, we've all seen 1000s and 1000s of pitches, right? I probably see 100 this week. My team will probably see 500 this week. And, you know, it's those, what's the profile, the best practices where those folks, whether you're raising a fund, whether you're a CEO, raising a round, you know, I'd love to hear some pearls about, you know, what's working and what's not. And you know, what would a common, you know, fundraisers, whether it's a fund or a CEO, what are the common best practice? What do you see that's working relative to others that are challenging? Because right, some are going to make it, some are going to struggle, and some are not going to make it. You know? What are some of the things you see that are actually working these days?

Tamir Meiri  16:34  
You were pitching today? There it is. Perfect.

Deanna Harshbarger  16:38  
Yeah. I mean, I think what, what I've seen resonate really, has been just kind of going back to having very clear milestones and being able to say how you're going to get there with actual proof points. So to me, I think one of the comments that you were making earlier about, you know, in the commercialization rounds, the criticality of having, you know, a sales force, and there's risk associated with that. There is so in the pitching on that aspect, I'm saying, listen, we've had experience here, and these are the key assumptions, and this is why we think that it's going to end up in X, Y or Z. So it's actually just being able to back up what you're saying are going to be those milestones, and whether it's with comparables or with actual data, actual data is always better, which is by getting that experience first and then going for that pitch, I think is important,

Nicholas Pachuda  17:29  
awesome. I want to hear from everybody on this one, so I'm just going to go down

Kevin Rocco  17:33  
the line. So the nice thing, but also the very stressful thing, about running an early stage medtech company, is that you know when you're going to run out of money, so you just put that, you circle that on the calendar, and you work backwards, right? Build yourself a timeline, and have the confidence to say we're going to raise our round before that date. And then be transparent with your potential investors. Hey, we're looking to raise by this date. Give them enough time to get to know you, to get to know the company and preferably set some milestones that you're going to execute on, so that they can see that you execute and you stick to the timeline. And at the end of that process, you're either going to get that raise done or you're going to be moving on just

Nicholas Pachuda  18:12  
to touch on that. When should you start? Right? Because I've seen folks telling me I'm going to start 30 days before I run out of money yesterday,

Tamir Meiri  18:21  
is the question, right?

Kevin Rocco  18:23  
Yeah, so just, I mean, I think it's got to be more than six months out. I think from first meeting to wiring money is usually more than a six month process, and oftentimes it's multiple years. You got to get to know people two years prior, and that's the reality. So it's a good that everybody's here and we're meeting each other in person. Hopefully you don't need money tomorrow. Yeah. So

Jeff O'Donnell Sr.  18:47  
I think the other thing is really taking the time, from an entrepreneur standpoint, take the time to really understand your investors, find out if they have a fund that was just completed so they have a seven or eight or nine year horizon. Don't take money from a late stage fund. Understand clearly, you know, what kind of success,

Fernando Pacheco  19:09  
something different, to be clear, what have fun at the end of its life cycle. That's, that's the end of its investment period, yeah, yeah.

Nicholas Pachuda  19:17  
That's what I meant. Always take money from Fernando, yeah.

Jeff O'Donnell Sr.  19:21  
So I think that's it, you know, and you have to really, as an entrepreneur, have the guts to sit down and interview the venture capital firm to make sure. Have you had success and structural heart? Have you invested in dermatology before? Was that a good experience for your team? Do you expect to put somebody on my board? How long do you have left in fund one or fund two, wherever you're getting the money from. And then, you know, as you said, also, I think you're always raising money, right? I think you're constantly raising money. You're going to run into a fund that likes early stage, but have the conversations with the deer fields and the Warby beds. And others that are going to be very helpful to you in the later stage.

Tamir Meiri  20:04  
So to second, Jeff, and I think the common denominator, I think around this panel, and I'm sure you were going to say something similar to that, is do your homework, right? Both internally in terms of what are you planning to get with that money, but also when you're reaching out to investors, and it's a common symptoms of big conferences like LSI, every investor is going to get 1000 requests that are probably not relevant to his mandate, stage, focus, whatever. Which is fine. You know, it's the nature of the business, I guess. But you know, we are all I can certainly speak for myself, backed up from like seven in the morning to seven in the evenings and meetings back to back. And, you know, you come back, and I will do that later today, on the flight back home, doing my homework and saying, Okay, which one's worth following up? What's going on with this one? What's going on? Who do I need to send this to within j and j so as much as I do my own homework, you should do yours as well. So, you know, we're all stretched for time and effort. You know, don't waste our time with something we're not doing, right? So I think that's the key thing.

