Raising Capital in the Medtech Space

Linear arrived at the commercialization stage seven years after its genesis. Like many medtech projects, it evolved from a bootstrapped, part-time project to eventually needing capital.

Although Dan and his team didn’t have to raise money for the first two years, he certainly learned valuable lessons at major inflection points of the company’s evolution. At first, the team thought that they could bootstrap Linear, but Dan now says that belief stemmed from a lack of knowledge.

Looking back with the benefit of experience, he knows that to reach a point of “liftoff,” financing is a necessity. But it’s important to start fundraising at the right time, particularly because most investors want to see a proof of concept and to know that you understand the market before they’re willing to invest.

One of Dan’s keys to success for others who are fundraising is to find people in your network that believe in what you’re doing. Linear has raised three rounds of funding for a total of $10 million. Much of the first rounds of capital came from family, friends, and physicians connected to his co-founder.

While Linear’s story of success is encouraging, Dan cautions, “It's no easy path to go raise money because you have to be the biggest proponent of what you're doing.”

He goes on to explain that while you’re focused on developing the product, you might not be as focused on the needed conversations with various investors. For that reason, many people with experience say that fundraising is a full-time job.

Dan’s focus on product development, marketing and regulatory work opened up his partner to concentrate on fundraising, a reminder of the importance of building a team with balanced skills and interests.

Lucky for Linear, the duo found dedicated investors who believed in the work and came back for multiple rounds. But to anyone raising capital, Dan advises that fundraising can feel deeply personal, so it’s critical to get comfortable with being told “no”.

Navigating Regulatory Pathway Roadblocks

While raising capital comes with its own challenges, Linear has faced a particularly uphill battle in moving through the regulatory process.

Over the course of seven years, product development at Linear was relatively straightforward. But the team has spent years locked in a difficult battle with FDA — during which time it received several Not Substantially Equivalent (NSE) Determinations — and often felt like it was going nowhere.

Finally, after a formal appeal and a three-year journey, Linear found success.

On paper, the device’s function exists in other spaces already — which some might take to mean a smooth regulatory process. But the FDA review group associated the device with a risk profile that was at odds with the market and the product’s end users.

The Orchid went through multiple rounds of enhanced testing that similar medtech companies didn’t face. Dan recalled that at the height of this ordeal, his stress hit a peak. “My exact words were, ‘This type of regulatory environment is what is killing innovation in this space,’” he says. They also called in outside resources, including well-known attorney Mark Duvall to guide the regulatory legal process.

Linear had to work hard to shape the narrative around the device throughout their dialogues with regulators. When others at the table perceived the device as removing patients from treatment, Dan and his team had to shift the perspective, explaining that the concept of IV dislodgement is what actually removes patients from treatment.

Dan’s learned a lot the hard way and encourages others to involve the agency as early as possible. Despite the challenges Linear faced, he still acknowledges that FDA’s goal is to approve safe products that don’t adversely impact the public. So the sooner they are involved, the more thoroughly they can understand your device — and the better your chances are for smooth regulatory sailing.

Dan also advises innovators to be their own worst enemy. In other words, you need to ask yourself the hard questions:

• What have I done wrong?

• What have I not done?

• What should I redo?

The exercise allows you to enter difficult conversations with more confidence in your product and your overall compliance efforts.

Admittedly, Dan says, the Linear team was afraid of the FDA at times, particularly because they didn’t want to be on its bad side. But they had to remind themselves that, as much as was within their power, they had executed the right way and were not at fault. From there, they had to trust their team, their resources, and their product.

“Pulling the right levers at the right time is absolutely critical, and you cannot be afraid to do it,” he says.