Imagine if you could have someone on your team that could tell you exactly what an investor, or team of investors, were looking for? Instead of going in and pitching a bland generic deck, you were able to pinpoint your message to the precise interests and desires of those on the other side of the boardroom table?
On this episode of MedTech Gurus, we sat down with Ken Hubbard, the Co-Founder and Chairman of CapStack West, for a chat about angel investors, a big mistake that companies make when pitching to potential investors, and advice on entrepreneurs in the MedTech space.
Ken and his team at CapStack West looked at the MedTech world and saw that there was a massive gap between angel investors & what entrepreneurs were creating. After discovering that only 5% of the companies presented ended up with investments, he decided that it didn't’ make any sense, and he was going to help people looking to make a splash in the MedTech industry get more of their companies invested in.
What the average CEO doesn’t know about raising money?
Obviously, the CEO is an intelligent individual. They’re leading the company, navigating the waters of one of the trickier industries out there, but they may be overlooking one consistent mistake that is all too common in presenting a company to a board of investors.
In every pitch deck, there is a “team slide.” In the MedTech world, this is a slide outlining the individuals who invented the device, the people running the company (often the same ones that invented the device,) and then the board of advisors.
Where most companies make a mistake is listing every advisor on this page, even the ones who don't’ have any financial stake in the company. Most investors are going to want to know that the board of advisors have some financial skin in the game, so to speak. The advisors have known the CEO a lot longer than the investors, and if those advisors haven’t put any money into the company, the investor is going to start asking questions. What are they not being told? Why wouldn’t the folks on the advisory board believe in this enough to put their money where their mouth is, so to speak?
If the advisors aren’t putting money into the company, doesn't’ list them as advisors during your pitch. They can be mentors, they can be supporters, but not advisors. On the flip side, if your advisors are investing in the company, make sure and list them. There may be some situations where the folks on your board cannot legally own a stake in your company, and if so, this should be disclosed.
It’s a competitive world out there. There are far more companies that need capital than there are people to help inject that capital. A recent client of CapStack West, rather than putting forth the investment for training on how to prepare a presentation, decided to crowdfund first. Ken and the team acknowledged this and wanted the client to let them know how it went, and if they needed anything.
Six months went buy, and the client called, saying they had raised $2.4M against a projected ask of $500,000. Upon further explanation, it was revealed that they got promises of $2.4M, but after 6 months of chasing, they only closed just over $100,000.
That is an awful lot of time and effort to talk to all those investors, for very little return. If this particular CEO had been a little more flexible, adapting and allowing guidance from experts, they likely would have been able to close well above their ask.
On the flip side, another client came in and was adaptable and flexible and willing to learn. As they worked together, this CEO, who came from a product & sales background, began thinking and talking like a CEO instead of a salesman. A salesman will tell you how great the product is, whereas a CEO will tell you how you’re going to make money from your investment.
Less than 2 years later, and that company is on path to do over $10M in sales this year.
Build a Plan around Valuation
The MedTech market is heavily regulated, and built upon a very long cycle. By the time a device gets to market, it may have already been sold once or twice. Instead of one large round of investments, build a plan around valuation. Launch a round of investments knowing that another round will come later.
A lot of companies know before they even present that they're not going to be the ones to get a product to market. They know the product will be sold prior to its market debut. If you can go into a meeting speaking the language of valuation, you’re far more likely to get a positive response from an investor. If you go in saying “we have $10M valuation which includes our IP, presales, where the product is to date, and after successful clinicals, it will be valued at X,” how much more attractive is that to an investor?
There is an incredibly large network of a new type of investor out there, one that wants to change the world. These investors are very well positioned to do big things for the MedTech industry, so get out there and look for these World Changers.
If you’re interested in learning more about CapStack West, or joining the CapStack network, head to capstackwest.com, and sign up for a free trial. You can also find Ken on LinkedIn, or email him at firstname.lastname@example.org.
This post is based on an interview with Ken Hubbard from CapStack West. To hear this episode, and many more like it, you can subscribe to MedTech Gurus.
If you don’t use iTunes, you can listen to every episode here.
Tom is a 35 year veteran in the Med Tech space. Having personally worked with dozens of new technologies. It is Tom's passion to enhance patient outcome by bringing new concepts and technologies that will help clinical performance.