Deanna Harshbarger  20:57  
I'll echo that as well too. I mean, that's certainly been important. And so, for example, like, when I am looking, I am looking for very specific characteristics, and so I'm not going to go talk to somebody who is looking focused on early stage seed. And so I think that's really important. And also, if you're thinking about a strategic as well too, I mean, that is a partnership. That's a long term partnership. And so you have to make sure that everything is aligned from that standpoint, that they're going to be on that journey with you for a very long time. So you want to make sure you see eye to eye there too.

Fernando Pacheco  21:34  
I mean, there's been a lot of really, really good comments here. I think I'll just echo on a couple of them, on the how long it takes to raise so, so we know, for companies that I'm involved with, we normally say nine months before cash out is when you should have your pitch deck ready and your plan, and that's when you start right. The challenge is, you know, if you're raising for 18 months of runway, what value will you demonstrate after you close your financing to be able to justify that next financing. So hence, don't go 18 months, go 24 right? And so on and so forth. And just like with us, election stuff, get as much as you can in between the first the general and this first midterms, right? Get as much as you can done in that period, because then it gets harder. The other thing I'll mention, and I've seen some companies do this extremely well, is just put again, do your homework, put yourself in the mindset of that particular investment. Do the investor? Do the research and think through, what would their three or four key questions be about my business? And it can be, like, basic stuff, you know, how differentiated is this product, or how big is this market? But it could also be, you know, okay, I get the technology. It makes sense, what share could this take in in the US market as an example, which, by the way, is a shortcut for how what peak sales it could have, which is a shortcut for how much these guys are going to pay for in the future? Okay? And to the end of your point, like I've seen a company that do this recently, they came data limited commercialization, they went after 40 customers, and they established the baseline with those 40 customers on how much, let's say, procedure X, they were doing before, and a year into this to the adoption of this product, how much of that those procedures have now been transferred. You know, does this, does this new product take and share? That enables me to look, oh, wow, they did it this over 40, over the next 400 this is what it could look like, right? And that that was they had actual, real proof points in terms of limited commercialization that justified some of their assumptions in their business model. That I'm going to have to

Nicholas Pachuda  23:36  
back make a quick comment. Look, there's a lot of reasons why people invest. As an investor, what I don't invest in in my primary criteria is not your pitch deck and your IP and the data slide and all the great things that you've done along the way. I'm investing in you. I'm investing it's the person can Are you compelling? Can you tell a story, are you passionate and are you the person that's going to get it across the finish line, and that ball's not going to hit the floor, right? Do you have the drive and deliver this across the finish line? Because I'm pitch decks, don't get a deal across the finish line. The person does, right? So if you're not credible, and it literally takes about 30 seconds into that conversation where the investor's in or out, you haven't even opened your pitch deck yet, and how many of you had to tell your story to someone at breakfast, lunch, the bar, the hallway today, everybody can you tell your story in 30 seconds, get enough interest that someone wants to have another meeting with you. Right? Don't obsess about the pitch deck. Obsess about the fact that, can you convince someone, in 30 seconds that you got something that they need to pay attention to? Right? If you can't do that, don't worry about the pitch deck. It's not going to matter.

Jeff O'Donnell Sr.  24:52  
And try to take the opportunity to do that right when you're talking to somebody, make sure that they know that you ran into a problem before. Four and you got yourself out of it, because that's exactly right. We're not investing in business plans. We're investing in people that have the tenacity and the passion to start again, pick up the ball and keep going forward. I

Tamir Meiri  25:12  
will add just quickly, it's honesty and modesty at the end of the day, you need to be honest about you know, don't lie. Of course, don't lie, as a general rule in life, I think, but in general, you're talking to an investor, doesn't create a lot of trust. But I think also be modest about what you don't know yet. Don't over promise because that that kills the deal, right, or kills the person I was

Deanna Harshbarger  25:32  
just going to comment that 30 seconds that you're going to do that pitch on, there's a ton of homework that goes into that that's not just I'm going to toss up like, a couple key slides from my pitch deck that is based on, I've done my research to find out who I'm actually talking to, what's important to them. And again, what value can I show and those proof points in there, and you can do that in 30 seconds. If you can't, then you haven't really thought about your your value.

