Fundraising for MedTech Startups The Lean Way

Sorry. Hello, everyone, and welcome to today's webinar, Fundraising for MedTech Startups, The Lean Way, presented by MedTech Leading Voice in partnership with Lean Rocka. We're glad you're here. I'm Sean Smith, publisher of MedTech Leading Voice. I'd like to introduce today's speakers, Renee Franz. General Manager at LeanRIQA, helping founders navigate the earliest stages of regulatory strategy. And Michelle Lott, Principal and founder of LeanRocka, who brings deep expertise in quality regulatory and funding strategies for medtech innovators. By the end of today's session, you'll have a clearer roadmap of how to prioritize the right regulatory milestones early on, plan a funding strategy that aligns with FDA expectations, and avoid the most costly missteps that delay market entry.

A few housekeeping notes. This session is being recorded, and you'll receive slides and a full replay by email after the webinar tomorrow. If you'd like a certificate of attendance, please put your full name and email in the Zoom chat before the end of the session. We'll try to provide those in a timely fashion. We will run a few live poll questions during the call. They'll help us tailor the discussion. Use the Zoom Q&A button to submit any questions that you have for Renee and Michelle, and we'll try to get to them at the end of the call. … Before I make my promotional announcements, I'd like to apologize for scheduling this at the wrong time. I hope it didn't flummox too many people. But in the event that,

this, that we need to redo this event, we'll redo it again next week. So, with that said, a few promotional announcements. Take our 3-minute survey, AI survey, please. I'm gonna put the link in the chat. … Second is… … Lean has a few new initiatives, a couple new initiatives that I wanted to discuss with, Renee and Michelle briefly. One is the QMSR Self-study course. Tell us about that, Michelle.

Yep, so that is where me and my team sat down. We did a really comprehensive comparison and gap analysis between the current QSR and then the proposed QSR and ISO 1345. But we scavenged, like, deeply into the practical guide, into several technical information reports, and so kind of, combined all of those things and insights that are kind of behind the scenes so that you can see what FDA might be expecting during this transition. So, one of the best parts about it, I think, is that we've cut it into, bite-sized pieces. They're about 15 minutes or so apiece, followed by little mini questions. So it's really digestible, it's not like you have to just sit down and go through the whole hour and a half or two hours, however long it ended up being.

And then, for the… the biggest, areas that we think are going to change, we've also started, subclasses underneath that. Like, we have management review. launching soon. We're gonna have CAPA shortly after that, then complaints. So, stay tuned. I think they're really high-quality courses, we're getting a lot of good feedback, and And let me know what you guys think.

So, if you'd like information about the QMSR course, write QMSR in the chat, and I'll make sure to send it to you. I'm also going to drop the link in after I stop running my mouth, but before I stop running my mouth, I want to ask Renee to tell us about Lean Launch.

Sure, thanks, Sean. So, we also have a new program that I think is really helpful, if you're especially new to MedTech as a founder, and you're navigating from basically product conception all the way through to commercialization. The program offers you 2 hours a month of consulting services. Where you have high-level access to a team of our experts, from commercialization, creating, you know, pitch decks, to, you know, high-level guidance on regulatory, product development. and then commercialization. So, it's a great program, especially if, you know, after this webinar, as well as if you've seen our other webinar about the commercialization and product development pitfalls, it's a great place to have access to a team of experts who've done this many times.

To help guide you and keep your innovation and your company on track. Throughout the, full product lifecycle.

That's fantastic. So, if you're interested in learning more about Lean Launch, right, launch in the chat, and I'll send you information on that. Just a reminder, Friday's In Focus call this Friday at 11 a.m. Eastern Time, medgroup.biz slash calls, I'll drop the link in. Ari Henkin is gonna be talking about, the solution that he built in-house for, regulatory… AI. And, it's gonna be an interesting call with, use cases and live demo. I hope you'll join that call. Don't forget, always subscribe to MedTech Leading Voice at MedTechLeadingvoice.com.

With that, I'm going to turn it over to, … Renee and Michelle, let's get started.

Great. Thanks, Sean, and welcome, everyone. We really appreciate you being here. So we're gonna talk today about fundraising for med tech startups. I think before we do go into the actual presentation, it would be good for both Michelle and I to share our background, for those of you who don't know us. So I'm… I'm Renee Franz. I've been doing medical device development, commercialization, and executive-level leadership for over 30 years, and throughout the tenure of my career, I've helped bring over 200 medical devices to market. I had the honor of meeting Michelle, gosh, almost 15, 20 years ago, at a company that we both worked at together, where I was

leading the product development, business development, and she came in and led regulatory and quality. And, … We, we come at medical device from completely different perspectives, but some people call us either Thelma and Louise or Peanut Butter and Jelly, in that we think very differently, so together, we can help come up with very comprehensive strategies. So, I've been involved in successfully helping companies and everything from SEED all the way through Series ABC. grounds, so I'll be talking about my experience in that today, and the pitfalls. And, Michelle and her expertise with regulatory quality strategy, she's a huge part of that, because regulatory and quality touch your medical device every step of the way. So, Michelle, I'm going to turn it over to you.

