Financing for medtech startups can still be found, but the market climate is less than ideal, panelists at a LifeScience Alley conference said this week in Minneapolis.

The panel, "Financing Opportunities in Today’s Marketplace," discussed venture capital, IPOs, strategic investors and the important role played by a board of directors play.

That last topic was stressed by Dr. Dennis Wahr, president & CEO of Holaira, a Minneapolis-based company that’s developing therapies to treat obstructive lung disease. Holaira raised a $42 million Series D round last year. Wahr said a seasoned board can be very helpful for new companies.

"If you’re a first-time entrepreneur … you need people with industry experience," he said. "It’s crucial that your board of directors have unquestioned qualifications and a track record of success."

In addition to finding an experienced board, Wahr said startups need to create a compelling story to sell investors on their new product.

Finding investors has simply become a more difficult proposition in recent years, the panelists agreed. Martha Shadan, president and CEO of Rotation Medical, a Plymouth, Minn.-based company that has developed a treatment for rotator cuff disease, said that financial challenges have always existed, but that there are currently some "strong headwinds" facing new companies now. Rotation pulled down an over-subscribed Series B round of $27 million last year.

"These are challenging times," Shadan said. "Minnesota’s doing very well in terms of investment in startups. But as a whole, across the states, VC investments are down. There aren’t a lot of VCs investing in medtech … even if they are, they’re largely risk-adverse; they’re looking to invest in later-stage companies."

However, she added, there’s still funding to be found for new companies and new ideas.

"It’s not for the faint of heart; it’s hard work," Shadan said. "But if a company has a strong value proposition, if they have demonstrated good science, and they have really strong management teams, they will get the money."

Buzz Benson, managing director of Sightline Partners, a Bloomington, Minn.-based financial consulting firm that works with medtech companies and investors, agreed that funding had shifted somewhat to later stage devices. Benson said the overall VC pie has grown, but the percentage going to medtech companies has decreased by a significant amount.

"We think there is still a tremendous number of really good medtech companies that have valuable technologies, but there’s this funding gap and a lack of venture capital funds that are available," he explained. "Our strategy is find the really good companies and help those companies raise capital."

Picking up the slack, somewhat, are the strategics, industry giants such as Medtronic (NYSE:MDT) and Boston Scientific (NYSE:BSX). Wahr said strategics have become a major player in the medtech funding world.

"In today’s market, if you’re going to raise money, it’s not optional – there’s been such a drop-off in the VCs, you have to go them," he said. "It’s very different from 5 years ago. It’s now part of the business."

Wahr said that the big companies take longer to approve deals, with more stakeholders involved, and demand a more extensive due diligence process.

"They ask a lot of questions, so you have to be prepared," he said. "I think that’s a good thing, because even if you don’t get their money, they’re providing an education about what you need to do."

Several panel members also discussed other funding sources, including state grants and taking advantage of the angel investor tax laws that some states (including Minnesota) have passed.

Shadan said depending on the company and product, other funding streams can work.

"There’s a lot of grant money out there," she said. "NIH has a lot of money, in fact their pool of money is substantially higher than the VC community’s investment in medtech. Especially with the 21st Century Cures Initiative, that [funding] pie is going to get bigger. There are a lot of nontraditional sources."

Funding sources from overseas are also an area worth considering, members of the panel said. Wahl said VCs from Europe and Asia have a lot of money and are looking at American companies.

Overseas investors, he said, "are very active. They’re saying now is the time to the come to the U.S."