How to Raise Capital for Your Medical Device Start-Up: Interview with Giovanni Lauricella and Aaron Green

We recently caught up with Giovanni Lauricella and Aaron Green to discuss all things related to fundraising for early-stage medical device companies.

In this interview, we learn about the ins and outs of raising medtech capital, what investors want to see in a medical device start-up, and best practices for pitching potential partners.

But first, here’s a bit more about their backgrounds:

Giovanni Lauricella holds a Bachelor’s in Finance, a Master’s in Regulatory Affairs in Medical Devices, Biologics, and Pharmaceuticals, a Harvard University Certificate for Advanced Negotiation Strategy, and a Università Bocconi Certificate for Private Equity and Venture Capital. He has more than a decade of experience partnering with startups, SMEs, boards of directors, and investors on structuring technical and commercial teams from the C-level to individual contributors. Giovanni and his team have hired more than 7,000 employees for over 500 startups in more than 40 countries, and assisted in facilitating capital raises for startups that amount to more than $150 million.

Aaron Green has a PhD in computational chemistry from UCLA. In 2014, he became the first hire at Neural Analytics (now NovaSignal) where he held leadership roles spanning clinical, finance, sales, and marketing. Aaron currently runs U.S. operations for Labgnostic, a global interoperability platform for clinical laboratories. He co-founded MedTech Money with Giovanni Lauricella in 2020 and founded ExtractEx, a botanical extraction startup, in 2021.

Listen to the Interview with Giovanni Lauricella and Aaron Green

Read the Interview with Giovanni Lauricella and Aaron Green

The following interview has been lightly edited for readability.

Giovanni and Aaron, welcome to Medsider. Let’s start with a little more on your bios and backgrounds.

Aaron Green: I have a PhD in computational chemistry, but I decided the academic route wasn't for me. I started with Neural Analytics, an LA-based startup working in digital autonomous robotics for ultrasound. I was their first hire and got to spearhead a lot of strategic initiatives like clinical partnerships and closing out our Series A and Series B rounds. After that I went international and built up the European office. After seven years, I broke off in 2019 and started my medtech consulting practice, where we work primarily with early-stage startups and a number of accelerators.

Giovanni Lauricella: I've spent the past 10 plus years in medtech. I work with a firm that focuses on talent acquisition and we focus on both startups and venture investors to build out their CEOs or their change management within their investment portfolios. On the actual startup side, we build their teams from C-level down to entry-level and then very early-stage R&D all the way through global commercialization. We're truly a global firm that focuses on building medtech startup teams just about everywhere except Antarctica.

I got my Masters in regulatory affairs shortly after joining the firm. Building teams was somewhat put on a standstill for March, April, and May 2020, but it's been white-hot ever since. I took that opportunity to pivot and go really deep into my investor network and provide that to startups who are raising capital. Over the last 14 months, I have made well over 700 introductions and fortunately helped raise over 75 million for about 40 different companies. So, I’ve done 10 years as a consultant, building medtech startups, and now actively working with investors and startups to provide both assets on the people side as well as the money side.

This conversation is going to be all about raising money for a medtech startup. So tell us a little bit more about what you're doing with MedTech Money, and then we'll jump right into the substance of this discussion.

Giovanni: Aaron and I met through the power of networking. We've been coming up with this idea of just giving, giving, giving back to the entrepreneurial community that is raising capital. We noticed that there was this massive gap with these early-stage entrepreneurs simply not knowing what to do or where to go. We've been called crazy over the past year for giving away information that most people pay thousands of dollars for.

It's allowed us to provide strong counsel on assembling executive summaries. Figuring out the best approach to reaching out to investors and how to do that. Answering questions like, what does your pitch deck look like and how can you optimize it? Then creating this network of investors and categorizing them. It’s also led us to jump on this Clubhouse platform. What Aaron and I have done is provide curated conversations on Clubhouse with the intention of bringing investors as well as entrepreneurs who are raising capital onto a panel to demystify what it means to raise capital.

There are three styles of panels that we've held so far. Our optimum blend is both entrepreneurs and investors on the panel because what we love to do is throw out an objective question and hear the responses from both sides of the table, so to speak. We also have had panels that are one hundred percent investors, which have been great because we just get to really pepper all them with questions on what happens behind the scenes. We've also had panels of 100%  entrepreneurs where it's just a really great dialog of what are the watch-outs and what are some of the anecdotal stories that are great?

