A presentation delivered June 4, 2009 describing the impact of the economic crisis on venture and angel investing and common sense steps for fundraising for Medical Device Startups. No one is an expert now.

1. Funding a Medical Device
Startup in the Current Economy
Michael J. Weickert, PhD
President and CEO
S.E.A. Medical Systems, Inc.
President, Wit Creek Consulting

2. Who Am I?
• Michael J. Weickert
• PhD Genetics, UW Madison, NIH, NCI
• Biotech Industry since 1992
– Bay area since 1998; Nektar, CBO StrataGent, CBO Corium
• President and CEO S.E.A. Medical Systems, Inc.
– Medical device company in Sunnyvale, CA
• President Wit Creek Consulting
– Business strategy, business plan consultancy
• Member Life Science Angels
– Member medical device and Bio screening committees
• Start-up Advisor
– Lypro Biosciences, NanoBioSciences
• Venture Partner Kranenberg Fund
• Limited Partner Quantum Technology Partners

3. Agenda
• What has the current economy done to
investing?
– How bad is it?
• What can a medical device company do to
raise funds now?
– Is there any hope?

4. We have fallen off a cliff: 1Q09 dollars
down 61%, deals down 45% from 1Q08
Quarterly investment activity was down 47 percent in dollars and 37 percent in
deals from the fourth quarter of 2008 when $5.7 billion was invested in 866 deals.
The quarter, which saw double digit declines in every major industry sector,
marks the lowest venture investment level since 1997.
Q1 2009 US Report; www.pwcmoneytree.com

5. Steep declines across all industries
The Life Sciences sector (Biotechnology and Medical Devices combined)
experienced a 40 percent decline in terms of dollars and a 31 percent drop in deals
with $989 million going into 133 rounds. Investment in Medical Device investments
fell 27 percent to $412 million.
Q1 2009 US Report; www.pwcmoneytree.com

6. Deals down all over the country
Drop >61% in Silicon Valley
Silicon Valley continued to garner the lion’s share of venture capital dollars,
capturing 39 percent of the $3.0 billion invested in US-based companies
throughout the quarter. The New England Region maintained its customary
number two position despite a 51 percent decline in dollars and a 36 percent
drop in deals from the fourth quarter of 2008.
Q1 2009 US Report; www.pwcmoneytree.com

7. Venture-backed IPOs disappeared
and M&A activity declined

8. Not the best of times
• IPO mkt weak
– 6 VC backed IPO’s in US in ’08, lowest since 1977, raised $0.5B
vs $10.3B in ‘07
– 0 VC backed IPO’s in Q2’08 & Q4’08
– 1 VC backed IPO in Q3’08
– 28 IPO’s in China
• 2002-08: 19,300 companies received funding, 351 IPO’s
• Time to IPO: ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08
• # Years from Series A: 4.5 3.3 5.7 5.7 5.6 6.2 7.1 8.3
• M&A weak
– 260 deals (down 27%), $13.9B (down 51%) in ’08 vs. ‘07
– 40% drop in ’08 to $300B
– 32 deals >$1B in ’08 vs 80 in ‘07
– Median M&A about $80M
Q4 2008 US Report; www.pwcmoneytree.com

9. Summary/Facts/Predictions
• VC’s stop funding many portfolio companies
• More layoffs/cost cutting, unemployment up
• New Deals must be perfect
• All Deals Series A, lots of down rounds
• Fewer Deals per fund, higher reserves
• VC syndicate quality more important
• VC’s fear capital calls produce LP defaults
• VC Fundraising problematic
• More Government regulation
Q4 2008 US Report; www.pwcmoneytree.com

10. Sequoia Capital Oct 2008

11. Sequoia recommends SURVIVAL
Sequoia Capital Oct 2008

12. What can a medical device
company do to raise funds now?
First things first
• Are you ready to raise funds?
• Are you incorporated?
• Have you set your equity (stock) pool?
• Do you have a business plan?
• Do you have a budget to key milestones?
• Do you have your complete team?

13. What can a medical device
company do to raise funds now?
• Friends and Family $1-300k
• Grants $100k->1M
• Angels $300k->1M
• Venture Capital Firms $1M->20M
• Strategic Partners $200k->20M
• Product Sales ??

