Few venture capitalists invest in seed and series A stage Medtech startups, so what is the rationale behind the launch of an early-stage fund?
We decided to pursue an early stage Medtech fund because we saw a gap in innovation funding while at the same time we saw rapidly evolving medical technology enablers and demand drivers– next gen sensors, wireless connectivity and growing numbers of patients with chronic diseases. With the advent of COVID-19, it is even more relevant and necessary to fund these nascent, disruptive technologies. These investment opportunities would have been impossible five years ago prior to the convergence of these new technology changes.
Why launch this fund now?
There is a sea change happening now – sensors, connectivity and devices which enable remote care and telehealth. We were seeing an emergence pre-COVID and continue to see trends accelerating in the post-COVID world. The rationale has not changed but the pace of transformation has quickened through legislative developments and supporting investments in the adoption of innovation to drive improved public health management. This creates very exciting times.
Are you ignoring traditional Medtech investments e.g. device tools and implants?
It’s true we are not as focused on traditional Medtech right now. We are reviewing opportunities as they come up and can invest in any truly breakthrough technology in the Medtech field. We will potentially fund some of those. But to be clear, we are not so interested in funding incremental innovation, or ideas that will cost >$100M to get to market.
Why limit your Medtech investment strategy?
We are focusing on the most exciting part of Medtech innovation market right now. Focus is necessary due to the size of the fund - $90M; it put constraints on what we can commit to in the space. It is also hard for investors to make money funding Medtech in the tradition way --the risk is not always rewarded and timelines are too long. We are rethinking the Medtech venture model and want to find opportunities that are not already suitably addressed. As we look over the next 10-20 years, we expect there will be far less appetite to pay for incremental innovation.
Where do you see opportunity?
We think big opportunities exist in the management of chronic diseases, such as metabolic disorders, heart disease and COPD. These are areas where there are costly interventions if the condition is not well managed. This is the ultimate rationale for this fund. Interestingly, the primary backer, Teijin, is looking at these opportunities in the same way. Japan faces many of the same issues as the US, an aging population as well as a shortage of clinicians. High costs associated with older patients with chronic disease are producing measurable economic pressures. Solutions to these problems will include the use of technology to allow individual care takers to manage more patients and more cost effectively, than they have done in the past. By leveraging emerging capabilities like sensor technology, AI, predictive analytics, and patient centric devices, we will be able to monitor or treat large numbers of patients remotely, analyze that data and identify which patients are most at risk as well as benefit from preventative care. New service models are being created; service providers can take on data-driven risk and gain margins on enhanced outcomes. This is the greatest need now and venture capital funds like MCF will fund the solutions.
Tell us about your deals thus far and your co-investors?
We have two Medtech Convergence Fund portfolio investments to date:
- Clarify Medical offers an integrated technology and service solution for the treatment of chronic skin conditions such as psoriasis and vitiligo. They provide a mobile, easy-to-use home UVB phototherapy system prescribed by and linked directly with the patient's physician. Series A co-investors include H.I.G. BioHealth Partners, 7wire Ventures and Bluestem Capital.
- EBT Medical is a clinical stage company pursuing disruptive neuromodulation technologies, focused on pelvic floor disorders. Their first product is a non-invasive neuromodulation therapy and associated ecosystem for patients with overactive bladder. Co-investor is Genesys Capital.
Can you provide some background on how the Teijin partnership came about?
Teijin came to us and wanted to put together a fund as part of their long term growth plan. Teijin provides homecare products, such as home oxygen and sleep apnea supplies predominantly in the Japan market. They would like to expand their global innovation reach to leading homecare connected technologies and partnered with SV to effectively be an outsourced corporate venture capital arm. Teijin wishes to invest and develop these nascent technologies using a start-up investment to supplement corporate R&D; this model is really quite visionary. We worked with Teijin to set up the fund size and investment criteria and spent 2019 piloting two investments together, EBT and Clarify. Recognizing the power of the model we mutually agreed to expand the Fund to $90M earlier this year. We will continue to focus on regulated medical devices and many investments will incorporate aspects of digital health.
What is your vision for this new model of outsourced venture partnering?
We see this as a potential future model for Medtech. The medical device industry requires a sustainable, multifaceted innovation ecosystem. If we deliver what we expect, we will have a strong incentive to continue this model. We are just getting out of the gate and it is now time to build the fund and team with exciting new portfolio investments.
What are the metrics for your investments?
We generally seek to enter at an early stage, either Seed or series A; however, there will be unique cases where we look at Series B or later. We expect the investment size per company to average around $7-8M and we will syndicate with other VCs to fill out the round. For seed-stage startups we will invest around $1M/each. Some might advance and others will not. For the ones that go the distance, we may invest as much as $10-12M over the life of an investment.
What other unique benefits does the Medtech Convergence Fund provide?
An added benefit is that we will look at not only the US market but also the Japan market opportunity in greater detail, at an earlier stage. Most US funds think of Japan as a secondary or even tertiary opportunity; however, next to the US, Japan in the second largest medical device market in the world. Through our corporate partnership, we will have executives-in-residence from Teijin that can assist us and our companies with understanding the Japanese market. Our Medtech Convergence Fund is in an ideal position to provide a unique combination of benefits to our portfolio companies in developing products built for success not only in the US, but ready for the Japanese market too.
More about Paul LaViolette, Managing Partner & COO, SV Health Investors
Paul brings over 35 years of global medical technology management experience to SV. He joined SV in 2009 as a Venture Partner and in 2011 was made a Partner. Paul was promoted to Managing Partner & COO in 2014 and heads medical device investments. Prior to SV, Paul built and ran medical device businesses for 29 years before joining SV Health Investors. Most recently he was Chief Operating Officer at Boston Scientific (BSC), an $8 billion medical device leader. During his 15 years at BSC, Paul served as Chief Operating Officer; Group President, Cardiovascular; President, Cardiology; Group President, Endosurgery; and President, International. During his tenure, the company grew revenue over 20 times. Paul integrated two dozen acquisitions and led extensive product development, manufacturing and worldwide commercial organizations. Previously, Paul held marketing and general management positions at CR Bard and various marketing roles at Kendall (Medtronic).