Angel Investor in Life Sciences: Putting Our Money Where Our Passions Lie

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Expert Corner this week: Tom Vogelsong shares his personal journey from being a corporate executive to an angel investor in life sciences, lessons learned, and future outlook.

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My Background

I never planned to be an angel investor. Like many of you, I had worked most of my career on the other side of the fence; researching innovative technology, developing products, and assessing market opportunities. For most of my career, I was focused on imaging, sensors, and systems. At one point, I had even been on the other side of the negotiating table as CEO of a startup developing some of the first CMOS imagers for digital cameras, industrial machine vision and robotics, space imaging, digital cinematography, and digital dental X-ray. I had not realized when I started that position how much of my time would be spent raising money to move the company forward. I tapped into friends and family, angel investors, government and commercial contracts, and venture capitalists. I learned many hard lessons during that time and consider that period to be my “real world MBA”.  Fast forward a few years, I was finishing up a successful career in the corporate world and trying to visualize where I would like to write my next chapter in life. 

Looking back, I realized that the most satisfying parts of my career involved my work in the life sciences, developing products that would directly improve quality of life. One of these projects related to digital X-ray systems, whereby exams would be performed at a lower dose, and the combination of digital sensors and image processing could enhance visualization of issues such as early-stage tumors. Such digital detectors have continued to penetrate the market and dominate film-based diagnostic X-rays. Another satisfying project was developing an image sensor and camera to see fluorophore-tagged neurons in mouse brains to monitor the activity of individual neurons when the mouse was stimulated in various ways. The ultimate goal was to allow humans who had lost limbs to regain control of artificial replacements purely by thinking about moving the limb. It was clear to me where my passion lies – helping medical device startups.

My Transition from Corporate Executive to Angel Investing

I initially tried consulting for medtech startups, assessing market needs, competitive position, and distribution methods. I quickly came to realize that the largest issue for startups was the one that I had faced many years earlier – funding! I started researching the medtech investor space, attending a variety of events featuring shark tank-like competitions for startups. Some of the best include Wilson Sonsini’s annual Medical Device Conference, AdvaMed’s Medical Device Conference, and the associated MedTech Innovator’s Award, Life Science Nation’s RESI events, and the biggest of them all, the 150+ events surrounding the JP Morgan Healthcare Conference held in San Francisco every January. There are so many breakthroughs happening in sensors/wearables, networking/cloud computing, machine learning/artificial intelligence, regenerative/personalized medicine/CRISPR. This is a great time to get involved in medtech innovation! 

Angel investors are playing a more important role than ever in the 21st-century startup ecosystem, especially in the life sciences. Venture Capital (VC) – the traditional source of funding for medtech startups, has become more risk-averse. This trend accelerated after the economic collapse of 2008. VCs now participate at a later stage, after many of the risks have been mitigated. This includes showing efficacy through clinical results, proven market acceptance with partnerships cemented, and regulatory approvals completed. As those of you traveling down the entrepreneurship path know all too well, it takes funding to achieve these milestones. This is where angel investors have stepped in to fill the gap. More individuals have more wealth to invest given the robust economy over the past few decades. However, financial return is not the only goal of most angel investors. They want to fulfill some passion; to bring their expertise, their background, and their network connections to help innovative entrepreneurs achieve their financial objectives. 

Lessons Learned from Angel Investing

I was ready to try my hand at angel investing in my area of passion – medtech. I had heard enough stories and read enough articles to know the downside of random angel investing, where 80-90%% of all startups fail. I placed a few early bets. Relying on my perspective alone was like shooting in the dark and I rarely hit a winner. I learned that there were a variety of models for leveraging the skills of a group to identify the most promising prospects. I explored:

