John Murphy is a hands-on kind of operator. One of his favorite things about his company Virtual Incision is that it makes a physical product. Specifically, a brand new type of surgical robotic that is uniquely portable.
It’s named MIRA, an acronym for miniaturized in vivo robotic assistant. The first iteration is designed to perform colon resections, where part of the colon is removed and the two remaining ends reconnected. Virtual Incision already has plans to build more variations, which will be able to perform cholecystectomies (gallbladder removal), hysterectomies (uterus removal), and herniorrhaphies (hernia repairs).
These aren’t the first robots that can perform surgery. But so far, all the others are so big and expensive that only hospitals in metropolitan areas or those attached to universities are able to access them. In contrast, Virtual Incision’s robots are lightweight — approximately 2 lbs — and can be set up within 10 minutes. Target clients include community and rural hospitals, and ambulatory surgery centers.
John had an enviable resume even before he got involved with surgical robotics. With a degree in computer science, he worked in aerospace and life sciences, before getting an MBA and becoming CEO of a couple of private equity firms. He’s also part of Tri-Valley Ventures, a venture capital firm supporting startups on the eastern side of the San Francisco Bay.
In this episode of Medsider, John outlines his best advice on fundraising, regulatory approvals, and the dual-track approach to exiting.
With a background in life sciences, aerospace, private equity, and venture capital, John is CEO of Virtual Incision. The company makes miniature, portable robots that can be used to perform specific operations. The first iteration is designed for colon resections, with new variations planned for the future.
Key Learnings from John's Experiences
- More funding is coming into the medical device space, but it’s still tricky bringing investors on board in early rounds. Consider approaching regional funds, which might be more inclined than nationally known firms to support local companies.
- Design a regulatory pathway that complements your R&D strategy. If you’re working on brand new technology and plan to create further iterations, consider applying for a De Novo classification. This can serve as a foundation for the 510(k) notifications you file for later variations.
- Consider a dual-track approach to exiting: preparing for an IPO and for a potential acquisition at the same time. You’ll have to hit a lot of milestones — but it’s worth the effort.
Critical Things to Remember When You’re Fundraising
Fundraising is constant when you’re a medical device startup. John recommends keeping your broad business goals in mind at each round, and raising the necessary capital to meet these initiatives. Specifically, think about:
- Series A: You need to fund preliminary investigations into your idea, including early prototypes and proof of concepts.
- Series B: You should be focusing on early clinical and regulatory hurdles, and the next evolution of prototypes.
- Series C: Prioritize finalizing clinical data and getting regulatory approval. Start to look into early commercialization opportunities.
The good news for medical device startups is that while it’s still challenging to secure funding, it’s getting easier due to an influx of investor interest in the space. John explains: “We’re emerging from a nuclear winter in device funding… it's [now] considered part of the solution, with novel treatments and cost control — and there's data with everything too.”
However, keep in mind that finding venture capital (VC) funding for your early rounds is incredibly challenging. “Most of the traditional VCs… are going [for companies at a] much later stage: at least a Series C,” John says. He recommends looking to sources that might be more sympathetic to the risks that come with investing in early startups. For example:
- Family and friends.
- Regional funds: Virtual Incision raised part of its Series A round from private equity firm Bluestem Capital Co in Sioux Falls, South Dakota — three hours from Virtual Inclusion’s headquarters in Nebraska.
- Funds that specialize in early-stage capital.
Once you have your early funds, John is very clear about where he thinks you shouldn’t spend them. “The one startling mistake I’ve thought about is CEOs pouring on commercial team spending — probably the most expensive part of fielding a new device — way too early,” he says.
From John’s perspective, in the early stages, it’s better to spend on the product than the marketing. One thing medical device leaders need to always remember is that they are making a physical product, and it needs to be rock-solid before you can sell it. “We're makers, we're problem solvers,” John says. “You've got to have that orientation to solve these clinical solutions.” In other words, put substance before sales.
Be Strategic with Planning Your Regulatory Pathway
Working on something as complicated as robotics made having a scalable strategy to manage the regulatory process essential. And it’s something every medical device company could benefit from.
John explains that Virtual Incision took a two-part approach that complemented the company’s highly-technical field.
First, Virtual Incision applied for a De Novo classification on behalf of its first robot, which is designed to assist in colon resections. As the name suggests, this is a Food and Drug Administration (FDA) classification given to devices that are first of its kind. In Virtual Incison’s case, there are other surgical robots: but none designed like MIRA.
