Want to write a piece for 3DHEALS Expert Corner? Email us: email@example.com
Recently, I had the pleasure to attend super angel Jason Calacanis’ Founder University and the WSGR 2018 MDC (Medical Device Conference). I’d like to share my thoughts as well as my notes from these conferences on how to get investors open their pocketbooks to MedTech startups, and of course, healthcare 3D printing startups (since few people discuss it in a separate context alone). (I have previously written about investing in medical device and current investment landscape of healthcare 3D printing. Also, Fundraising in Healthcare 3D Printing, Part I: So, you wanna pitch?)
Or the potential of “Printing Money”.
This quote is from Jason Calacanis, because it really is often the bottom line of getting VC funding. It is a cold statement, but it forces founders to focus on what is the number one thing that defines “success” of a for-profit business. If a company cannot make money, any grand vision, fascinating technology, personal ambition, or in some cases, tears, will not alter the ultimate demise of a company.
From an investor’s perspective, this focus should guide a founder’s daily priorities.
What makes an investor believe that a startup can “print money”?
- Growth. This should be a no-brainer. Being able to demonstrate metrics that show large-scale popularity is a solid proof that there is a (potential) product-market fit. This is especially true if growth is tied to profits (see below).
- Monetization on a venture scale. Simply having growth is not enough. There are plenty of Instagram or Youtube stars that cannot monetize from their millions of fans or followers. Having a large number of freemium members, subscribers, followers is a good early sign of product-market fit (or at least the idea of it), but it does not necessarily translate into the ability to convert the popularity into actual profit. Founders should focus on how to monetize on the traction gained on a venture scale. Examples of businesses that fit this trait would be high margin subscription-based software companies.
- Fundable founder(s). Charisma and credentials alone will not be enough. (Hint: Theranos) What’s on paper (or in the media) needs to be backed by what’s demonstrated through actions. Judging a person’s character is no simple task for the investors, but the recent fallout with Theranos is making investors more disciplined with looking past first impressions and building a record of interactions that will consistently show if the founders possess the following fundable characters:
- Honesty. I did not want to put this down at first, because this appears to be such a no-brainer, but then again, blurring the line between ideas and reality seems to be such a common practice in the startup world, people need to draw a clear line between lies and sales pitches. Words representing sales pitch include non-quantitative descriptions that shed a favorable light on the company (e.g. “gaining initial interest”, “significant early traction”) but not outright misleading false information (e.g. “FDA approved”, “clinical evidence”).
- Willingness to learn (and change).
- Ability to listen (similar to above point).
- Resilience – the ups and downs are daily, and sometimes multiple times per day/per minute.
- Surrounded by relevant advisors. There is a good recent article talking about one early worrisome sign of Theranos was that it surrounded itself with a significant number of industry-irrelevant but celebrity-level board members (“trophy advisors”).
- The prototype is ready.
- A diversity of indications.
- Existing sales channels.
- Effectiveness in two critical phases of product cycle: R&D and commercialization.
- U.S. company. Or, if you are a foreign startup but with the following traits:
- You have established a Delaware entity
- Have your product team in the U.S.
- Incredible past performance in native country (i.e. “printing money already”) if the above two criteria are not yet met.
One word on “Impact”
It is sad, but it is a reality. The moment the word “impact” enters a pitch deck, a majority of investors will lose interest. This does not mean the investors don’t care about making a positive impact on the world. We all want world peace, but investors, in particular, venture capitalists, have a job to do, which is to maximize returns of their funds’ investments.
This also does not mean the said “impact” startups are not fundable. I am a believer that extraordinary fundable startups are also companies that will make a positive impact to the humanity and the world. In fact, this is exactly why more and more investors are interested in healthcare startups. It adds meaning to a lot of their work. When “profitability” and “impact” are in alignment, that is the perfect startup I would like to invest in, but I require a profitable business first. Only a profitable business can achieve a founder’s vision of making a positive impact in the long run.