Let’s spend the next part of this discussion talking about the investor side of the equation. Because if you're trying to raise capital, you need to understand your audience. So let's get into the different types of investors, from angels to micro- and late-stage VCs. What do they want to see?

Aaron: I’ll start with the typical fundraising journey for a company. They're looking for super early-stage grants and university funding to get an idea or IP off the ground. That can translate into friends and family, then angels, angel groups, micro-VCs, early-stage VCs, and growth VCs. That’s the menu of investors. Each investor has their own perspective and their own motivations related to their investment thesis within a firm.

I think for friends and family, it could be as simple as an impact investment where the folks understand your idea and believe in the impact that it could have knowing that there's a high risk at an early stage. I think you're starting to see angels become more sophisticated and syndicating into groups that are doing their own due diligence. The tides are changing in the industry as a whole, where you start to see VCs who are less willing to take the early-stage risk. So, the founders are having to rely more on those grants, friends or family, and angels.

In a recent conversation with Derek Herrera about raising money, we discussed non-dilutive funding and how it’s going to take a few shots on goal, especially if it's your first go-round. For example, grants can take one or two, maybe five submissions depending on the complexity of the request.

Aaron: Grants can be a double-edged sword. You have the grant, which is non-dilutive funding, which is great. But attached to that comes a project that you need to deliver on. As an early-stage company, it's a moving target sometimes as to what market you're approaching and how you're going to deliver on a solution with your technology. With a grant, you can sometimes get yourself stuck into a position where your project manager doesn't allow you to change with the market or the times. If the focus of your company changes somewhat, but the grant is solid, you can get stuck executing on that while also trying to play to new market dynamics and opportunities elsewhere. So, I think grants are great from a non-dilutive standpoint, but they come with drawbacks in terms of flexibility. There's also the administration of the grant as well, which you either need an accountant to help you with because there's a big compliance burden.

Let's talk about what early-stage investors typically want to see. What are some best practices for a medtech founder?

Giovanni: Two major points on early-stage investors, and the order doesn’t matter. One, there has to be a market for the technology. So if you're going after a super small market,  it's typically going to fall flat. Two is the team. The earlier stage you are, the more it's about belief and trust in that entrepreneurial team. If they don’t believe your team will be able to pivot and navigate changes, they won’t invest.

Aaron: It's not just the CEO that the investors are going to look at, especially in medtech. You can expect that your investor is going to have a really hard look at your CTO as well. Then depending on the company, if you have a clinical person on the team, those are the three people, the CEO, the CTO, and whoever is responsible for clinical are going to get roasted in the due diligence process.

Let’s talk next about how to identify the right partners and what that outreach or pitch should look like. Especially since this fits into what you guys have been doing with MedTech Money over the past year or so.

Aaron: This is one of the reasons we started MedTech Money. It's all about making the journey of fundraising for entrepreneurs a little bit easier. Usually, you have an idea of a few investment firms that line up with your offering. But once you've reached out to those folks and tapped out your network, you're in a land of unknown unknowns.

Oftentimes, a VC’s website has high-level terms of what they invest in and what they're looking for. But then if you dig in deeper, they've invested in opportunities similar to your company in the past, so there may be a team member who specializes in the type of technology you have, and that could be a good fit. Part of it is knowing not just the VC firm and their investment interests, but knowing the partners as well.

One of the trends I've seen is partners kind of becoming their own individual influencer within the VC community for their specific specialty. What MedTech Money does is provide curated information that's relevant to an entrepreneur based on the particular specialty or field they’re working in. You've got this offering, so here's the top 50 VCs that you should be reaching out to.

You guys have curated an incredible database. I remember a LinkedIn post that had thousands and thousands of comments from people wanting access to this list of investors. Is that something that you guys are still offering or how do people go about getting access to that vetted list?

Giovanni: We wanted to compile a list of investors that had a focus. At first, we had longer lists including hundreds or thousands of investors. It's not enough to even identify the right investor though. You have to take it a step further, which is the timing. You have to be aware of where those investors are within the life cycle of their fund.

