Not that this advice is any guarantee of success in fundraising but it’s fun to read what an angel investor and a VC fund manager have to say about how startups approach them, position themselves, and make their pitches.
Both articles are from MedCity News and were written at AdvaMed 2013. The angel investor article is a brief interview with Allan May, the founder and chairman of Life Science Angels who spoke at the Angel Investment Forum. The VC advice comes from Paul Grand, managing director at Research Corporation Technologies Ventures, a life sciences firm focused primarily on medical devices.
For startups fundraising from angel investors,
- Your intellectual property (IP) may be the most important indicator of valuation and whether you will be successful in your funding quest. Investors need to plan an exit before they invest. Because the most likely exit is via acquisition by a larger medical device company, and medical device companies hoard patents like misers, it’s in everyone’s interest to have the strongest possible IP portfolio.
- Unless you have a successful startup track record, a stellar team, and potential for a very large exit in 3-5 years, avoid VCs and focus on angel investors. They are willing to invest in smaller, less perfect deals than VCs.
- Whether you want it or not and whether you like it or not, expect your investors to take a personal interest in your startup and the way you run it. That means lots of phone and face time giving updates and answering questions…and listening to advice.
- Because angel investor consolidation has become the norm in raising Series A and beyond, investors will know each other. They won’t invest with others they don’t like, trust, or respect. Same holds for your board members – choose them carefully as they are a direct reflection on you.
- Mr. May also said “This isn’t about picking technologies, it’s about picking people.” My experience suggests that for most early stage entrepreneurs, your technology qualifies you for consideration while your reputation, track record, and interpersonal skills can usually disqualify you.
- As for how much money you should raise, “The amount of money you should raise is the smallest amount of money that can have the biggest impact on your valuation in the shortest period of time.” That’s a cute way of saying it’s easier to raise the next round at an increased valuation…because you executed your plan and achieved your goals.
- This last bit of advice is my favorite and probably the most practical in the interview: Get someone who knows the angel investor to take the business plan to them. . . “Getting into the pile [of business plans] is not a success.”
From the VC fundraising perspective,
- Be sure to research the VC firm and the partner before the pitch and adjust appropriately. Every VC is different. Do your homework online and through your network. If you are at the level of pitching to VCs, there should be no surprises.
- Make sure your startup team has the right experience and is correctly sized. These days, you can run a virtual or lean company a long way toward commercialization without expensive full-time executives. There are plenty of freelancers, contractors, and consultants ready and eager to help…”at the beginning, you just need the founder and the engineers…”
- If all you have is an idea and technical/clinical skill you should wait a bit before approaching VCs. You are unlikely to get a signed nondisclosure agreement, much less early stage financing from VCs if you make your pitch too early. There are incubators and seed investors who can help you become ready for VC investment. As discussed above, consider angel investment as an alternative to VC funding.
Takeaways: Medical device fundraising is hard but there are steps you can take to improve your chances of success. Make sure you know the expectations and criteria of the people and firms to whom you are pitching. Make sure your startup is a good fit with your prospective investors. Just like Goldilocks and the three bears, you must position the opportunity you’re presenting as not too small, not too big…not too early, not too late.