Corporate VCs Add Value Beyond Financing to Healthcare Startups

Strategic Investors Speaking at MGCS Panel on Healthcare VC

A decade ago, corporate venture capitalists were the odd men out in healthcare venture investment circles. Now they are playing a leading role in the financing, growth and development of healthcare startups, said a panel of strategic investors at the Michigan Growth Capital Symposium on May 18.

Entrepreneur BioMedicine Univeristy of Michigan“Previously, there was a perception that corporate investors were not welcome into investment syndicates, and there was opportunity hoarding (by private investors),” said David Neustaedter, vice president of Medtronic Ventures. “Since 2008, the tide has turned. Strategic investors now are welcome at the table, and more are involved in syndicates.”

A pullback by private VCs seeking better returns elsewhere coupled with budget cuts at the National Institutes of Health has curtailed critical funding for many healthcare startups, according to Scott Button, managing director of Venture Investors. “There are tremendous needs and opportunities in healthcare innovation that require funding,” he remarked. “Finding seed and early-stage dollars is challenging. Huge gaps are not being filled by the venture industry.”

As a result, strategic venture capital investors from large pharmaceutical, medical-device and healthcare IT corporations have stepped in to fill the financing void, and corporate venturing has doubled in the last few years. But it’s not just about the dollars, the panelists insisted. There is tremendous value-added investment by corporate VCs who take equity stakes early in the life cycle of healthcare startups. The advantages strategic investors bring include:

  • Providing a different perspective than private investors
  • Sharing sector expertise and infrastructure
  • Improving manufacturing and operations
  • Conducting due diligence and financial analysis
  • Expanding and calibrating financing opportunities
  • Fostering better board decisions and planning
  • Building strong relationships early on
  • Preparing startups for onboarding or acquisition

“We want to give science the right opportunity, so we put in adequate reserves,” said Bob Smith, senior vice president of business development for Worldwide Research and Development at Pfizer.

“It’s up to us to keep the ecosystem alive and full of potential,” remarked V. Kadir Kadhiresan, vice president of venture investments at Johnson & Johnson Innovation. “It’s naïve to think we can grow organically.”

To learn more about MGCS visit www.Michigan-GCS.com. Follow conversations surrounding the symposium through #MGCS2016 on Twitter.

Commercializing University Research Requires the Right Technology, Teamwork and Timing

MGCS Panel of Startup CEOs and Venture Investors Discusses Commercializing University Research

Michigan Growth Capital Symposium Zell Lurie Institute Ross School University of MichiganThe research labs, entrepreneurial programs, venture incubators and startup accelerators on university campuses across the country provide fertile ground for originating, road-testing and commercializing new discoveries in science, medicine, engineering and other fields that have the potential to change the world. But the process of turning great ideas into great startups with great investment potential can be as challenging at times as it is rewarding.

A discussion group of entrepreneurs who have licensed university technologies and venture investors who have taken stakes in university spinouts presented their perspectives on research commercialization during the Nurturing the University Start-up panel on Tuesday, May 17, at the 2016 Michigan Growth Capital Symposium.

David Wentzloff, co-CTO of PsiKick, advised university faculty to validate their research ideas in the lab first and then to disclose patentable discoveries to their respective university’s technology transfer or commercialization office. Wentzloff, who is a professor of electrical engineering and computer science at the University of Michigan, co-founded PsiKick with a collaborator at the University of Virginia in 2012. The startup is developing battery-less systems for highly disruptive Internet of Things and industrial Internet applications.

“Learn quickly and from good people,” Wentzloff remarked. “Gain all the knowledge you can about the entrepreneurial process and put your feelers out for people with entrepreneurial experience who can help you.” Other advice he offered included:

  • Assemble the right founding team ─ “It’s more like a marriage.”
  • Attract qualified advisers and board members with startup experience
  • Create a sound business model
  • Identify a potential target market
  • Apply for government grants to fund initial startup operations
  • Seek introductions to interested angel and venture capital investors

Matt Bell, a principal at Cultivian Sandbox Venture Partners, injected a venture investor’s viewpoint on licensing, technology transfer and spinout companies to the panel discussion. “Do your homework before you sign a license agreement and make sure you understand why the university is requiring it,” he advised researchers and faculty. “Ask questions about intellectual property ownership, because various universities have different policies on IP.” Intellectual property arising from federal government-funded research requires compliance with certain formalities stipulated by the Bayh-Dole Act.

