From Idea to Market: Ep 5 - Financing the Journey

Most MedTech founders think financing is about getting enough money to keep building. But once you take capital, it reshapes your governance, your priorities, and your pace — and some consequences don't surface for years.

In this episode of the AHF Podcast's From Idea to Market series, we explore what funding actually buys beyond time and resources, how capital decisions redistribute power within a startup, and which financing consequences only become visible years later. Founders, investors, and legal experts share hard-won lessons about navigating the Valley of Death — from choosing between equity and grants, to the real cost of starting as an LLC, to why royalty agreements shape cash flow long after the ink dries.

Whether you're a surgeon-innovator weighing your first funding round or an engineer planning a device company's financial architecture, this conversation lays out the structural, financial, and human realities of MedTech financing that most pitch decks never mention.

⏱️ Chapters:

00:00 The Valley of Death in MedTech startups

02:37 Meet the founders, investors, and experts

04:40 Startup runway and burn rate explained

06:04 How venture financing rounds work in MedTech

09:42 Grants vs equity and preserving ownership

11:08 How VC fund lifecycles pressure founders

13:06 Finding investors for hardware medical devices

18:16 LLC vs C corporation and hidden structural costs

22:09 Royalty streams and long-tail financial obligations

24:31 Approach financing like clinical design

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This podcast is intended for educational and informational purposes only.

The content discussed does not constitute medical advice and should not be used as a substitute for professional judgment. Clinicians should rely on their own training, experience, and clinical decision-making when applying information from this discussion.

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Transcript

Joseph M. Schwab 0:21

Hello and welcome to the AHF podcast. I'm your host, Joe Schwab. In the world of MedTech, there's a notorious stretch of road called the Valley of Death. It's the gap between a proven prototype and a commercial product and to cross it, you need more than a good idea. You need a war chest. In our series from Idea to Market, we've followed the journey to the edge of this valley. If you're just joining us for the first time, I highly recommend hitting pause and going back to the beginning of the series to understand the financial stakes we're discussing today. You really need the context of the first four chapter. We started with the spark where we identified the clinical need and moved to direction where we mapped the strategy. We also survived the proof of concept where we tested the physics, and in our most recent episode, we built the vehicle, the formal company structure. But to actually move that vehicle, you need fuel. In this episode, we're diving into the complex world of financing. We're moving beyond the pitch deck to explore how capital acts as a form of governance, shaping your pace and your power, and ultimately your clinical outcomes. Because once you take the money, the why of your innovation meets the how of the market. You're going to hear from people who have navigated this valley from both sides of the table, founders who had to maintain their clinical soul while speaking the language of internal rates of return, as well as leaders who have seen how the wrong money. Can derail even the most brilliant device, but together, their stories help us understand that financing is not just a milestone, it's a transformation of the mission itself.

Peter Noymer 2:37

Hi, my name is Peter Noymer. I'm the CEO of ForCast Orthopedics. I'm also a PhD in mechanical engineering. I've spent nearly 30 years, developing novel drug delivery systems for improving treatments across a number of different therapeutic areas.

Marie-Isabelle Batthyány 2:51

My name is Marie-Isabelle Batthyány I'm an board certified anesthesiologist specializing in orthopedic anesthesia and I'm also the founder and CEO of XRSynergies.

Charles Lawrie 3:03

I'm Dr. Charles Lawrie. I'm the co-founder and chief medical officer of FIOS Health. I'm also a high volume, anterior approach hip replacement and robotic knee surgeon in Miami, Florida, and, uh, current president of the Anterior Hip Foundation.

Robert Cohen 3:18

My name is Robert Cohen and I am a mechanical engineer that have worked in the med tech industry for over four decades, and I presently am the Vice President of innovation and technology for the Orthopedic Group at Stryker.

Emily Ast 3:32

Hi, I am Emily Ast. I am an attorney and my own law firm Ast Physician Contracts. I focus on contract review and negotiation for physicians, typically employment contracts and industry consulting agreements, as well as related shareholder agreements, ambulatory surgery center operating agreements, and those sorts of corporate documents.

Simon Mifsud 3:53

Hello, my name is Simon Mifsud and I'm a co-founder and the CEO of Garland Surgical Limited based in the UK. And we're developing a novel hip replacement system called the Malta Hip.

