A laundry list of red flags for startups in medical technology. Band-aid solutions won't help here.
Rapidly growing market
At the same time, medtech is a rapidly growing market, currently valued at 5 billion euros in the Netherlands. Rabobank expects that in the coming years, 10 to 15% of healthcare will shift from the waiting room to the living room, further stimulating the demand for medtech solutions. The potential is therefore unprecedented. Scaling is vital in this context. It's no coincidence that in 2023, the regional development agencies made agreements with Medical Alley in Minnesota to work together on further development, growth, and expansion of the Dutch medtech sector.
Dutch medtech startups struggle with the complex European market introduction due to fragmented reimbursement structures, strict MDR regulations, and limited financing opportunities compared to the USA. In contrast to the streamlined FDA procedure, they must navigate various certification and reimbursement processes per country. These challenges not only delay time-to-market but also significantly increase development costs. Ultimately, it is the European patients who suffer, as they receive access to potentially life-improving innovations later due to the preference for market introduction in the USA. Ultimately, European regulations will need to consider how to stimulate innovation in the medtech sector without compromising safety.
Unmet need
At BOM, we recognize the challenges within the medtech sector. As the most active investor in startups, we have a portfolio of 15 medtech companies. BOM often invests in an early stage and achieves approximately a 3.5 factor in co-investments with its investments. In small, but also larger tickets. In recent years, we have invested in portfolio companies such as STENTiT, Vivart-X, and Salvia BioElectronics, and are involved in scale-ups like Sirius Medical and Samantree Medical. Despite the challenges, BOM remains committed to investing in medtech startups that address a clear clinical unmet need and have a strong connection to our region.
At BOM, we have an extensive national and international network with investors we know well and with whom we have frequently collaborated in various ventures. We use this network to find promising companies by regularly discussing cases together and looking at potential co-financing.
Our investment strategy is focused and selective. While venture capital in the early stage and for investments over 5 million is limited, you can increase the chance of securing funding if the company targets a significant unmet need and aims to bring a well-protected technology to market. Validation of the problem, the customer, and the market is always a prominent part of the guidance we offer to startup teams. We provide guidance both individually and through our programs in which multiple companies participate. The guidance is provided by our venture developers who are well-versed in the industry and effectively help entrepreneurs build an investable company with a large network and knowledge of building businesses.
3 lessons learned
When sufficient attention is given to market dynamics, added value, and the ultimate revenue model, the opportunity for funding is indeed present. Based on our experience in investing and guiding medtech startups, we distinguish 3 lessons learned:
Target a large market with a clinical unmet need and well-protected technology and solution
Obtaining grants offers opportunities, but there is room for improvement in the selection process of promising and unique cases. A more careful validation process at an earlier stage can ensure that we develop more well-founded medtech start-ups. It is important to first focus on validation before investing in technical development, with particular attention to market dynamics, clinical unmet needs, and reimbursements. Additionally, it is good to emphasize that the first phase of validation can be very cost-effective. With our venture building programs, we help entrepreneurs to conduct this validation purposefully.
Develop a sound technical, clinical, regulatory, and commercial strategy
Medtech start-ups often operate in a niche. The playing field is many times more complex than that of regular tech startups and is more comparable to that of pharma. Therefore, bring in experience, serial entrepreneurs with a large network who know the market dynamics. Startup founders often have a wealth of technological knowledge but do not have the knowledge of developing a venture to the market. Therefore, connect with experienced medtech entrepreneurs. Make them part of the team and also pay attention to this expertise in your board. Thanks to our extensive network, BOM can play a role in finding and involving these experts.
Start with the exit in mind: develop a good strategy for implementation, reimbursement, and exit
Engage early with notified bodies and agencies responsible for approval and reimbursements to assess whether your innovation meets current guidelines and include this information in the development process. Explore with health insurers and hospitals how your innovation can be implemented and paid for in the future. Start early with approaching corporates to position your innovation in their portfolio. These parties are not only crucial for your exit strategy and that of your investors but can also scale your product, maximizing the intended impact. As an investor, we are focused on making an impact, and we stand side by side with entrepreneurs to realize an exit.
Want to know more?
Investing in medtech start-ups requires experience and knowledge of the market and the potential of technology. This also means that the internal organization of the investor must be well-organized. At BOM, we often step in at an early stage and are involved from the very beginning in building the start-up. Our network of funds often paves the way for co-investments and follow-up investments. Additionally, we possess specialized knowledge that reduces the risks of negative recommendations for admission and reimbursement. It strengthens our belief that with a targeted deployment of resources, more is possible than we sometimes think.