A fundamental truth: The commercial challenges facing medtech scaleups

Ian Shott, chair of the Royal Academy of Engineering Enterprise Committee, looks at how to overcome some of the commercialisation challenges facing medtech scaleups.

The UK medtech industry is thriving; recently valued at £21 billion, the UK is the third largest medical device market in Europe and sixth largest in the world. This is not only encouraging for the economy, but essential if we are to keep pace with technological advances that can genuinely improve the quality of healthcare.

There are an estimated 3,700 medtech companies here in the UK, the majority of which are small to medium sized enterprises. Thanks to a number of government-funded schemes, such as the Knowledge Transfer Partnership, innovative research has been transformed into business growth for early-stage companies, which in turn has led to a rapid expansion of new technology in the sector.

For entrepreneurs looking to commercialise their innovations, there can be significant hurdles to overcome, in particular the need to secure sufficient investment to sustain them throughout the scaleup period. I have seen countless businesses fail because they have focused on early-stage investment, without consideration of follow-up funding to support them through to scaleup stage.

Fortunately, medical technology is a favoured industry when it comes to funding, which means there is plenty of support available for businesses looking to scale up. Given that equity funding is the most expensive and challenging approach for technology startups and SMEs, it is important to first examine other funding mechanisms. Options that are not intrusive and do not dilute equity include funding from Innovate UK and charitable organisations like the 1851 Commission and the ERA Foundation. These organisations, for example, provide funding for Enterprise Hub Fellowships at the Royal Academy of Engineering.

Grant funding is the most attractive form of financial support for technology businesses as considerable sums of money can be raised without taking equity from the founders. It usually relies on a level of collaboration with a university, innovation centre, or a more established company, which is an important impulse for developing the technology.

For example, my pharmaceutical contract research and development company, Arcinova, successfully raised grants over around £2.5 million from UK Research and Innovation between 2017 and 2019, and secured multimillion investment from the institution investor, Business Growth Fund. Medtech businesses ought to take advantage of government schemes such as the Biomedical Catalyst (BMC) programme that supports the development of innovative healthcare technologies for disease prevention.

European-led schemes such as Horizon 2020 have historically played an important role in supporting innovative and purpose driven SME business. With the future role of European funding unclear, it is imperative that government and institutions commit to carefully designed and targeted funding for high-potential companies, to ensure continued growth in industry.

Venture capital and R&D tax relief has also been an impetus for the sector. R&D tax relief supports companies that work on innovative science and technology projects that advance their field. Uniquely the tax credit can be claimed on legitimate technology development projects even if these are not currently making money. This can be a significant help as it allows entrepreneurs greater freedom for to invest in ventures they believe in.  

Accelerators, incubators and charitable organisations such as the Royal Academy of Engineering’s Enterprise Hub, provide crucial support that goes beyond pure funding for startups and scaleups alike. This includes mentoring, training and access to its extensive networks of experienced and like-minded entrepreneurs and helps business leaders to develop an attractive business case for institution investors.

Gaining the support of a prestigious organisation like the Enterprise Hub can create a “halo of approval” for businesses, demonstrating they are a robust team with the right skills to scale up effectively. In my experience, this helps overcome one of the biggest barriers that engineering and technology scaleups face in securing funding; establishing credibility.

The Enterprise Hub has long recognised that good business skills are just as important as access to finance for growing a successful engineering and technology company. Engineers equipped with essential business skills, as well as ambition and a great innovation, are not only better at navigating new markets, but are also more likely to be able to capitalise on growth opportunities and are therefore viewed as less of an investment risk.

Through schemes such as the Enterprise Hub’s SME Leaders programme, the UK’s most promising high-growth engineering SMEs develop the necessary leadership skills to scale up their business.

To date the Enterprise Hub has supported over 100 entrepreneurs, one of whom is David Tuch, CEO of Lightpoint Medical, a global leader in precision-guided robotic surgery for cancer treatment. Having joined the programme in 2017 to develop his management skills, David has been able in take his business to the next level, and most recently secured a large follow-on investment as a result of continued support from the Hub’s community of Royal Academy of Engineering Fellows and investors.

Follow-on investment is an area that is often overlooked, especially in the UK where there is a trend of starting up, securing money and exiting at the earliest opportunity. As a nation, our research is world class, but if we are to ensure these ideas become long-term business ventures then we must move towards a “relay culture”, where there is a clear changeover of one form of investment to another. This is the only way entrepreneurs can maintain sustained support and guarantee the most value out of their businesses.

Innovation in medical technology has never been so promising; we must think big and work collaboratively to support innovative ventures that have long-term potential. To do so we must continue to provide clear access to both funding and training, to help tomorrow’s medtech leaders achieve ambitious growth.