When you do this outreach, taking a template email and sending it 1,000 different times and hoping for the best is like gambling and throwing it on red or black at a casino. You might get something back, but it would be luck and happenstance. These investors want to know that when you reach out, you've done your homework and there's a reason for why you're contacting them.

You need to know their investment philosophy. When you're looking at potential investors, a huge component is what's the size of the fund that they closed? If they have a 500-million-dollar fund, they're not going to typically participate in a Series A where they're going to contribute two million dollars. It's not valuable enough for the investor. It's just going to be too much work.

Those larger funds typically invest in larger rounds, and the smaller the fund, the smaller the round that they typically invest in. But then it gets even more confusing because there are always exceptions. Investors have general philosophies, but they’re often willing to look at everything.

The final point that I wanted to make is around how you manage relationships with the right investors. So, if you go out and you're a medical device company and you find the top 50 VC firms that you should be in contact with, some of them might be a little bit later stage than where you currently are. But how do you appropriately reach out to them, knowing that they're not going to invest in you now? How do you stay on their radar? Do you update them once a quarter or once every other month?

We've had investors on our panel say we want that. Just because we can't invest today doesn't mean we don't want to know what's happening. We want over-communication so that we can keep you in our thoughts and in our pipeline.

Have you seen other successful founders manage this activity through a CRM tool?

Giovanni: CRMs are a very important tool. There has to be a methodology and process to your outreach. Having a CRM and tracking your process throughout your fundraising for the current round or even the next round is crucial.

Aaron: There are a couple of aspects to the communications. One is your large-scale communication, which, if you're reaching out cold tends not to work so well with investors. But if you're already in their sphere, it helps. The cold email is a shot in the dark. What's really become clear to me over the course of the year working on MedTech Money is the importance of the warm introduction. Having somebody in the investor's network, who they trust, reach out for you is huge. It makes a major difference in the connection rate with investors.

There are sources of warm introductions that you can tap. One of the best sources is if you've found a CEO that the VC has invested in before. It also makes a big difference if it's the CEO that makes that first connection.

Giovanni: We've specifically heard investors mention that in bigger rounds, it happens to be more acceptable, and even encouraged, to get an investment banker involved. But not so much with the earlier stage stuff. That’s the grind phase where an entrepreneur needs to roll up his or her sleeves, get dirty, figure it out, and pull every string that they possibly can.

When you're an investor and you get 100, 200, 300 emails a day and all these different 20-page slide decks, there isn’t enough time to review all of that. But if you get an email and it mentions a referral from Aaron Green or Giovanni Lauricella, and they know that name, it stands out.

Aaron: That initial contact with the investor is very much hand-to-hand combat, very individualistic. It's not something that I would say you want to scale to an email campaign. It's really targeted and focused. As Giovanni loves to say, sales is a grind. It has to be a grind. Well, raising capital is a grind. It has to be a grind.

Let’s transition to the other side of the table and talk about some things early-stage founders can do during these capital raises. One of which is an understanding of whether the market opportunity is big enough to attract the attention of a VC or an angel syndicate.

Giovanni: In medical device, there are certainly a lot of investable opportunities that have 500 million, 750 million, 900-million-dollar markets that don't exceed the billion-dollar threshold. If they exceed a billion-dollars, and it makes sense, and it's not a fluff story, then you're going to always attract ears. I think billion-dollar markets speak for themselves. While those markets sound sexy, within medtech, the hundreds of millions of dollar markets are certainly still investable.

Aaron: Yeah, I echo that. I think it's all about the return at the end of the day. So, if you're going after a smaller market, the hope would be that you're requiring less capital to get to the finish line and return investors their money.

Let's transition to another topic, which is the regulatory pathway and clinical requirements needed to get a product idea to market. Giovanni, how does this correlate to the capital raise?

Giovanni: I'm still fairly shocked about the number of entrepreneurs we see that don't have their minds wrapped around the regulatory pathway. Not having an understanding of your regulatory path is a massive red flag because it sets the tone for your capital raise moving forward.

I feel like there are now more and more De Novo technologies than I can remember in previous years. They require more clinical work than a 510(k), but less than a PMA.

If you have a class III PMA device, it's going to take more time and more capital. End of story. Clinical trials cost money. The less clinical work you have to do, the less time and money required. That's a basic rule of thumb. When I look at investor decks or executive summaries, one of the first questions I have is related to the medical device classification.

