Alternative Funding for MedTech Startups

Traditional funding route

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Building a medtech company from scratch takes capital … sometimes lots of it! Many times, the underlying technology needs to be further developed before studying the safety and efficacy of the technology for the targeted application. The need for product development, animal studies, clinical trials, regulatory filings, and building out the team can require millions of dollars before you even sell a single unit. The traditional route for funding medtech startups has been to bootstrap and possibly get funding from friends and family, bring in seed money from angels, and finally raise several rounds of venture capital (VC). While the need to raise angel and VC funding still exists for most medtech startups, there are several other early-stage funding options which compliment typical pre-seed financing.

Incubators and Accelerators

Healthcare Wildcatters
Healthcare Wildcatters healthcare accelerator in Dallas, Texas.

Over the last 20 years or so, the number of incubators and accelerators has grown substantially. These are entities which provide some combination of funding, in-kind contributions, advice, networking, and office and lab space. Many get involved at the early stages of the startup, working with the founding team to help them get to the next round of funding.

Some incubators and accelerators are affiliated with academic institutions or local government entities. Some large medical companies also have incubators, supporting both internal and external development. Here’s a list of some incubators and accelerators here in the United States that focus on medtech:

Many incubators and accelerators require a small equity stake in your startup as part of the agreement to work with them. This is particularly true if the entity is providing capital to your startup.

Crowdfunding

Redcrow
Redcrow – crowdfunding for healthcare innovation.

Another funding option that has developed over the last 10 years or so is crowdfunding. While Kickstarter (launched in 2009) is one of the largest and oldest crowdfunding platforms, its focus is on consumer-based products rather than medical devices. Crowdfunding for medical device development is still an emerging option for startups. Here are a few crowdfunding options for medtech entrepreneurs:

  • Redcrow – part of Alira Health
  • MedStartr – the first medtech crowdfunding platform
  • WeFunder – large platform with many medtech opportunities
  • SeedInvest – vetted startup investment opportunities
  • MicroVentures – equity crowdfunding, but also serves later stage investment
  • Fundable – equity crowdfunding, but also provide rewards-based campaigns

Keep in mind that these platforms provide crowdfunded investments, so you will need to give up some equity in your startup. Also, you should check how the investment round is configured when you use a crowfunding investment platform. It can be quite a challenge for a startup if you raise a round of financing from 100 small investments only to now have 100 shareholders to manage. WeFunder, for instance, pools all the investors into a single group so that just one entity will be added to your capitalization table.

Business Plan Competitions

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For startups that have recently launched, business plan competitions can be a route to take for early funding. Business plan competitions are well-suited for university spin-offs and startups led by students. Many of the large research universities here in the United States have business plan competitions. Some university-run competitions are only open to students and alumni; others are open to everyone but may require students to be on the founding team. Here is a list of some business plan competitions:

The format for these competitions typically consists of an online application, submission of your business plan (or some variation), and then invitation to pitch. You’ll get feedback going through this process, some even offer coaching. So, even if you don’t win, you will get expert advice on how to improve your plan and pitch. Most business plan competitions come around just once per year, so plan accordingly!

Grants

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Finally, there are many grants available to startups that provide funding without the need to give up any equity or to pay back. One of the major sources of grant funding for startups is the Small Business Innovation Research (SBIR) program. The SBIR program funds about 4,000 companies per year with a total of approximately $4 billion in funding. This is a significant fund that provides early stage support for entrepreneurs, inventors, and startups. Many of the major US federal agencies participate in the SBIR program including:

  • National Institutes of Health (NIH)
  • National Science Foundation (NSF)
  • Department of Defense (DOD)
  • National Aeronautics and Space Administration (NASA)
  • National Institute of Standards and Technology (NIST)
  • Department of Energy (DOE)
  • United States Department of Agriculture (USDA)

There are eligibility requirements to meet before your company can apply for SBIR grants, including:

  • must be a for-profit entity located in the US
  • have fewer than 500 employees
  • is owned and controlled by US citizens or permanent residents

Each agency runs their SBIR program differently, so you’ll need to get acquainted with the rules of the agency to which you plan to propose.

Conclusion

When launching your MedTech startup, you should plan to seek out multiple forms of funding, particularly in the early stages of your business. Submitting applications for funding from a variety of sources helps you hone your message to different stakeholders. Many alternative funding options take little to no equity or ownership in your startup, yet can still provide much needed insight into your business plan and overall company strategy. Going through the process of applying for different funding opportunities will also help prepare you for larger funding rounds that are typically provided by venture capitalists and corporate venture arms.

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