Bridging the gap

Two E-Teams talk about how they got venture capital funding—and the impact it made

One of the primary reasons the NCIIA is starting Venture Well is to address what you could call the “Big Gap”: the space between a group of college students working on an idea and a full-fledged venture worthy of investment. There’s a long way to go between the two, and it takes lots of hard work to get from one to the other. This summer we talked with two teams that succeeded in going from student E-Team to start-up to venture-funded company and discussed their journey through the world of early stage funding and venture capital.

How do you set yourself up to even be considered for venture capital funding? What are some of the pros and cons of taking equity financing? Their answers provide some good advice for prospective E-Teams.

The interviewees are both in the medical device field. Ashish Mitra was part of the Novel Aortic Endograft E-Team from Stanford, developers of a stent graft with an adhesive delivery platform. They went on to form Endoluminal Sciences and received $2 million in venture funding.

Evan Edwards, recipient of an E-Team grant in 2000, has been working toward commercializing his invention—a credit-card-sized epinephrine injector for people with severe allergies, dubbed the “EpiCard”—for the past eight years. His company, Intelliject, has received $13 million in venture funding and EpiCard is in late stages of development. Here are some highlights from the discussion.

How did you position yourselves for venture capital funding?

Edwards: The first step in moving toward VC funding is interacting with people. Talk with local businesses, join a venture group, join an on-campus entrepreneurship club. By going to their meetings and attending their seminars you’ll gain an understanding of how to write a business plan, or how to value your company, or how to do the financials; whatever you need. You’ll make your strengths even stronger and shore up your weaknesses. That will start you down the right path. Then you have to just get out there and see what they say. We made the rounds and presented the Intelliject business plan, and the feedback we received from the angels and VCs was very specific and very helpful. We re-worked the venture, then targeted VC firms that we thought would be excellent partners and obtained warm introductions.

Mitra: The first thing we concentrated on was the idea. Venture capitalists want big ideas with big potential returns, so we made sure we had a practicable, useful idea that addressed a huge unmet need. We made sure the need was validated by experts—physicians, engineers and VCs—and presented positive preliminary test data proving our concept.

What are some of the pros and cons of taking equity financing?

Edwards: On the plus side, you get smart money to help build the company, and you’re backed up by deep pockets if you need subsequent investment. The negative: big decisions need to be approved by the VC.

Mitra: For a university off-shoot like ours, the pros of equity financing far outweighed the cons. In fact, equity financing was really the only option given the R&D nature of the project and that none of the inventors/founders were in a position to support debt financing. VC funding not only enabled us to work under the mentorship of a highly experienced investor team but also helped us get to the point where we are moving to market faster. The obvious disadvantage with equity financing is the rate at which the shares of the founders are diluted over a period of time.

What would you recommend emerging E-Teams do to position themselves for major funding?

Edwards: The first thing is to get a great idea, put together a great team, and work hard on the idea and on interacting with people. Once you’re ready for the VCs, be targeted in your approach and evaluate VC firms carefully. Interview them as much as they interview you! Take a careful look at their domain expertise, their network, and their strategic thinking. Only do business with the firms that are right for you.

Mitra: My primary recommendation would be to involve a godfather—a star in the relevant area—right from the start. This will load the magazine of your pitching gun with words that tend to hit the bullseye of any investor pitch. The brighter the star, the more visible he or she should be on the team. One other piece of advice: investors pay much more attention to the team that will execute the project as compared to the team that invented it. The objective should not only be to convince them that the idea will work but also that the team can make it work.

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Both Mitra and Edwards agree that the the real work begins only after you receive major funding. Mitra needed to execute a multitude of tasks, from finding office space to hiring new employees, and Edwards used the money to finalize the product and move toward manufacturing. But both readily attest that the time and effort it takes to get VC funding is well worth it. The satisfactions, both mental and financial, can be substantial. And they’re both happy to get the chance to make a real difference in the world.