If you’re still trying to figure that out as an entrepreneur, what story are you telling investors? If you haven't done the research, you can use FDA’s website and see if there's a predicate device. If not, spend a little bit of money and hire a regulatory consultant that makes the story very clear for you. If you're not willing to invest in understanding the regulatory status of your device, you don't have much of a story to tell investors.

You won’t be able to hit certain milestones based on your capital needs if you don't have your regulatory strategy in place. Your device classification can equate to a difference in years. So again, I’m still fairly surprised how many companies don't have this done in the very early stages.

Aaron: I think the problem comes because, oftentimes, entrepreneurial founders don't have regulatory experience. It's very uncommon to have a regulatory team member on the founding team. So, if you don't know your regulatory pathway, hire a consultant. I mean, end of the story, hire a reputable consultant that enables you to tell your story. Also, a big shout-out to Dorn Carranza at the FDA, who is leading a program to help bring the FDA closer to startups at the very early stages. The office he works out of is called the OSEL (Office of Science and Engineering Laboratories). The FDA is really making an effort, and providing resources, to entrepreneurs that enable them to get feedback from the FDA earlier, which is something that didn't exist 10 years ago.

One other point to call out. The bread-and-butter approach of market entry for a medical device for a U.S. company used to be this: get a CE Mark and early revenue in Europe and then go seek a 510(k) in the US. But that dynamic has changed pretty significantly in the past couple of years with increased regulations.

I've heard several startup founders mention that to me. It’s becoming less and less popular to start in Europe because of the MDR changes. In addition, programs like the breakthrough device designation are making it more feasible for early-stage companies to start in the U.S.

Giovanni: Let’s go a little bit deeper on the regulatory topic. First, the FDA is creating programs to get involved earlier with industry to be able to help -- not to be a roadblock for technology and innovation. Actually, Dorn Carranza uses the phrase “agents of innovation”. The FDA truly wants to be, and is now more than ever, a partner for innovation. Number two, I want to touch on the motivation behind the European MDR changes. If you think about the CE Mark, there are two major things to keep in mind. The CE Mark is given by notified bodies. Notified bodies are private institutions or private companies. They're not federally regulated like the FDA.

Over in Europe, the regulatory pathway has always been focused on safety and not necessarily efficacy. So, what's happening is more of a mirror of the FDA’s framework around both safety and efficacy. The MDR changes require a lot more quality assurance focus in terms of design and manufacturing. In addition, more clinical data is likely going to be needed as well. So, there are some growing pains because getting a CE Mark was simply easier than the FDA regulatory process. And now, the Europeans are upping their game to match the FDA in terms of requirements.

Now, the existing devices with a CE Mark have to be reclassified under the new medical device regulations. Yes, there's a little bit of leeway in terms of the allowed time to get recertified. However, eventually, everything will need to follow this process.

Is it worth the expense of having to do this versus simply pulling products from the market? So, there’s a huge contention in Europe about losing available technology and innovation based on the fact that companies will not be willing to spend the money to get devices recertified. There's going to be a massive gray cloud over the next two to three, possibly four to five years, in Europe because new innovation will fall behind all fo the existing devices that have to be certified under the European Medical Device Regulations.

That's a great recap and hopefully gives startup founders a better perspective of why things are shifting from an early Europe focus to an early U.S. focus.

Let’s pivot the conversation and discuss some pointers around executive summaries and pitch decks.

Aaron: I've seen all sorts of executive summaries from the one-pager to the 20-pager. I think across the board, an executive summary should be a one-to-two-page document that outlines specific highlights of the company. I think there are a few things that all investors want to see. One that often gets missed is the legal entity, which is really important. Some investors don't invest outside of certain geographies, or they won't invest in LLCs, for example. So, make sure you list the legal entity, the state, or the country of incorporation.

Then, make sure you incorporate standard things like the offering, the investment ask, and whether it's a convertible note round versus an equity round. Think about the executive summary as the document that's going to be shared the most. Keep in mind that when an executive summary is sent out, if an investor passes, it's likely that it could reach another investor's hands. So be ready for that. The document often gets passed around within the internal team as well.

