Thriving in a Bear Medtech Market
Navigating growth in medtech is a nuanced job. We have seen supply chain disruptions, financial strains, and a long bear market. However, a bear market, while challenging, also presents unique opportunities for savvy leaders to capitalize on.
Build a purchasable company: Set achievable goals and adopt practical strategies. Aim for a business plan that can lead to an earlier exit at a lower valuation. This is a more realistic scenario as it’s more appealing to investors in today’s landscape.
Address fundamental needs: Solve real, significant problems rather than offering incremental improvements. Develop straightforward, effective solutions that will naturally attract interest and drive market adoption.
Turn crisis into opportunity: Pay attention to market pendulums and don’t be afraid to take calculated risks during bear markets. That’s when you can harvest greater returns. Prove your concept’s viability. Strong clinical evidence can allure potential buyers even before you start generating revenue.
Keep large companies on your radar: Focus on developing solutions for gaps left by large companies. They are likely to acquire promising innovations to enhance their core franchises.
Aim for a Realistic Exit
Paul Buckman is a legendary medtech entrepreneur with multiple exits under his belt, including ev3’s billion-dollar sale to Covidien. He’s also served as the CEO of several medical device companies, like Conventus Orthopedics, SentreHeart, Pathway Medical Technologies that was sold to Bayer Healthcare, and Devax, also sold to Biosensors International. He also served as the President of the Cardiology Division of St. Jude Medical and Boston Scientific.
Since the medtech industry took a downturn after 2010, fewer venture capital firms have invested in startups. Paul points out that those who do are very selective about the stage of the company and the areas they support.
To adapt to the changing landscape, Paul’s advice is to avoid relying solely on venture capital or angel investors. Instead, he recommends bringing in other strategic partners, like larger strategics who align with your business goals.
To do that, Paul advises, "Have a business plan that anticipates an earlier exit at a lower valuation," he says. "It’s more realistic and attractive to investors."
High valuations are alluring, but they are not always the answer. For Paul, it’s better to aim for reasonable, achievable goals. "There are fewer $500 million acquisitions happening these days," he notes. "It might make more sense to aim for selling a company for $75 million and then figure out what milestones are necessary to achieve that goal."
To plan for a realistic exit, Paul advises focusing on three key areas. First, target a market opportunity that's attractive and manageable. Investors want to see a clear path to profitability, so ensure your product can secure reimbursement or operate in a cash-only market like aesthetics. Second, address the regulatory pathway efficiently, minimizing risks to make your venture more fundable. Lastly, assemble a top-notch management team with a proven track record. Investors are cautious and look for ways to mitigate risks, so demonstrate that your team can navigate these challenges successfully.
By partnering up strategically, aiming for realistic valuations, and, in the meantime, planning for an early exit with lower capital requirements, you can make your company more attractive to i nvestors. This way, you don’t only disentangle your fundraisers for smoother rounds, but also increase your leverage for an acquisition.
Develop Painkillers, Not Vitamins
Daniel Hawkins, the CEO of Vista.ai, founded Shockwave Medical in 2007, where he served as CEO for a decade. He later founded Avail Medsystems, a company that connects operating rooms to remote medical experts for real-time collaboration during procedures. He played a pivotal role at Intuitive Surgical, where he led the marketing department and guided the development of the DaVinci surgical robot. Furthermore, he has held senior leadership positions at Endologix and Calibra Medical, now part of Johnson & Johnson.
For Daniel, a medtech startup has to address a fundamental need. "You need to focus on the painkillers, not the vitamin pills," he says. For instance, Shockwave Medical identified the issue of calcification in peripheral and coronary arteries, a clear treatment gap, and developed a solution using high-speed pressure waves to create cracks in the calcium. This referred to as intravascular lithotripsy, or IVL, and sidesteps the common pitfalls of other treatments like high-pressure balloons and atherectomy.
