Simon Wallwork, partner and head of the corporate and commercial team at Slater Heelis, shares his advice for medtech companies at all stages of their development - from attracting investment and funding to taking the steps from start-up to scaleup to ultimately, a listed company.
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For start-ups and scaleups within the medtech industry, attracting funding and investment is absolutely vital to the long-term success of the firm. Fundraising needs to considered from the moment you set up your organisation, and front of mind throughout its lifecycle from thereon in.
As a corporate partner with over 28 years in practice, I have provided legal counsel to a range of medical device firms at all stages of their business lifecycle – including Gendius, Manchester Imaging and Carena Healthcare Limited.
Raising funds can be a slow process that requires careful planning: a deal may take six months to close, requiring you to constantly be in fundraiser mode and to understand when’s right to close and embark on the next raise.
Early-stage funding and overcoming the “equity cliff”
The funding landscape is healthier than it has been for years, with both public sector innovation grants and private sector investment available to help early-stage companies get off the ground. It’s an exciting time for these businesses to grow.
Whilst it can be difficult raising that first million, it’s an even greater hurdle raising another and overcoming that equity cliff. Start-ups often struggle at this stage of their business journey, finding themselves with some initial funding but unable to attract the really big funds – often because early-stage funds don’t follow their money.
Also, Government grants and public sector funds tend to be one-off awards, meaning that start-ups often turn to private investors.
What are investors looking for?
Initial conversations with investors need to be focused on demand for the product. Start-ups must understand their market inside-out, as investors will want to know what the unmet need is, who the main competitors are, and what other solutions and technology already exist.
The channel to market should also form a part of investor presentations, and start-ups need a clearly defined strategy for market entry that considers key barriers such as regulatory hurdles. Alongside innovation, investors will also be mindful of whether the development is realistic and how it fits into the current marketplace.
The final piece of the jigsaw is to instil investors with confidence in the product and the management team behind it. It takes a variety of skills to grow a business, and in those initial conversations, investors will be assessing the board’s ability to take a start-up to the next level.
Becoming a listed company
In August 2021, I was part of the team that guided cancer therapeutics firm BiVictriX (BVX) to its floatation on the AIM market of the London Stock Exchange. BVX achieved stock market listing in just four years and is an inspiration to other industry firms with similar aspirations.
BVX had built an extremely strong team that was capable of taking its innovative technology to mass market with a clearly defined strategy. Alongside this, it had excellent PR and brand presence. To reach the levels of listing, you need a far-reaching and consistent PR strategy capable of articulating your key messages to your target audience.
Investors at the listing stage need to be presented with a professional organisation that is capable of identifying and communicating its value inflection points, and therefore demonstrating its strong trajectory.
Final tips for early-stage organisations
You need to plan your exit strategy from the moment you set up your organisation: that means planning for the future on key issues such as share capital, share placement schemes and options that the organisation wants to grant and reserve in the future.
From a legal point of view, having robust employment contracts in place from day one puts you in a strong position.
Self-awareness is also key. Founders must be honest with themselves about their strengths and weaknesses. Start-ups and scaleups in the medical sector are often derived from academics or inventive founders who spotted a gap in the market. It is extremely rare that these individuals also possess the entrepreneurial flare, experience and skills necessary to grow a business, and so it must be found elsewhere.
Assembling a team and board with diverse experience and skills is fundamental to an organisation’s success, but admittedly it is something that early-stage companies battle with when cash flow is tight.
A solution to this is the early use of advisers, such as lawyers or corporate financers. Advisers will be prepared to invest their time and build an enduring relationship with the start-up if they can see its potential. For many founders, this requires a change in mindset from seeing professional services as a one-off cost to being capable of shaping the organisation positively from the get-go.
Strong legal counsel throughout those initial phases can add true value, enabling an organisation to be established in a way that maximises inward investment – such as via EIS/SEIS funding – and hence increasing its appeal to investors. This can also save companies money in the long-term by removing the need for future legal counsel to re-engineer earlier, inadvisable decisions.
Finally, you could have the best medtech in the world or a medicine that could transform lives, but if you don’t step outside your laboratory it’s likely that IP will stay there forever.
Visibility in the market will help attract investors and build your brand profile. From PR to attending investor-focused conferences such as Med-Tech Innovation Expo, there are many ways to build a network you can leverage later. A chance meeting at the NEC with an angel investor may not immediately lead to overnight investment, but nurturing that relationship over the years could prove to be extremely lucrative for both parties when the time is right.
