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Venture capitalists back away from "me, too" companies

Fri, 06/22/2012 - 2:29pm
Mass Device

Venture capitalists are looking to put their money into med-tech's next disruptive device maker, not the companies that follow on its heels.

WSGR conference panel

Venture capitalists have learned their lesson.

The years spent chasing incremental advances in medical device technology yielded disappointing returns, meaning today's funders are looking to put their money into something truly disruptive, according to panelists at yesterday's Wilson Sonsini Goodrich & Rosati Medical Device 2012 Conference.

Medical device industry stakeholders, including entrepreneurs and industry leaders, gathered in San Francisco's Financial District to discuss the challenges facing med-tech start-ups today. The dearth of funding was a common thread among the day's presentations.

A morning panel of 5 VC managers broke down the harsh truth about the state of med-tech funding and why the model might be changing.

"We've got trouble with a capital 'T' here in River City, in Silicon Valley, in southern California, in Boston and New York," Easton Capital Investment Group managing director John Friedman told a morning audience at the Palace Hotel. "We've sort of been building on the same foundation for a long time and it isn't working."

The problem, panelists said, is that VCs have for too long shied away from truly new technologies, relying instead on devices that might have an easier time overcoming regulatory hurdles thanks to similarities to existing products.

"We're flogging dead horses," Friedman said. "We've moved away from what's great about venture capital, which is innovation. We keep doing the same thing."

Funders have been putting more skin in devices that represented small improvements to existing technologies, assuming that the FDA path would be easier and cheaper and that the product would be an easy buy for a larger player that wants to cover its bases with what Friedman called "me, too" companies.

"We have funded, over the years, too much incremental stuff," Advanced Technology Ventures general partner Michael Carusi agreed. "The reality is the FDA doesn't care about incremental stuff, patients don't care about incremental stuff, strategics don't care about incremental stuff."

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