Identifying a gap is the first step, but there are infinite ways to address a problem. One thing to keep in mind in product design is that less is more. Simplicity in technology is key to driving adoption, as a complicated device seldom attracts attention. "Great products are purchased, not sold," Daniel asserts. He believes that what leads to success is addressing true needs with user-friendly, straightforward solutions. An effective product naturally attracts both users and investors in the market. "The intersection of focusing on true needs and keeping the usability, the function of whatever technology it is, very, very simple. Those two together will drive adoption," Dan says.
Take Advantage When Others Hesitate
Mike Carusi is a seasoned venture capitalist with a focus on the biopharmaceutical and medical device arenas. As a General Partner at Lightstone Ventures, he's backed numerous successful companies, including Altura Medical and Ardian, which was acquired by Medtronic. Featured on the 2011 Forbes Midas List, Mike is also a public speaker and educator, serving on several advisory boards, including the Stanford Biodesign Emerging Entrepreneurs Forum and the UCSF/Berkeley Venture Innovation Program.
Echoing Warren Buffet's famous adage, "The best time to be greedy is when others are fearful," Mike believes that challenging economic climates presents opportunities. For him, the downturns might be golden ages for those who are willing to take calculated risks.
During bear markets in medtech, many venture firms either pull back or shift their investments to later–stage companies. While this might seem disheartening, Mike sees it as an opening. The big players still need innovation and early-stage investments in novel, disruptive technologies offer the best opportunities. So, demand for truly groundbreaking early-stage companies is actually increasing. “As the capital in the industry shrinks, the demand, for our companies will go up because the major players will continue to have a need for innovation,” he explains. In other words, when others hesitate, there’s a chance to seize opportunities that can move the dial in the right direction.
In a climate where raising capital is tough, Mike advises entrepreneurs to think creatively about funding strategies. There are multiple ways to make money on a venture – it’s not just about the amount of money raised. Mike shares, “What we try to do is look to pioneer a space, look for things that are highly novel, highly disruptive. We believe that if we demonstrate that novelty, hopefully through clinical data, not through having to drive revenues, that that company will get taken out early and that we can make a very good return.”
In an industry where many companies focus on incremental improvements, Mike advocates for true innovation. He warns against the temptation to follow trends: “You can be too late to be a first mover and too early to be a fast follower. You need to let the first movers pick the arrows a bit, find out what works and what doesn’t, and then you can see where you can improve on those products."
To follow Mike’s advice, pay attention to market pendulums. A bear market demands a critical eye, but the right investment when others are fearful, often results in greater returns.
Create Solutions that Big Players Need
Rich Ferrari has been at the helm of two public companies and co-founded six others, four of which have been acquired. Currently, he serves as the Executive Chairman of Tenon Medical, while also holding chairman roles at Pulmonx Corporation and other firms. Rich co-founded De Novo Ventures, focusing on evaluating investments and mentoring first-time CEOs and inventors.
To navigate the early stages of a medical device company, Rich suggests combining angel investments with government grants. This can provide a solid foundation before seeking traditional venture capital, thus de-risking the venture for a longer runway, making it more attractive to larger investors later on.
Stemming from this concept, Rich put together a model that he calls “the medical device generator.” Unlike an incubator, the technologies backed here are already developed to a certain level and run through a series of tests. Rich explains, “It's not an incubator. We’re taking projects and finishing them through a very methodical process.”
Rich points out that the big players in the field tend to focus their resources on maintaining and innovating their core franchises—those that generate the bulk of their revenue. These companies allocate their top talent and resources to ensure continuous innovation within their primary product lines. While this is crucial for their business, it often leaves gaps in the market for ancillary products and complementary technologies.
Medtech startups are ideally positioned to fill these market gaps. "They’ll look for the startup world to develop those and then swoop in if they think it’s really important to the franchise and buy it," Rich explains. This is how large companies rapidly expand their product portfolios without diverting resources from their core businesses.
Rich predicts a similar dynamic in other high-growth areas, such as hypertension treatments. "You’re going to see a variety of different technologies, so try to tap into that," he says. "The big guys aren’t going to develop that. They’re just going to buy the position, buy the IP."
For startups, this presents both an opportunity and a challenge. The opportunity lies in the chance to develop essential tools that big companies will eventually need. The challenge is to stay ahead of the curve and demonstrate the value of your innovations before other players move in.