The Road to MedTech Innovation: Business Aspects and Funding Opportunities
Even though many physician inventors might not be interested in the business and revenue aspects of their invention, innovators should understand the crucial importance of business plausibility for the survival of their technology. Physicians are not expected to be business savvy in order to invent, but they can increase their chances of success and avoid wasting precious time and resources by learning to perform basic business analysis of the new technology. Inventors can also include the business analysis in their value proposition to investors to increase their chances of getting funded. In this article, we will briefly discuss the aspects of business evaluation and the potential sources of funding for new medical technologies.
When it comes to MedTech development, health care professionals have the advantage of dealing with the unmet needs of their field of practice on daily basis, with a depth of understanding of the medical problems that is difficult to achieve by other professionals. However, physicians should always perform a formal market search and voice of the customer survey to avoid bias towards their own ideas, and to gain a better understanding of what is available in the market.
Market size analysis should include the total market size, addressable market size, and expected market share, which can all be performed via a web search. Market growth is another important factor that investors might want to know about, which reflect the growing demand in the field of invention, and the expected market size by the time the invention is ready for marketing. Voice of the customer should be sought by surveying expected end users for their feedback at different stages of development to verify the need for the technology, its uses, any additional desirable features, and to improve "usability" and acceptance by future market users.
Some inventors may decide to license their ideas at an early stage to avoid going through the process of fund raising and the other aspects of project management. Although this might look appealing to inventors whose only concern is to bring their ideas to the market and could, in fact, be the easiest path to success in many situations, this approach has its own disadvantages. Early licensing usually involves a lucrative agreement to the licensee to overcome the risks encountered in the early stages of the project, which will result in a small profit margin left for the institution and inventors. In addition, the inventors might lose their ability to be involved in the scientific and decision-making processes during the advanced phases of development.
Early-stage medical technologies are considered high risk, and therefore unlikely to receive large scale funding. Inventors should look for small funding opportunities that support early-stage technologies in order to "de-risk" their projects. These opportunities are typically provided by research institutions, professional societies, philanthropy, and state and federal agencies. A higher level of funding is typically required to build a human-grade technology, plan human studies, and seek regulatory approvals. Forming a commercial entity (a limited liability company, LLC, or a corporate) is usually required before seeking higher levels of funding, which are provided by investors and federal agencies.
Federal funding has the advantage of being non-diluted. In other words, the inventors do not lose equity to the funding agency and are not expected to give away shares in exchange for the money. However, the processes of funding by these agencies are lengthy, require writing complex grant proposals, and have lower chances of success. Federal funding opportunities for small businesses are offered through agencies like the National Institutes of Health and include the Small Business Innovation Research Grant, and the Small Business Technology Transfer Grant.1 The Department of Defense also offers multiple funding opportunities to support new technologies and small businesses. 2
Seeking investors' funding is a faster process that involves pitching the idea to the investors and agree on the terms of collaboration if the investors are interested. There are two main types of investor groups; angel groups, which is a group of investors who invest relatively small amount of fund in early-stage startups, and venture capitalists' groups, which typically possess sizable amount of money invested in more established companies. Other private sources of funding include personal investors (family, friends, etc.), industrial investors, and bank loans. Using a businessperson with expertise in fund raising, and an attorney to formulate the documents defining the relationship between the different parties is paramount when the project is ready to receive funds from private investors.
- NIH SEED. Available at https://seed.nih.gov/small-business-funding/small-business-program-basics/understanding-sbir-sttr. Accessed on 8/29/22.
- Office of Small Business Program. Available at https://business.defense.gov/. Accessed on 8/30/22.
This article was authored by Ahmed M. A. Selim, MD, FACC, an FIT at New York University. Twitter: @DrAhmed_Selim.
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