Investing in medical technology startups is always challenging. But it gets even more problematic when ploughing your money into medical devices. Just look at what happened at Theranos. The CEO wound up in prison for 10 years for spreading false claims.
Even so, it is clearly an industry of the future. Medical technology continues to miniaturize and sensors are getting better, making more possible than ever before. So what should you do as an investor to ensure medical device startups are kosher and that you’ll make a decent return?
Probe The Team
The first step is to probe the team. You’ll want to learn more about the key founders and personnel to find out who they are and what they could potentially achieve together.
Many founders look good on paper (that’s why they get into that position in the first place). But when it comes to actually generating the results, they can be disappointing. Look for evidence that they have driven projects forward in the past and know what it takes to get results.
Dig Into The Technology
You’ll also want to dig into the technology to find out whether it works. Theranos claimed that a simple blood test would reveal the presence of disease at ultra-low concentrations but that turned out to be completely false.
Therefore, check the veracity of what people are saying. Speak to experts outside of the company about what it is possible to achieve with a magnetic sensor switch or data analysis component. Find out what other experts in the industry believe is possible and whether the device will ever see the light of day.
If the technology required is still several years away, take that into account when investing. Be skeptical, regardless of how convincing the firm seems.
Look At The Underlying Financials
Even if the technology is feasible, you’ll also want to take a look at the underlying financials. The business might be scientifically well-positioned, but the revenue potential could be small.
For example, suppose a company develops a diabetes monitor that doesn’t require piercing the skin that costs £50,000. That might be a good price point for a hospital, but it won’t wash with most consumers looking for something a hundred or even a thousand times less expensive.
Also, consider realistic projected timelines. Companies often believe they can get more done in a given time frame than is realistic, preventing them from thriving when it counts the most, and leading to other funding drying up.
Ask If The Problem Needs Solving
Finally, you’ll want to ask whether the problem needs solving. While technology can do a lot of things, businesses don’t apply it successfully everywhere. There are all sorts of devices manufacturers could make, but only a subset of those will prove useful.
Take a look at the core problem that the startup wants to fix. Is it a real one? If it’s not, look to invest your hard-earned capital elsewhere.
So, there you have it: some of the ways to avoid crashing and burning when making risky medical device investments.