So, I have… I founded Lean REQA a little over 15 years ago, and I've been in the industry over 20. But I founded LeanREQA with a mission to help startups and small companies navigate an ever-growing complexity of, regulatory requirements. And then we also support large companies that are just trying to find more simple solutions to their overly complex quality management systems. So those are some of our niches. I have… my personal background is in regulatory. Our team represents a whole variety of skill sets, and that we can really help partner to bring somebody, kind of handhold end-to-end in that journey from concept to commercialization.

So, as far as what we're going to be talking about today, what's in a name? And all that means is… who are all the different you would work with in investment along your commercialization journey. We'll talk about how to build the perfect pitch deck. how to decode the term sheet once you get one, what to expect during the due diligence process, and it's going to be different depending on where you are in your company's journey, and then exit planning. So….

I'm, … Renee is gonna be… she's the technical expert in this space, so she's gonna be doing most of the presentations, and then I'm gonna be proofreading the… the color commentary, and like, oh, well, what she does at this point is gonna impact me and the regulatory strategy, so… Carry on, I just want people to know how we interact here.

Perfect. So, this is the timeline of when you have an idea, all the way through to when you're going to scale and commercialize. So, it's right around the idea to R&D stage. You're either self-funding, or a combination of you, friends and family. Maybe you've applied for a grant, maybe a small business loan. And so you get through that first prototype, and typically after that, before you validate the concept with the market and go to the FDA, you need more money. So, yeah, grants can help with that. Michelle, I'm actually going to ask you to comment on some of the grant agencies that we work with that will actually fund some of your regulatory strategy work.

Yeah, so we have served, or provided letters of intent to support, companies for the, SBIR I-Corps, a lot of different NIH funding. I've even sat on panels that were the assessors for readiness for the second phase of an NIH grant. And then we also work with a lot of incubators, where incubators as the whole got the money from FDA or who it was… whoever it was to pursue a particular Science or technology. And so we've got… we have a long history of partnering with people to help them get the… the funding that they need.

Thanks, Michelle. And later on in the presentation, Michelle had mentioned incubators. We're going to break down for you the difference in support you would receive from an incubator versus an accelerator. So again, going back to this whole market validation area, we talked about grants. Angel investors usually come in at this point, you're going to need a little bit more money. Maybe a VC, we'll talk about the difference between angel investors and VCs, and the pros and the cons. And, sometimes you come in right with your Series A, depending on how much money you need. One of the things I want to emphasize, and I'm going to be saying this, it's our mantra for this webinar, raise more money than you think you need.

Why? It's a very stressful process. I've spent the past week helping a client go through a Series C round. I'm going to be sharing with you, not just in general, some of the pitfalls and some of the, also, strategies that I think are important as you go through this journey. But yes. It raised more money than you think you need because of the stress. Each round also dilutes you, so if you're the founder, that's not a lot of fun to have to be diluted every time you go for another, series of funding. And it's extremely time-consuming. And depending on the investor that you're working with, whether it's an angel, a VC, maybe you're in your Series C round, and you're trying to appeal to your Series A and B people to invest.

It takes up so much time that it dilutes your ability to focus on your business. So, moving on from that, so you're going from that raise, where you're validating the ID in the market, you're getting your FDA clearance, your first production run, and it's usually from maybe between your first production run, maybe after your first sale, that you need another round to scale. So this could be where your Series A drops in, maybe it's your Series B, This just gives you a general timeline of what the funding cycle looks like, and the names of the different types of funding that we're going to talk more about. So, what's in a name?

I've been talking about angel investors. They're great. They typically come in less than a million. I worked with one company, we had an angel investor who came in at $2 million. That's rare. It's, like I said, it's usually anywhere from maybe $10,000 up to a million in investment. And for them, it's really important to understand what they're investing in. They have more of an emotional buy-in to your product. And they can be great mentors. And they also don't tend to demand as much time as maybe a VC. So these are great early-stage investors. Of course, friends and family. They're typically the easiest, because they are really eager to support your business and your idea in the early stage.

One caution I want to throw out here is that If, for some reason, your product or your idea never commercializes. It can put those relationships at risk, so you really need to be clear with people every step of the way, and even before they invest. … Another thing you're going to hear me say throughout this presentation is communicate. So, communication will be key with all of these people, but especially friends and family if they're putting money in. Oh, go ahead, Michelle.

Go ahead, I'll say, I'll say a few words after you talk about grants.

