The #1 Thing that Prevents Medtech Companies from Raising FundsApr 27, 2022
Hey - Eric here.
Happy Wednesday to 602 motivated medtech business leaders.
Here's one short tip on how to refine your medtech strategy.
Today's Medtech Mindset issue takes about 4 minutes to read.
In this week's issue, I'm going to break down the #1 thing that prevents medtech companies from landing funding.
The importance of adequate funds in medtech can't be understated. It's not a field that you can bootstrap. Costs of development, manufacturing, preclinical, and clinical steps easily get into the millions. Trying to stretch grant funding or a small seed round too far always results in corners cut and redos required.
Your goal of a first round of funding isn't to see how far you can stretch it. It's to do something entirely different. That is:
Get your next, larger round of funding.
It's that simple. Really.
Often, early stage innovators win the contest or land the grant because of compelling science or technology. They get rewarded for the process of building things and proving concepts. This financial reward reinforces the build-loop. On and on it goes..
"We just need a refined prototype. One that we can demo with doctors and investors. That will unlock the bigger round of funding. Right? - Entrepreneur
When you need the bigger round of funding, it's not your tech or prototype that matters. At all. It comes down to something much more important. Much more critical to the ultimate success of your business (which btw is very different than your product).
The #1 Thing that medtech companies fail to do when fundraising is:
Clearly define a problem that customers will pay to solve.
Sounds simple, right? All companies have this figured out, right?
Early stage medtech companies spend so much time focusing on the tech that they lose sight of the problem. When asked what problem they are solving, 9 times out of 10, founders will say, "the problem is that customers don't have our solution."
In with words and wisdom of Biodesign, "That's not a problem. That's a solution masquerading as a problem." (Paraphrased.)
Happens. All. The. Time.
But there's more to this #1 fundraising flop than meets the eye. Let's unpack it.
#1A - "Clearly define a problem..."
It isn't enough to identify a problem. You also need to deliver it to an audience in clear, simple terms.
So often, companies choose clever over clear.
Inventing terms that sound scientific but are completely foreign. Using cute taglines that technofy the medical solution.
Investors are humans, and humans have a limited number of brain cells they are willing to devote to understanding your problem statement. It needs to be clear within the first 2 seconds of reading it. If not, their brain cells have drifted to "what's for dinner" or "why is this guy wearing sneakers with a tie?"
Keep your problem statement clear, simple, and ideally substantiated with data.
#1B - "... that customers..."
The second component is also a common pitch killer.
If you haven't figured out who's paying for dinner, should you really be headed to the restaurant?
You have to nail this out of the gate. Your customer is the party that's cutting the check. It's that simple. There may be reimbursement, distributors, and other influencers. But most often, those 3rd parties aren't the customer. They may help address #1C though.
Know thy customer. It's a medtech commandment. Figure this out before you get to pitch day. If not, the only place you're headed is the cutting room floor. Here's another article on this juicy topic: "Who Pays and Why?"
#1C - "... will pay to solve."
It's not enough to identify the customer. They also have to be Willing To Pay (WTP).
What does this mean?
It means you need to calculate the value that you are creating for the customer and pressure test your assumptions and analysis with them.
It isn't a race to a cheaper product. That's generally a bad idea.
Medtech is about changing outcomes. Both clinical and economic. If you are successful with improving a clinical outcome, then typically, you have created much more economic value than the price differential between your device and the one used in the standard of care.
You need to quantify that value. Then, you need to determine if customers see it the same way. Develop the ROI for your customer. Build the business case for them. They'll check it and challenge it, but they aren't going to create it for you.
After you've confirmed this monetary value, you'll need to figure out how much of this value you should be capturing. This is the basis of your pricing and revenue model.
Of course, you'll eventually need to prove this value to be true. So, don't set unrealistic goal posts now that you'll be unable to hit later.
One more thing..
If you're interested in getting more actionable medtech insights like this one, check out my free online course in the side panel. This online course provides a framework for building your market strategy. I think you and your colleagues will find it useful.
And, did I mention it's free?
Thanks for reading. See you next Wednesday.
That's all for this Medtech Mindset Issue. 1 simple medtech tip.
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