Joseph M. Schwab 4:05

To help us navigate this stage, we've structured this episode around three core questions. First, what does funding actually buy beyond time and resources? Second, how do capital decisions fundamentally reshape power and priorities and the pace of innovation? And third. Which consequences of financing are invisible at the start, but become unavoidable later. This is Financing The Journey, Let's start with a concept you've probably heard before. Runway in Startup finance runway refers to how many months a company can operate before it runs out of cash, assuming no new revenue or funding comes in. It's calculated from the burn rate and the burn rate includes things like salaries or regulatory consultants, clinical trial monitoring, legal expenses, insurance, operational infrastructure. That's all of the infrastructure required to bring a medical device to market. According to industry data from SVBs Healthcare Investment Report, early stage med tech companies often operate with burn rates that reflect multi-year regulatory and validation cycles. So runway answers a practical question, how long can we continue building? But it doesn't answer a structural question, and that's where the real shift begins. Which brings us to our first question. What does funding actually buy beyond time and resources? To understand this stage, it helps to briefly explain how venture financing typically works. Most startups don't raise money once they raise it in rounds. Early capital may come from founders or angel investors, then comes as seed round, typically used to build a prototype or generate. Early validation. After that, many companies raise what's called a Series A, which usually introduces institutional investors. At this stage, there's typically an expectation of a clear regulatory planning. As well as early clinical insight and a defined commercialization strategy. Later rounds such as series B or C, often support clinical expansion or manufacturing scale or commercialization or IPO. Well, each round introduces new investors. New investors receive equity, meaning ownership and ownership introduces governance rights. And governance introduces shared accountability. Before funding, the progress is defined internally. After funding, the progress is evaluated against agreed upon milestones. While milestone-based financing is super common in med tech, capital is frequently tied to regulatory progression or clinical enrollment targets or reimbursement. Clarity and that experience can feel both empowering and nerve wracking at the same time.

Marie-Isabelle Batthyány 7:37

when I got the first cash to bring the idea to life, that was a moment. Really looking back, I'm so in awe that, uh, that this was, this family office gave us the money to go into prototyping with a wild idea. Nobody really knew if it would work. There was nothing like it on the market you could compare it to. So it, it really was a thrill to, to look at your account statement and see, okay, this is what I'm going to do the next years. And now when I sit with my investor five years later and, uh, we talk about the beginnings, um. We, we tried to laugh about it, but I think we were both very, very afraid that this would go sideways. And, uh, they believed in the team they gave us, gave me the money and, um, the thrill of, of, of being able to move something that I think was a very, very meaningful moment. Yes. I think the Swiss are very careful with what they do on how, what they do with their money. It was a risk investment and it was money that was intended for risk investment.

Joseph M. Schwab 8:58

What changed in that reflection is not the clinical problem, it's the accountability structure. Funding expands the circle of responsibility, but there's also an important distinction between types of capital. First equity funding involves selling ownership, which introduces board representation and shared control. And second, the non-dilutive funding such as grants that provide capital without giving ownership. That distinction can materially affect long-term control. When founders combine funding sources strategically, it can extend operational capacity without accelerating dilution.

Simon Mifsud 9:41

the other thing that I recognized quite early on is that if we. If we sought grant uh, funding as well in parallel with the, the diluted funding that equity, uh, investment brings. It gave, if you like, a bit of a supercharge to any investment that was made.

Joseph M. Schwab 9:59

Research in entrepreneurial finance consistently shows that early equity decisions disproportionately shape long-term control. So when we ask what funding buys, the answer is layered. It buys time, it builds structure, it formalizes accountability, and it turns belief into obligation because from that moment forward. Progress is not only measured internally, it's reviewed and reported and evaluated against defined milestones. All in all, funding formalizes the journey. Now, once the journey is formalized, something else changes. It's not just how progress is measured, it's who gets to shape it because capital doesn't just add structure, it redistributes the power. And that brings us to our second question. How do capital decisions fundamentally reshape power priorities and the pace of innovation? Most venture capital funds operate within defined life cycles. Often around 10 years, they raise money from limited partners. They deploy that money into startups and aim to generate returns within that window of time. Now, investors who hold equity. Have a fiduciary responsibility. That means they're legally obligated to protect and grow the money they've invested. So naturally, they focus on risk. And in MedTech risk often concentrates around three predictable areas. Regulatory risk, clinical validation, risk, and market adoption. Risk regulatory clearance is often considered the major de-risking event. A de-risking event is a milestone that significantly reduces uncertainty and increases perceived company value in medical devices. FDA clearance or CE marking often serves that role. Now, capital allocation trends also influence this dynamic. Over the past decade, healthcare venture funding has increasingly favored digital platforms and AI enabled tools. These models often scale without the need of extensive physical manufacturing and may face lighter regulatory burdens. Traditional medical devices like femoral components or total knee arthroplasty components require physical production and clinical validation and regulatory review, which means longer development cycles. When device founders raise capital in this environment, they often have to justify longer timelines and defend the regulatory pathway.

