Good read by Shiv Gaglani (@shivgaglani): Investing in Medical Devices: Interview with Venture Capitalist Dave Eichler of Psilos
Dave Eichler mentions a few key points that are worth keeping in mind:
1) Investors in the medical device space are increasingly looking for later-stage deals.
2) Liquidity events for medical device companies are most frequently driven by strategic acquirers, which now tend to wait until companies have meaningful revenue. This makes an FDA inflection point more of a midpoint than a close-to-the-end point.
3) This significantly alters how attractive a medical device company will look to a venture investor’s portfolio, and thus pre-money valuations, especially if the fund looks for returns on the standard 5-8 year cycle.
4) Lastly, he echoes a sentiment I have heard from a number of partners from east-coast life-science funds: “our customers (large hospitals/insurers) cannot afford to worry about tech that is simply better, which worked previously; the new priority is ‘cost effective care.'”
Ultimately, I hope this new paradigm does not adversely affect innovation, which is often cost-ineffective at first before it is able to evolve to produce cost savings (e.g., what we hope will be the case with Tesla).