Medical Informatics and Technology

Accelerator

Bernard A. Harris, Jr.

President & CEO
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Why a Venture Capital Conference?

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 Vesalius Ventures Accelerator

Founded in June 2002, Vesalius Ventures is dedicated to

“accelerating the future of medicine” and
becoming the premier accelerator for Telemedicine.

Vesalius Ventures is uniquely positioned to access

emerging technologies at their source and bring exciting
new opportunities to market.

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 Venture Capital Accelerators

VanMed I & II Itasca MedTech VESALIUS

President Robert Ulrich Scott Wolf Bob Curtis Bernard Harris

650-321-2900 612-607-2812 650-286-2999 713-877-9276
www.medtechventures.com www.vesaliusventures.co
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Venture Vanguard Vanguard Vanguard Vanguard

Partners Centennial IAI Ventures Bedrock Capital Sevin Rosen
Genesis Tredegar Investments Fremont
VFW

Corporate J&J Medtronic Guidant Guidant

Partners E. Lill
Tredegar

Industry Medical Devices Medical Devices Health Care Medical Informatics &
Focus Biotech Technology

Companies Indigo Percardia Artemis RMD Systems

Ovamed TissueLink Eunoe Monebo
Hemosense
Cardiogenesis
Myelos

Timex
Clients
Air Products
ChaseCom

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Overview of the Venture Capital
Value Chain and
the Fund Raising Process

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 Agenda

The VC Value Chain

The Real World

What to Expect after Funding

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 Venture Capital Value Chain
Venture Capital Value Chain
Others: I-Banks, Law
Firms, PR Firms

Limited Venture
Start-up Exit
Partner Capital
Pension funds, Early Stage, Either through:
Endowments, Late Stage,
• Merger or
Corporations Mezzanine,
Acquisition
Corporate
E.g.
• IPO
Foundations, E.g.: Traditional
State Pension and Corporate • bankruptcy
Programs,
University
endowments
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 How are VCs paid?

Limited Partner Venture Capital Start-up Exit

$ $$$$
(General Ptnr) Equity

Compensation
• Management Fee usually 2.5%
• Carried Interest (“Carry”)
• 80/20
• 70/30
• GPs are always Limited Partners
• Measured on IRR and compensated on ROI

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 50,000 Foot Overview
2-5 yrs
2-4.5yrs
Sustainable
1.5-3yrs Customers Financials
1-1.5yrs Customers Public Profile Predictability
6m-1yr investor
Step up in value
Value Product Road map Cross-over
Concept Capital Structure Team inputs players
Value Proposition
Management team Customer
1-2 people Market definition discussions
Hope, smoke, Positioning strategy Less risk tolerant
fire? Beta customers investor
Biz Plan Technology Executing
marketing plan

Seed Series A Series B Series C Exit

Funding Mezzanine
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 Financing
Seed Stage 1 Seed Stage 2 First Major Later Stage
Start-up Financing Financing

$.500-1.5 M $2-5 M $10 - 20 M $20 - 100 M

for for 50%-70% for 50% for 30%-40%
9-12 months 9-12 months 12-15 months 12-14 months
of milestones of milestones of operations Pre IPO

R/D Team
Product Development
 Product to Mkt.  New Investors
 Full Mgmt.  Val. Increase
Business Plan
Team  Execution
CEO  Revenue Start
Management Team
 Expansion
 Distribution  Prepare IPO
 Business Model
“Viable Start-up” “Story”
“Business”

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 Seed
• Sources – Accelerators, Angels, Friends & Family (Avoid too much
of the latter)
• Deliverables:
– Founders commit IP to company
– Crisp, clear exec summary
– Defined & executable milestones & timeline
– Managed Burn rate
– Product prototype
– Employment agreements in place
• Do Not:
– Value company at this stage preferably
– Give out “%” of company - Absolute shares are preferred
– Have anti-dilution clauses
– Have complex cap tables

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 Series A
• Deliverables/VC Process requirements
– Investor Pitch
– Executive summary
– Business Plan
– Business Model: 3-5 years max
– References
• Board very important – investor collaborated
– Odd # - 5 preferably at this round
– Balanced: Common, investors and domain experts
• Raise as much as needed plus one more quarter to get to next
best funding point
• Investors ask for 30-50%
• Employee Pool – 20-25% approx
• Highly capitalized companies – raise more @ first round
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 Series A – cont’d.

