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The seas are changing for medical device investment.
Venture capitalists are looking at their investment strategies since the 1990s and seeing a broken model focused on funding the familiar, placing safe bets in "incremental" devices that have since languished in a sort of med-tech limbo among other cloned startups with no exit strategy.
That may have been because entrepreneurs and investors focused their strategies around what they thought would be an easy and painless path through the FDA, rather than looking for pioneering devices and companies with a new vision for healthcare.
"Everyone thought it was an easy approach, that if you’re incremental there are fewer hurdles for regulation and reimbursement," Easton Capital Investment Group managing director John Friedman told MassDevice.com during Wilson Sonsini Goodrich & Rosati Medical Device 2012 Conference in San Francisco last week. "It was the fear of failure."
What investors are finding instead is that companies developing follow-on devices, those which represent minor improvements on someone else’s pioneering efforts, are very hard to take to exit. With funding budgets strained and VC firms tightening their belts, more investors are looking to put their money into game-changing devices.
"What we generally found is there wasn’t a lot of strategic interest in just having another device that was slightly different. The regulators actually made that process even harder. They’re scratching their heads on why are you even bringing this to market if it’s non-inferior to something that’s out there?" Osage University Partners managing partner Dr. William Harrington told us. "I think what the FDA is looking at is, hey, bring us things that are really transformative and we’ll help work with you to get those approved, as opposed to this constant parade of slightly better technologies."
In this edition of the MassDevice.com Podcast, venture capitalists explain where the prior model went wrong, what VCs are looking for now, and what entrepreneurs and startups, even incremental ones, can do to adapt to the shifting funding landscape.
The death of incrementalism and the new landscape for venture capital funding
