Last week in Medcity News, Tiffany Wilson Karp, the executive director of the Global Center for Medical Innovation, discussed the changing landscape for early stage funding in the medical device space, including that “[v]enture capital is essentially out of the early-stage medtech investing business” and that she is “seeing an increased interest from corporate venture capital (large medical device companies, for example) which face gaps in their innovation pipelines in the future and may be open to creative ways to engage with early-stage companies who are working on problems they want to address or product pipelines they want to fill.”
As Karp observes, a partnership between a start-up and corporate venture arm can be ideal:
“Large multinational medical device companies can also play a valuable role early on, and we are seeing the large companies wanting to develop relationships and perhaps make investments early. I think the great thing about working with a large-device company is, if you ultimately plan to be acquired, your due diligence package should be in good shape if you have guidance and input from industry.”
There are, however, potential pitfalls to such a relationship. Unfortunately, it is not uncommon for larger corporations to invest in promising healthcare companies, only to take advantage of their position by developing the underlying technology themselves or dispensing with the project so as to avoid cannibalizing sales. At Lake Whillans, we have worked with several early stage companies that have not been well equipped to protect their business in a situation in which a larger multinational company sought to misappropriate an innovation for itself (or attempted to derail the business in the hopes of eliminating an emerging competitor).
As I discussed a couple weeks ago, there is, however, a viable path to defend an early stage business and the value that it has created should a relationship go sideways. Distressed venture finance and litigation funding are relatively new financial products that can help otherwise vulnerable businesses protect themselves. Companies, such as Lake Whillans, that provide these products can help businesses threatened by the unscrupulous actions of a partner or competitor leading a fresh capital raise, providing non-recourse funding for a litigation, and lending our expertise and guidance to help navigate what can otherwise be a difficult period for a business.