• At least 2 VCs at first round - preferred

• Service Provider firms – 5,000-10,000 shares for
value services
• Avoid funding primarily to pay old bills
• Sales pipeline important

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 Series B

• Transitional Funding
• Proven Business Model
– Acquired customers
– On path to profitability
• Management team/Board – complete
• Proven Technology
– Well-defined Product Road Map
– Marketing strategy set
• Market Conditions important
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 Series C

• Mezzanine typically
• Final private placement
– Qualified Invt. Banker involved
• $$ primarily for sales/marketing to financial
community
• Profitability (at least 3Qs)
• Market Conditions drive $$ raised
– Raise more if bad, less if good

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 Exit: IPO

• When does a startup start preparing for an Exit?

– Day One
• Pros
– Continuous liquidity options
– Employee incentives
– Respect/reputation
• Cons
– Legal/Financial constraints
– Unforgiving performance
– Shift to less patient investors
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 Exit: Acquisition

• Retention
• Integration Issues
• Accelerated Vesting
• Lock-up Period
• Employment Agreements

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Venture Capital…..
”Real World”

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 Fundamentals of the Deal

1. Disruptive Technology
2. Superior Management Team
3. Market need
4. Valuation
5. Term Sheet/Capital Structure
6. Financing
7. Exit

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 Entrepreneurial “Real World”

• Great Teams Win – or at least get to play longer in

the game
• Board and Management Team must be in sync
• Great VC’s know lots of people
• Great VC’s are tough but fair
• Great VC’s usually have some operational
experience
• Great VC’s are exposed to loads of new
technologies

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 What Entrepreneurs Should be
Demanding of Their Boards/VC’s

• Customer Contacts
• Recruiting Contacts
• Interviewing/Selecting Management Team
• Scars, Experience
– mistakes to avoid, and why
– methods that worked, and why

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 VC “Real World”

• Portfolio theory is a good thing

• Entrepreneurs don’t know what they don’t know
• The right person is over 50% of the answer
• Everybody should win financially
• Life is too short for paranoid egomaniacs
• You can be too early as well as too late
• Keeping up with markets and technologies is
extremely difficult

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 This Is A “People Game”

• Good teams turn mediocre into good

or better
• Bad teams turn outstanding into poor
• Team includes management team,
board, and VC’s

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What to Expect After
You Are Funded

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 Its All About Execution

• You set the expectations during the

funding process, it is now time to execute
• Leverage your board and their network
– Advise
– Connections
• Monthly board meetings

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 Get To The Next Inflection Point

• Corporate and departmental goals

– Annual
– Quarterly
– Monthly
• Progress against goals
– Accomplishments
– Work in progress
– Concerns

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Conclusion

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 Downside of working with VC’s

•High expectations to achieve liquidity (slow growth

not an option)
•Requirement to invest large amounts of money
•Greater amount of due diligence
•An active partner
•Money is more expensive than other sources

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 Upside of working with VC’s

•Strong domain knowledge (insight,

contacts)
•Company building experience
(strategic vision, recruiting, tactical
execution)
•Deep pockets (scale) and a network of
financing sources
•Validates business; gives it instant Confidential
 Top Ten Reasons for Rejections

1. Plan #350
2. I don’t know what you do after reading the
exec summary
3. Small market niche that is not growing
4. “No competition”
5. Non-disruptive Technology
6. Superficial financial projections
7. Thin margins
8. Inexperience management team
9. No references
10. Messy capital structure
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Thank You!

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 For The Entrepreneur

• Great time to start a company

– Most great companies created at start of business
cycles
– Economy and stock market starting to recover
• Teams much more experienced
– Talent availability
• Technology waves coming
– Bio-sensors, Nano, RFID, Wireless

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 For The Entrepreneur

• Major corporations cut R&D back dramatically

– Pipelines almost empty
• Rational expectations
– No billionaires in 18 month expectations
– Creating great companies is hard work
• Great companies will be created in more locations
– Communications
– Talent

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