When sending out pitches via email, the goal should be for an investor to open up the executive summary, which includes enough information to tease the deck. Then, the pitch deck should follow after you get an initial response to schedule a conversation. What do you think of this approach?

Giovanni: Yeah, I'll make an analogy. Think about a resume versus an in-person interview. Your resume is not 10 or 20 pages long. It should be between one and three pages max. If you can't tell your story in two pages, you've got bigger problems. Think about the resume analogous to the executive summary. And the in-person interview to the actual slide deck presentation.

When you're interviewing for a position and you submit your resume, it's a high-level overview that you think is pertinent to the recipient. It should spark interest to continue the conversation and go deeper. That's the purpose of a resume. The executive summary is the same thing. When you're reaching out to an investor who's getting tackled by hundreds of entrepreneurs on a daily basis, there are not enough internal resources to look at hundreds of 20-page slide decks.

When investors quickly scan these summaries, you have to capture their attention by the therapy, the regulatory pathway, the amount of money you're looking to raise, the traction that you've already got, and the management team. If you can't highlight those things, as well as the size of the market, on a one-page executive summary, you likely won’t have a shot with the 20-page slide deck.

The idea is to create an effective resume/executive summary that speaks to your company and the asks in a concise email. Not something that’s 6 paragraphs long. No one will read it.

To use the previous analogy, you're looking for someone interested enough to bring you in for an interview. Entrepreneurs who are throwing around 20-page slide decks -- those are generally falling on deaf ears because there's just not enough time for investors to review them. A very well-crafted executive summary and a very concise, strong-worded opening email should be enough to capture interest and take it to the next step.

For people that want to learn more about MedTech Money, where’s the best place to go?

Aaron: I think LinkedIn is the best for now.

Giovanni: Also, check out MedTech Money on Clubhouse too.

Let's transition to some fun, rapid-fire questions. What’s a book or resource that really stands out over the past year or two?

Aaron: One is Disciplined Entrepreneurship by Bill Aulet. It's a great book for entrepreneurs at the very early stages of starting their company and raising money. One that's maybe less known is #BreakIntoVC by Bradley Miles. It’s a short book with rapid-fire, quiz-like questions and information on how investors think about capital and return on investment.

Giovanni: My favorite one is Secrets of Sand Hill Road from Scott Cooper, one of the managing partners at Andreessen Horowitz. The reason why I like it is because it's a theoretical book, but he also ties in anecdotal evidence of his own experiences, not only starting Andreessen Horowitz, but also as an entrepreneur raising capital. It's written in a way that any layman can understand.

The second one is called Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist by Brad Feld and Jason Mendelson. That's a classic. That’s almost a VC’s bible.

Another one geared solely for entrepreneurs is called Pitch Anything by Oren Klaff.

Those are great recommendations. Next, who is one influential medtech or healthtech leader that you find inspiring right now.

Aaron: On the entrepreneurs’ side, Mary Lou Jepsen, CEO of Open Water, which is one of the most interesting companies in the medtech space.

Giovanni: On the entrepreneur side, it's a career-long friend whose name is Amir Gross. He's over in Israel and he was the founder and CEO of Valtech Cardio, which sold to Edwards Lifesciences in December 2016 for 680 million. He's been a great mentor throughout my career and has also been a client too. He's taught me a lot about what it's like to start a company, how to build a company, the trials and tribulations, etc.

In addition, on the venture capital side, I want to give a huge shout-out to my friend, Anish Kaushal, from Amplitude Ventures. He’s a young, first-time VC who is a very bright medical doctor by background and has taught me a lot about what it looks like behind the scenes at a venture capital firm.

Last question, guys. Starting over in your mid- to late-20s, what would you do differently in terms of your career in medtech?

Aaron: Mine is simple. I would have gone into medtech sooner. I spent a couple of years going down the academic route and that's the only thing I'd change. Instead, after I finished my Ph.D., I would have pursued medtech startups.

Giovanni: I only know medtech. I've only been in medtech, so I'm incredibly happy in this industry. I wouldn't change it for the world.

What I would do differently? I love my career. I love the education that I got, and I love the global network that I've amassed over the years. I think mine is simple. I would just work harder. I work hard as it is. But if there were more hours in the day, I would just simply do more of what I'm doing.

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