Michelle talked about the different ways that we can support you, with grants, and so, again, that's non-dilutive funding. It's wonderful if you can get it. It's typically targeted at a specific disease state, a technology, or demographic. For example, we work with groups that, they focus on children and children's devices. So, it's a good way to get your business started. They typically will fund some early-stage R&D, some early-stage prototyping, and some of your early-stage regulatory strategy work. I have yet to see one. That will actually fund your commercialization. It might be out there, but I just haven't seen one. Go ahead.

And grants also oftentimes take a little bit more of an academic approach than a business approach, so… You have to write your grant very carefully to talk about your deliverables and what you're gonna use the money for, to make it really useful in actually moving your product towards commercialization, even though they won't pay for that. But, Mohamed had a question, that says, can it be a startup based in the EU to raise funds in the U.S. for FDA clearance? And my two cents is that, yeah, you know, absolutely in those… especially in those first two categories with the angel investors, friends and family, or even Renee is going to talk about this later.

VC funding, but the thing about grants is that most of those are coming from the federal government. And so there is a requirement over, that… that the company either has to be based in the U.S, or the… the executive team, something like that. They try to keep those grant funds from… for, promoting U.S.-based businesses.

The one exception to that that I know of, is actually that pediatric grant program that I was referring to. It is funded by the U.S. government, to promote the acceleration of bringing pediatric devices to market, and I have seen them, give grant money to companies outside the U.S.

Hmm.

Any other questions that we need to address before we talk about the difference between a venture capitalist and an angel investor?

There are a few, that, that I think I'll just try to plug in later in the presentation where I feel like they might fit better.

Okay, perfect. So, just really high level, what's a venture capitalist, a VC, looking for versus an angel investor? Venture capitalists want to see a really big market. They typically like cutting-edge technology and a strong medical device leadership team. So, it's important to note that the more you engage with investors that have knowledge of medical device industry, the stronger your team needs to be in medical device with their experience. And I'm going to talk about that here in a few slides, but… So that's what venture capitalists look at. Angel investors, they're typically focused in a market segment. Michelle and I were a part of Desert Angels for years here in southern Arizona. That's a representation of a geographic area. They have angel investor groups, you know, all throughout cities in the U.S.

Or, they might be in a market segment. There's a physician's angel investor group, for example. So, they're looking for a good return on investment, but a lot of times for them, especially if, you know, it's a physician's group, it could be an emotional investment as well. So, in terms of the pros versus the cons, the pro of working with the VC is that you have access to large amounts of capital, which is great, because our mantra is, raise more money than you think you need. Some of those VC funds may contain anywhere from $50 million to over a billion dollars. The con? is that they're gonna be more aggressive with their terms with you, and they're gonna… they're gonna wanna take a lot more equity, they will take a board seat, and you will spend most of your time managing them rather than the business. So it's something to think about, because you either need…

to hire somebody if you're working with a large VC firm that's going to manage the VC, and you can manage the business, or vice versa. angel investors. The pro is that they're usually entrepreneurs like you are, so they're more supportive. and they know to be hands-off for the most part, than a VC would be. You'll have access to, you know, anywhere from as little as 10,000, upwards… you know, typical investment for an angel is $250,000. It's usually less than a million, but like I said earlier, I worked with one angel investor who put $2 million into a company I was… I was working with. Here's the con

You likely won't raise enough to avoid needing multiple rounds of funding. So that means if you're the founder, you're risking dilution. And then what happens, and I'm acutely aware of this, because I'm dealing with this situation right now. is your cap table. So what's a cap table? It's basically a list, capitalization table, of all of the people who've put money in, anywhere from, you know, $10,000 to over a million. Everybody's on that cap table, and as you go through each round of funding. they… they demand more and more, information. It gets very unyielding to manage them, their voting rights, and one thing that I can say about that is communication is key.

I've been hearing that a lot lately when I've been working with small companies, especially when you go back to, let's say you did a Series A, now you're doing a Series B round, and you go back to your Series A people. And they say, you know what, the only time you come and talk to me about what's going on with the company is when you need money. Don't do that. Communicate regularly, quarterly, with your investors. It'll make it a lot easier if you're in the angel group and you have to go back and ask for more money.

And Renee, another thing that, wreaks a little bit of havoc on who you get money from. Is that a lot of these are not run by people who have been in the medical device or life science space before, the people that are giving you the money. And then, so, they don't understand this very complex and very expensive and lengthy process. So it becomes very unwieldy to manage, investors from certain different genres. ….

That's an excellent point. And, you know, if you want to learn more about that, we have a webinar on the commercialization process. and the pitfalls, and one of the things we talk about in that webinar, and if anyone wants access to it, Sean can drop a link to it, it's been recorded, but it talks about, depending on the type of product you have, how long you can expect till you get your first sale. From the time you get your regulatory clearance till you get your first sale. That's a really important piece of trying to figure out how much money you need to raise. And it's an important piece, as Michelle was saying, to communicate to investors.

