Mastering the Medtech Exit
There are so many individual factors that need to be perfectly in place to score an exit in the medical device business — market timing, economic climate, industry trends, and more. Here are lessons from six seasoned veterans who've been around the block and know what it takes to make it happen.
Identify potential buyers and build relationships: Identify who might acquire your company early on. Build relationships with their trusted advisors and involve them in your work. Keep their commercial teams updated, but focus on building a strong, sustainable business — not just on being acquired.
Set clinical goals that truly matter: Define clinical endpoints that align with what patients and doctors care about, not just regulatory needs. Eliminate risks early to avoid late-stage failures. Focus on real-world needs to build a stronger, more attractive company.
Score early wins, build experience: Start with developing 510(k) products before tackling bigger ones like breakthrough devices. Deeply understand your field, research competitors, get honest feedback, and be ready to pivot. Resolve early risks, especially around reimbursement.
Keep investors few and nimble: Limit your investor group to two or three to streamline decision-making and avoid delays. Too many investors can slow you down with red tape.
Hire top talent for each stage: Begin with a clear vision and surround yourself with the best team. Early on, you need innovative thinkers; as you grow, bring in experts to scale up. Build solid relationships with key stakeholders.
Don't start a company with one eye on the exit: Don't focus solely on being acquired. Build a self-sustaining business that makes a real market impact. Acquirers watch how the market reacts; build long-term value, and the investors will come.
Befriend Your Potential Acquirers
Bruce Shook, Director of Pennsylvania Bio, has 30+ years in the medtech industry and a knack for steering companies toward successful exits. He was the CEO of Vesper Medical and Intact Vascular, both of which were successfully sold to Philips.
"The well-worn cliché that says, 'companies are bought, they are not sold,' is certainly true," Bruce says. But that doesn't mean you should just sit back and wait for an acquirer to come knocking. There are proactive steps you can take to make your company more attractive for acquisition.
First, identify potential acquirers early on. "You should identify those companies in your space that would be likely acquirers down the road," he advises. Knowing who might be interested in your technology helps you tailor your growth strategy accordingly.
Second, align yourself with key opinion-leading physicians who are trusted advisors to these potential acquirers. "Get them on your own Scientific Advisory Board. Get them involved with the development of your products and the management of your clinical trials," Bruce suggests. These physicians can become invaluable advocates for your company within the industry.
Third, build relationships with the commercial and business development leaders at your targeted acquirers. "Introduce them to your company and update them on your progress at conferences you both attend," he recommends. Bruce shares from his own experience at Intact Vascular: "In the case of Philips, we developed a relationship with the commercial leadership team—Chris Landon, Heather Page, and Bud Fahey. They were the people who really recognized the great fit between our companies and drove the process internally at Philips."
Finally, don't run your company with the sole expectation of being acquired at a specific time. "Nobody can predict when, or if, acquirers will act. So, don't paint yourself into a corner," Bruce cautions. Focus on building a strong, sustainable business that can stand on its own.
In essence, Bruce emphasizes the importance of strategic networking and genuine relationship-building. While you can't force an acquisition, you can certainly make your company an attractive candidate.
Know Your End Points
Dr. Scott Wolf is the founder of ZELTIQ Aesthetics—the company behind the CoolSculpting treatment, a non-surgical fat reduction treatment—and Aerin Medical which develops non-invasive ENT solutions for chronic nasal airway conditions.
Dr. Wolf believes in the power of momentum. "Your first step could be almost anything. It could be naming the company. You could make mistakes, but it really doesn't matter as long as there’s movement towards the goal," he shares.
Having said that, he warns against a major risk factor: a failure in clinical endpoints, in later stages.
Dr. Wolf emphasizes the importance of defining clinical and regulatory endpoints thoughtfully and carefully. They are more than simply the components that allow you to achieve FDA clearance or approval; they also need to be the things patients and physicians care about most. In other words, while you’re ticking regulatory boxes, you also need to make sure you’re delivering real value to your end-users. "The worst thing that can happen to a company is that they have a late-stage failure in a clinical study. You never want that to happen," Dr. Wolf warns, "So, your strategy should be to ring out all of the risks before you get to the point where you're doing large human studies."
This means working on eliminating risks early and aligning your clinical endpoints with both FDA approval requirements and the needs of patients and physicians.
In sum, Dr. Wolf advocates for meticulous planning in clinical studies and aligning your company's objectives with real-world needs of patients and physicians to build a successful company that could attract attention from bigger players in the industry.
It’s All About the Early Wins
Mike Wallace knows a thing or two about turning medtech startups into success stories. As the co-founder and CEO of Devoro Medical—which successfully exited to Boston Scientific in 2021—he's been through the trenches. His resume also includes significant contributions to startups like Target Therapeutics (acquired by Boston Scientific), BARRX Medical (acquired by Covidien), and Baxano (acquired by Trans1). Not to mention, he co-founded and exited three other startups: TW Medical and GW Medical Neuro (both acquired by Stryker Corp) and CardioProlific (acquired by Philips).
So, what's his take on success in the medtech startup scene?
"Score early wins with short-duration 510(k) products before graduating to PMAs," he advises. Starting with smaller projects allows entrepreneurs to build confidence, understand the landscape, and learn valuable lessons without the high stakes of a monumental endeavor.
Mike believes that many first-time entrepreneurs dive into big projects without the necessary groundwork. "They don’t understand their target disease well enough. They don’t do enough research on competitive products. They don’t talk to enough experts to hear brutal critiques," he says. For him, refusing to pivot when needed can be a major stumbling block. "They don’t pivot at the right times because it often requires starting over. They simply lose interest in their project because it can be hard, lonely, and sometimes soul-breaking work to get your project far enough along to be worthy of being funded," he shares.