14. Friends and Family $1-300k
• Investors (even Angels) expect you to
raise $200-500k from friends and family
before seeking professional investment
• Lowers risk
– Fund early, often riskiest milestones
– Shows people are willing to trust you with
their money

15. How do you raise friends and
family funds?
• Most should qualify as “Accredited Investor”
• Treat as professional investors
– Provide Business Plan, presentation, prospectus,
investment contract
• Investment is opportunity for people to
participate in an exciting company with
tremendous growth potential
– If you don’t believe this, don’t ask ANYONE to invest

16. Type of Friends and Family
Investments
• Priced round
– Equity (stock) sold at set price – investors receive a
percentage of the company
– Pros: investors like clear stake in the company
– Cons: sets price that can be difficult to increase in
subsequent investment rounds
• Convertible debt
– Investors loan money which can be converted into
equity at the first professional venture round, often at
a discount
– Pros: professional investor(s) set the price
– Cons: cash is owed to the investors if no equity
conversion takes place

17. SBIR, STTR Grants $100k->1M
• SBIR (Small Business Innovative Research) is a federal
set-aside program aimed at supporting R&D in US
owned small businesses (companies with less than 500
employees)
– Success rate on first time SBIR Phase I grants ~15%
• NIH and NSF are among 10 federal agencies which set
aside 2.5% of the total funds they award for research
grants to be distributed through SBIR/STTR
• NIH solicitations are published on its website and are
used to support research in a well defined scientific area
and/or in a high priority program.
– In 2003 more than 80% of the awards allocated were unsolicited
(investor-initiated research grants). The investigator initiates the
research and submits a grant application within an area that is
relevant to the NIH
– http://grants.nih.gov/grants/guide/index.html

18. Top 10 recipients of NIH SBIR and STTR
Funds in fiscal year 2007
(millions of dollars)

19. Angel Investors $300k->1M
• “Accredited Investors” who provides capital for a
business start-up
• Some angel investors organize into angel groups or
angel networks to share research and pool their
investment capital
• Angel investment accounts in total for almost as much
money invested annually as all venture capital funds
combined, but into more than ten times as many
companies (US$26 billion vs. $30.69 billion in the US in
2007, into 57,000 companies vs. 3,918 companies).
• Average angel funding in 2007, ~$450k. Range from a
few thousand, to a few million dollars.

20. Angel funding is down too
• Angel investing dollars dropped by 26.2 percent
last year ($19.2 billion vs. $26 billion in 2007)
• Entrepreneurs receiving funding was relatively
unchanged from 2007 (55,480 entrepreneurs
last year vs 57,120 in 2007)
• Angel investment 2008 sectors:
– Healthcare-related businesses = 16%
– Software = 13%
– Retail = 12%
– Biotech ventures = 11%
– Energy = 8%
– Media = 7%
2008 Angel Market Analysis by the Center for Venture Research at the University of
New Hampshire

21. Angelsoft* deal funnel from last 12
months
21112 Submitted
1718 In Screening
1185 Invited to Present
679 In Due Diligence
444 Invested
Only a small number of companies who apply get funded. This chart shows
how many make it through the different stages of the Angel Group process,
based on data from our most active groups.
*As the exclusive deal management tool to 451 angel groups and VCs and 17,551
investors, Angelsoft processes over 3,200 funding applications a month. This live access
to investment data allows us to report trends in the early stage investment market.

22. Venture Capital
• Provide private equity capital typically to early-
stage, high-potential, growth companies
• Generate a return through an eventual
realization event such as an IPO or trade sale
(M&A) of the company
• Venture capital investments generally made as
cash in exchange for shares in the invested
company
• Venture capital investors invest primarily in
companies in high technology industries such as
biotechnology and ICT
– VCs fund ~2% of companies they review

23. Even now some VCs are investing:
most active venture investors 1Q2009
Q1 2009 US Report; www.pwcmoneytree.com

27. Strategic Partners
Who has…
• Expertise to develop your product
• Markets similar/related/complimentary
product(s) to the same customer(s)
• Competes with a product inferior to yours
• Has aspirations to sell to the same
customers you are targeting
• Might be a potential acquirer of your
company/product(s)

28. Engaging Strategic Partners
• Technology conferences for related
industry scientists
• Partnering conferences for medical
devices
• High level introductions to strategic partner
management
• Contract Business Development
professional

29. Strategic partnership models
• Support for technology/product development
• Feasibility = modest cash for Proof-of-principle
demonstration ($100k-1M)
• Option = first right of refusal for license/acquisition of
technology/product ($100k-2M, may include equity
purchase)
• Partnership = development support for defined
product/technology effort (≥$500k up front, development
costs, milestones, royalties, may include equity
purchase)
• Structured buy-out = pre-priced acquisition in which
shareholders receive cash when pre-agreed milestones
are achieved

30. Reasons for optimism for medical
device companies
• Medical device is a strong industry in
California and the bay area
• Less affected by downturn than other
biotechnology - viewed as:
– More conservative investment than drug
development
– More capital efficient

31. Michael J. Weickert, PhD
President and CEO
S.E.A. Medical Systems, Inc.
President, Wit Creek Consulting
www.seamedical.com
www.witcreek.net
mweickert@gmail.com
650-218-1840