How to Fund Medtech Startups in a Capital-Efficient Manner

Rich Ferrari is a realist. 

With over 40 years of venture capital experience under his belt, he understands that grand-slam, venture-funded projects, like Instagram and OMGPop, are pretty rare, especially in medtech. 

“We’ve got a long history and a collection of data, which points to the fact that 80% of transactions are $250 million and below,” Rich reports. 

In fact, as you dig deeper, the data is even more sobering: Rich estimates that 58% of successful medtech exits clock in at $100 million or less. 

When you factor in the rising costs and lengthy timelines associated with the premarket approval (PMA) process, establishing a successful medtech start-up can start to feel like a true uphill battle. 

That’s where Rich can help. After building and exiting several companies – including CardioThoracic Systems (CTS, acquired by Guidant) and Cardiovascular Imaging Systems (CVIS, acquired by Boston Scientific) — he’s now focusing his efforts on shepherding other business leaders through the process. 

“At this point in time, what I do is a lot of coaching and mentoring for entrepreneurs, because my goal now is to try and help people get to where they want to go.”

In this episode of Medsider, Rich shares what he looks for when assessing potential technologies, how he utilizes novel funding models to finance early-stage projects, and strategies he employs when navigating the FDA runway.

Key Lessons from Rich’s Experiences

• Pursue projects that are disruptive in their field, and answer key clinical problems. Prioritize technologies in white space areas that are not riddled with competitors. Rich’s project Pulmonx, for example, radically transforms the clinical pathway for emphysema. 

• Get creative with funding in order to maintain viability long enough to entice later-stage VCs. Rich innovated the medical device generator model as an alternative to finding angel investors, which secures capital up until first-in-human testing.

• Be strategic when it comes to navigating the runway to FDA clearance. Collect high-quality data and prioritize the pre-IDE (investigational device exemption) process in order to avoid costly setbacks and miscommunications.