How a Biomed Tech Company Raised $35.7 Million

When Charu Ramanathan founded CardioInsight in 2005, she knew she had a technology on her hands with the potential to help save people's lives. It provided a minimally invasive way to create a 3D map of the heart's electrical activity, one that could help in the diagnosis and treatment of heart disease. But with any technology in the biomedical space, bringing it to market would require a long and painstaking process, one involving significant research, clinical testing, regulatory approval, and most of all – funding.

The field of biomedical technology is a risky one for investors to enter, involving intensive R&D, thorough clinical testing, complicated regulatory approval and a long lag-time before the product is ready to go to market. "The regulatory requirements are significant," says Kevin Mendelsohn, vice president of finance and corporate development at CardioInsight. "That regulatory hurdle requires much more capital and time than say a software company or a healthcare IT company. That’s where a lot of the money goes."

Ramanathan and her founding partner were researchers, not business people, but over the course of six years, they still managed to raise $35.7 million from government funding, institutional supporters, venture capitalists, industry supporters and angel investors -- all before bringing the product to market in Europe in 2012 with a limited launch. Getting this funding meant a lot of planning and forward thinking on the part of Ramanathan and everyone involved. Here are five key factors to keep in mind when raising funding in the field of biomedical technology.

It's not enough to show your technology works. It has to be a game-changer. In CardioInsight's case, the company offered a new kind of technology that was far less invasive than what was currently available. More than any other field, biomedical technology requires that kind of innovation since want unique opportunities that both minimize risk and maximize return. "Products that have marginal differences from solutions in the marketplace have trouble getting financing," says Mark Low, managing director of the Global Cardiovascular Technology Center, which helps provide funding and resources to early-stage cardiovascular technologies.

Tap into your region’s resources. The company’s technology was developed at Case Western Reserve University and CardioInsight’s first location was in the University’s hospital's health system, helping to significantly reduce costs. "That gave them a headquarters that was much more cost effective than if they were to go out and try to sign a lease at commercial building," says Joseph Jankowski, chief innovation officer at Case Western.

Additionally, CardioInsight first raised $2 million from regional institutions including $250,000 from Case Western's technology transfer program, matched both by the early-stage venture development organization Jumpstart and the venture capital fund Draper Triangle Ventures. Tapping into the university and region's resources gave CardioInsight the initial validation necessary to attract a VC firm. 

Figure out how to show the greatest value early on.CardioInsight had clear milestones to meet in order to show investors down the line that the technology had the brainpower and leadership behind it to succeed. "With all venture-backed companies the greatest challenge remains how to get the most value," says Mendelsohn. In the case of CardioInsight, that meant proving the technology worked in the clinical setting, being able to generate reproducible data, showing it could be applied to various clinical applications that addressed an unmet need, and proving that it could generate a significant financial benefit.

Know your exit strategy. If a company is still relying on investment capital after seven years and more than $30 million of VC funding, it must have a plan for coming to market, says Jankowski. "That’s another fear for investors," he says. "How much money and time do you need to get to an exit so that I can get my money back?" For CardioInsight, Ramanathan says the technology will go to market in the U.S. in the next 18 months, in 2015, bringing the technology's time to market in the U.S. to less than ten years. Most investors are looking for a return in no more than eight to ten years. "If you say to a venture fund, 'I could get you ten times your money but it's going to take 20 years,' they are going to pass," says Jankowski.

Be prepared to kiss a lot of frogs. The first $2 million that CardioInsight raised primarily from state funding helped the company raise the next $32 million. When you're dealing with such significant amounts of capital, investors will be particularly cautious and picky when it comes to making decisions. "One VC's frog is another VCs prince," says Paul Cohn, managing director for Fort Washington Capital Partners, which manages a fund responsible for providing capital to CardioInsight. "You've got to talk to a number of venture capital funds to find the one that’s a right fit."

Often that takes a level of confidence and persistence unmatched in most other industries. It means believing wholeheartedly in your technology, because others often won't. "I felt I truly should rely on myself," says Ramanathan. "At the end of the day, it's the passion that drives the business forward."

Correction: An earlier version of this article incorrectly stated the name of firm Fort Washington Capital Partners.

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Things to Look for in a Venture Capitalist

What really separates venture capitalists from the rest of us?

I’ve been dealing with VCs for a long time, including my time as one of them. I’ve lost count of the number of meetings I’ve had and the thousands of emails (and dollars) I’ve exchanged with them over the years.

