Off to a good start: Finding investment for medtech start-ups

Giovanni Rizzo, chief of innovation at medical start-up investment firm Z-Cube tells MTI what it’s like finding investment and mentoring in the life-science start-up scene.

An aging population and the prevalence of chronic and communicable diseases is expected to fuel growth in the life sciences sector. It is estimated that in the UK, life sciences contributed £30.4 billion to the UK economy in 2015 and reports show that the global life science sector is set to grow to the value of $447.5 billion by 2020. The future success of the sector is reliant on the successful development of new treatments and technology and today’s researchers will drive a positive contribution in the future, when their developments reach the marketplace.

Investment and commitment in early-stage life science start-ups is therefore crucial. However, securing funding is complex. In the UK alone roughly 60 new life science start-ups are formed each year with University spin-offs accounting for 34% of these. This finding highlights that start-ups in life sciences are very often composed and set up by visionary academics who, unfortunately, would probably not hesitate to describe themselves as inexperienced with the practicalities of setting up a business such as composing a robust business plan, sourcing a reliable supply chain, managing partners, tax and staffing issues. Yet all these key business activities need to be fleshed out and accounted for if early stage companies wish to impress investors and secure funding. A recent report by MindMetre Research confirms that a lack of key skills is a turn-off for investors as it found that Private Equity houses believe that some key business skills such as IT management and marketing are generally sub-par in the businesses they acquire.

The European life science start-up panorama is in fact blighted by a critical inconsistency: businesses typically tend to get funding when they have reached relative maturity, and yet they are unable to reach maturity without significant funding. To solve this, many businesses are going public too early by commentators’ standards at the risk of undervaluing their business.

This environment, which sees early-stage often academic start-ups struggling to get funding, translates into a Catch-22 situation, where the only people knowledgeable enough to innovate are denied access to funding because they lack business experience and only firms that have already received funding are able to access more. Such an environment is damaging to the whole life science sector as it stifles innovation, discourages entrepreneurial initiative and ultimately suppresses important developments that could improve patient health.

Life science early-stage start-ups should, therefore, consider wisely what type of support is offered by different types of investors, being careful not to underestimate the importance of access to mentors and advisors that can show them the ropes when it comes to the practicalities of setting up a business. So, while the initial draw to a particular accelerator programme might be the availability of funding, not all programmes are set up to provide structured growth opportunities and counsel.

With data showing that 90% of all start-ups fail within the first year, securing the exposure to key figures in your industry and investors that understand your business is critically important. Getting in front of the right people at the right time can be the make-or-break for a business. Taking part in an accelerator that helps enable that key exposure and provides opportunity to connect with advisors and peers that understand your business can place your business on the fast-track for growth.