My company, Eighteen Venture, has published a free booklet, Private Sector Funding Options for Your New Health Technology Development Project©, which describes five different private funding sources for health technology entrepreneurs, startups and small emerging firms. Unlike ten years ago, there were really only two main options: Business Angels and Venture Capital. Now startups and small firms can find the appropriate funding that they need outside of these two traditional sources. For example, Health System Venture Funds, which are owned by health systems that operate hospitals, are a new source for those startups and small firms with technologies, services or medical devices that will be used in hospitals or other healthcare facilities. We identified and listed 15 of the most active Health System Venture Funds that are seeking new investments. Corporate Venture Capital Healthcare Funds, like BlueCross BlueShield Venture Partners, are an emerging investment source that differ in their approach from Business Angels, Venture Capital firms and Health System Venture Funds, but offer unique funding opportunities for startups and small firms. RedCrow is unique and adds to the available mix regarding acquiring investment capital, Finally, Eighteen Ventures has found that each source differs in terms of technology area funded and amount of stage funding.

Orrin – I have a bit of a different spin on this question. I am a firm believer that start-ups need to focus on building a lasting company and shouldn’t focus on the exit. The entrepreneurs that I have seen focus on the exit have failed because they didn’t plan for the long run and were not prepared when the exit didn’t come or ended up exiting but didn’t maximize shareholder value because they felt pressured to take a lower bid.

When starting a venture, you always need to feel confident you can fund the company to cash flow positive. As you do the strategic planning you need to identify the inflection points that build long term shareholder value not the ones that appease the strategics.

IPOs can be an exit for some but are really another funding mechanism.

I completely agree, but with two caveats. First, investors like to know you’ve considered how you get to your liquidity event. Second, neither acquisition nor ipo happen quickly, so those seeds need to be planted early and tended to. That said, the business should be the focus and not the exit.

Create a product development road map and take a phase appropriate approach to the product development cycle. This will allow your company to be more capital efficient and help your organization reach important milestones while minimizing distraction.

One good strategy is to find respected experts and ask them to "shoot down" the idea as best they can (so that you can pivot early rather than too late). This is the philosophy of GoogleX as well.

True. That’s one of the missions of this network, to get doctors involved early and allow them to contribute their expertise to a company’s strategic goals.

Agree. I see way too many devices and AI tools that did not have enough input early on so the reengineering later is both painful and costly.

We have experienced a much more collaborative agency than in the past. During our interactions they are truly seeking to understand our technology and make an accurate assessment of safety and effectiveness.

Us have successfully used the pre-sub or Q-sub process several times with great results. It has significantly streamlined the process removing much of the ambiguity. I think companies are missing out if they don’t take advantage of the opportunity to clarify what the agency is likely to require for a successful regulatory review. In one case, we had a Q-sub 2 years before our 510k submission which allowed us to budget and plan for the correct testing well in advance.

Great feedback. Can you speak to the process of setting up a pre-sub?

The FDA website is a great resource for finding out more about the Q-sub process. If you search for Q-sub guidance on FDA website you can easily pull up the process you need to follow.

The process is straightforward but I would highly recommend hiring a regulatory consultant to help you. Make sure you get a few references on the consultant because they can make a huge impact on the ultimate outcome of the FDA interaction.

Great feedback. Thanks!

Answering the second question; “wishful thinking is not a business strategy”. Even the most innovative idea should be grounded in a realistic execution strategy, especially in healthcare. Investors need to see the road map to success, success defined not only as impact, but ROI. Without the roadmap, its hard to raise capital.

If you follow a detailed design thinking strategy in adopting the correct trend to enhance your commercial value proposition, there is no "crazy entrepreneur". The one´s who said that are the one´s who didn´t think about it first. One of the most innovative business model who made big bucks where 23&me, who acquired lots of data and then partner with pharma companies.

Eighteen Ventures' current blog, which can be found on our website home page at www.eighteenventures.com, details the basics on developing a business model and using the completed document to interest private sector investments. The blog is based on our experience working with a physician entrepreneur focused on treating Congestive Heart Failure (CHF).

Thanks, Darrell. What are they key take away ideas?

The business model is the foundation for a proposed novel health technology, health service or medical device. A current client who is a retired physician, for example, is working on an innovative process using EHRs. While he concentrates on the technical aspects, we are helping develop a business model that answers basic questions like how the process solves an identified problem, who are the buyers/users, how the process differs from existing solutions, how the company will promote and offer the solution for sale, what are the anticipated operating expenses and what is the revenue structure. The answers to these, and other questions, will support the new innovative process. Moreover, these answers help us focus on identifying and approaching potential investors, for seed or early stage funding, interested in the client's technology development area.

I’ll add, as a thought to keep in mind, that non-dilutive capital can also be validating if it comes from respected sources.

Having been a part of >$10M of commercial driven government research contracts for early stage start-ups, I have adopted one rule. No complaining about free money!

That said, there is a danger of early stage companies falling into the lifestyle of non-dilutive funding. When the market is not your focus, the team rallies around non-dilutive deliverables and thus, participates in inefficient work streams. Kudos to government organizations pushing back on this by emphasizing the importance of the commercial need.

Bottom line. Pursuing non-dilutive funding as part of a holistic funding approach is a healthy thing. Approach the process and expectations with eyes wide open and wonderful things can happen ($$$) while tangible benefit, such as feedback from insider experts, will be realized.

Agree with Ben! I used to be the PI of different SBIR grants (Epitomics, Inc., biotech industry) from NIH, Army, and NSF. It supported our R&D for couple of years till we had VC funding and revenues. In my current company (BlueJay), we are planning to write grants for tele-rehabilitation technologies and use the funding to support R&D that is more of future values. On the other hand, building profitable business models and generate revenues are priorities for any small start-ups, so don't let grants take over the top agenda.

Dr. Zang,

Eighteen Ventures works with entrepreneurs/small businesses seeking both NIH and NSF SBIR grants. We work with them to ensure that a business model is prepared before submitting a proposal. The business model is used as the foundation for their proposed health technology, healthcare service or medical device. More importantly, we show them how information from the business model can be use to prepare a Phase I SBIR proposal.

Biggest surprise. Hey, you're not a Class 1 medical device (lancet), you're a Class 2 IVD product (blood tube)! Good thing we had that pre-sub, talk about whiplash...

Most important piece of advice: Do the pre-sub. Don't half-ass it and don't obsess. Find a middle ground where you have core regulatory questions and credible data to support your effort.

Ben, I would agree. Sometimes it's not entirely clear what Class a product might fall into and it's really important to figure this out as early as you can. Great advice! If you have trouble navigating the FDA get help! Don't skimp here as it may impact your entire business model down the line.

The FDA has been much more open to discussing innovative ideas in the emerging technology domains like AI in the last year or two. It would be good to work with them from inception of your idea and MVP rather than trying to get it approved at later stages.