So, later stage, but it can also even be, earlier stage investment, would be someone like a strategic partner. So, who is a strategic partner? Well, it would be whoever might eventually acquire your technology, if that is your exit plan. So, it could be the J&Js, the Medtronics, the Boston Scientific, the B. Bronze of the world. So, they're not only a great strategic, exit partner, but many of them have inside venture funds. And the reason is. A lot of those big companies don't really innovate anymore. They actually look to buy innovation outside of the organization. So, a lot of times, they'll put… if you fit their strategic objectives, they'll put money in.

They will get first rights, to actually acquire the organization if things go well, and it's a really nice try before you buy. And they get to buy the development and the innovation at a lesser price. So the pro is, if they're in your market segment, they're giving you money, a lot of times, they will then give you access to their sales and marketing team, and they have Large sales organizations, which is important, because you need the reach and frequency into the customer to get traction. But the flip side is, a lot of times, their sales groups are more of what I call show-up and throw up, so they just, they come, they do their sales call, they repeat, you know, whatever pitch they've been told, not always, but they're not always the right people to sell innovation. So…

The flip side of that is. If you don't have the right sales group, or they're not trained properly to sell your product, you don't hit your revenue goals, and then the con is they don't… the large strategic doesn't think that you're worth going forward with and acquiring. So you really… there's a balancing act there, and it's… A very… you need to be very strategic with how you approach this type of investor.

So, Renee, we have a question from Robert Baker, sorry. Does the need to do clinical and regulatory work put off either angels or VCs? Do they have concerns about spending such a large amount on an outside regulatory and clinical consultants?

I can take a shot at that first, Michelle, and then if you want to add color. So, if… It will depend on the type of investor, and whether your device really requires large-scale clinical trials. If you are very clear about that up front, maybe you have a very innovative technology, maybe you've been told by the FDA, maybe you did a pre-submission, and they said, yes, you need a large clinical study. As long as you're upfront about that, and the amount of money that you need, that does not scare most investors away, especially the sophisticated ones that invest in med tech.

Right, exactly, and that's where I was, gets back to the type of people that you get money from, and what their background is, is very important, because there are, especially, the new and novel devices that everybody's looking to bring to market, because it's a new tech, or solves a new problem, or a different problem. … that… that they need to be comfortable with how much and how long the clinical and regulatory pieces are going to be. Like, if it's a de novo, right there, just the de novo refuge times are, like, 400 Days. Like, just over a year for the average de novo. So just even just the sheer length

of that alone, much less how much did it cost to do… get all the data to put in that submission. So these… these are very important things to think about when you are accepting money, and who you're accepting it from.

Yeah, and the more, again, the more sophisticated the investor, they'll understand that, because they've been through it before, and you will build their confidence. if you can clearly articulate, yeah, we're gonna be a de novo, it's gonna be 400 days, it's gonna cost this much, that's why my raise is… is X amount. And these are all things that, you know, our team can help guide you through if you're, you know, in… in that process.

So, we've got a couple of other questions, Renee. I'm just going to read them, and there might be better places for us to go back and answer them.

Sure. Or we might save them for the N.

So, with the couple is, can you re-Tinder if the strategic partner drops you? And then there's another, how do you contact strategic investors? I don't know what snout data is, maybe that's SNOUT data, but anyways, those are the two that are in the queue right now.

Sure. So, why don't I start with the first question, which is, can you restart if a strategic drops you? Yes. I'm actually helping a client with that right now. They brought me on board because they got dropped by a strategic, and we're re-teeing the business, we're doing a raise, and… We are scaling our commercialization, our product sales, and our manufacturing, and we are, we are now in the process of talking to them and others again. About acquiring. So, absolutely, you can push that reset button, you just have to have a new strategy. And then I think the other question was, what is a strategic, or how do you figure out who your strategics are?

Another good… How do you contact… how do you contact strategics? So, so if you know who your strategics are, I'm just throwing names out there, Cook, Medtronic, vibrant, BD, they all have folks that do, acquisitions. They have their merger and acquisition division, and then they have a business development team. And, you know, I work with a lot of those folks. you know, you just have to find somebody that can network into that for you. And that's another, you know, service that we can offer. So, these are really… these are really good questions, so, you know, keep them coming. That being said, I'm going to move on. Incubator versus accelerator.

So, Michelle mentioned accelerators before, but incubators and accelerators really have the same basics in terms of they're going to be there to help train you, mentor you, offer some level of business support, and they're selective about who they let join. Typically, accelerators have some sort of equity that they want to take from your company, rather than a fee for the services that they provide. It's usually for a fixed period of time. It might be a year, it might be 3 years, and, they can help you get access to seed funding, so whether it's grant money and or other investors. Incubators, they're open-ended. You typically have a fee to be working in their space. They have technical facilities, which are nice, because you can sometimes, if you're an early-stage prototype, go reach out to somebody at the facility that maybe has a 3D printing machine, or can help you

With your marketing materials. They have physical space for you to have an office, and they have a rolling admission, so usually you don't have to say, I have to apply by September 30th. You can actually apply and get in all throughout the course of the year. Any questions about that before we talk about building your pitch deck?