With the De Novo classification granted, Virtual Incision can point to the approved device when filing 510(k) notifications for future variations designed for different procedures. It’s a stepping stone approach, rather than trying to get each robot through a distinct regulatory process each time.
You don’t have to follow this exact path: Identify the one that works best for your product. “Having a strategic, pragmatic way to step through the process is really smart,” John says.
Dual-Track Exits are Worth the Hard Work
If possible, John recommends a dual-track approach when thinking about a liquidity event: Planning for an initial public offering (IPO) while also being prepared for a merger and acquisition (M&A) exit. This keeps your options open once you know your company is in a strong enough position.
To be transparent, it’s a lot of work, especially since John recommends going the old-fashioned route of having proven solid revenue before trying to exit.
In addition to that, before going public, you need to have the fundamentals in place:
- Regulatory clearance or approval
- High compound annual growth rate (CAGR)
- A clearly mapped research and development (R&D) pipeline
M&As can be trickier to predict, since they rely on finding another company to acquire yours.
Start this process early: Research potential buyers and develop a relationship. As John says, understand what each company wants from you in terms of communication. Some might prefer phone calls, whereas others may like demonstrations. Some like quarterly updates, some only want to hear when you hit specific milestones.
“Get to know the teams early and who you're dealing with, and what their interests are, and get on that rhythm,” John says.
Meanwhile, to prove you are acquisition-worthy, you need to get the following components of your business in order:
- Clinical value proposition: What is your technology bringing to healthcare that no one else is?
- Intellectual property: Technology that isn’t legally protected from those looking to knock off your concept is worth significantly less to potential acquirers.
- Quality management system: Prove that your organization is structured to function effectively.
- Financials and financial audits: No one wants to inherit hidden debts and mismanaged accounts.
- Human resources: High employee turnover and internal personnel issues are red flags to potential acquirers.
Preparing for any exit is a lot of work, and keeping the door open to do two different options is even tougher. But having sat on both sides of the table as investor and a operator, John thinks it can pay off in the end and believes a dual-track approach will ensure your company has many options available when you’re ready to exit.
John Murphy is a hands-on kind of operator. One of his favorite things about his company Virtual Incision is that it makes a physical product. Specifically, a brand new type of surgical robotic that is uniquely portable.
It’s named MIRA, an acronym for miniaturized in vivo robotic assistant. The first iteration is designed to perform colon resections, where part of the colon is removed and the two remaining ends reconnected. Virtual Incision already has plans to build more variations, which will be able to perform cholecystectomies (gallbladder removal), hysterectomies (uterus removal), and herniorrhaphies (hernia repairs).
These aren’t the first robots that can perform surgery. But so far, all the others are so big and expensive that only hospitals in metropolitan areas or those attached to universities are able to access them. In contrast, Virtual Incision’s robots are lightweight — approximately 2 lbs — and can be set up within 10 minutes. Target clients include community and rural hospitals, and ambulatory surgery centers.
John had an enviable resume even before he got involved with surgical robotics. With a degree in computer science, he worked in aerospace and life sciences, before getting an MBA and becoming CEO of a couple of private equity firms. He’s also part of Tri-Valley Ventures, a venture capital firm supporting startups on the eastern side of the San Francisco Bay.
In this episode of Medsider, John outlines his best advice on fundraising, regulatory approvals, and the dual-track approach to exiting.
With a background in life sciences, aerospace, private equity, and venture capital, John is CEO of Virtual Incision. The company makes miniature, portable robots that can be used to perform specific operations. The first iteration is designed for colon resections, with new variations planned for the future.
Key Learnings from John's Experiences
- More funding is coming into the medical device space, but it’s still tricky bringing investors on board in early rounds. Consider approaching regional funds, which might be more inclined than nationally known firms to support local companies.
- Design a regulatory pathway that complements your R&D strategy. If you’re working on brand new technology and plan to create further iterations, consider applying for a De Novo classification. This can serve as a foundation for the 510(k) notifications you file for later variations.
- Consider a dual-track approach to exiting: preparing for an IPO and for a potential acquisition at the same time. You’ll have to hit a lot of milestones — but it’s worth the effort.