  • Incubators and accelerators: Fortunately, there are many around the San Francisco Bay Area including Plug & Play, IndieBio, UCSF QB3/Rosenman, Stanford Biodesign, Berkeley Skydeck, Startup Health, BRIIA, Y-Combinator, Alchemist Accelerator, J-Labs, Launchpad Digital Health, and many more. These groups provide excellent mentoring to take a nascent company with a good idea and help them evolve it to the point where it is ready for angel investment. By helping them with advice, mentoring, and in many cases with pre-seed funding, incubators and accelerators help the entrepreneurs get to the point where they stand out in the crowded world of life science startups. Often, the startups are showcased at the end of the incubator/acceleration program with a demo day event. 
  • Typical angel groups: Angel groups are typically composed of a group of accredited investors with common interests usually within a geographic region. After screening prospects, the groups share the chore of an in-depth investigation through their due diligence process. Once complete, they showcase the vetted prospects to their members at a monthly meeting (formerly over dinner, now virtual). There is often an annual fee paid by the members to support the group’s overhead costs. There are several excellent ones in the Bay Area including Life Science Angels, Band of Angels, Sand Hill Angels, Health Tech Capital, Berkeley Angels, etc. There are many other angel groups around the United States and worldwide.
  • Finder groups: There are other groups that will charge a fee (fixed fee or success fee) to the startup to showcase their story to groups of investors. Finder groups that I have interacted with include Pitch Force, Keiretsu (the world’s largest angel group), Family Office Network, Life Science Network (RESI), and others. Some finder groups produce results, others do not. It is important to check with companies that have used these organizations to track their record and see if the fees are justified. One example that I have used is Smart Money Startups (www.smartmoneystartups.com), which charges a fixed fee to quickly research and provide a list of likely investors in the client’s specific area, and to identify direct “warm” contacts.
  • Crowdfunding: This is a relatively recent addition to the early-stage funding options. Early crowdfunding was targeted at small marketing campaigns with names such as KickStarter and IndieGogo. With the passage of Title II of the Jobs Act in 2014, serious equity crowdfunding by accredited investors via a web-based platform was enabled. Several platforms utilizing this model require either fixed fees or success fees for their clients. There are groups like FundRX, OurCrowd, Crowdfunder, Propel-X, AngelMD, MedStartr, WeFunder, and RedCrow. I worked for 2 years as a “scout” locating and vetting early-stage medtech companies who were seeking crowdfunding. I investigated over 500 companies during that time which provided me a much better perspective on the range of startups in life science. 

After exploring many of these alternatives, my advice for startups is:

  1. Raise initial funding through your own team, your friends, and your family to advance your idea to the point where you can demonstrate knowledge of the need, the feasibility of the concept, and acquire initial IP coverage.
  2. Consider participation in an incubator or accelerator. These organizations can help shape your message with mentors and advisors who have been through this process many times before and will help your story stand out in a crowd of investment opportunities
  3. Pursue government and commercial contracts and grants. Any non-dilutive funding that you can raise will allow you to maintain a greater share of your company and gain credibility with future investors. 
  4. Explore many different investment avenues in parallel for your seed round. Reach out to multiple seed groups. Try for warm introductions rather than cold calls. Participate in multiple showcase events. Network, network, network and keep thorough records of your interactions and funding leads.

Fulfilling my passion as an Angel Investor/Advisor at Kyto

After my exploration of angel investor groups, I joined Kyto Technology and Life Science (www.kytotech.com), first as an investor in Kyto itself, and then as a member of Kyto’s Life Science Advisory Board helping identify and select medtech startups for funding. Kyto has a different model than typical angel groups. Kyto’s investors pool their money by purchasing Kyto stock. Then Kyto invests directly in seed-stage medtech, biotech, and non-life science technology companies. In its first 30 months, Kyto has made investments in 34 startups, about 75% in the life science space. Although we have not yet invested in a 3D bioprinting company, we have explored several and are attracted to the potential impact. In particular, we have evaluated prospects in 3D printing of dental devices and of bone alternatives for joint replacement, and are tracking exciting developments in tissue printing with embedded micro-vascularization. We have invested in a broad swath of devices and technologies addressing ophthalmology, dentistry, drug discovery, cancer diagnostics, cardiology, infectious diseases, and more, with the full portfolio listed on the web page (www.kytotech.com).

Kyto does not lead rounds but will co-invest with other leading angel groups or early-stage VCs to share deal flow and due diligence results. Once another group has vetted the prospects and decided to invest, Kyto’s Life Science Advisory Board will provide further insight (eg. double vetting). Once Kyto invests, Kyto will promote the deal to Kyto’s shareholders, allowing them to do their own homework (triple vetted) with the option to invest directly. 

No longer am I basing my investment decision on my opinions alone, but on the opinions of many others whose perspective and expertise complements my own. Hopefully down the road this will deliver an enhanced financial return as well as provide me with the satisfaction of helping innovative entrepreneurs bring life-saving solutions to needy patients worldwide.

About the Author

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Thomas L. Vogelsong (Tom) Is an angel investor in MedTech as well as Principal/Consultant at Imaging Innovations and advisor/investor/consultant for Kyto Technology and Life Science, Principle Imaging, Qanopy, RedCrow and Silicon Valley Advantage. He helps startup companies raise capital, set a vision for growth, develop a plan to get there, and execute their plan to achieve success.  

If you are interested in learning more, please contact Tom at tlvogelsong@gmail.com or www.linkedin.com/in/tom-vogelsong.

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