… Pittsburgh investors here seem to be very reluctant to invest in pre-FDA or pre-clinical startups, despite the huge health systems and universities in the area. So… and then we had another one that talked about, per the current discussion, do you think… what do you think about Class 3 with millions to be spent for clinical trials?

Yeah, Class 3 with millions to be spent, that's a VC. It's a VC, or if it's a good fit in a strategics plan, like one of those large, billion-dollar medical device companies, sometimes you can tap into their venture division. They're not going to buy you at that point. I mean, unless you've gotten through the trial, and it's like, wow, this is the greatest thing I've ever seen. But they may invest in their venture division. So, your slide deck. So, what does it take to pitch these days? So, years ago, you used to have to have, like, a 20, 30, 40-page business plan with an executive summary. That's changed. What people want to see now, when you go out to pitch, is a really good slide deck, and it needs to be concise and to the point, so I've included the elements here.

And then, oftentimes, they'll ask for just a one-pager, which is similar to an executive summary, but it's set up a little different. We're mostly going to focus on the slide deck. Because… in the interest of time. It's really important to have a slide or two that talks about your problem. That you're trying to solve, and the solution. I would keep this very simple, and the… The more you can illustrate with either a picture, or just even one or two sentences, the better, because this pitch deck might get sent to other people with different levels of understanding of your problem, so don't get too technical, especially, you know, if you're an engineer, or you're a clinician, like a physician or a nurse, you may want to have somebody

outside of your expertise actually dumb down that slide, and I don't mean dumb, but just make it simple so that those of us that are not as technical as you can clearly understand what the problem and the solution is. The next thing you really need to have, and this is especially important if you have sophisticated medical device investors, is your team. I'm not going to spend too much time on this slide talking about it. On the next slide, I will, but just know, really important to tell them who your team is. Then you need to tell them the status of your product. Are you in concept, beta stage? Are you scaling for market? Are you actually selling it?

It's important for them to understand where that's at. Then there's the value proposition. How does your technology actually provide that solution. And that's really important, too, because… Especially a sophisticated medical device investor will want to know, if you're trying to approach a hospital with a new technology that they've never seen before, you have to clearly articulate what the value is, and here's why. Michelle was alluding to it earlier. If you are another Foley catheter or another enteral feeding tube, great, the hospital already has a budget for your product. And they're already buying it, so you just have to tell them what's better about yours. It's not that simple, but it's easier.

If you are creating a whole new way of providing better care for a patient, it's a category that hospitals never seen before, they don't have money for it. So you have to have a strong value proposition that basically says to them, hey, you haven't been spending money on this, but look at how much money you're going to save by implementing my product.

I mean, Renee, talk to them a little bit about Foley catheters, with… that are coated with, like, silver or other antimicrobial…

So, so, there are different, areas There are different, things that are called never events, that a hospital Will not either get reimbursed for, or if you acquire a disease state while you're there. the insurance won't pay the hospital for it. The hospital has to pay for the management of it. And one of them is CAUTI, Catheter-associated UTIs. So there was a big push for a long time to create different Foley catheters that maybe have, silver impregnated in them. Silver's an antimicrobial to help reduce infection. Others that had, like, a shark. type coating on them, where the microbes couldn't actually grab onto the Foley catheter, and the colonies couldn't grow. And then there were other techniques, too. So that's an example of

a product that the hospital, number one, knows it needs, it's buying Foley's all the time. Number two, they know they have a problem with CAUTI. It affects their reimbursement from insurance companies, and they don't get paid for the extra time a patient has to stay in the hospital if they get a UTI. So, a value proposition around that would be really strong to put in. There's other types of technologies. And again, we have a webinar on this, around commercialization, where the, hospital may know they have a problem, but they don't know there's a solution.

Because the insurance isn't gonna pay them anyways.

Right.

So they're not gonna pay any more for your catheter than they're gonna pay for A normal catheter.

Yep. Yep. So that's a super important piece to articulate, not just in your slide deck, but when you're going and you're selling to hospitals, too, or even trying to get, hospitals to do some sort of clinical evaluation. The next important piece to put in is your market size, and be very clear. Are you looking at a global market? Are you looking at just the U.S? Are you looking at maybe just Europe and the U.S? So, articulate the size of that market, and make sure it's credible. Everyone says, oh, my product is a billion-dollar market. Well, if it is, you know, do the math behind it and show where you got the data from.

It really builds credibility and trust with your investors.

And not everything is… can be a uniform.