Resolving early risks is another critical factor in carrying a project to success. Mike points out that the initial idea is just 5% of the journey. The real work involves mitigating risks—technical, clinical, regulatory, and especially reimbursement. If reimbursement isn’t in place, you need to have all other risks—technical, clinical, and regulatory—almost entirely mitigated to justify it. Be prepared to raise substantial funds to influence medical societies and insurance companies with the necessary clinical data and cost-saving justifications.
Commercially successful products are the result of intense multidisciplinary efforts led by "stubborn, unrelenting founders." Many early startups lack the experience or staying power to bring ideas to fruition. By focusing on smaller projects first, entrepreneurs can build the resilience and knowledge needed for larger, more complex endeavors.
"Even under ideal circumstances, success in medtech requires stubborn, unrelenting focus and drive," Mike concludes. His wisdom for budding entrepreneurs is: Gain experience through early wins, resolve risks early, and be strategic when committing to new projects. Once you've built a solid foundation, you'll be better equipped to tackle those game-changing innovations.
Size Matters (But Bigger Isn’t Always Better)
With degrees from both Stanford and Duke, Garheng Kong has built an impressive career as a venture capitalist, backing a multitude of healthcare companies. After honing his skills at Intersouth Partners and Sofinnova Investments, he launched HealthQuest Capital, a private asset firm focused on providing growth capital to companies transforming the healthcare industry.
So, what's his insight on attracting the right investors?
Garheng, who evaluates up to 1,000 investment opportunities each year, understands the delicate balance required in accessing syndicated funding for a startup. "Two or three syndicate investors is a good number; anything beyond that can be problematic," he advises. Keeping the investor group small ensures that everyone's voice can be heard, and it streamlines decision-making processes.
Having too many investors can slow down your timeline—a critical factor when bringing a product to market. "The more people at the table, the more likely the startup will face red tape in preparing to launch its product," Garheng notes. This can lead to delays that are detrimental to a startup's success.
Echoing the wisdom of Kleiner Perkins co-founder Eugene Kleiner, "The only thing a highly syndicated deal guarantees you is a well-attended funeral." Garheng emphasizes that when it comes to syndication, bigger isn't always better. When you're planning an exit, having too many cooks in the kitchen doesn’t help. Keeping your investor group small and focused helps you stay nimble and makes it easier to navigate the complexities of selling your company.
In sum, Garheng advises building relationships with syndicates—strategically. Maintaining a tight-knit syndicate of two or three primary investors helps you navigate funding complexities more effectively and keeps your journey toward innovation on the right track.
Hire Top Talent for Each Phase
When it comes to turning medtech startups into success stories, Bob Paulson has been there and done that—more than once. He has two decades of executive experience at VentureMed, Endocardial Solutions, Advanced Bionics, and Medtronic. He led NxThera to an exit to Boston Scientific. Today Bob is leading Sonex Health to bring forward minimally-invasive ultrasound guided procedures to improve precision in surgeries.
Bob’s first advice is having a clear vision right from the get-go. "What are the outcomes we are aiming for, and how are each of the functional pathways—which are really inextricably intertwined—going to progress along those pathways to get there?" he asks. Only by knowing where you're headed, can you align your team's efforts and strategies to create irresistible value.
Bob also points out that investors often bet on the jockey, not just the horse. "If an investor has an opportunity to invest in the greatest idea ever with a mediocre or less leadership team versus a middle-of-the-road idea but an absolute crackerjack leadership team, more often than not, they're going to invest in the people," he says. That means surrounding yourself with the strongest team possible is non-negotiable. What you need from a team also depends on your stage. For example, according to Bob, in the early days, you need those "MacGyver" types—engineers who can think on their feet and innovate quickly. But as your company matures, your team needs to evolve. "As you move forward, that has to evolve into working collaboratively with regulatory and quality – your team is going to evolve as you move through each phase of the company," Bob explains. The key is to have people who have "been there and done that" in your specific space and your specific phase.
Lastly, Bob highlights that trust and credibility are the name of the game, whether it's with clinical investigators, regulatory bodies, or potential investors. "Maintaining these relationships helps to foster confidence among potential acquirers," he notes. Who you know and how well they know you is really important when it comes to M&As.
To follow Bob’s footsteps in medtech, start by nailing down a clear vision right off the bat. Know exactly what outcomes you're aiming for and map out how each pathway will get you there. To build a startup that others will want to acquire, surround yourself with the strongest team possible and update your team as your company matures. Lastly, build solid relationships with clinical investigators, regulatory bodies, and potential investors.
Build It and They Will Come
As the Chairman of ThermoTek and a serial entrepreneur with over 25 years in the healthcare and life sciences industries, Robert Kline has exited multiple medtech companies to giants like Hologic and Becton Dickinson. Named Entrepreneur of the Year for the Mountain/Desert Region by Ernst and Young, Robert has been around the block more than a few times when it comes to building companies from the ground up.
Don't start a company with one eye on the exit," Robert warns. "Buyers don't magically appear the moment your device is approved for the market. Build a self-sustaining business, and the investors will come." For him, entrepreneurs who are fixated on the exit from day one are setting themselves up for disappointment. So many individual factors have to line up perfectly for an exit to work out; securing regulatory approval isn't necessarily the finish line. You could be stuck in a bad economy or find yourself on the wrong side of a trend.
Instead of chasing a mirage, Robert advises focusing on creating a commercially viable product with a measurable market impact. "More and more in the medtech world, acquirers are waiting to see how the market is reacting to your product," he notes. "You've got to think bigger. You can't focus on the exit, because you can't plan that. Just build a great company: Do the things that you believe build long-term value in a great company." In other words, don’t race so fast towards a finish line that may not even be there that you neglect to build a company with mileage.