Early Stage Fundraising for a Medtech Startup Flashcards
What are indications for Pathfinder Medical spinout?
It is a catheter guidance platform technology, that helps technicians accurately insert catheter.
- Indication 1: endoAVF creation (vascular access - replaces fistula procedure) - approval set for 2022
- Indication 2: CTO re-entry (occlusion of lower limbs) - already approved
Company spin out story
Spun out of imperial in 2014
Strong engineering team (3 PhD, 8 engineers)
Pathfinder current market opportunities
Peripheral occlusion, coronary occlusion, bypass system
Capitalisation table
List of all individuals who hold equity
Dilutive funding
capital raised in exchange for equity (original shareholders get diluted)
Non dilutive funding
Capital raised without giving up equity (e.g. grant funding)
Enterprise Investment Scheme
Government tax incentives for private investors to invest in early stage startups. This essentially encourages anger investors to invest in risky startups by giving them tax breaks.
Is EIS eligibility important?
Yes, being eligible for EIS and being able to pitch it to investors in early stages is fundamental.
Burn rate
How much money you are spending
Runway
How much time you have until you run out of money
Valley of death
Hardest part of fundraising - when the startup is first taking off, and risk is very high
Hype curve
Huge hype at the beginning, with the first angel investment, after which the novelty wears off and you may get pressure from early investors / angels inexperiences with medtech
Types of non-dilutive funding
Grants
Prizes/awards
R&D tax credits
Loans
What is a grant?
Non-repayable funding, typically from a government or large organisation. Some may take partial ownership over the IP you develop, but it is overall less ownership based than other funding sources.
What is a prize/award?
Non-repayable funding with no strings attaches. From private sponsors.
What are R&D Tax credits
Tax relief based on eligible costs, that can come in the form of cash credit
What are loans
repayable funding (with interest) backed by the government, although rare
Examples of grant funding bodies
Innovate UK, Eurostars, SPRI, NIHR (NHS)
What is an SME
Small and Medium Enterprise
Business with less than 50-100 employees
Also exists as MicroSME (even smaller companies)
How does grant funding work for SMEs?
There are grants that are only available for SMEs
What does Crowdhelix do?
Crowdhelix matches SMEs and academics for collaborations on grants
It essentially helps small companies collaborate with academia
What is grant matching?
When the funding you need is only matched by the grant in part (usually between 30-100%) and they require that the rest of the money come from other investors.
Grant givers usually want confirmation from other investors that they will be putting in the rest of the money.
Can you rely exclusively on grant funding?
No, it is important to have other forms of investment.
Grant funding is arrear (you need to spend the money first to get it back, and it may take a long time to come through)
What is fundamental to a grant funding application?
Declaring ahead of time how the startup plans to use the funding.
Have a strong project plan and funding plan.
Plan ahead exactly to which department the money is going to go.
You may need to get approval for specific spending plans
How do grants and investor funding differ in terms of freedom?
Investors generally give less funding constrains and more freedom of action.
How good are grant writers?
They may be useful to putting finishing touches and changing wording, but you are the best person to write. the application as you know the company best.
How should you manage your financing with a grant?
Make sure you have other forms of investment to finance you before the grant comes in and to pay for things before you get reimbursed by the grant
What affects what kind of grant you can apply for?
COMPANY SIZE
Some grants are meant for SMEs only and are not eligible to larger companies
There is usually no lower limit for a grant
Grant application advice
Applying for grants is a full time job (consider opportunity costs)
Post grant management is time consuming (meetings, reports, forecasting etc)
Grant writers are not needed if you have written academic grants before
What is the fee charged by grant writers?
10-20% success fee
Matched funding requirement for
- Grants
- Prizes
For grants: almost always
for prizes: never
Examples of funding bodies for prizes
Royal Academy of Engineering
Royal Society
MedTech campus
How do prizes and awards work
SME/Founder typically apply individually Approximately 6 month turnaround No matched funding required Part of the prize is awarded upfront Often also include training and networking
R&D Tax Credits for SMEs
Government wants to encourage R&D, so it gives out tax credits
SMES must submit application to convince HMRC that their expenditure qualifies as true research.
