Kirk Zeller , DBA

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"Financing and Beyond: The Role of Venture Capital in Silicon Valley Based Medical Device Companies"

The primary research consisted of 18 semi-structured interviews and 18 structured surveys which included CEOs of Silicon Valley based entrepreneurial medical device companies, VC firms focused on medical device investing, and third parties which assist in the financing of medical device companies. The research was designed to understand the three perspectives on the financing environment, VC firm identification and selection, VC investment criteria, the financing process, and perceptions of VC value add specific to the Silicon Valley medical device industry. This research identified a number of areas of disconnect between the three perspectives, opportunities for further VC value add, unique attributes of the SV medical device community, and unique attributes and trends of medical device VC investing. The key findings are summarized below:

The research identified a number of areas of disconnect between the VC and CEO perspectives:

*VCs felt they were actively involved in portfolio companies, while CEOs expected more active involvement.

*VCs felt that they served an active consultative role assisting with strategy and performance monitoring. CEOs, however, felt VC value add was closely related to traditional financing roles.

*VCs believed due diligence was not taking any more time than in previous years while CEOs believe it took much longer than past years.

*Market size was the most valued investment criteria by VCs, while CEOs felt that the management team was the most valued investment criteria.

A number of factors specific to the Silicon Valley medical device community were identified:

*There was a concentration of early stage VC firms in Silicon Valley focused on medical device investing which seems to have resulted in less activity by angel investors and incubators.

*There was a strong preference among Silicon Valley based medical companies for VC firms with operational partners over those with finance and other backgrounds.

*The Silicon Valley medical device industry was like a very close knit community where there were generally only a couple of degrees of separation between any two people and due diligence can effectively be conducted without formal paid consultants.

*Specialized law firms seemed to play a much larger role in Silicon Valley than other regions.

In addition to the above some other findings of interest were:

*Cold calling was considered to be ineffective and most CEOs contacted VCs through referrals.

*Medical device investing seems to have become a more specialised area and VC investing in general seems to have become more specialized.

*VC syndication seemed to occur at earlier stages now than in past years.

*Due diligence in early stages focused on the market opportunity and in later stages it focused on IP.

Copyright 2004 Kirk Zeller, All rights reserved