Oct 23, 2024
Insights from LSI USA ‘24 | Investing for the Long-Haul: Supporting Companies and Aligning Investors Across Stages
Insights from LSI USA ‘24 | Investing for the Long-Haul: Supporting Companies and Aligning Investors Across Stages

LSI Track 4 Day 3 492 large

Securing funding in the medtech market is often challenging, but understanding the various perspectives of investors and the strategies they employ can greatly benefit medtech startups. At a panel at LSI USA ‘24, industry leaders discussed effective medtech financing strategies, offering valuable guidance for navigating this complex landscape. Here are six takeaways derived from their discussion.

Diverse Medtech Financing Sources and Perspectives

Investors in the medtech market come from various backgrounds—each with unique investment strategies. Understanding these differences is crucial for medtech startups seeking funding. Tom Vogelsong of K2X Capital explained their approach: "Rather than trying to pick out one or two rocket ships that are taking off, we invest in ones that are on the launchpad, getting in on the seed stage." Meanwhile, Shubhra Jain from Tarsadia Investments highlighted their focus on later stages: "We typically invest series A to growth stages. In the medical device and diagnostics world, that means post-FDA clearance and close to, if not already in, commercialization."

Lead Investment and Pricing Rounds

A lead investor who can price the round is essential for securing additional investments. This lead sets the terms and gives confidence to other investors—but there are many different approaches to be aware of. Jain emphasized, "We typically like to lead. We insist on pricing the round or at least being part of the conversation." In contrast, Vogelsong noted, "We never lead; it’s our policy." Tyler Wanke explained, “We will lead, but we most likely won’t price the round. We feel comfortable helping structure convertibles like Simple Agreements for Future Equity (SAFEs) and convertible notes for a Pre-Seed or bridge round.” 

Investment Stages and Strategies

Investors have different strategies regarding the stages of investment and expected return timelines. Katerina Fialkovskaya from Philips outlined their approach: "We invest across all stages as long as it’s strategically relevant for Philips." Wanke added, "We're prepared for the long haul because we usually get in at Pre-Seed or Seed rounds. We love it when companies exit in less than five years, but we’re very prepared to take it much longer."

Convertible Notes and SAFEs

There are varying opinions on using SAFEs versus convertible notes, which can affect how a startup structures its financing rounds. Vogelsong prefers more structured agreements: "The pre-money SAFE is a definite no because we get no protection. We’ll often go back and demand all the added features you can add to SAFE to make it look like a convertible note." Conversely, Wanke supports SAFEs under certain conditions: "We do like SAFEs—especially for those ventures where it can make or break significant grant funding."

Syndication Practices

Syndicating investments is a common practice to mitigate risk and increase funding availability. This involves collaborating with other investors to pool resources. Vogelsong described the collaborative nature of angel groups: "We know we can't do it alone. No angel group can fill out even a seed round, so we've become much better at sharing deals." Katerina Fialkovskaya noted Philips' approach: "We co-invest with CVCs, independent funds, angel investors, and family offices, so all types of investors can be in the same room."

Adapting to Current Market Conditions

Given the challenging market conditions, strategic planning and adaptability are essential for medtech startups to survive and thrive. Jain suggested, "Just look out for stellar individuals that you want to partner with and then figure out a way to get access to their wallet, network, and expertise." 

Conclusion

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

Navigating the medtech financing landscape requires a clear understanding of different funding sources, strategic syndication, and adaptability to current market conditions. Engaging with the right medical device investors and aligning with their expectations is vital to success in the competitive medtech market.

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