Yeah. We'll talk more about intellectual property in a couple slides, but it's really important. Michelle, regulatory and quality. This is your area of expertise. The only thing I'm going to say here is, you need to articulate, even if you're seed, and you don't have your regulatory clearance yet, be clear about what your strategy is.

Hmm. And we usually start projects like this with a regulatory pathway assessment. And then it serves as kind of a nice white paper that a company can turn in while, due diligence is happening to validate the statements that they made in the pitch deck to say, hey, no, we had this professionally assessed by a third-party organization that's leaders in the industry. This is what they had to say about our pathway options. And our time and cost associated with those. So….

And again, the more sophisticated the investor, the more they're going to want to see that. The other place that this is important is, you know, each round of investment you do. You have to have some sort of regulatory and quality strategy. You know, a lot of times you're doing product improvement, maybe you're going into another market, you get to your Series A or your Series B. You need to be very clear about what that strategy is, what it's gonna cost, and of course, you know, maintaining your quality management system, ensuring there's no gaps, especially if you know, you're going from the U.S. to, let's say, Japan, Europe, Canada.

Reimbursement, if, you know, if you have a clear reimbursement path, you know, articulate that there, maybe what your HICSPICS code you fall under is, your CPT code. And if you don't have a strategy, well, I wouldn't say that. Have a strategy, and at least be able to articulate it and talk about reimbursement. And then, finally, how much is your raise gonna be, and what are you gonna do with that money? And what is your exit plan? So, in all of this, and I failed to mention this in the beginning, these are all what's called forward-looking statements, so make sure you have some sort of disclaimer.

in your investor materials about forward-looking statements to cover you, so that nobody can come back and say, well, you told me the market was this big, and I was going to make this much money. No, this is just… it's a forward-looking statement, it's a prediction based on what we know of the market today. So, taking that into consideration when you're doing your exit planning. What's always nice to show investors, and good for you to know too, what do you think the size of your exit might possibly be? And so, a good rule of thumb is if you've worked out your pro forma, and you know what a true market size is, and you know what your hockey stick looks like in terms of usually between years 3 and 5, you see a takeoff.

you can actually just drop a few numbers in of other exits in that space. So, I'm gonna make this up. Company Y. bought Company B at a 5 times multiplier of revenue. So you're not saying, hey, that's what we're gonna do, but you're saying, listen, this is what we're looking at in this space to give you a general sense of what this company might sell for in the next Whatever your timeframe is. And then in terms of financials. It's important to show these companies with the money, when you anticipate breaking even, when you think you're going to be profitable, and share with them some sort of pro forma. Now, I've talked about, you know, communicating, communicating how important that is with investors. This is one of those areas where you want to be

You want to be transparent, of course, but you don't want to share so much information that Bob comes back to you next year and says, you said you were going to spend $40,000 on regulatory, but you spent $80,000. Why? No, you don't want to have those discussions. Keep it very high level. So, we talked about the team and resources. I'm just going to take a peek at time here. We only have 20 minutes left. Okay, I'll go through some of these other slides quickly, but I can't emphasize enough about building a good team with the right experience. You know, it's not just important when you have a sophisticated medical device investor, because they'll call you out on this.

But it's important if you want to be successful in general, because Michelle and I can… You know, probably do a webinar on all the pitfalls of things that we've seen go wrong, because the leadership team just didn't anticipate the issues. And actually, and I'm not trying to put a plug in for Lean Launch, but maybe I am, that consulting service that we mentioned where you get 2 hours of our time once a month. to kind of talk through these things, that's a great place to get the mentorship and the leadership you need, I think, to help get you through some of these things that we're going to talk about. So, and….

Sean has a poll, so let's go ahead and pop that up, and then I just have one comment to add to what your thoughts are here about building a good team, with the right experience. I also see companies hire high-profile former executives from, like, a big strategic, like Medtronic, BSI, etc. well, they've only worked in those behemoth organizations, and they don't do the work. They've got people that do the work, and so, people will put these in in a C-suite role for a company that's, like. Two to five people, and this person that they hire, they just think, oh, it looks good, it's gonna help get us money, but they really don't know how to actually do the work to get you where you need to go.

Michelle, I can't… I thank you for saying that, because I can't tell you how often times I see that, and people get so excited. I've got the Medtronic, former VP, or whatever, and they get into the company. That's usually… After they have that person in is usually when they come to us. Because then they… Unfortunately, you're… don't… you don't have somebody that knows how to do the work.

The other thing that we saw… Which closes… Marcus, just made a comment along those lines. He said, should a startup pay an equity for a person with experience or avoid this? Well, the problem is not… Exp… for these big… former C-suite people, it's not… it's paying them an equity because of their experience. you really need to look at what type of experience you're exchanging for that equity. Are you doing something that took a startup of two people all the way to commercialization? Or are you giving equity for somebody that's only been on the periphery of it, because they were too high in the organization.