The timing for launching a spinout can vary from “do it now” to “maybe do it never,” Bell conceded. However, he urged principal investigators and inventors to develop and leverage an ecosystem of entrepreneurial experts to help guide them through the formation, launch, operation and financing of their company.

To learn more about MGCS visit www.Michigan-GCS.com. Follow conversations surrounding the symposium through #MGCS2016 on Twitter.

Affordable Care Act Changes the Paradigm for Healthcare Providers, Investors and Startups, Says MGCS Panel of VCs

Entrepreneur BioMedicine Univeristy of MichiganThe 2010 Affordable Care Act is unlikely to be repealed, agreed healthcare venture capital investors who spoke on the Healthcare 2.0 panel at the Michigan Growth Capital Symposium on Tuesday, May 17. During the hour-long discussion, the geographically diverse set of panelists drilled down on the ramifications of Obamacare for healthcare providers, investors and startup companies in their regions.

“The ACA is absolutely changing the paradigm,” said Tom Shehab, M.D., a principal at Arboretum Ventures in Ann Arbor. “Hospital executives feel a little like wagon makers. They must adapt and evolve.” Robert Crutchfield, a general partner at Harbert Venture Partners in Birmingham, Alabama, remarked: “As investors, the challenge is to pick winners.”

Several key drivers are behind the emerging new healthcare landscape. Patients are now more involved in decision-making and paying for their care. The use of information technology, including telemedicine and social media, is rising. The industry is undergoing rapid consolidation. Both the delivery of and payment for healthcare are being revamped in the transition from volume-based to value-based care.

The panelists identified several promising investment areas over the next five years. These include:

  • Population health
  • Predictive analytics software
  • Clinical decision support
  • Provider-directed technology-enabled services

They also flagged several stumbling blocks that are creating challenges for venture capital investors and their portfolio companies. Among these are:

  • Hospital systems’ inertia, preoccupation with electronic medical records and delayed adoption of new technologies
  • Stiff competition among startup companies offering similar or competing technologies
  • Persistence of physician-directed, individualized care
  • Lag in the transition to consumerism and slow consumer adoption of new technologies

The panelists shared various investment approaches designed to increase the odds their portfolio companies will survive and thrive in the current healthcare market:

  • “Our portfolio companies are capital efficiency and try to minimize ‘burn’ until they can see scaling,” said Michael Liang of Baird Capital. “Reimbursements from CMS (Centers for Medicare and Medicaid Services) are taking longer these days.”
  • “We come into deals a little later on, and we try to stay away from technologies and services directly related to reimbursement,” Crutchfield explained.
  • “We look for early- and mid-stage capital-efficient healthcare companies in uncrowded markets and under-ventured geographies,” Dr. Shehab said.

To learn more about MGCS visit www.Michigan-GCS.com. Follow conversations surrounding the 2016 symposium through #MGCS2016 on Twitter.

Return on Influence is the New ROI

Insights from MGCS Keynote Speaker Adam Lilling, Founder and Managing Director of Plus Capital

Adam Lilling, MGCS 2016 Michigan Ross Zell Lurie InstituteAs an investor for the stars, Lilling provides the advice, access, architecture, execution and investment to enable high-profile influencers to make the biggest return on their name and fame. At the same time, he helps them use the power of business to effect change far beyond the sphere of stage, screen and sports. “We advise celebrities and their teams on everything from how to write a check into a venture capital investment all the way to how to become the co-founder of their own company,” said Lilling, BBA ’92, who earned his own credits over two decades as an Internet entrepreneur and startup innovator. “We think about their influence as venture capital.” And, he adds, their ROI as return on influence. The value of that venture capital is determined by reach (how far a celebrity’s voice or image goes), resonance (what authority and trust they bring to a topic) and relevance (how regularly they engage in a particular pursuit).

Hollywood stars and sports figures always have had considerable influence on the public and the ability to help companies sell products and attract attention through paid endorsements and promotions. What’s different today, according to Lilling, is that the advent of social media has allowed celebrities to open direct channels of communication with audiences and to scale the number of followers astronomically. Ellen DeGeneres, one of Lilling’s first clients, is a case in point. “Now Ellen reaches more people online than she does on her television show,” he says.

