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Integrating Market Access into Medtech Startup Fundraising Process

StrategiesForMedtech
5 min read

Part 2 of 2


In the realm of Medtech startups, the journey from innovation to market success is paved with numerous challenges and milestones. Among these, accurately assessing your market size holds a pivotal role not only in shaping your strategic roadmap but also influencing the valuation of your startup during the fundraising process. We covered this in brief in our previous article. In this second article, we will explore how it can directly impact your startup's fundraising process and bring in commentary from a few Medtech start-up CEOs.


Market Sizing's Direct Impact on Fundraising for Medtech Startups

Based on our experience, our view is that market sizing is not just about numbers; it significantly influences the valuation of your Medtech startup during fundraising rounds. Here are a few tangible ways in which a solid data driven market access assessment will influence the fundraising rounds:


  1. Investor Appeal: Investors are more likely to be interested in startups that operate in large or rapidly growing markets as it provides the opportunity to realize their returns given the risks involved. A sizable market, backed by solid market assessment data acquired through secondary and primary research, instills confidence and understanding that you understand the market you’ll operate in and there is room for growth. The investment appeal therefore increases the likelihood of attracting investment. In our experience, sometimes this is less about the market sizing figures, as ventures usually know the market well themselves, but demonstration that you have done more than a top level skim search. Demonstration of due diligence through validated research and discussions with potential partners and customers burns risk down in the eyes of venture. This is one key mechanism to differentiate your Medtech start-up during the rounds of capital raising.

  2. Revenue Potential: A well-defined market size directly correlates with revenue potential. Investors assess your startup's revenue projections in relation to the market size to determine the return on their investment. One way to approach this is to build your market sizing work, into a 5-year proforma. This will look like a multi-tab excel file where your market data is translated into the top line revenue with penetration rates against that data supported by subsequent expense sheets for the product development activities, regulatory, clinical, quality and other various organizational activities such as fixed overhead expenses. Bringing this all together in a dynamic file, allows for your market sizing work to be directly integrated into your strategic plan and drive your 5-yr revenue projections. The impact on the business’s overall P&L due to scenario planning becomes extremely quick and much easier with a fully dynamic model.

  3. Perceived Risk: Smaller or uncertain market sizes can raise concerns among investors about the startup's ability to achieve substantial growth. Achieving 50% market share in a $1M market probably is not going to be the metric investors are looking for in an attractive investment. A 5% share in a $1B market is probably more realistic and expected depending on the crowdedness of the market.

  4. Strategic Plan: A solid understanding of the size of the market (SOM) the business will penetrate, and access to that market, provides you better negotiating leverage during fundraising discussions. Having built out a clear strategic plan based on the market assessment data will allow you to confidently articulate and at times, defend, your projections which will be a considerable factor in how others will perceive the company’s valuation at early-stage rounds.

  5. Valuation: Traditionally in Medtech, valuation is better represented as, perceived valuation. In most cases, the organization has no revenue and thus, the valuation is typically supported by comparable start-ups who are in a similar space and raised funds. Thus, all the more important when going into a conversation which will determine the amount you raise and equity given up, to have a solid background of data to support your position. The more concrete data driven conversation that can be held, the chances of aligning on a mutually agreeable valuation can be achieved.

  6. Differentiator: In the age of tight monetary policies constricting venture markets, ventures are more selective and Medtech start-ups must standout even more. The rigorous process as described in this article, naturally focuses the executive team on the path to revenue which is a differentiator a high volume of pitches ventures see on a daily bases. The tangible, in the weeds, tactical execution planning of creating a path to revenue with specifics, is one far overlooked by many Medtech start-ups according to several venture capital firms. To quote one:


“Most of the pitches I see, teams have high-level, generic plan to market, such as, we are going to partner with hospitals and hire 20 sales reps. What I want to see is, which hospitals will you target and why, how will you target them and what’s the business model. That’s the focus on a path to revenue I want to see.” - Venture

We felt it prudent to ask several CEOs in the Medtech start-up market, how robust their market sizing analysis was and how much of a link they felt it had to valuation discussions during their rounds. The results were split into two categories: one which had a limited understanding or limited effort placed on defining the market in detail as described above to drive their strategic plan and the other who were strong believers and practitioners of this methodology. Those that were strong believers invested in the market size and access questions early in the process and saw the tangible results of interdependencies of various business aspects as they build the comprehensive business strategy.


“It’s imperative that the first thing founders are doing is a robust market size, reimbursement and go-to-market strategy analysis.  Everything you build stems from this.  It allows you the foundation you need to develop projections for budgets and valuations.  It also allows you to better understand where the landmines are in terms of market access and it prepares you for the inevitable questions that all investors will be asking you during your due diligence.” – Medtech Start-up CEO

Summary


Strategic market sizing is more than a quick search of how large the market is (TAM) and applying a percentage against it to define your market. A detailed, rigorous approach can directly impact your startup's fundraising process from discussions surround a realistic company valuation, practical path to revenue strategies, risks in the strategy and ultimately, whether the business can return at the rate venture requires. Market analysis is not a one-time task; it's an ongoing process that should evolve as your startup grows and learns to evolve to the market landscape.

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Our expertise cuts across many aspects of Medtech Start-ups; we are architects of strategic business planning, carving pathways into new products and markets. Our goal is to help you maximize your potential for growth and impact on a global scale. Reach out to learn more about our recent Medical Device use case and share your perspective with us!



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