Last week someone asked me what I think about VCs. She wanted to know if I thought they were really smart, just lucky or absolutely clueless. Here’s what I told her:

They know what they know, and not much else. Most of the VCs I’ve worked with would fail an undergraduate exam on emerging technologies, regardless of how amazingly articulate and affable they might be. I remember VCs I worked with in the late 1990s that had absolutely no clue about how the internet actually worked or any insight at all about the technology that powered the web, or the business models that the web enabled. Since most VCs come from banking, finance, mergers, acquisitions and related industries, they really don’t understand much about retail, insurance, manufacturing or aerospace, among other industries.

So what do they know? Deal terms, valuation, investor rights. All that stuff. They’re really good at modifying deal terms. They’re good at employment agreements. They understand cap tables even when they’re drunk, and can dissect -- and challenge -- revenue projections in their sleep.

It's not who you know. It's who they know. Most of the success that VCs enjoy is due to their relationships. Who they invest with, the entrepreneurs they back and the lawyers and investment bankers they hire explain much more about their success than their technical knowledge, experience or natural luck. If you look at the most successful VCs, you will almost always see repeat performers in their portfolios. They go to the same wells over and over again. Most of their success is the result of who they know, not what they know or do.

A VC always wins. When VCs fail, they still get huge salaries and management fees, fly private jets and take elaborate vacations disguised as deal flow expeditions. When their investments are successful, they get huge salaries and management fees, fly private jets, take elaborate vacations disguised as deal flow expeditions and get “carried interest,” a percent of the profits from their investments. The traditional 80/20 split (after huge salaries and fees, of course) makes a lot of “lucky” VCs very, very rich.

VCs get paid really well regardless of how well they perform (with other people’s money). Many of them -- and maybe even you -- will say that if a fund fails to return meaningful returns to its investors, VCs will have a hard time raising another fund. But the facts suggest otherwise. Actually, this all sounds pretty damn smart to me. In fact, the VC business model is absolutely brilliant -- for VCs.

If you’re an entrepreneur looking for an investment, or an investor looking to make some money, what should you look for in a VCs? Here are five rank-ordered areas to assess:

1. Relationships. Who does the VC know, invest, work, travel and win with? Look for relationship pedigrees that include major law firms, successful entrepreneurial testimonials and happy institutional investors.

2. Performance. While VCs win whether they succeed or fail, you need to know what the empirical record actually shows, not lore or hearsay, but actual results, like the internal rate of return of each and every fund they’ve raised and the carried interest that investors actually received. Take no prisoners here: this is the most important due diligence you will ever do.

3. Advocacy. Assess the firm’s orientation -- is it an entrepreneur-friendly firm or a firm that’s focused primarily on its investors? There are strengths and weaknesses with each bias, but remember that entrepreneur-friendly firms have better deal flow than firms that have investor biases.

4. Knowledge. While many VCs are not rocket scientists, they should also know enough about themselves to know what they don’t know. There is no more deadly combination than arrogance and stupidity -- if you see this combination, run for the hills.

5. Professional integrity. It’s important to calibrate the integrity and ethics that define your VC firm. If you’re wondering why “professional integrity” is last on my rank-ordered list, it’s not that professional integrity isn’t important, it’s just that the other four areas are more important. This will tell you everything you really need to know about VCs.

Good “luck.”

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Things I Learned Growing $2,000 Into a Multi-Million Dollar Business

In Spring, 2008, I spent my exchange semester studying in Osaka, Japan. Three of my American classmates were looking for summer internships. As I had spent my previous semester in Shanghai making friends with interns who worked at Heineken and the Beijing Olympics, I managed to help my classmates by connecting them with companies in China.

A few months later, I graduated from Jonkoping International Business School in Sweden. I was 23 years old, in the diamond industry and decided to move to the Thailand. Paradise on earth! One day I looked at my bank account and saw $1,998. I recalled my time in Japan and thought how easy it would be if you could just apply up for an internship and go to China with your housing, visa and friends organized.

My parents told me I had to burn all my bridges to truly succeed. I bought a laptop and a one-way ticket to China. I burned all my bridges and have never looked back.  

Five years and four global offices later, I’m running a multi-million dollar business. My journey has taught me vital lessons for an entrepreneur to live by.