Influence and audience, however, are not enough. “You can lose those in a minute,” Lilling says. “Authenticity is key.” Celebrities who provide that authenticity want more in exchange these days. Basketball star Lebron James of the Cleveland Cavaliers was given a half point of equity just to wear a set of brand-name headphones and later made $30 million on the sale of the company, according to Lilling. “Authenticity equals equity, not cash,” he explains. “We’re in this moment in time where we have people who are so authentic and rich that they’d rather take a chance on a company to make another billion dollars versus $100 million dollars. We spend time determining the balance between equity value and endorsement value.”

In addition to using their names and social-media networks as venture capital, some of Lilling’s clients, such as actor Kevin Spacey, act as silent early stage investors in companies that are working to bring about positive change. Increasingly, stars and starlets are launching their own product brands rather than endorsing those of other companies. Actress Reese Witherspoon recently launched Draper James, a line of designer women’s clothing, and raised $10 million in venture capital. Degeneres also took the plunge into retail business and launched ED, a lifestyle brand of women’s apparel, accessories and home décor that personally connects her with consumers around the world. “She’s the brand behind the brand,” Lilling says. “The amount of revenue she can drive with licensing deals makes your head spin.”

But deal making is not necessarily the pathway to success, Lilling insists. “Most deals fail because they were just deals,” he says. “When the deal is authentic, then it’s worth it.”

To learn more about MGCS visit www.MichiganGCS.com. Follow conversations surrounding the symposium through #MGCS2016 on Twitter.

MGCS Industry Insights – Three Trends Impacting VC Investment in Health Care

Baird Capital’s Nicole Walker Discusses Trends Impacting VC Investment in Health Care

Nicole Walker Baird Capital VC University of Michigan Growth CapitalFor venture-capital investors, the Midwest still has great untapped potential, according to Nicole Walker, who joined Baird Capital’s venture capital team in Chicago three years ago. “This region has the talent and resources to build companies in sectors such as medical devices, tools and diagnostics,” she says. “Even the emerging health-care services sector is strong in the Midwest. This is a rich area for investment.”

Baird Capital invests across multiple stages of company formation, from seed investment through growth-stage investment. “Our portfolio is mixed, and we tend to be active investors, who like working with our entrepreneurial teams,” explains Walker, who currently sits on the board of directors at five health-care portfolio companies. “Our total investment in a company ranges from $10 million to $15 million over the life of a deal.”

Walker sees three major trends impacting venture-capital investment in the health-care sector in the Midwest:

  • Accessing capital ─ While there is more activity among seed and angel investors who help fund early-stage companies in the Midwest, Walker has started to see some contraction in the amount of capital coming into the entrepreneurial ecosystem from these investors. “Entrepreneurs must rely on their own financial resources or pools of capital generated by seed and angel investors in order to develop their start-up companies to the point where they are reasonable candidates for venture-capital investors, such as Baird Capital,” she explains. “Our firm sees a lot of good ideas. However, a number of those opportunities are too early for us and still need to be vetted and de-risked.”
  • Retaining talent ─ With its network of top-ranked universities, scientific research corridors and advanced manufacturing, the Midwest enjoys a strong pool of talent. Retaining that talent is a continuing struggle. “We still suffer a little from our talent bleeding out to the coasts,” Walker reports. “Three different types of talent are needed to help grow start-ups through their entire life cycle, from seed stage to an initial investment by a venture-capital firm to a revenue-generating commercial company. The challenge is to recruit and retain talent from the Midwest or the coasts to help build out these companies and the entrepreneurial ecosystem.”
  • Creating syndicates ─ The third challenge to venture investors is being able to build strong investment syndicates across a number of sectors. “Over the years, there’s been a shift in venture capital,” Walker observes. “Some firms have narrowed their focus to one or two sectors and others have chosen to stop investing. It’s becoming more challenging to create the syndicates needed to build a strong base of capital to help drive some of these companies forward.”

For the past two years, Walker has served as a panelist at the Michigan Growth Capital Symposium, which she views as critically important to the entrepreneurial landscape in the Midwest. “The symposium brings all the stakeholders to the table, including investors such as myself who are members of an institutional firm,” she says. “It provides us with the ability to connect and reconnect face-to-face with co-investment funds, such as Arboretum Ventures, Beringea and Venture Investors.”