Kevin Rocco  25:58  
Yeah, let me hopefully give a little hope here to the room after your fire and brimstone, I think investors like to hear that you're an MIT spin out Nobel Laureates. You've sold two companies previously, and you have name brand venture capitalists involved already. I did not have any of those things. I was a first time founder, first time CEO, relatively young, none of that stuff. And that's, I think, ultimately why I struggled to raise money. And so what I ended up doing, obviously, was trying to outwork everybody, but also raising money from angels. And we ended up raising the majority of our $12 million through angels. And we just kind of kept going. So you know, if you are struggling to raise money, especially if you are a first time founder, or don't check all of those typical boxes, there is money out there. It just may not come from name brand, VCs,

Nicholas Pachuda  26:52  
yeah. I mean, it's a great point. Look, if you've everyone here has failed, an investment, a project, a startup, if you admit, hey, we had a problem. But here's what we learned from it, and here's why we're better now, and I'm an even better, less risky bet because of what I learned, right? So, so moving on. You know, there are obviously those few best practices. There's also some challenges, right? What? There's always a red flag here and there that, you know, investors are looking for, where's the risk? How do I find that risk? They're going to probe very quickly and find out where the weak spot is, because they don't want to have to have that weak spot as they discuss that with their investment committee and find out you missed something, right? So one of my first points is, I'm going to steal a line from a comedian that said, if you're starving, go where the food is. Okay. If you don't have money, go to the people that actually have it. Okay, so there's a lot of medtech startups in the world. Why the hell aren't you here? Okay, this is the most productive medtech investor conference in the world. There's two a year. There's plenty of others as well. If you're not here, you're not connecting with the 200 investors that are running around. You're going to try to do it over a zoom call. I invest in people. It's even harder when that person's on a zoom call, as opposed to live. Here's your live opportunity. Use it, right? And for those that aren't here, don't get to hear, you know, the pearls from these folks and the other hundreds that are out in the hallway, right? So use the timing. Go where the food is.

Kevin Rocco  28:24  
Nick if I could, if there are people in the room that have struggled to, you know, use the app to get confirmed meetings. You know, don't lose hope on that. Find people at breakfast, lunch, coffee drinks. Get get that warm intro. You know, don't try to sell anybody. Just introduce you know who you are, why you're here. If the opportunity arises in the future, you know, you'd love to actually send them a pitch deck.

Fernando Pacheco  28:46  
What I'll mention as well, this is a long term game, like, on average, most of the companies that we invest in, we've known for three or four years, right? That means we're that means we're taking pitches from companies that are too early for us by definition, purposefully, right? And then we have checkpoints every six months or every year, okay? They said they were gonna to your point about investing in people. They said they were gonna do ABC a year later. They did a and b, and they learned a bunch of stuff on C, right? So that's okay. So keep going, right? And we check, check back in, and then, and then, when you, when you, when you make the investment, you know, you know. You know whether they have kids or not. You know, where they'd have a dog, like, you know, the person, because it's a marriage, right? You're going to be together on a board for five six years. You want to be there for three to five. You're going to be there for six or seven, right, at least. And so it's, it's, this is the diligence process, and it's the dating process, and it takes years,

Tamir Meiri  29:36  
yeah, and I'll add a comment, it's a Catholic marriage, so you can hardly divorce, and if you can, it's getting very ugly, and you're hurting the kids, right? So, hurting the kids, right? So I think the other, the other thing is, sorry for being the blunt Israeli in the room, but I think the other thing is, you know, it is a long, a raw around the people, right? So there is even at this conference a certain entrepreneur who is in the Bay Area. So I've met her physically in the Bay Area several times, and obviously not was. On strategy for us three years ago, but she is impressive, and I thought all the conversations were very insightful and fruitful, and the business Bond looked great. Let's keep in touch. In goes another meeting and another meeting, and suddenly it's not on strategy, but we are taking a deeper look, and we may very well invest. So again, to your point, three, four year journeys, and then you invest, sure.

