Why Finding Investors Who Understand Your Product is Critical: Interview with EchoNous CEO Kevin Goodwin

Kevin Goodwin has already been part of a medical first. In 1998, he founded Sonosite, which released the first point-of-care ultrasound device (PoCUS) the following year. It was a classic startup story: Sonosite hit NASDAQ immediately after launching, with no product, no approval from the Food and Drug Administration (FDA), and no revenue.

But Kevin knew the technology was ready, and it had the power to change medicine. Instead of having to schedule patients for a scan and transport them to radiology, healthcare workers could bring the device to their hospital beds.

Sonosite was acquired by Fujifilm in 2012, and Kevin left the company in 2014. By that point, he felt that the PoCUS device market he helped originate had grown stagnant.

Just as Moore’s Law predicted, computers were getting smaller and less expensive to build, while also becoming more powerful. At the same time, artificial intelligence (AI) was making machine learning (ML) a reality. Yet PoCUS devices were still large and expensive, and the images were not all that detailed.

In 2015, Kevin co-founded EchoNous to make a handheld PoCUS device that cost significantly less than the models used as the standard in hospitals. Even more ambitious, it would use AI and ML to not only deliver more accurate results, but to improve the detail and accuracy of those results over time. The company’s AI-powered Kosmos platform was approved by the FDA in 2020.

In this episode of Medsider, Kevin explains the pros and cons of public versus private investors, what happens when a competitor with an inferior product dominates the headlines, and why the toughest potential customers are the ones you should try to win over first.

Guest

Kevin Goodwin

CEO of EchoNous

Kevin Goodwin has specialized in ultrasound for over 30 years. While at ATL Technology, Kevin founded spin-off company Sonosite, which launched the first point-of-care ultrasound (PoCUS) device in 1999. Unlike other ultrasound devices, it could be used anywhere in a hospital, instead of sitting in the radiology department. Sonosite was acquired by Fujifilm in 2012, and in 2015, Kevin co-founded EchoNous, with the aim of creating a portable PoCUS device powered by machine learning (ML) and (AI) to give even more accurate and detailed results.

Listen to the Interview with Kevin Goodwin

Key Learnings from Kevin’s Experiences

  • Know your worth and stand by it. Investors who don’t have a deep understanding of the medtech space can be blinded by buzzy companies with flashy, low-quality products. Don’t let them force you to lower your price or compete directly.
  • When you’re looking for customer feedback on your prototypes, find people who are open to new ideas but take a lot of convincing. If you can make something that even the skeptics buy into, you’ll know your product has a market.
  • There are pros and cons to both public and private investment. Public investors can sometimes work faster — but they also expect quarterly revenue predictions, which can be hard for a startup. Finding private investors is a slog, but if you can bring in people who understand your product and give you the space to work, the opportunity is worth it.

Own Your Place in the Market

Investors can sometimes be shortsighted when it comes to assessing market fit for medtech devices. You have to understand where you fit within the competitive landscape, and stick to your guns.

For example, EchoNous’ Kosmos PoCUS device and platform costs approximately 10x less than the ultrasound machines commonly used in hospitals. Kevin says that this price difference is why some medical device companies showed no interest in developing the technology further.

There’s no incentive to make a product that can do more but sells for less when you can keep selling your existing technology at a higher price. “The problem in this industry is that everybody is loath to self-cannibalize,” Kevin says.

Choosing a lower price point put EchoNous at odds with those established companies, and exploited a gap in the market for a high-tech, low-cost PoCUS device.

However, it also had the unintentional consequence of aligning the product — in the eyes of some investors — with what Kevin views as lower-quality ultrasound technology. Specifically, a handheld smartphone-connected device called Butterfly, which has been causing a flutter in the venture capital world.

Like Kosmos, Butterfly is marketed as a lower-cost, high-tech evolution of PoCUS devices. Butterfly’s probe costs $2,399 (at time of writing), approximately 4x less than the Kosmos, although users also have to pay a license fee. But despite constant comparisons, Kevin believes that the two companies belong in totally different categories.

“Butterfly has a very low-cost, cheap product… It sits above the stethoscope, but it's not diagnostic grade: it has limits that are very obvious,” he says. In contrast, he adds, “We're selling to a whole different cadre of users who don't use Butterfly.”

Between the stagnant established medtech companies, and the cheap-and-quick startups turning investors’ heads, EchoNous has been consistently under pressure to either raise or lower its price point. However, Kevin has stood his ground, because he knows that there’s a true market for what his veteran team at EchoNous is making.

