In a recent meeting with a medical device executive, he related to me that an investment firm’s portfolio investment in medical devices only generated a 4% ROI. With the last $10 million remaining in the fund, the limited partners demanded that the investment firm invest the capital in anything but medical devices! Even CALPERS, a leading limited partner, has a mandate to its retirement membership to generate a 7% or higher ROI. So I clearly understand the limited partners’ frustration. But we discuss in my blogs only about startups and how to attract or find investment funds. Unquestionably I always find these 5 points helpful when knocking on VC doors:
- Seeking investors is a marketing problem — make sure that your company fits the VC investment profiles. For example, don’t go to a VC firm that only invests on software if you are a medical device startup.
- Make sure that the Executive Summary and the Pitchdeck clearly defines what business space you are in the first 2 paragraphs. If any of the documents are vague, it will most likely be placed in the reject bin.
- If the VC fund has been burnt in the space, don’t bother persuading them otherwise. As I insinuated above, the limited partners control the VC fund, not vice versa. Go to another VC firm with a higher success ratio in the same space. Some VC firms are more successful than others.
- Note above that the firm was exhausting its investment funds. Inquire the firm beforehand to find out what percentage has been committed so far.
- Draft your documents clearly and define the points needed by the VC firm. I do address them in earlier blogs, and they make sense: What does the company do? How large is the Space? What is your team and your product? How is it different from the competitive environment? What are the barriers to entry? How much capital is needed for this round? Do you support all of the points in a well articulated business plan?
When this executive related to me this fund raising problem for medical devices, I thought about how to handle the challenges to raise money for medical devices. But to every problem, there is a solution. And the best approach for dealing with investment firms prior to handing them presentations is to hit each and every point addressed above. Otherwise it will be a disappointing experience.