In addition, Walker notes, Baird Capital benefits from the opportunity to take an early peek at emerging entrepreneurial talent during the two-day event. This pool includes not only entrepreneurs who are starting new ventures but also serial entrepreneurs with established companies who already have raised some capital and are looking for follow-on investments. “To be able to engage with all those stakeholders is a 24-hour period is amazing,” she says.

Register to attend MGCS 2016 by visiting www.michigangcs.com. Follow conversations about the Symposium through the hashtag #MGCS2016 on Twitter.

About the Michigan Growth Capital Symposium (MGCS)
MGCS is the original university-based venture fair, which was first held in 1979. This nationally attended two-day event provides an opportunity for investors to connect with up-and-coming Midwest businesses and learn about emerging technologies. The Symposium offers the opportunity to build relationships with an unparalleled business network of distinguished private equity industry leaders, leading university research faculty, and entrepreneurial business professionals. MGCS is presented by the Center for Venture Capital & Private Equity Finance at the University of Michigan Ross School of Business with support from the Michigan Venture Capital Association.

MGCS Industry Insights – A Pullback by Venture Investors Poses Fundraising Challenges for Startup Companies

Flat rounds are taking some of the fizz out of the funding bubble for startup companies. And like flat beer and flat tires, entrepreneurs are finding deflated investor enthusiasm─ and the inability to raise follow-on funding at ever higher valuations ─ an unwelcome change from last year’s unbridled investment exuberance.

David Brophy, Zell Lurie Institute University of Michigan RossThe biggest concern among venture investors right now is exits, says David Brophy, professor of finance and director of the University of Michigan Center for Venture Capital and Private Equity Finance, or CVP. “When investors see the unicorns (startups with private valuations exceeding $1 billion) going public at prices below their last private investment pre-money value, they become cautious about raising the bid on the next funding round or the bridge financing they are putting into their existing portfolio companies,” he explains. “Investors also are a little more skittish now about putting new money into startups [that are not yet part of their portfolios].”

Economic weakness abroad, a strong U.S. dollar and a global flight to safety have pushed investors away from risky bets on equity and into the debt market. “Venture funds and institutional investors are much more enthusiastic about putting their money into private debt than into the equity of new ventures and young companies,” Brophy observes. “The federal regulatory clamp-down on banks has curtailed long-term senior lending, so companies looking to finance acquisitions are turning to private pools of capital offered by venture funds and limited partnerships. In return, these debt investors are receiving a revenue stream from promissory notes, which may be convertible or have warrants that give them debt with equity.”

The upshot, Brophy says, is that in today’s financial market, venture investors with cash are king (or queen), and have the upper hand in negotiating good terms and favorable pricing with entrepreneurial companies seeking to raise growth capital. “The only way a young company can succeed in this environment is to have something really special,” he remarks. “This includes a really good team and a really good value proposition. Not every company has that.”

Brophy offers this advice to entrepreneurs who are trying to weather the current turbulence:

  • Focus on ways to add value to your company by identifying new uses for products and intellectual property, modifying and improving existing technologies, entering new markets and cultivating deeper sales relationships.
  • Redouble your efforts to provide better, cheaper or more effective products and services to your customers and outshine the competition.
  • Take advantage of market weakness to steal market share from other companies that are failing or closing up shop.
  • Increase your free cash flow and manage your working capital.

At the moment, there is no way to cure the bad spirits out in the marketplace,” Brophy cautions. “The big thing is to survive.”

Venture investors also must make tough decisions amid the current market downturn. “As an investor, you have to do triage all the time, and help your portfolio companies get through the tough times,” Brophy advises. “You have an audience of entrepreneurs and limited partners watching you, and your success in pursuing future opportunities will be conditioned on how well you handle your portfolio now. If you demonstrate you can turn bad times to your advantage by finding a new deal and negotiating good terms, then your institutional investors will love you.”

Register to attend MGCS 2016 by visiting www.michigangcs.com. Follow conversations about the Symposium through the hashtag #MGCS2016 on Twitter.