Tax relief on R&D is 130%
Grant funding may affect how much you can claim
How likely are you to get a loan, and why?
Banks are unlikely to give medtech startups a loan due to lack of collateral
Dilutive Funding examples
Crowd funding (small per capita investment from large groups of individuals)
Angels: large per capital investment from sophisticated investors investing their own money)
SEIS/EIS Funds: VC or investment manager making SEIS/EIS eligibile investments on behalf of a pool of investors
What is crowd funding ideal for
For the near market, that has consumer facing technology
For instance, it will be useful to develop a cool pair of shoes and investors will receive a pair once produced
It is less likely to be successful for medtech (more complex and harder for consumers to understand)
Pros of crowdfunding
Easy for family and friends to invest Simple online pitch Quick turn-around (1 month campaign) No need to manage investors validates market potential
Cons of Crowdfunding
Messy cap table
Unsophosticated investors may be hard to persuade
Investors expect short term results, while this is long term
Higher success fees (7%)
Limited ability to negotiate terms
What terms are used with crowdfunding?
There is limited ability to negotiate terms
There is a set term of agreement (SSA _= shareholder’s agreement) from the crowdfunding website, making it less flexible than raising investments on your own.
How do you evaluate your company for crowdfunding?
Look at how much the market are willing to pay for it
> Grant funding can narrow down your valuation
How do you get funding from angel investors?
Present and explain how much funding you are eligible for.
See what they are willing to offer
Check their valuations and negotiate.
What is typical ticket size for angel investors?\
10-50k
Why do angel investors like investing in Medtech/R&D?)
Because of the EIS /SEIS scheme
They must hold investment for min 3 years for tax relief
SEIS/EIS Scheme
HMRC Scheme to encourage investments in SMEs
From investors point of view:
- SEIS: 50% immediate tax credit- overall 27.5% at risk capital
-EIS: 30% immediate tax credit, overall 38.5 at risk capital
Angel syndacates
Groups of angels grouped around specific geographic locations
Very competitive
Must have SEIS/EIS pre-assurance
They like herd mentality, so they are likely to invest if others are already involved
How much does a typical seed round cost
20% in equity, 5% success fee, a board seat
SEIS/EIS fund
Fund managers create a sector specific portfolio and invest on behalf of angels directions
Pros of SEIS fund
no need to deal with investor directly, cleaner cap table, potential for follow up finding
Cons of SEIS funding
Higher levels of due diligence and oversight
Higher costs
Tougher deal terms
Are accelerators programs necessary to be a successful startup?
No, 90% did not go through an accelerator program
How are most startups funded?
90% are VC funded
What is the most important thing when choosing an investor?
Investor quality is very important
A high quality investor (Tier 1 VC) is correlated to better startup outcome
Imperial College Ecosystem
IMperial enterprise lab
Enterprise Division
NHS ICHT
Imperial Founders Choice
What is the NHS imperial College Healthcare Trust split into
Clinical trial unit
Trial sponsor (helps prepare grant applications)
Clincal research facility
Imperial Founders choice
Allows researches to choose the support level that is right for them
As you are going more work, the university owns a smaller part of the company
What routes can be taken with Imperial Founders Choice?
Founder driven
Jointly driven
What is the founder driven route like
Basic support from innovations, company formation, help with fundraising and finding investors, board seats
University owns 5-10% non-dilutive equity
What is the jointly driven route like
Enhanced support from innovations
50/50 dilutive equity
Where did funding for Pathfinder come from?
NIHR
Innovate UK
What is the maximum dilution you should have after an investment round?
20-30%
What does the Enterprise Lab do?
Runs Hackathons/competitions/awarss
Business mentorship
Incubator facilityies
What does the Enterprise Division do?
Run by Moore
Sorts out IP (tech transfer)
Industry partnership and commercialisation