Exactly. So in those instances, what you really look at is, I would do milestones and performance, both equity and cash payouts. So don't just, you know, broad stroke, hey, you know, you get X amount of dollars and X amount of equity, make it performance-based. Another thing I want to comment on is, you know, usually in the startup world, Michelle and I see it's either a clinician, a physician, a nurse, or maybe an engineer that has an idea. Not always, and they're the right People, you know, always in the beginning, to help develop the solution, and to perfect it many times. Not always are they the right people to scale. So, if that applies to you, or even you're looking at investing, you know, it's okay to change course at some point and say, you know.

I may have been the one that's a technical lead, I developed this, I invented it, but I'm not the right person to take it to the next level. And investors respect that, especially the ones that have experience. … So anyways, going to outsourcing or hiring. I can't tell you how many times I've walked into a company, and I've seen, for example, their one product, they're a startup, and they have a full-time quality and regulatory person. Well, depending on how sophisticated your device is and what classification. If you're a Class 1 or a Class 2, most times, you can just outsource that. So you really need to be strategic with thinking, okay, I've got this limited amount of money, who do I really need to hire? How am I going to incentivize them? Or who can I outsource? And I would recommend being as lean as possible throughout this whole process.

Oh, Renee, it looks like the bulk of our audience today, about 54%, are from startups, so I hope that they're finding all this, really, really interesting here.

Most of them are founders or CEOs.

Funding, it's kind of like, doesn't seem applicable yet, or they're… Friends and family are bootstrapped.

Okay. Right, that's… that's really helpful information. You know, if you want to, at the end, give us an evaluation, too, and tell us, like, what was helpful, what you would have liked to hear more of, that would. be great. As far as manufacturing goes, this is such an important piece that a lot of folks kind of gloss over, so make sure, if you're going to be selling here, for example, in the U.S, your contract manufacturer has to be FDA registered, ISO 13485, You know, they need to have experience in your niche area, and they have to be able to make it for you at your target cost. And then, don't overpay. Michelle and I have lots of examples of…

We had one client that, probably could have spent $10,000 with us. to understand their product code, and they spent about a million with a very expensive DC law group. We have another client that spent over $3 million on their molds when they could have spent $500,000. So, these are some of the pitfalls that we really want to help you avoid. Intellectual property. Again, looking at time. So, very important to have. And important for investors to know, and it needs to be strong. So, a design versus a utility patent. Utility patents are the strongest. They sit like an umbrella, protecting the concept of what you're doing with your technology. So, if you can, get utility patents.

Design patents cover the exact form, fit, function of what you're doing with your technology, how you're constructing it. So the strongest IP portfolio is to have a series of utility patents, or even just one utility patent, with a series of design patents that roll up underneath. So, if you're here in the U.S, of course, you're going to file in the U.S. But, it's important to know what countries you want to sell into. It's important to note from a regulatory perspective, because that's going to determine a lot of your product testing, a lot of, your regulatory requirements, depending on what markets you're going into, but it's important for IP.

Because once you file your U.S. patent and it's granted, you only have a certain amount of time before you can go to different countries and file there. And then you also need to be planning in your later stages for maintenance costs. So, you could be spending anywhere from maybe $5,000 to $10,000 every 3 years to maintain your patent… your patents.

And, ….

Oh, go ahead.

Well, Renee, just to speak to your first point there about the design versus the utility patents, I've always… I've also seen somebody file a design patent, not do the work to understand what the the pathway was around that, like, especially through the FDA, and they had an antimicrobial coating on the mask, and the F… and so in their in their design patent, they had to have this antimicrobial coating, because they painted themselves in that corner. They had no idea that FDA for, like, say, a mask with antibacterial coating, wants about $500,000 worth of biocompatibility testing. And so, she's struggled for… All, like, 15 years now, and just, you know…

The requirements are not going to get easier with the FDA. So that's just an example of where you have to really be thinking about, kind of, the universe or the ecosystem of both your patent and your regulatory strategy and your marketing strategy.

Yeah, and we do have a webinar on this. It's our commercialization product development pitfalls, and again, if you want to put time on our calendar to talk about these things, we're happy to do so. So, regulatory plus quality plus reimbursement. Michelle, do you want to talk about this?

Yeah, quickly, because Paul's asked a couple of questions here, so maybe we can address these. If the team is so important, and you actually outsource to so many people. or everyone, then who is your team besides you? How can you handle potential investors with this fact? I personally have never run into an investor that had a problem with the team being outsourced for the most part, because what we… What we've become then is not just consultants, but collaborators that keep your overhead down. Like, you only have to talk to me when you need me. As opposed to, if you have somebody on salary, you've got to pay them, whether you use that person.

once a month, or once every 3 months. … So that's just, just, my two cents there. So I've had lots of companies put me in a pitch deck of theirs. And just say, hey, this is our… this is our team. And it's obvious that I'm consultant, but it's also obvious that I'm integrated a little deeper into their culture.