1. Learn foreign languages. I speak seven languages, a tremendous advantage compared to our competitors. It is much easier to understand foreign markets and cultures. I communicate with local vendors and business partners without any problems. People appreciate and respect you when, literally, speak their language. Thanks to my language skills, I've developed relationships with important business people who others could not. Join a language course today. It’ll be worth your time and money.

2. Treat everyone with respect.  Not everybody in the global business world is doing business the same way as you. Be open-minded to other cultures and “when in Rome, do as the Romans do.”  Too many entrepreneurs put on an act when they meet important business people and treat everyone else with less respect. Every single contact knows another contact, so treat a CEO the same way as a waiter. I see them both as potentially important contacts. People judge actions more than words. 

3. Move fast. A start-up has to move as fast as a mouse or get crushed by an elephant. If you come up with an idea today, act on it today. Don’t wait. Every day somebody is waking up with the sole purpose of running you out of business. Procrastination is your enemy.

4. Love what you do. I meet so many people, from investment bankers to marketers, who don’t enjoy what they are doing. You can never be truly great unless you really love what you do. Every day, wake up with a smile and enjoy every second. Don’t live a wasted life. Love every second and, if you don’t, do something else.

5. Be 24/7. Opportunities are lost while dining with your friends or out in a bar. Once, I was invited for a live interview on Fox-TV business news but, as it took me 12 hours to respond, they canceled on me. My iPhone is on 24 hours a day, 7 days a week. My colleagues know they can reach me at 5 am as well as at 11 pm. Be connected and keep your phone on 24/7. Answer emails in real-time. That’s the only way to get an edge running a fast growing start-up in different time zones.

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Mistakes To Avoid When Pitching Your Business Idea To Investors

The growth of entrepreneurship in India, coupled with a growing economy conducive to innovation and technology advancement, has paved the path for an entrepreneurial boom in the country. One of the primary reasons why a lot of people shied away from the less travelled road of entrepreneurship was the lack of financial resources. But that is not the case anymore. A large network of angel investors, venture capitalists and independent funds are now ready to invest into ideas that have the ability to make money.

Let us have a close look at how it works. You set up a start-up, build a product and start selling to customers, only to find out that you need more money to run the show. You need more human capital; costs are soaring even more than you expected or you are simply running out of money. So what should you do next? 'Exiting' at this point will hurt you and your aspirations badly. So the only alternative is to arrange for funds. But where do you get the money from? Angel investors, venture capitalists, seed funds and other operatives are there. But the question is - how do you pitch to them?

I have been an advisor and investor at various early-stage start-ups and I have noticed a common syndrome everywhere. Entrepreneurs commit some common mistakes while pitching their business ideas to investors. For an entrepreneur, there are various factors that lead to the success of a venture - profits, growth, social media presence, partnerships, etc. But for an investor, there is just one pointer that indicates success - the return on investment or ROI. Will they be able to recoup their investments? How long will it take? Is there an opportunity to exit?

As an entrepreneur, you have to deal with those queries and more. So try and avoid these 6 initial pitfalls while pitching your business idea to an investor.

1. Talking too much about potential
Every business has potential, but that is not a differentiating factor. You must aim to be disruptive and show how you can grow exponentially. Those are the key factors that the investors look for. But at times, passion may cloud the perspective. Instead of focusing on the opportunity size, focus on developing a competitive advantage. This will give you an edge over others with similar ideas that are lost in the sea of potential.

2. Facts and numbers don't sell alone, stories do.
I have noticed a large number of people who correlate statistics to success. Ever wondered why some movies and books gross billions of dollars? It's simply because people connect to stories. So keep the presentations focused on realism. If you are selling a health product for children, don't start the discussion with child obesity rates in India. Instead, say something like, "Imagine if your loved one were to face health issues at a young age..." Always establish a sense of familiarity and trust.

3. Idolising your business plan
I have seen too many plans falling through just because the entrepreneur was not willing to change or tweak his/her idea. When I made my first pitch to an investor, competing against 50 other business ideas, he didn't like what I had to say. He countered me with a changed business model, which basically threw junk at my plan. But in the long run, I saw that being flexible and having an open mind to learn things can help you bring more moolah and success.

4. Lack of focus
In Bangalore, I have noticed that far too many people are starting up. That's a good thing, but also a bad thing. People creating products and services are in search of a market instead of designing something to solve market requirements. After all, it is an economic fundamental - demand has to be met with supply. Instead of second-guessing, you should go out there and understand your potential market. Talk to customers, engage with them and find out what needs/requirements have to be solved.

