As a founder working in the healthcare sector, comprehending how to make investment decisions may seem overwhelming at times, particularly in this instance, where there is always a need for an even balance between backing the “right” team as well as finding the appropriate “target” market – and it is one of the more important factors for any investor who invests in an emerging medtech company.
Insights obtained from dialogue among a multitude of parties within the industry, along with information available on leading medtech research platforms, confirm that there is no such thing as a “formula” for making an investment decision; therefore, it is fundamentally based on how investors evaluate their cap. As such, investors will consider the amount of “risk” they are assuming by weighing the “opportunity” against the long-term “value” that could be created.
Founders and Markets: The Two Primary Drivers
As previously stated, investors emphasize both the Founders and Markets for investing in medtech, and not only are they looking at the “size” of the “Opportunity”; they are also evaluating how well they (the investor) believe that the Team is capable of executing in that particular marketplace.
Strong founders will provide an overall vision for their company, along with the ability to be flexible and lead the execution of that vision; likewise, an attractive marketplace will provide the opportunity for the Company to generate returns at a “material” level. The challenge can come when either of the two (the founder or the marketplace) is significantly stronger than the other.
There are several different items that the investor will typically assess:
- The Leadership and Execution Capabilities of the Team
- The Clarity of Product Differentiation
- The Size and Growth Potential of the Marketplace
- The Alignment of the Clinical and Commercial Needs with the Overall Business Strategy
For investors tracking opportunities through a medtech research platform, these substantial components will form the foundation of their early-stage investment decision-making process.
Why Founders Generally Have Priority Early in Company Development
The founding team usually has more influence at the start of a company’s life because the business is still in development, and its future success will be determined by each leader’s ability to manage some level of uncertainty.
Early-stage investors in emerging medtech would like their founders to be:
- Incredibly adaptable to complex regulatory environments
- Fully aware of how the various clinical workflows will interact with the end-patient needs
- Easily able to adapt their strategy based on new data as it comes in
Thoroughly adept at creating strong teams & building a strong culture in the workplace
Execution capabilities are very important. Just because there is a large market for a product does not mean there is a high-quality team with the execution capabilities to move a product through that market. However, a strong founder will provide direction and the flexibility to pivot as the landscape changes, ultimately serving as a bridge to new opportunities.
Thus, the investor’s decision regarding whether to invest in a company at the early stage tends to be made on a people-first basis when there is the greatest risk.
The Increasing Importance of the Market Over Time
As businesses develop and mature, their importance to the business increases. Investors pause to examine market opportunities as part of their decision-making process to achieve long-term returns and support long-range growth plans.
A strong market will provide:
- An adequate amount of end-user adoption
- Clear channels for reimbursement
- Establishing opportunities to expand into adjacent markets
- Providing a long-term path for commercial viability
For a medtech research entity, measuring market validation becomes increasingly feasible as businesses collect extensive data and obtain necessary regulatory approvals and market authorizations.
Reducing Investment Risk
Reducing the risks between founders and markets. When investors make investment decisions, they determine the level of risk they are willing to take relative to the level they are not willing to take.
Some investors may feel that having strong founders will lead to great success, while others may look at market size and the investment’s exit potential.
Most successful investments typically involve combining both objectives:
- Founders who can execute and think of new ways to solve each challenge.
- Markets that will grow over time.
- Products that satisfy a real clinical need.
This combination of characteristics can be seen in most emerging medical technology companies found across this market.
In addition to evaluating the potential size of the market, investors also assess how the company approaches its first market entry. Most successful emerging medical technology companies begin by developing and bringing to market in specific, focused segments, and then, over time, expand into larger and more segments.
Instead of focusing on the whole market all at once, founders of companies can:
- Focus on a single health condition.
- Build solid adoption amongst a small, defined group of end users.
- Expand into similar markets as time goes by.
When companies take a more measured, well-thought-out approach to building their businesses, they can create a track record of credibility and traction that allows for further expansion later.
For medtech research platforms, this strategy enables more efficient use of capital and clearer paths to value creation.
The Connection Between Founders and Growth in the Market
Strongly motivated founders help grow a market by executing well and influencing its development. One of their biggest advantages over their competitors is their ability to see new opportunities in a larger total market.
Strong founders typically:
- Identify new unmet clinical needs that extend beyond their initial use case.
- Build relationships with others to help them grow, which will also help them grow.
- Adapt their go-to-market strategies based on input received from other parties.
- Create new customer demand through innovative products.
These characteristics illustrate the relationship between founders and markets; they are not just selecting a good market to help build; they are also creating and expanding that market over time.
What Emerging Medtech Companies Should Know
As a result of these insights, founders have a clearer picture of the criteria investors will consider when evaluating their company. Creating a successful company and achieving its goals requires coordination across multiple dimensions.
Key areas to pay attention to:
- Building a candid and qualified leadership team.
- Targeting a market with genuine clinical demand.
- Developing a differentiated and scalable business solution that will succeed in the market.
- Planning for long-term commercialization.
Investors who evaluate emerging medtech companies via a medtech research platform focus on how these four areas combine within their businesses.
Final Comment
Deciding which will be the more important determinant of success for any given company, whether it be founders or the market itself, is not a black-and-white issue. Both will be critical, and, as the company matures, the relative importance between the two will change.
In the early stages, most investor activity has been very heavily skewed toward people. As companies grow, however, market conditions and competitive forces begin to take precedence over the quality of the founding team and their success.
There are no best practices specific to emerging medtech companies. Each company’s situation is unique, and companies should either establish appropriate internal policies for this purpose or use external support from medtech research platform providers to provide the necessary assistance.
