Reverse Pitch – The Green, Orange and Red Flags of Venture Capital in MedTech

We’ve explored how venture capital (VC) fuels innovation and growth in healthcare and delved into expert insights on Portfolio Management and Investment Thesis Design. 

But let’s flip the script for a moment. 

What if we consider the reverse pitch concept? This approach provides a unique perspective on what venture capitalists seek in healthcare startups and emerging technologies. Understanding this can offer invaluable insights and boost your know-how early in your entrepreneurial journey.

Giving Investors What They Ask For

A standout panel during last year’s MedTech Malta was titled Reverse Pitch: What Venture Capitalists Look For, where experienced venture capitalists examined what makes a startup stand out. Moderated by Ken Nelson, Partner at MedTech Advantage Fund and Director on several boards, the discussion centred on the reverse pitch concept. 

Ken Nelson directed the conversation with expertise providing pro insights from his over 10 years of experience leading commercial efforts for disruptive technologies in the digital health, wearables, and cardiac remote patient monitoring industries.

For the panel, he was joined by fellow experts and executives:

• Sanchita Pasi | Former Senior Investment Manager | Sagana
  • Focuses on venture capital in healthcare, investing in founders and models that enhance diagnostics and treatment access.
• Bhavesh Barot | Operating Partner & CBO | Truffle Capital
  • With 18 years in MedTech, he leads business development at Truffle Capital, driving innovations in various healthcare markets.
• Amir Soltanianzadeh | Founder & Managing Partner | Solardis Health Ventures
  • Invests in groundbreaking medical devices across multiple health sectors.
• Enrique Claverol-Tinturé, PhD | Head of the Medical Technologies Programme | European Commission
  • Holds advanced degrees in engineering and neuroscience, with postdoctoral experience at Caltech and research at the Bioengineering Research Centre in Barcelona.
• Julien Pham | Founder & Managing Partner | Third Culture Capital (3CC)
  • A nephrologist and serial entrepreneur, he uses his expertise to drive venture capital investments in innovative medical technologies.
• Linus Rieder | Principal | 415 Capital Management GmbH
  • Manages due diligence and financings, and is a board observer at TRiCares, focusing on heart valve replacement innovations.
• Greg Madden | Managing Partner | SV Health Investors
  • Specialises in investment due diligence, financing, and M&A, with significant experience in private capital and serving on several boards.

Red Flags – What to avoid!

Nothing sparks a discussion on a reverse pitch quite like beginning with the antithesis: identifying what VCs aim to avoid in their investment portfolios. These issues can surface even when everything seems ideal, so spotting them early helps investors and entrepreneurs navigate risks and avoid common pitfalls.

Beyond the usual lack of passion or preparedness, what specific actions can entrepreneurs take that might repel investors and make them say “Next!”?

Orange flags

Amir Soltanianzadeh highlighted several “orange flags” that often lead to his primary red flag: the absence of a clear end-point or significant milestone in sight.

“If they’re raising money merely to extend their runway by a few months rather than achieving a significant milestone, it could signal a deeper issue. A lack of clear strategy for exit plans or the company’s long-term viability would also be major red flags.”

Unhinged positivity is a Trap

Linus Rieder and Bhavesh Barot both pointed out key red flags related to the pitch process. Rieder cautioned: “When a pitch is overly positive and the CEO fails to communicate or grasp their own risks, it raises concerns. We value it when the team can clearly present and understand their risks, as transparency is crucial for successful collaboration between investors and the company.”

Similarly, Barot highlighted that neglecting to mention competitors in a pitch indicates a lack of thorough research and awareness, which can also be a significant red flag.

Entrepreneurs Pitching Outside of you Focus

Greg Madden shared a lighthearted anecdote about his firm’s annual contest for the pitch that pitches the farthest from their focus, making it easy to reject. More seriously, he suggested: 

“Ensuring that your pitch aligns with the investor’s mandate is crucial. Sending materials to investors who focus on your specific sector increases your chances, as the diligence process is often about finding things to say “No,” to.”

People and Leadership – What to look for

The focus soon shifted to what investors seek in a pitch, with particular emphasis on people and leadership. This is crucial as these individuals are often the ones presenting the company and its product.

For Sanchita Pasi, it’s diverse skills and backgrounds within a company’s leadership team. At the seed or Series A stage, she noted that while a passionate founder is crucial, it’s also vital to have a well-rounded team. 

“For example, a founder with a technical background might need a business-oriented co-founder, and vice versa.” She also highlighted the need for a balanced team structure, noting that having too many founders or an imbalance in roles can be problematic. 

“A lack of such diversity in senior positions or a disregard for team incentives is not something I can be a fan of.”

In addition to being built on a strong clinical background, Julien Pham highlighted the significance of having stage-appropriate resources and team composition for early-stage companies.

“Early-stage companies often don’t yet have a complete product and are still working towards market fit, so it’s unrealistic to expect them to have a full stack of engineers. However, if they can bring on board someone with significant credibility in the field who is genuinely invested in guiding them and contributing real effort, it can make a substantial difference at this early stage.”

Investor Scoring Methods

It’s also valuable to understand how VCs evaluate candidates. Do they use a strategic and systematic method, such as a scorecard, and is this information typically shared with candidates?

Bhavesh Barot shared insights based off of his experience at Truffle Capital, a firm focused on building companies from the ground up where credibility and a strong foundational team take centre stage:

“We employ a straightforward evaluation process that prioritises access to accurate information. Social media can be instrumental in showcasing a candidate’s transparency and solid track record. Additionally, further vetting by trusted physicians helps validate claims and address any potential concerns.”

Enrique Claverol-Tinturé explained that at the European Innovation Council (EIC), they adhere to a strict evaluation process, where among other things, inconsistencies in financial statements can quickly derail a pitch.

“Inconsistencies in the financial statements are a classic red flag that can quickly undermine the credibility of a pitch and derail the opportunity during the evaluation process.”

Catch MedTech World in Singapore and Malta!

As summer reaches its peak, get ready for MedTech Malta in Valletta from November 6th to 8th. It’s your chance to dive into the forefront of healthcare innovation and connect with leading experts. Plus, don’t miss the inaugural MedTech World event in Singapore this September. Stay tuned for all the latest details and be the first to experience these groundbreaking events!