Eric Tan, PhD, Associate and Head of Diligence discusses how he uses metrics within company diligence.
You’ve heard story after story about how Theranos, once the darling of medical technology investors, has put a damper on medtech investing. How so many private placements lost 100s of millions of dollars. That accredited investors, including what MarketWatch called a Who’s Who of Stanford University alumni and distinguished military veterans. “Tim Draper, Larry Ellison and Rupert Murdoch were among the high-profile investors,” it stated.
If people like the former Secretary of State, the CEO of Wells Fargo, and the current Secretary of Education can all be caught with their pants down, how do ‘I’ protect myself from enormous loss?
Trust but verify
Initial investors were exclusively private placements. Venture capital firms were approached butmany initially passed on the opportunity because of the CEO’s unwillingness to share information about the blood test technology and results, and due to the lack of established scientific support for it via peer-reviewed research. Marketwatch also stated that the company and its board lacked medical and scientific experience, which would of course be critical to its success.
When considering an investment, don’t be wooed by the claims. Ask every question you can think of to determine the efficacy of the product. Speak to the people who did the research, or at least read the papers they published. Look for candor in the management team. Assure access to audited financial information.
Most companies that provide you with data are real, but it might be that one time you don’t check that trips you up. If their studies are comprehensive, if they stand by them, they should not hesitate to share the sources with you.
Someone who knows what they’re doing
Bill Maris of GV (formerly called Google Ventures) was interviewed by Business Insider about this topic in 2015. They passed on the opportunity to invest in Theranos for a myriad of reasons, but when asked about whether they see this as indicative of the need to slow down on medical technology investments he replied, “those of us who know what we’re doing, know what we’re doing.” VCs are in the business of taking chances, and generally have team members who come from the world of medicine and technology if that’s a sector in which they invest.
The valuation standards in medical technology are a different set than in other sectors. Be sure you have access to someone who can explain the unique measurement, a professional with a methodical approach to research and assessment. Do not be scared off by others’ losses, especially when those losses are directly attributable to investors’ lack of research.
Medical technology is a dynamic world, wide open to amazing breakthroughs. We see it every day – companies who have developed what could literally be life-changing solutions for different sets of populations. That’s why Zoic is laser-focused on medical technologies, and why we’ve built our company to represent the insights needed to understand the viability and the marketability of each investment.