Simon Mifsud 13:05

The biggest challenge, uh, for us has been, finding investors who. Understand this space. Okay. So there are a lot of medical device or deep tech, uh, investors out there, but they got used to, and certainly definitely post COVID, um, investing in companies that can give them a quicker return like digital, like ai. Um, and obviously we're good old fashioned, uh, metal and polymers, so we are not as sexy, uh, as some of those new digital technologies. So, um. The number of investors that are willing to listen, uh, is, is, is, is, is a lot smaller. So you, you know, and I think, um, the way we've got around that is just by being dogged and determined and speaking to anybody that would listen. You know, I'm very often carrying a Malta hip around in my pocket. Uh, so you never know who you're gonna have a conversation with. I attend a lot of networking events. I try and teach to talk to as many, um, industry experts, um, investors as possible, and just doing my due diligence myself really, and just finding out who actually has operated in that space and invested in that space.

Joseph M. Schwab 14:19

What he's describing is a capital allocation trend. Investors compare opportunities. Some prefer shorter development cycles. Others specialize in regulated categories. So alignment matters. Because if investor expectations don't match development reality, then pressure builds pressure to accelerate milestones or to narrow scope or to show traction earlier than the science may allow. That scrutiny often focuses on regulatory risk and before clearance, that uncertainty remains.

Simon Mifsud 15:00

One of the biggest concerns from the investors that we've spoken to, and, and believe me, I've spoken to hundreds, um, was the ability to get, uh, a regulatory clearance for this device because it was so novel. I mean, everybody got that. It was unique.

Joseph M. Schwab 15:16

Again, not all investors respond to that uncertainty the same way. Some specialize in very early stage companies and are comfortable funding preclinical or higher risk innovation, while others focus on later stage opportunities where regulatory clearance is near or maybe even already achieved. That difference in risk tolerance, shapes who participates at each stage.

Peter Noymer 15:44

there are some in investment groups that, you know, do have an appetite for early stage investment, some prefer later stage close to IPO, right? So we're obviously not for them. Um, but you know, some are willing to take a look at something that's preclinical, where you get in early on, you know, the, the, you know, the price per share of stock is relatively inexpensive. Um, so there's potentially good bang for the buck for them. To be able to get in early, um, you know, and, and still get a significant return on their investment coming out the other end.

Joseph M. Schwab 16:16

At the same time, fundraising itself changes pace Research from Harvard Business School shows founders can spend months in active fundraising cycles. During that period, executive attention shifts towards pitching, diligence, and negotiation. The shift isn't theoretical, it requires repeated exposure to rejection. While maintaining confidence inside the company.

Charles Lawrie 16:44

In terms of sales, marketing, it's been a steep learning curve for me. I'm not used to going out and fundraising. Uh, it's very hard asking people for money even when you really strongly believe in your product like I do. I've talked to three people and all of them said, no thanks. You know, I pitched to 20 investors and every single one of'em said, thanks for the call. We'll be in touch and they don't follow up.

Joseph M. Schwab 17:09

Research on founder psychology shows that fundraising changes how founders experience time. Progress becomes measured in months rather than ideas and persistence becomes operational, not just aspirational. So what is the second answer? Well, capital reshapes power. By introducing new decision makers, it reshapes priorities by emphasizing de-risking milestones and it reshapes pace by diverting founder time toward financing cycles. Capital doesn't design the product, but it strongly influences the environment in which the product is developed. I. Some of these effects are immediate, others are embedded in the deal structure itself. Which brings us to the third question, which consequences of financing only become visible later? The first two questions focused on what financing changes immediately, like structure and governance and pace. But some of the most important consequences of financing don't show up in the first year. They show up in year three or five or 10, and they usually come from decisions that seemed small at the time. Let's start with the entity structure. When a company forms, it chooses a legal structure. Many early founders start as an LLC because it is simpler and less expensive to manage. But most institutional venture funds require a C corporation structure for tax and regulatory reasons. That means if you start in one structure and later you need another, you may face legal conversion or tax implication and additional accounting complexity. That's not theoretical. It's actually pretty common in early stage companies.

