I started a discussion on the LinkedIn Medical Devices Group a couple weeks ago titled “What 3 things must a medical device startup do to get funding?” The sub-text I provided was:
We work with medical device inventors, entrepreneurs, and startups. We are often asked to help our clients find funding. It still seems to be a VERY tough market for medical device startup funding. Many clients are often convinced that the most important thing they need to do is build functional prototypes. What are your thoughts?
The comments and discussion thread have been very insightful. I decided to take some of the insights provided and share in this post.
- Only building functional prototypes will result in leaving substantial sums of money on the table.
- Investors are concerned about 3 types of risk:
- Technical Risk – Does the idea work?
- Business Risk – Is the market there?
- People Risk – Does your company have the right people with the right experiences?
- The most important things medical device inventors should do are:
- Investigate the market
- Request cost estimates for design, regulatory, manufacturing, etc.
- Create a business plan
- Prototypes can be helpful but a well thought out plan showing where and how the device fits within the “system” is more meaningful.
- Functional prototypes are essential to gain exposure and provide a foundation for research.
- Implemented quality / regulatory system, business plan, financial and sales projections, experienced leadership, world wide distribution network, and proof of user adoption.
- 5 things suggested:
- Working prototype
- Market tests
- Business planning
- Telling a compelling story
- Answer what the device means for the hospital / end user. Why will the user be compelled to purchase the device?
- Major factors are:
- Business model
- Proof of market size
- IP ownership
- Freedom to operate
- Capital requirements & time to market
- Demonstrated ability to develop, make, market, and sell
- Substantiated exit strategy
- Answer 2 questions:
- Does it work?
- What’s the market?
- Dynamic CEO
- Define the value proposition. Answer “what’s in it for me?”
- Will users get paid to use your device?
- Can users increase productivity?
- 3 key questions to answer:
- What is your key consumer insight?
- What is your source of volume?
- What is your selling proposition?
- Proving end-users have been involved at every step along the way
- Get a cross section of views during development
- Development process should involve the end-user “decision maker”
- Determine who really buys the product
Wonderful input from so many experienced people. For me the take home is this:
Yes, a functional prototype is essential (at least at some point during development) to demonstrate your product meets user needs. But a prototype alone is not proof enough for funding. The business model must be meaningful and substantial.