Nov 1, 2024
Harsh Realities in Building and Financing Medtech Ventures | Insights from LSI USA ‘24
Harsh Realities in Building and Financing Medtech Ventures | Insights from LSI USA ‘24

LSI Track 4 Day 2 512 large

The medtech market, characterized by rapid advancements and stringent regulatory requirements, has always been a challenging terrain for medical device investors and entrepreneurs. At a panel at LSI USA ‘24, industry leaders discussed the current medtech funding landscape, sharing insights on navigating economic downturns and securing investment in this competitive sector. Here are six key points from the discussion.

Economic Downturn and Its Impact on Medtech Funding

The economic downturn has significantly impacted healthcare venture-backed companies, with overall investment down by 50% from 2021. Jonathan Norris from HSBC Innovation Banking highlighted that "Inside rounds have been prevalent in 2023," indicating that companies increasingly rely on existing investors for smaller funding rounds. He emphasized, "Milestones that had previously unearthed a new round with a step up have been changed," pushing companies to adjust their expectations and timelines. This trend points to the need for strategic thinking and agility when pursuing investment.

Stability Amidst the Decline

Despite the overall decline in venture funding, medtech funding has shown relative stability. Norris noted, "Investment in medtech has not experienced as significant of a decline as we’ve seen in the other sector, only down about 19% since 2022." This resilience is attributed to the steady nature of the medtech market compared to other healthcare sectors. He continued, "So, from that perspective, the amount of capital going into the sector is pretty good." 

Avoiding Premature Pivots

Anita Watkins from REX Health Ventures emphasized the importance of avoiding premature pivots in response to market challenges. She advised, "Making sure that you don't panic as a company and say, 'Oh, perhaps product market fits not there,' is crucial." Instead, Watkins recommended a thorough understanding of decision-making processes within health systems to ensure the product fits the workflow and meets the needs of end users. This strategic approach can prevent costly missteps and enhance the chances of success.

Challenges in Commercialization and Product Market Fit

Sean Cheng of Ascension Ventures discussed the evolving landscape of health systems, where the focus is increasingly on contribution margins at the procedure level. He observed, "Many medtech companies had great revenue because of that at the expense of these hospitals; the landscape has changed." Cheng highlighted the need for companies to adjust their assumptions about average selling prices (ASP) and total addressable market (TAM) to align with current market realities. 

The Role of Macroeconomic Factors

Daniel Hawkins shared his experiences with the impact of macroeconomic factors on medtech startups. He stated, "You can execute like crazy as a company, but if the macroeconomic winds are not behind you, or they’re not visible in front of you, those are challenging moments." Hawkins emphasized the importance of being aware of and preparing for these external factors. His insights underscore that even the most well-executed strategies can falter due to unfavorable economic conditions.

Effective Cash Management and Board Alignment

Effective cash management and board alignment are critical during challenging times. Watkins noted the importance of leadership: "You must demonstrate leadership, and you have to be willing to make the really, really difficult decisions." She also highlighted the need for alignment among board members and investors regarding the company's trajectory and strategic decisions. This cohesion is vital for navigating economic downturns and achieving long-term success.

Conclusion

The full recording of the panel can be found in LSI’s resource hub at the link below:

The insights shared during the panel provide helpful direction for navigating the complexities of medtech funding and market dynamics. From understanding the impact of economic downturns to effective cash management and strategic planning, these lessons are critical for medical device investors and entrepreneurs. 

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