“My team is very deep in this field… we really know what we're doing, and the key variables,” he says. “We don't have to do this. We could do other stuff and we'd be cruising. But we’re doing it because we see the business opportunity. Investors should take note of that.”

Get Input From Skeptical Customers

When you’re years into developing your product, and desperate for light at the end of the tunnel, you might be tempted to look for “soft” focus groups, made up of users you know will be gentle with their feedback.

Don’t give in to that impulse. If you incorporate feedback from your hardest-to-please customers from the beginning, you’ll know for certain that your product delivers on even the most demanding criteria.

Kevin recommends looking for potential customers who have two specific traits: “You go to people that are tough graders, but open-minded about innovation,” he says.

In the case of Kosmos, that meant cardiologists, who had previously been sidelined when it came to PoCUS devices.

“They would buy the cheap products — the old ones — just to take a quick look,” Kevin says. “But those are non-diagnostic, non-reimbursable. They're better than a stethoscope if you're an expert, but if you're not an expert, you have to actually know what you're doing to use these devices.”

Kevin determined that if he could convince doctors who were used to relying on their own expertise to diagnose heart problems that his product was a valuable tool, he could definitely bring people who were already using PoCUS devices on board.

He found doctors who were willing to give Kosmos a try: Roughly 30 physicians in the U.S., in multiple disciplines, and more at a big hospital in Greece. “They were very skeptical whether the hardware would perform at the level predicted,” Kevin says of the Greek doctors.

He listened to the participants’ feedback and iterated accordingly. The unique AI functionality also enables the device to improve its evaluations, so it gets more accurate over time.

Now, Kevin says, the once skeptical Greek doctors use the device to check their diagnoses. “It's actually been found in some cases to be more accurate than a doctor, meaning it's found disease where a doctor missed it,” he adds.

The Pros and Cons of Public and Private Funding

There isn’t a straightforward answer to whether going public or raising privately is the best strategy for funding your medtech startup. Having done both, Kevin says there are pros and cons to each.

Going public can be faster but comes with tough questions.

Kevin launched Sonosite on NASDAQ before the company even had a product, let alone FDA approval. The agency gave them the green light one-and-a-half years later, in September 1999.

Despite unfavorable odds, Sonosite raised $160 million — $100 million more than it needed. “When the money is out there and available, you tend to load up the bank,” Kevin says. Sonosite made $10 million over the final four months of ‘99, and $32 million in 2000.

Convincing people to invest their money proved to be the easy bit. The cash injection came with terms: Like any publicly traded company, Sonosite had to hold quarterly meetings where it announced whether it had met its revenue targets, and set new ones. This was particularly difficult for a startup and put the company under pressure.

For example, Kevin says, the company had aimed to make $50 million in revenue in 2000, and fell $18 million short. Objectively, that was still an impressive take for a medtech startup, especially one in its first full year of having an FDA-approved product. But the team felt as though they had failed.

Sonosite operated on a model that put product development before profitability. At the time that was unusual, but today, many medtech startups run the same way. This made it less suitable for meeting the demands of shareholders than other, more profit-centric companies — and if your company functions the same way, Wall Street may not be you.

Raising money in the private sector is a grind with long-term rewards.

Kevin admits he didn’t realize how difficult it is to raise money privately until he started looking for funding for EchoNous. However, he says that if you can find the right partner, the freedom this type of investment gives you to dig deep into your product is worth it.

Since 2015, EchoNous lhas raised $120 million from investment company Kohlberg Kravis Roberts (KKR). In May 2021, EchoNous did a debt deal with credit manager Kennedy Lewis. And as of the recording of this interview, the business was closing out a Series C round.

One of the problems is that many investors don’t fully understand the nuances of medtech devices. Kevin says that investors look at the buzz around a company like Butterfly, which went public through a SPAC in February 2021, and believe every vaguely related business should be operating in the same way.

“Some of them have concluded, Look at all the money Butterfly is burning — and they're burning a lot,” Kevin says. “You're going have to do that too. To which I say, No we won't, because we did it before without having to borrow capital.

However, once EchoNous connected with KKR, Kevin understood the benefits of thoughtful private investment over the frantic pressures of the public markets.

The leaders at KKR and Kennedy Lewis believe in EchoNous’ long-term potential, and don’t interfere with the daily running of the company. This empowers EchoNous to spend as much time as it needs on getting the product where it needs to be, instead of rushing to market with something that still needs the kinks ironed out.

“It's really important to have capital that’s supportive,” Kevin says. “I learned that at Sonosite, but it's easier said than done in the public markets.”

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