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.

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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.

High-Profile VCs Adam Lilling and James Flynn Share Top Billing at 2016 MGCS

Two high-profile venture capital investors, Adam Lilling and Jim Flynn, will share top billing as the featured keynote speakers at this year’s Michigan Growth Capital Symposium on May 17 and 18. Coming from markedly different personal and professional backgrounds, the two top-performing VCs will provide insights into their carefully honed investment styles and strategies, and offer tips on the industry sectors, syndication partners and exit options and timing that deliver the best long-term results.

MGCSvcspeaksmall“Adam and Jim are Ross School graduates who represent success in venture capital investment fields that are central to our Michigan opportunity set: Internet services and health care,” says Professor David Brophy, MGCS founder and director of the U-M Center for Venture Capital and Private Equity Finance.

On Tuesday at noon, Lilling, the founder of PLUS and the managing partner of the venture fund Plus Capital, will tell how he manages venture-capital investing, equity-driven partnerships and start-up operations for Hollywood’s rich and famous. More than a dozen top celebrities have engaged Lilling to put their time, money, brand and social network into play at high-potential private companies throughout the business growth cycle. A 1992 Michigan Ross graduate, Lilling sharpened his investment instincts and skills by spending two decades in the trenches as an Internet entrepreneur and startup innovator. He co-founded LaunchpadLA in 2009 to build Los Angeles’ “silicon beach” tech community and previously launched three startups, one with backing from Richard Branson and Virgin Entertainment Group.

On Wednesday morning, Flynn will recount his progression at Deerfield Management from 2000 when he joined the firm to the present. Starting with a focus on pharmaceutical companies, Flynn began co-managing Deerfield with founder Arnold Snider in 2004. After Snider’s retirement, Flynn assumed full oversight of investment activities and management of the company, which has offices in New York City, Shanghai and Switzerland. Since then, he has expanded Deerfield’s investment scope, developed the Deerfield Institute’s market research capabilities and created the Deerfield Foundation to benefit disadvantaged children. Flynn’s prior investment analytics experience at Alpharma Inc. and Kidder, Peabody & Co., and his business development activities at Furman Selz laid the foundation for his leadership role at Deerfield.

Making its debut this year at the symposium is the Michigan Venture Partnership, a high-powered networking initiative designed to promote greater connectivity and synergy among U-M alumni who invest across a variety of sectors. The partnership will kick off with a morning reception on Tuesday and feature comments about commercializing university research and inventions by experts from U-M Tech Transfer and Osage University Partners. “The symposium provides a natural gathering opportunity for the hundreds of U-M alumni who are investing in venture capital in all parts of the world and who are interested in the upside potential of our transformational research,” Brophy remarks.

Panel discussions, led by seasoned investors and entrepreneurs, will drill down on critical issues related to health-care innovation, medical software and other disruptive technologies. “Health care is a major global investment area,” Brophy remarks. “Here in the Michigan and the Midwest, we have the hospital systems, research universities, talent pool and venture funds that can give us an edge over other parts of the country. We need to work at what we’re good at.”

Many of the Great Lakes region’s most promising entrepreneurial companies will showcase their products and services during formal presentations to angel and venture capital investors at the symposium. Technology-transfer specialists from seven leading Midwestern research universities also will give previews of exciting ventures emerging from their institutions during the third annual University Research Pitch Track.

“The Michigan Growth Capital Symposium, the original venture fair, now in its 35th year and emulated globally, continues to fuse finance, entrepreneurship and economic growth for the betterment of all,” Brophy concludes.

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

James Flynn, Deerfield Capital Management and Adam Lilling, Plus Capital to Headline Midwest’s Leading Venture Capital Event

35th Annual Michigan Growth Capital Symposium Hosts Speakers from Leading Investment Firms Across the U.S.