5. Optimism glut
Being optimistic is a key trait of an entrepreneur. However, too much of optimism can kill your realistic views. Being over-optimistic about sales, adoption rates and development can leave you in shackles. This needless optimism in financial forecasts could underestimate the case and hinder you from achieving key performance milestones that will help the business raise capital and surpass break-even.

6. Lack of humility 
The golden rule every entrepreneur must swear by is that you are not the smartest guy in the room. So accept advice; be grateful for the investors' time and remain gracious even if they decline to fund your project. The entrepreneurial circles are small in India. If you burn one bridge now, the rest of them could fall like dominoes sooner or later.

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Crowdfunding Your Business

The JOBS Act changes are heralding a new era of crowdfunding, in which supporters of a company or project can become more than just backers - they can become owners. The new capital raising opportunities under the Act are game-changers for both investors and entrepreneurs.

But while "equity crowdfunding" differs significantly from traditional rewards- and donation-based crowdfunding, one aspect is the same for both: the fundamental importance of the project owner's existing network.

In order for any 'crowd' fundraising campaign - rewards and equity alike - to succeed, the head of the project must motivate his or her network and drive support and investments from friends, family, and colleagues.

Mis-CROWD-ceptions

Rewards-based crowdfunding has become a mainstream concept thanks to the popularity of platforms like Kickstarter and Indiegogo. But ask someone on the street about crowdfunding and he or she is likely to recall the biggest, boldest campaigns to date - the ones that garnered widespread public interest and tons of funding: the Pebble Smartwatch project that raised $10 million; the Veronica Mars film that surpassed its $2 million funding goal in a mere 10 hours and went on to raise more than $5.7 million.

The high-profile, viral nature of those and other major campaigns has led some outsiders to view crowdfunding as a means for easy money... and that couldn't be further from the truth.

"I think that's the misconception going into crowdfunding, that you think the crowd is going to be on your side," says Vann Alexandra Daly, a filmmaker and consultant who's been called the 'crowdsorceress' for her expertise managing crowdfunding campaigns.

Anonymous donations from strangers may be how Pebble and Veronica Mars raised millions, but the truth is that those boldface projects are the exception rather than the rule. The average successful rewards crowdfunding campaign, according to data published in the Wall Street Journal, raises less than $10,000. And successful campaigners (like Daly and others) point out that motivating their networks to support a crowdfunding project is key to that project's success.

Consider U-Doodle, a Miami-based non-profit that successfully raised $10,000 on Indiegogo in December 2013.

"I'd say we knew or interacted with 80 percent of our funders," says Jordan Magid, Co-Founder of U-Doodle. "And getting contributions from our closest friends and colleagues was critical to gaining momentum."

That's the key - getting members of your network that you already know to contribute, and turning newcomers into members of your network through one-to-one communication and relationship building. And that key unlocks both rewards crowdfunding campaigns and equity crowdfunding offerings.

General Solicitation Lessons

When considering conducting a potential General Solicitation equity offering to accredited investors - presently the only option for an equity crowdfunding campaign - many entrepreneurs expect the public, online nature of the process to do the work of fundraising for them.

Of course, the ability to publicly advertise investment opportunities significantly increases the potential for such offerings to 'go viral' and attract investors the issuer did not previously know. We encourage every issuer to utilize their online marketing options as much as possible and incorporate PR and social media into the fundraising strategy.

But the concept of knowing - or getting to know - '80 percent' of your funders still applies. We recommend that issuers strategize to raise 40-50 percent of their funds from 1st degree contacts (friends, family, close colleagues) and 30-40 percent from 2nd degree contacts (friends-of-friends and acquaintances). That leaves 20-30 percent to come from broader connections and the crowd.

Importantly, reaching and converting investors in each tier of your network involves a lot of campaigning... and online marketing isn't enough. To fund your campaign successfully, you'll need to conduct personalized outreach to all interested investors, send frequent updates to your extended networks, and do lots of in-person networking.

That's another thing that applies to both rewards and equity crowdfunding: it's hard work.

"It's a full-time job," says Daly of crowdfunding. "Every day of the campaign is important."

Apply to raise funds for your business through rewards or equity crowdfunding! Go to http://www.EarlyShares.com.

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