Funding Options for Medtech Startups

Funding Options for Medtech Startups

So you have an idea for a new medical technology device and you’re considering your options on how to get it off the ground?

In terms of funding your medtech startup, there are a number of ways to go about it from Angel investors to online donations. Much depends on where you are starting from in terms of how much support you need in the early stages and what you may be looking for from partners. In today’s funding market, investments can come from some surprising places.

Funding Options

  • Venture Capital – Inc. magazine defines venture capital as money given by investors to startup firms. Venture capital may encompass managerial as well as technical assistance. An example of a venture capital backed company is Butterfly Network. The Network raised $100 million in venture funding. The company makes a small handheld medical-imaging device that will allow ultrasound tests and magnetic resonance imaging (MRI) to run faster and be less expensive.
  • Crowd Funding – This is a relatively new form of funding. This form of funding works by raising small sums of money from a large number of people on the Internet. There are two basic models of crowdfunding that several medtech companies have used. One is a donation-based funding where people basically just donate towards a business goal based in return for the product, perks such as tickets or gifts.

  • The other model is investment crowdfunding, which is a higher stakes model. Startups who are seeking capital will sell ownership stakes online in exchange for equity or debt. People who invest here can get a financial return, unlike in the donation model. A successful medtech device, Scanadu Scout, a “medical tricorder,” is  an example of a product funded on the Internet crowd funding site, Indiegogo. The medtech firm raised $1.66 million to get it off the ground. Among the capabilities, the device can scan electrical heart activity, blood oxygenation. Crowdfunding, where equity is involved however, is a very new mechanism. So its full effect on the market, including how to best utilize it as a tool, is still being determined.
  • Angel investors – Angel investors are similar to venture capitalists but on a smaller and much more personal level. Angel investors fill that early-stage cash need between friends and family and venture capital for most new medtech ideas. These days new medical device innovations are being asked to reach further and further milestones with less money and Angel Investors fill this need a lot of the time. Although these types of investors generally make their investments on a personal level, they also band together in angel groups. Online websites can help you find an angel group in your area. Angel investors typically expect the possibility of an ROI between 10x – 20x, so your calculations of future rounds and exit assumptions should be able to show this type of return to early investors.
  • Strategic Partners – A potential customer or a business in the same industry may be willing to advance funds for royalty payments to complete development. Variations on this theme include early licensing or white-labeling agreements.
  • Incubators and Accelerators – While many think of technology incubators are only for bootstrapping college kids, there are some medtech-specific laboratories looking for healthcare technology innovation. An example are two new incubators on the scene: The American Medical Association (AMA) is partnering with Chicago-based incubator Matter. The partnership will become the AMA Interaction Studio at Matter which will function in a physical space and offer virtual support for entrepreneurs and physicians to connect and share their developments and ideas.
  • MediCoventures – Positioned as a bit of a hybrid between partnership and incubator, MediCoventures will invest in-kind services into companies. They don’t just infuse cash and then mentor and advise, they actually jumps into the weeds with the founder, utilizing their extensive network and experiences to get stuff done. Ideas brought to MediCoventures don’t have to have a team behind them, but rather should be able to show that they are addressing a real need, with a large market and with a strong competitive advantage.
  • Bootstrapping – Not knowing the meaning of “bootstrapping” can quickly label you as a risk and someone who third party investors should stay clear of. The name of the game in startups is to have the right amount of money in order to reach the right milestone. Utilizing your own cash or that of friends and family can take you a long way along the road of vetting, prototyping and de-risking in order to show others that you truly mean business.

There are a plethora of funding options available to those who have dedication, drive and vision to build new medical device technologies. The art and science for financial backing is finding the right match for you and your circumstances.

As you consider your funding needs, keep in mind that a deep dive into the market and the competitive landscape as well as several other criteria is necessary in order to identify the risks you have in store. The Fundability Criteria Worksheet by MediCoventures will walk you through that important evaluation.

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