Today, organizers of the Michigan Growth Capital Symposium (MGCS) unveiled its expert speaker line up for the 35th annual event, which serves as a conduit for introducing early stage and emerging growth companies seeking funding to U.S. investors prospecting deals. The 2016 program will feature keynote addresses from James Flynn, managing director of Deerfield Capital Management and Adam Lilling, founding and managing partner of Plus Capital. MGCS will also feature informative panels on topics ranging from the impact of healthcare reform, medical software startup challenges and a new Tech Transfer “Alley” that will 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 MichiganHosted by the Ross School of Business’ Zell Lurie Institute for Entrepreneurial Studies with support from the Michigan Venture Capital Association, this year’s Symposium will be held May 17-18, 2016 at the Marriott Resort in Ypsilanti, Mich. More than 450 entrepreneurs, researchers, investment professionals and business executives are expected to attend for networking, company presentations and panel discussions. The conference has a track record of attracting high-quality investors from around the country each year.

Influential Industry Speakers

The program will kick off with a keynote address from Adam Lilling who currently serves as founding and managing partner of LA-based Plus Capital, a firm that manages early-stage venture capital investing, equity-driven partnerships and start-up operations for top celebrities from Hollywood, music and sporting. Kicking off with the keynote on day two will be from James Flynn, managing partner of Deerfield Capital Management, a New York-based multi-billion dollar venture capital firm with a focus on healthcare investment. Flynn oversees the firm’s investment activities as well as the day-to-day management of the organization.

The program will also feature high-caliber speakers representing entrepreneurs, researchers, investment professionals and business executives who will lead informative discussions on pivotal industry issues. Confirmed speakers include:

  • V. Kadir Kadhiresan, PhD, Vice President, Venture Investments, Johnson & Johnson – JJDC, Inc.
  • Robert Crutchfield, General Partner, Harbert Venture Partners
  • Michael Liang, PhD, Partner, Baird Capital
  • Jeffery J. Stolte, Partner, Providence Ventures
  • Tom Shehab, MD, Principal, Arboretum Ventures
  • Julia Owens, Ph.D. President & CEO, Millendo
  • Bob Smith, Senior Vice President, Worldwide Research & Development, Pfizer
  • Jim Evans, CEO, Socrates Analytics
  • Martin Felsenthal, Partner, Health Velocity Capital
  • Jonathan Murray, Managing Director, Draper Triangle Ventures
  • Kurt Skifstad, PhD, CEO, ArborMetrix
  • David Neustaedter, Worldwide Research & Development, Pfizer
  • Mark Woodka, CEO, OnShift
  • Matt Bell, Principal, Cultivian Sandbox Venture Partners
  • Matt Bower, Partner, Varnum
  • Jim Adox, Managing Director, Venture Investors
  • Kirsten Leute, Senior Vice President of University Relations, Osage University Partners
  • Rik Vandevenne, Director, River Cities Capital Fund
  • Karen Spilzewski, RiverVest Venture Partners
  • David Wentzloff, Co-CEO & Co-founder, PsiKick; Professor, EECS, University of Michigan
  • Manny Stockman, Associate, Osage University Partners

University of Michigan Selected to Host 2017 Coulter Investment Forum

In related news, organizers of MGCS also announced that as part of the 36th annual Michigan Growth Capital Symposium, May 16 and 17, 2017, the University of Michigan will hold MGCS in conjunction with the Coulter Investment Forum.

Each year, the Coulter Investment Forum, sponsored by the Wallace H. Coulter Foundation, showcases 30 emerging life sciences companies that have originated in Coulter Translational Research Partnerships at one of 16 universities. This one-day event is an exciting opportunity to preview 25 to 30 life science companies seeking seed to early-stage investment. Company participation is restricted to those with innovations that have been vetted through the Translational Research Partnership Program at one of the 16 university partners using the Coulter Commercialization Process. This documented process uses business like processes to accelerate academic innovations to the market to improve patient care. Solutions range from device to imaging, diagnostics to therapeutics.

Selecting the University of Michigan and MGCS as the host venue for 2017 underscores the dynamic and growing venture capital and entrepreneurial ecosystem in the Midwest. In fact, start up and venture capital activity in the Midwest–which boasts talent from prestigious research universities like the University of Michigan and an affordable cost of living–has outpaced the rest of the country in terms of growth. According to a recent report conducted by the Michigan Venture Capital Association, over the last five years, total capital under management has grown 47 percent in Michigan, but fallen 17 percent nationwide and the amount invested in Michigan has grown 295 percent, compared to 97 percent nationwide.