Critical Things to Remember When You’re Fundraising
Fundraising is constant when you’re a medical device startup. John recommends keeping your broad business goals in mind at each round, and raising the necessary capital to meet these initiatives. Specifically, think about:
- Series A: You need to fund preliminary investigations into your idea, including early prototypes and proof of concepts.
- Series B: You should be focusing on early clinical and regulatory hurdles, and the next evolution of prototypes.
- Series C: Prioritize finalizing clinical data and getting regulatory approval. Start to look into early commercialization opportunities.
The good news for medical device startups is that while it’s still challenging to secure funding, it’s getting easier due to an influx of investor interest in the space. John explains: “We’re emerging from a nuclear winter in device funding… it's [now] considered part of the solution, with novel treatments and cost control — and there's data with everything too.”
However, keep in mind that finding venture capital (VC) funding for your early rounds is incredibly challenging. “Most of the traditional VCs… are going [for companies at a] much later stage: at least a Series C,” John says. He recommends looking to sources that might be more sympathetic to the risks that come with investing in early startups. For example:
- Family and friends.
- Regional funds: Virtual Incision raised part of its Series A round from private equity firm Bluestem Capital Co in Sioux Falls, South Dakota — three hours from Virtual Inclusion’s headquarters in Nebraska.
- Funds that specialize in early-stage capital.
Once you have your early funds, John is very clear about where he thinks you shouldn’t spend them. “The one startling mistake I’ve thought about is CEOs pouring on commercial team spending — probably the most expensive part of fielding a new device — way too early,” he says.
From John’s perspective, in the early stages, it’s better to spend on the product than the marketing. One thing medical device leaders need to always remember is that they are making a physical product, and it needs to be rock-solid before you can sell it. “We're makers, we're problem solvers,” John says. “You've got to have that orientation to solve these clinical solutions.” In other words, put substance before sales.
Be Strategic with Planning Your Regulatory Pathway
Working on something as complicated as robotics made having a scalable strategy to manage the regulatory process essential. And it’s something every medical device company could benefit from.
John explains that Virtual Incision took a two-part approach that complemented the company’s highly-technical field.
First, Virtual Incision applied for a De Novo classification on behalf of its first robot, which is designed to assist in colon resections. As the name suggests, this is a Food and Drug Administration (FDA) classification given to devices that are first of its kind. In Virtual Incison’s case, there are other surgical robots: but none designed like MIRA.
With the De Novo classification granted, Virtual Incision can point to the approved device when filing 510(k) notifications for future variations designed for different procedures. It’s a stepping stone approach, rather than trying to get each robot through a distinct regulatory process each time.
You don’t have to follow this exact path: Identify the one that works best for your product. “Having a strategic, pragmatic way to step through the process is really smart,” John says.
Dual-Track Exits are Worth the Hard Work
If possible, John recommends a dual-track approach when thinking about a liquidity event: Planning for an initial public offering (IPO) while also being prepared for a merger and acquisition (M&A) exit. This keeps your options open once you know your company is in a strong enough position.
To be transparent, it’s a lot of work, especially since John recommends going the old-fashioned route of having proven solid revenue before trying to exit.
In addition to that, before going public, you need to have the fundamentals in place:
- Regulatory clearance or approval
- High compound annual growth rate (CAGR)
- A clearly mapped research and development (R&D) pipeline
M&As can be trickier to predict, since they rely on finding another company to acquire yours.
Start this process early: Research potential buyers and develop a relationship. As John says, understand what each company wants from you in terms of communication. Some might prefer phone calls, whereas others may like demonstrations. Some like quarterly updates, some only want to hear when you hit specific milestones.
“Get to know the teams early and who you're dealing with, and what their interests are, and get on that rhythm,” John says.
Meanwhile, to prove you are acquisition-worthy, you need to get the following components of your business in order:
- Clinical value proposition: What is your technology bringing to healthcare that no one else is?
- Intellectual property: Technology that isn’t legally protected from those looking to knock off your concept is worth significantly less to potential acquirers.
- Quality management system: Prove that your organization is structured to function effectively.
- Financials and financial audits: No one wants to inherit hidden debts and mismanaged accounts.
- Human resources: High employee turnover and internal personnel issues are red flags to potential acquirers.
Preparing for any exit is a lot of work, and keeping the door open to do two different options is even tougher. But having sat on both sides of the table as investor and a operator, John thinks it can pay off in the end and believes a dual-track approach will ensure your company has many options available when you’re ready to exit.