And adding to that, a lot of these investors will understand the concept of fractional support. A lot of companies will have a fractional CFO. In our case, fractional. quality regulatory fractional commercialization support. It's actually, when presented in the way that Michelle described, a strength when you're working with investors, because you can add and flow the money as you need it to funnel into the right areas to grow the business.

So, to this slide that you… that you're on right here, this is an interesting one, because I… again, you know, we keep harping on the… what's important to prepare for beforehand, but regulatory and reimbursement are all… one more thing that have to stay in lockstep. Because I see people all the time that want to say that they're the lowest, because they don't want to do all the work to, you know, support one of the more novel pathways. They want to say that they're 510 exempt, or GMP exempt, and they try to… they're like. Cinderella's stepsisters and trying to shove their business into a shoe that it doesn't fit. And so they want to do that on regulatory, and so we're like, okay, we can map out a strategy and some boundaries so you can say you're general wellness or 510K exempt.

But here are the boundaries, and you can't go and make these claims. You can't sell to these environments. Well, people think that just because there's a reimbursement code out there, that they'll fall into it. Well, that… reimbursement codes are around process-based, not necessarily device-based, so… and you can't say, we're not… We're not regulated by FDA, but we want CMS to pay us, too, at the same time.

Yep.

So, there's kind of like this… they want their pie and eat it, too.

And then the last point here is that.

Quality, is needed after… to support your commercialization, and to be honest, you should really be applying things like design controls, risk management, usability, even to an extent, supplier qualifications. Even before you put your submissions in, and then once you put your submission in, you need to start and build out the rest of the quality management system. Because no matter how small you are, FDA can come in, once you register and list, and inspect, and they're gonna expect, not only do you have a full quality management system, but that you always also have records that show, how you are fulfilling those quality system requirements.

Okay, great. We don't have a lot of time left. I'm going to go very quickly through decoding the term sheet and what to expect through due diligence. You can put in the comments if you want us to do a little bit of a deeper dive on what I'm gonna rush through. We're happy to do another, webinar, so let us know. Let us know here. But, term sheet. Even typically before a term sheet, you'll get what's called an LOI, a letter of intent. Where the investor and you will say, hey, this is how we'd like to do business. And then after that. you'll work with a term sheet, and it's just basically a contract between you as the founder and the investor, and it just tells you what to expect, what you want. It details out, like, what you're giving up and what you're getting in return for the investment, and it really lays out for both sides how to protect the investment.

You know, what to expect at series seed, A beyond. you're the founder, expect for each round to get diluted. That's why I say raise more than you need, because you don't want to be diluted. It's a stressful process. And it takes a lot of time, and it takes you, if you're a lean company, away from running your business and just focusing on getting the investment. This is what's typically included. You'll have access to the slide deck, so you'll be able to look through this. And then what to expect during due diligence. So, it's gonna really depend on where you're at, with your company. If you're seed, a lot of these things, will only apply at a high level. If you're Series A or B, they're going to expect, especially if you're in the market selling, a deep dive.

So, here's what to expect financially. Once you are engaged and you're going through due diligence, there's a lot of information they're gonna require, especially if you're already on the market selling. these are the types of agreements you need to be prepared, and types of contracts to give them copies of, and something I want to emphasize, too, make sure you have good contract hygiene before you go into one of these due diligence processes, what is contract hygiene? Well, you're so busy running your business, you may not have realized that your great distributor in the Midwest is on an annual… he had a one-year contract.

and it doesn't automatically renew. You have to verbally, 90 days before renew it, oops, I forgot to do that 90-day trigger. Guess what? The investor comes in and says, wait a minute. You don't have a contract with so-and-so in the Midwest. Well, yes, I do. But if you look at the language, you actually don't. So make sure you know what your contracts say, and especially for the really critical ones, that they're actually still in place. … Your, your shipping, your organizational chart. I see Sean coming on, so I'm going to be really quick. Exit planning, super important to know your exit strategy before you even start. Investors want to know that. If you're going to be acquired, licensed, or build the business, I don't recommend licensing. I can talk more about that later. But, …

And then, be realistic, and again, raise more than you think you need. Thanks, everyone. I know we don't have a lot of time, but thank you very much.

Thank you both. That was very, very, very helpful. Thank you everyone for joining us today for Fundraising for MedTech Startups, the Ween Way, with Renee and Michelle, the dynamic duo. And … if you missed Michelle on last Friday's In Focus call, you can find it on, … MLVX on YouTube. It's….

It was a… it was a spicy one.

It was spicy, it was fighting with the FDA. Yeah. Not exactly, but close. So yeah, lots of, lots of comments from the peanut Gallery. Anyway, I appreciate all your help, and, contributions and questions. This was a lively session. And, look forward to more. Thank you, and have a great week.

Thanks, everyone. Thank you, Sean.