Nicholas Pachuda  30:18  
I mean when you're pitching, and you have to assume that there's a 99% chance that group is not going to invest in you. So what they might not invest now, they might not they might not invest next year. It might be three, four years down the road. But again, if you're credible and compelling, they're going to want to find a reason to invest in you. And your company might not be this might be the next one. But again, it's the relationships that you build and the trust and credibility that get you in the game, right? So use that time. Everyone's here either to tell a story or to hear a story. Nobody came here to look at the ocean all week long. Of course, it's awesome. But everyone in the hallway, everyone at breakfast, lunch, dinner, is here to tell it or hear it, so use the time no one's here to, like, blow you off. Right? It might not invest now they but the question I would always ask is, okay, you're not interested. Why not? What could I do better? And if you're interested, but you can't do it now, who else can you give me one name of someone else that you think might be interested, given my stage or my story, right? And everybody wants to help, if you have a relationship and you tell a story, they're going to try to help you, right? So use the time, use the access, and at least come away with a better understanding of who they are, what they invest in, when they want to talk to you and get a name of someone that they can send you

Tamir Meiri  31:39  
to, and maybe just, we'll comment to add Nick I think it's kind of best practices for investors in general. If you're saying no, say, why don't just say no, you could say it's not a strategy. It's too early. That's fine, but at least give some feedback to the extent that they know how to improve, right? And if you as founders and entrepreneurs, at least ask if you're not getting that, at least assets that you know how to improve, either for that same investor or the next one in line.

Jeff O'Donnell Sr.  32:02  
And I think if you are a first time CEO, you can say you're a first time CEO, and then point to your advisory board, point to your board of directors, point to the credibility that you do have.

Nicholas Pachuda  32:15  
Yeah, obviously. So let's talk about a couple of unique models, or maybe upstream models. So, you know, I know that, you know, Jeff, you've got an interesting approach, right? And you're taking advantage of the opportunity here, and you mentioned venture studio. So tell us a little bit about, you know, so what that is and how that works. Because I heard it maybe once two years ago. I heard it three or four times last year. This year, I'm hearing it 1015, times. What the heck is a venture studio?

Jeff O'Donnell Sr.  32:39  
Yeah, well, I thought I was an accelerator, until your partner told me I was a venture studio. So I've been lucky enough to work with teams and do eight startups. And so I thought back on my career, and I said, what went well and what didn't go well? One of the things I noticed is that I raised a tremendous amount of money for single product companies. And so once I build up the infrastructure of accounting and regulatory and quality and engineering, I look around them, I have this whole infrastructure for a one product company. So we said, what if we could take a management team that's been there and done that before, like these folks, and we could put a management team together, and we could raise a fund so the CEOs don't have to spend 80% of their time at these meetings. You can spend 80% of your time managing the project. Right? What a what a concept. So we started runway. And runway healthcare is a venture studio. We have the money, we have the fund, we have the product management team, we have the engineers. They're our employees, and you bring your idea to us, and if our interests are aligned, meaning that we're early in, but we're also early out. So if our interests are aligned and you're willing to sell the company pre commercialization, right after we get the regulatory approval, we're a good fit for you. And so that's the venture studio we have right now, we have three portfolio companies and again, one management team on all three projects. So think about it, an engineer makes whatever 150 $200,000 a year, but each company is paying them every month, so no one company is burdened with high overhead when the project is over, meaning we get FDA approval that burn rate that might have been at 250 or $300,000 a month when we were flying high and developing the product that can be reduced down to $20,000 a month once we put the company. In the process of selling it. So that's a venture studio.

Nicholas Pachuda  35:05  
So guys, you know, Kevin, you're obviously, you've gone from first time CEO to successful exit to working at a corporate and also, you know, based on some of that success, you know, moving into the angel and investment world. And you know, you've had multiple perspectives on how this works. So, you know, when someone's pitching to you, you know, what are the, what are the triggers that you know when you see those things, you know, what are the positive triggers that make you actually get interested everybody wants to sort of, what are the pearls? But what do you what are the sparks of interest that make you want to have another meeting?

Kevin Rocco  35:41  
So I think for me, I like to work backwards from a strategic or whoever's going to buy this. I don't typically look at things that are going to IPO. So I'm just curious, like, Why does this have to exist, and why does this, why is this the right person to do it, and and handicapping, obviously, the odds of that success. So I think there's a there's a ton of opportunity out there. I need to walk away pretty convinced that this is differentiated enough. And with a with a corporate hat on, con med is actually short for Consolidated medical. They're consolidator of medical device companies, meaning we buy companies and really grow them commercially. And so I've seen a lot of no's right, it's and it the technology may be great, it's incremental, but if it's not a strategic fit, that's going to change the business, we're probably not going to buy it. So that's, I think you got to figure out who's really going to buy it. Why are they going to buy it? And then how do you plug into that? And then you got to fill that five to seven year valley with financing and value creation.