Robert Cohen 19:18

So my very first company I did, um, I did it as an LLC to save cost, save on accounting dollars. Um, there was some tax benefits associated with it, uh, and when a large company, in this case it was Zimmer, but when other companies ended, the banker represented me. They're like. You have to have full compliance. There's no public company that's gonna take a risk and pay you, you know, a hundred millions of dollars plus and not have you being bonafide as a C corp. Where therefore you're following under structures that the SEC on the acquisition will look at and you de-risk it to shareholders. You're not gonna have a little hiccup where financially there was something wrong and the way you did the books financially was something wrong. And the way you fill your valuation of company, and we could talk about bank accounts and things like that. So I got dinged on it the first time. And then when my company got more mature and I had more people in the supply chain, I was paying and I was looking at inventory as I accepted money certain ways. I didn't necessarily have the corporate audits, annual audits and compliance that was expected by the big companies. Yeah, it was a little bit more money, but it was really discipline and I deprioritized it, if I'm honest with you. And it wound up costing me a lot of money, uh, to convert to a C corp later on. A lot of money. Um, I wish I could get that money back.

Joseph M. Schwab 20:35

That reflection is not about paperwork. It's really about sequencing. Early structural decisions affect later flexibility. The second long-term consequence we see is dilution. Each time a company raises equity financing, it issues new shares. That reduces the ownership percentage of existing shareholders. We call that dilution. Dilution isn't inherently negative. If company value grows significantly, a smaller percentage of a larger amount can still be very meaningful, but dilution affects influence. Board composition can change voting power changes. Strategic direction can shift depending on who controls the majority. These dynamics are often manageable in early rounds, but over multiple rounds. Ownership can look very different than founders originally expected. There's also a third category that's less visible early on long tail financial obligations. Some companies choose royalty based financing instead of equity. That means instead of giving up ownership. They agree to pay a percentage of future revenue. Well, that can feel attractive, especially early because it preserves equity. But those obligations can last for many years after commercialization.

Emily Ast 22:08

These royalty streams, you know, often go for seven to 10 years, um, after the product is actually commercialized. So you work for a few years, sometimes, you know, two years or something like that on developing a product. It becomes commercialized, it's released into the market, and then you as a developer are paid a percentage of product sales over time. You want to make sure that a, a contract for product design very clearly ties the payment is for intellectual property. Of, of your intellectual property, not for your development services. And that is because payments for intellectual property can have capital gains treatment rather than ordinary income.

Joseph M. Schwab 22:52

Royalty streams aren't mistakes. They're trade-offs, but they do shape cash flow and reinvestment capacity and acquisition negotiations long after the first deal is signed. And then there's one more consequence that doesn't appear on the term sheet, the human cost. Raising capital requires repeated explanation of risk, and it requires repeated rejection, and it requires maintaining internal confidence while negotiating externally,

Charles Lawrie 23:29

it's not for the faint of heart going through this process. You really have to have strong conviction in the vision, in the problem you're trying to solve.

Joseph M. Schwab 23:38

that line captures something important. Financing doesn't only shape the cap table. It shapes the people making the decisions. So this might be our third answer. The consequences of financing that become visible later are structural, financial, and human legal structure affects flexibility. Equity terms affect control. Royalty agreements affect long-term cash flow, and the fundraising process itself affects leadership capacity. These aren't reasons to avoid financing. They're reasons to approach it with the same rigor applied to the clinical design. Because financing decisions compound and compounding works in both directions. Let's step back and answer the three questions we began with first, what does funding actually buy beyond time and resources? Well, it buy structure and it formalizes accountability and introduces governance. It also converts internal belief into externally measured milestones. From that moment forward, progress is no longer defined only by the founder. It's reviewed, documented and evaluated against agreed objectives. Second, how do capital decisions reshape power and priorities and pace? Well? They redistribute influence new stakeholders. Enter the room. Board oversight increases regulatory clearance and clinical validation becomes central markers of value. So capital doesn't redesign the device. It influences which risks are prioritized, which milestones are emphasized, and how quickly decisions must be justified. And third, which consequences of financing only become visible later. Well, entity structure affects flexibility and equity. Decisions affect long-term control. While royalty agreements affect future cash flow, and the fundraising process itself affects leadership capacity, these consequences compound over time. Financing is not simply a transaction. It's a design choice. It's the financial architecture that carries innovation from prototype to patient. So here's the takeaway approach financing with the same rigor you apply to engineering and clinical design. Ask, not only can we raise this money, but also what does this capital require from us. Who will we need to become to carry it? Because in MedTech capital isn't separate from innovation. It becomes part of how innovation is built, but money doesn't get a device to patients. Evidence does. In our next episode, we step into regulatory reality where every assumption is documented as well as defended and definitely reviewed. Here's the question I'll leave you with today. When regulators review your data, will the structure you've built, hold up