“For the past 35 years, the caliber and content at MGCS has evolved from a few people discussing entrepreneurial venture capital trends to a nationwide event that attracts some of the most prestigious investors and budding entrepreneurs in the country,” said David Brophy, professor of finance and founding director of MGCS. “We are honored – but not surprised – that the Coulter Investment Forum, a conference that celebrates university startup companies from across the world, has chosen Michigan to host its 2017 event, and we are looking forward to collaborating with them as we prepare for next year.”

The 36 companies selected to present at this year’s 2016 Michigan Growth Capital Symposium will soon be announced. To learn more or to register, visit www.Michigan-GCS.com and follow conversations through #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 and the Zell Lurie Institute at the University of Michigan Ross School of Business with support from the Michigan Venture Capital Association and the Michigan Economic Development Corporation.

About the Stephen M. Ross School of Business
The Stephen M. Ross School of Business at the University of Michigan is a vibrant and distinctive learning community grounded in the principle that business can be an extraordinary vehicle for positive change in today’s dynamic global economy. The Ross School of Business mission is to develop leaders who make a positive difference in the world. Through thought and action, members of the Ross community drive change and innovation that improves business and society.

Ross is consistently ranked among the world’s leading business schools. Academic degree programs include the BBA, MBA, Part-time MBA (Evening and Weekend formats), Executive MBA, Global MBA, Master of Accounting, Master of Supply Chain Management, Master of Management, and PhD. In addition, the school delivers open-enrollment and custom executive education programs targeting general management, leadership development, and strategic human resource management.

MGCS Industry Insights – Jaffe Redoubles its Efforts to Engage and Advise Entrepreneurial Michigan Companies

Michigan Growth Capital Symposium Zell Lurie Institute Ross School University of MichiganThe proliferation of entrepreneurial companies in Michigan has prompted Jaffe Raitt Heuer & Weiss, P.C. to expand the legal resources and reach of its Emerging and Growth Business Practice Group in recent years.

“We’ve had a long history of representing early-stage companies and working with them throughout their business life cycles, from raising seed money through their ultimate exits as a sale or an IPO,” says Jeffrey Weiss, a partner in the law firm’s Southfield office. “Now we are making a concerted effort to get in front of more inventors and technologists who are starting these companies, as well as investors, and to become more visible in their communities, so we can get in the door at an earlier stage.” As an entrepreneurial-minded law firm, Jaffe has demonstrated greater flexibility on hourly fees and a willingness to work out creative solutions that accommodate the legal needs and financial constraints of early-stage start-ups, he adds.

Last year, Jaffe represented a long-term client, Delphinus Medical Technologies, Inc., headquartered in Plymouth, Mich., in a $39.5 million Series C round of financing, which closed in August. It was the single largest amount of venture capital ever raised for a health-care imaging company in the Midwest and for a medical-device company in Michigan, according to Weiss, who received his BBA and his law degree from the University of Michigan. In other high-profile matters, the firm also represented each of HandyLab and Accuri Cytometers in recent acquisitions by Becton, Dickinson and Company and assisted ePrize when it was sold to Catterton Partners, a consumer-focused private-equity company, in 2012.

Weiss customarily encourages entrepreneurs to bring in experienced legal counsel as soon as they have developed a business concept. There are several key reasons for this engagement early in the business life cycle:

  • Intellectual-property protection – “As an entrepreneur, you want to protect your idea and know-how immediately,” Weiss says. “The passage of time only hurts you.”
  • Business structure – “Structuring the company properly from a tax standpoint is critical at the outset, and clearly documenting all aspects of the operation of the business, from ownership to employment and other matters, only helps avoid problems down the road,” Weiss explains. “If there’s ‘too much hair on the deal,’ it will pose difficulties later on.”
  • Venture financing – “Entrepreneurs want to be sure they are presenting a nice neat package to a potential financing source,” Weiss remarks. “We help companies best position themselves for financing and resolve any legacy issues. Financings can be difficult at any stage, and we want to minimize such difficulties, so that a lender or investor can understand the opportunity as quickly and easily as possible.”

Jaffe is a regular sponsor of the Michigan Growth Capital Symposium, where many of its clients are among the start-up companies making pitches to investors. “It’s a good networking opportunity for us,” Weiss says. “We find it helpful to know all the players in the area, both on the company side and the investor side. This helps us generate deal flow.”

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.