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published on September 29, 2015 by
You don’t plan to do it (an early exit)—but rather you design your venture to be able to do it in a win-win-win way (entrepreneur/investor/strategic acquirer) at every milestone.
There is a commonly held belief that it is not a good idea for founders of a regulated health or medical technology venture to publicly communicate their intention to exit early---especially for "transformational" technology ventures. By “exit early” I mean an exit for less than $50MM and potentially a less than 10x return for investors and founders. These early and sub-$50MM exits are often called "small ball" by investors who want to invest in opportunities that lead to a 20x or greater return. Signaling to the market and investors that you would be open to an early exit would likely lead to the common experience of wandering in the “valley of death” without receiving the capital needed to progress to the next milestone. In other words, it is a venture that may have an incredible potential solution to an unmet need that has no funding options (or is running out of grant money), has not created FOMO (fear of missing out) on the part of investors, and is quietly transforming into a zombie venture (where members of the founding team are putting less and less time in and are praying for a miracle).
It makes sense that founders never discuss the “Early Exit” option outside their “Circle of Trust” for the aforementioned reasons. However, it is something that absolutely should be considered and, more importantly, designed into the venture at the beginning to be a real option. Some innovative Medical Technology solutions are well suited to being “Early Exit” candidates while others are not (more in a future post). In addition, some Medical Technology venture teams are better suited to being an Early Exit candidate while others are not (more in a future post).
Let’s get concrete: Imagine you and a co-founder developed a very capital-efficient Class II medical device product venture over the course of 36 months that has the following:
What if a "Strategic" was interested in buying all your assets for $10MM? Then in theory your investors would get $6M and you and your co-founder would split $4M for your efforts over 36-48 months (we all know the $6mm $4mm is obviously a gross simplification but reasonable to illustrate the rough math). This is a decent return for you, your partner, and your investors (more analysis and scenarios in a future post).
This is the model and approach practiced by serial Medical Device entrepreneur Avi Roop of Miret Surgical and many other experienced MedTech entrepreneurs. It requires several things to execute successfully including:
Sounds nearly impossible, right? Now you know why Steve Blank and others always look at the team first in order to gauge Investment Readiness—do they have the experience and skills to do this in a capital efficient and expedient way?
Fortunately many trends are making the path to a successful “Early Exit” more attainable for MedTech entrepreneurs around the world and especially in the US (more in a future post) including:
Avi Roop, CEO of Miret Surgical, and Jim McGough, Co-founder of EdgeOne Medical, and some other experts will be sharing more insights on this very interesting topic in the coming months via blog posts and small gatherings around the US and Europe – Please subscribe to our blog or join us at a small gathering to learn more.
Avi Roop is a serial medical device entrepreneur who has been a key player in multiple early exits including Vascular Science and Tarsus Medical. In addition, Avi has extensive experience as a strategic buyer at St. Jude Medical. He is also a Stanford Biodesign Fellow and an adherent to the biodesign product innovation process.
As co-founder of EdgeOne Medical, Jim McGough and EdgeOne Medical help promising early-stage medical technology ventures progress from the product viability and feasibility stages through regulatory clearance and ultimately to an exit in a capital-efficient manner. EdgeOne Medical supports the Regulatory and Product Development needs of Miret Surgical and other capital efficient medical technology ventures in the US and Europe.