About the Michigan Growth Capital Symposium (MGCS)

MGCS is the original university-based venture fair, which was first held in 1979. This nationally attended two-day event provides an opportunity for investors to connect with up-and-coming Midwest businesses and learn about emerging technologies. The Symposium offers the opportunity to build relationships with an unparalleled business network of distinguished private equity industry leaders, leading university research faculty, and entrepreneurial business professionals. MGCS is presented by the Center for Venture Capital & Private Equity Finance at the University of Michigan Ross School of Business with support from the Michigan Venture Capital Association.

 

Momentum Builds as Michigan Growth Capital Symposium Announces Track Sessions and Panel Discussions

Organizers of the Michigan Growth Capital Symposium (MGCS) unveiled initial program details for the 35th annual event, which will be held May 17 and 18 at the Marriott Resort in Ann Arbor/Ypsilanti. This year’s event will feature panel discussions led by respected national investors and business strategists that explore pressing issues facing today’s entrepreneurs and investors. A new Tech Transfer ‘Alley’ will also provide a larger platform for Midwest universities to spotlight Tech Transfer offices and their emerging company spin-outs.

Michigan Growth Capital Symposium Zell Lurie Institute University of MichiganThe MGCS is the premier Midwest networking event and the only university-based venture fair of its kind that connects national leaders in venture capital with emerging growth companies actively searching for partners and funding. Year after year, it has successfully facilitated valuable relationships that help move companies forward. At its founding in 1979, upon the heels of the newly launched National Venture Capital Association, the MGCS set out to bring institutional investment interest to Midwest companies and continues to play a critical role in fostering growth in the region’s startup community.

Featured panels at MGCS 2016 include:

  • The Challenges of Medical Software Startups: Led by Jonathan Murray from Draper Triangle Ventures, this session will explore the opportunities and challenges for selling and integrating healthcare system productivity enhancement technology into hospital and legacy systems.
  • Healthcare 2.0 Impact and Opportunities: How do the Changes Related to Healthcare Reform Impact Your Investment Strategy?: Led by Tom Shehab, MD from Arboretum Ventures, this panel of seasoned healthcare venture capital investors will discuss how healthcare reform impacts their investing strategy and how the companies they invest in respond to the high level of uncertainty in the industry.
  • The Corporate Venture Capitalist Role and Goal in Healthcare Innovation: Led by Jim Adox from Venture Investors, this session will discuss how corporate VCs and business development executives are playing a bigger role in healthcare innovation, and what this means for venture-backed companies.
  • Tech Transfer Panel: Presented by Osage Venture Partners and University of Michigan Tech Transfer, this panel will gather panelists who have licensed university technologies for a discussion of investing in the tech space with a focus on startups coming out of universities.

In addition to informative panel discussions, 30-35 presenting companies, and keynote speakers, this year’s MGCS will feature an expanded focus on innovations and companies emerging from the Midwest area’s university Tech Transfer offices.  With its new Tech Transfer Alley, MGCS has carved out a unique and distinct space to showcase universities’ commitment to technology innovation, business formation and commercialization.  Complementing Tech Transfer Alley will be a Tech Transfer Pitch Track, representing five to seven university Tech Transfer programs that will spotlight three to five companies emerging from their systems.

MGCS organizers are in the process of reviewing applications submitted by emerging and high growth companies from across the Midwest to present at this year’s 35th event.  Selected companies will be publicly announced in early May.

Sponsorships Still Available

The 35th annual Michigan Growth Capital Symposium is presented by the University of Michigan’s Zell Lurie Institute for Entrepreneurial Studies and Center for Venture Capital & Private Equity Finance at the Ross School of Business, with support from the Michigan Venture Capital Association. Sponsorship opportunities are available at various levels, ranging from $1,000 to $10,000. For more information, please contact Mary Nickson at (734) 615-4424 or visit the website at www.MichiganGCS.com.

About the Michigan Growth Capital Symposium (MGCS)

MGCS is the original university-based venture fair, which was first held in 1979. This nationally attended two-day event provides an opportunity for investors to connect with up-and-coming Midwest businesses and learn about emerging technologies. The Symposium offers the opportunity to build relationships with an unparalleled business network of distinguished private equity industry leaders, leading university research faculty, and entrepreneurial business professionals. MGCS is presented by the Center for Venture Capital & Private Equity Finance at the University of Michigan Ross School of Business with support from the Michigan Venture Capital Association.