Jeff O'Donnell Sr.  36:44  
Yeah. I mean, we do that in our due diligence, which is, I think we all do that in our due diligence. What Kevin is saying is, do you understand the due diligence process? Did you already go to Edwards and Baxter and Medtronic and show them what you're going to do and how they're going to because we're going to call them, and it would be great if they knew your product and they had an opinion.

Nicholas Pachuda  37:07  
So Deanna, you guys are raising money now. You have an amazing technology, and you've raised money along the way and been successful like i j and j, I tried to invest a few years ago. So tell me a little bit about, you know, you've been successful for Cala along the way. What's actually driven your capital raising success and your operational success, like, what's working for you guys?

Deanna Harshbarger  37:29  
Yeah. So again, I am, I am lucky to be here. And there were many people that came before me with Cala, many people along the journey as well. So from the raising standpoint, that was actually a lot of the prior team, and that's what I'm doing right now. And so our focus has really been operationally. How do we take this and how do we ensure that we can grow? And so again, that again, I keep boiling it back down to it's all about those proof points that are going to exist that we can show where that value is going to come from and and our belief is that in this raise, as long as we can show that that value can be created based off of fundamentals, of things that we have already done, that we can show are true, then we believe that's what's going to help us have a successful Raise.

Nicholas Pachuda  38:19  
Awesome. So we've got about a minute left. We're going to go down the line, starting with Jeff, and we're going to do parting shots, meaning, what is the single most important piece of information that you could give a startup right now that would would help them move forward. What's the most important thing thing they need to consider? And I'm just going to put you guys on the spot, Jeff, what's the most important thing that a startup needs to think about right now?

Jeff O'Donnell Sr.  38:43  
I think you have to do your homework and don't waste time on calling on investors that you know are not in your space. And like I said earlier, maybe have an older fund spend the time on research on that

Fernando Pacheco  38:58  
great Fernando. I think help answer the question of, how big could this business ultimately be, right? And it's around, how big is that market? And don't just stop. Oh, it's a billion dollar market, full stop. Next slide, right? Really help them bridge the gap of, okay, this could be a $200 million business in the hands of an acquirer in one

Tamir Meiri  39:16  
day. I'll say, say you're planning for six but actually planning for 12 months. So I

Kevin Rocco  39:22  
think follow up for everybody coming out of this meeting, follow up is key. I learned after I sold the company that there were people that were interested that I basically just took out of my funnel because I never heard from them, and I should have just kept pinging them. Progress updates, follow up, follow up, follow up, at minimum, they're just going to think you're persistent. I mean, don't, you know, be respectful about it. Do it in a value add way, but do follow up with everybody. So

Deanna Harshbarger  39:44  
I think everybody said a lot of great things already. So the one piece I'll add is maybe I shouldn't say it, but it's stalker mentality. I have a spreadsheet, and in that spreadsheet, again, I've done the homework to figure out, who do we think is going to be a great fit? And then it's Who do I know that can get me connected there to be able to get that warm transfer. And then it's hard work. Hard work, hard work, if you believe, hard work.

Nicholas Pachuda  40:09  
All right, my parting shot, as I've already said it earlier, it's about you and your story. So if you haven't practiced that 30 seconds, you're gonna get versions, right? 30 seconds, wait, here's a half an hour meeting. I got a one hour meeting. Whatever time slot you have, you better be able to tell that story, and you better practice that make it you know, before you raise money, you better have that 32nd half an hour and one hour pitch deck ready to go. You better have a teaser. If you're going to raise real money, you better have a data room, and know what that is and what needs to be in there, but pressure test it. You've got board members, sab business advisors, investors, future investors. Pressure Test your story as many times as you can. And if the first time you're telling it, it's the day before you came here, you're in trouble. It's about you and your story. So practice and pressure test it. So you've thought of every question you're going to get before you get in here. Awesome. So hey, we're so lucky to have these folks. I really appreciate the time. I appreciate the fact that we filled this room over lunchtime. So thank you so much. Good luck with the meeting, and we'll see you next time you.

 

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