The fundraising landscape for early-stage medtech startups has evolved significantly in the post pandemic years. Traditional venture capital remains active, but investors are increasingly selective, favoring companies with clear regulatory pathways, differentiated technology, and strong clinical validation with de-risked milestones. Regardless there are still viable funding paths for medtech startups. So why do medtech founders feel that fundraising has recently become so difficult? The rise of social media perhaps?? Compare and Despair? Everyday a medtech founder can see posts about another startup raising millions of dollars. It can often feel like everyone else is raising money, and you are the only one struggling. Well, I can assure you that fundraising is equally difficult for everyone. As a Fractional CFO and active board member on several Life Science boards, I have been involved with companies that have successfully raised tens of millions each across A and B rounds in just the last few years.
Exits have shifted to the right. Many strategics are buying later and paying more for less risk. This means the startup exit value can be higher, but there is additional financing risk and heavier dilution to manage prior to exit. Even with later exits, structured buyouts are still happening with headline grabbing numbers but pay attention to the upfront to earnout ratios. Plan for this in your base case forecasts and manage to these expectations. Upsides are always nice surprises.
Even among my clients who have raised large amounts of money, it is not uncommon to go through 50, 60 or more interactions to get to that first yes. Embrace it. Learn from each encounter. Adjust your pitch and story as feedback begins to converge. Pay attention to and respect the investment criteria of the funds you pitch to and use each pitch as an opportunity to start a relationship. A no now can still become a yes at a later stage if managed professionally. I always recommend to my CEO’s after a pitch to make a simple ask particularly if they feel that the fund will not make an investment at this stage. Do you mind if we send you occasional updates on our progress no more than a couple of times a year? Can’t say anyone has ever said no, and now you have a mechanism to start to build trust in what you can accomplish with money and time. Try not to take the no’s personally.
Investors want more regulatory certainty. The good news here is that FDA Q-Subs are fairly easy and inexpensive to begin your FDA relationship and get documented FDA feedback helping to clarify regulatory positions for potential investors. Recent concerns from some clients is that the team at FDA they are talking to keeps changing so there is always a re-education period. Breakthrough Designation can help with this, but FDA typically wants to see a little data before considering this pathway. Just remember, what FDA says is binding on you, but not on them. Seek regulatory clarity as early as possible to bring credibility to your financial models.
I’ve been amazed at what is now expected in A rounds for medtech startups. Most institutional money is looking for clinical data at the A round. This might be a result of longer and larger non priced rounds and never ending SAFE’s, but it means that founding teams need to be laser focused on de-risking milestones with seed round funds. Prototypes and large animal data are not always enough. Even small OUS FIM’s are a nice validated data point for valuation inflection and company de-risking to help make the A round faster and more successful. Look for creative ways to reach these milestones with seed funding.
Investment dollars are heavily biased towards AI and robotics in medtech. Lately I’ve been hearing this a lot, and there is some truth to it. So what to do? There’s nothing wrong with adding a little “AI enabled product development” to help your pitch if it’s relevant, but understand the market you are going after. Highlight its value for patients, clinicians and or the healthcare system. Focus on the critical elements of telling your story. Where is the unmet need and what problem are you solving? How does this fit into the current landscape of treatment options? Always consider getting early clinician feedback both on the problem you are trying to solve and also on the actual proposed solution. Is there a disruption to the clinical workflow? What data do you need to prove that your technology solves the problem? What will that cost and how long will it take? Can you articulate this into fundable milestones?
An old adage still rings true. You begin raising money before you actually need the money. What does this mean in practice? Build your network. Cultivate relationships with funds and industry folks before you need something from them. This means spending time at industry conferences and scientific congresses as just a participant without a funding agenda. A great way to think about this is can you bring some value to them before you need them to bring some value to you. Be realistic about your stage of development and what sources of funds you should be going after at each stage. Map it out. If you need help, bring on a Fractional CFO. Being a medtech CEO is no easy feat. Remember your purpose and enjoy the ride no matter the outcome!