Hello everybody, I'm Duane Mansini and welcome to another episode of MedTech Money brought to you by Project MedTech. If you need anything from us or would like to suggest a future guest, you can email us at
[email protected]. If you enjoy this podcast, please subscribe and leave a review. You can always visit our website www.projectmedtech.com or follow us on LinkedIn. If you're enjoying this content, don't forget to check out our other podcasts by searching Project MedTech on your favorite podcast platform or by heading to our website. Project MedTech is an interview style podcast in the MedTech industry where guests share stories, advice, pitfalls, trends and innovations. In this episode, our host Giovanni Loriccela and our guest Michael Motavugas at Acuity MD discuss raising money for SAS first hardware, what he learned in his first time raising capital, pitching the VCs, the due diligence process and so much more. We'll talk further due Giovanni's discussion with Michael Motavugas. Medica Lennon, patient starts with medical discussion, talking about the future, what comes next with Project MedTech. Mike, thank you very much for being here with us today, honored to have you and we're going to talk about your capital raising. We've got to see the story out for Acuity MD, which I'm very excited to do so. This is the MedTech Money Podcast series powered by Project MedTech and sponsored by Lightblood Capital. Unite being in contact for a while. I had been very fortunate enough to see this progression and was excited when I saw the press release come out not too long ago about you raising your series A. We're going to dig into that and also break open this idea of raising for SAS based models versus what it may look like for hardware or classical medical devices and bust open that world. Anyway, before we get into your background and everything else, the reason why we're here is I've talked to MedTech entrepreneurs like yourself as well as investors from around the world and what I've discovered is there is no specific formula or magic or even silver bullet about how to raise or even invest capital for that matter. The goal here is to extract insights to quote unquote demystify this process so that we can help MedTech innovators benefit from this information. The audience here is certainly a mixture of entrepreneurs as well as investors and what I'd like to share is your stories and advice for what I imagine is that first time founder or CEO and has no clue what lies ahead of them on their journey of raising capital. I thought the best place to start is from learning from experience professionals like yourself. Once again, today's big topics are SAS and what that looks and feels like entrepreneurship and we're going to dig into your background and understand really what that looks like in terms of starting a company. What does your background come from to be able to even start that company and then what does it really feel and look like to raise capital not only for a SAS based company but even some of the mechanics that go along with that that you may not have been 100% aware of when all the sudden was thrown in your lap of responsibility. So let's jump into it. But first we're going to open up with a few questions. The first one being do you believe that people and money are the lifeblood of a MedTech or even for that matter start up? Why or why not and what am I missing if you'd like to add anything else? Well, thank you, Giovanni, for having me on. You know, great first question. You know, when I was coming out of college a while ago, I was this kind of mission driven, you know, wanted to make an impact in the world. So I did what our social media generation does and I updated my LinkedIn tagline, my LinkedIn profile. This was right out of college and I updated my about me to say, you know, I strive to coordinate the means of production to improve the planet's health outcomes. That's what I wrote. And if you think about it, you actually dig into, well, what are the means of production? It's labor and capital, right? And in a market world and a market economy, there's so much power and harnessing those forces to launch successful ventures, to launch successful products and to improve the planet's health outcomes. So 100% yes, I believe that money and people, capital and labor are the lifeblood of any business, of any innovation, of any entrepreneurial activity. And particularly in MedTech, you know, where you have a high kind of, you know, cost to get a product to market. And a high degree of specialization, you need your labor, you need your people to have in order to effectively commercialize, develop commercialize and repeat, you know, sales of a technology. So 100% yes. And I'm going to give some preface to this next back of this next question that I have for you. So first and foremost, setting the tone for the remainder of this conversation, a QDMD, which is the company that you founded now or leading is a SaaS-based platform, right? So non-regulated, but your target audience is MedTech and you'll do a much better job of clarifying all that once we do get to it. But what I want to know is more on the entrepreneurial side. And I also know that your background is coming from assessing MedTech and being in the industry, et cetera. So between a startup, objectively speaking, and in your case, a SaaS-based startup, and then your knowledge of MedTech in general. Do you believe in luck and how much does luck play into the success of entrepreneurship and for that matter, MedTech entrepreneurship? Yeah. It's another great question to lead off. I do believe in luck and, you know, I don't know if I'd call it luck. I think it's just the volatility and the uncertainty of the world that we live in and the hand that your, your doubts. But I do believe that it plays a role into being successful, but I don't think it's the only, I don't think it's the only factor by any means. So one example that's very visceral and real to our business at a QDMD is we launched right at the start of the COVID-19 pandemic. We actually signed our first pilot back in April when everything was shutting down for the first time, elective surgeries were getting canceled. And at the time, I thought, wow, what terrible luck we have entering the market at this time. But in hindsight, it really allowed us to go deep with our customers and the sales reps who are grounded and unable to access facilities and really dig into what they wanted out of a targeting and commercial platform. So I do believe in luck. However, you know, it's really around how you play that hand, how you play that hand of cards that, you know, that, and obviously it's easier to play if you have, you know, aces versus if you have, you know, two six off-suit, but at the end of the day, you have to play your card. So I believe in luck, but it's not the only driving factor there. And in this next question, having raised multiple rounds and we'll tell the history of the capital race for a QDMD coming up. However, you've had the opportunity of putting together your story, your investible story, you've had the opportunity of pitching in front of investors, multiple styles of investors, I'm sure. However, ultimately, we're successful. You've closed rounds at this point. From your perspective, what is the most investible skill set or characteristic of a Medtech entrepreneur or an entrepreneur for that matter? And another way to frame it is, what do you believe is the one thing that investors look for in every entrepreneur that they ultimately invest in? Like why were you invested in? Yeah, I think, you know, I don't think it's one thing. I think it's two things going back to your first question, which is the lifeblood of startups, which is people in money. I think, you know, being investible means, you know, you got to be able to recruit a caliber player to your company. You got to be able to recruit executives, even as a junior entrepreneur or first time entrepreneur, you got to have the ability to appeal to experienced individuals that have a really high ceiling and have proven themselves to come in and help you build the company. So number one is the ability to recruit. And in order to do that, you need to have a very clear and compelling vision of the company. And you need to be a good leader about, you know, how you coordinate and how you empower your team to succeed. So I think the ability to build a world class team and a recruiter world class team is number one. But I also think, you know, going back to your point earlier, you know, there are two lifebloods of startups. And money is also really important. So, you know, you want to invest behind someone who, you know, is going to be able to continue to keep the vision alive and raise subsequent rounds of capital as well. And so, you know, that's what I view my, the core essence of my job is keeping the lights on at a QDMD and recruiting really, really high caliber people to, you know, advance our mission and advance our company forward. I love that. And, and once again, we'll understand the breadth of your background to fully put the picture together. But now having been an entrepreneur and started a company successfully grew the company, growing the company now. If you knew what you know about being, whether a MedTech and or in general, an entrepreneur and building startups, would you do it all over again? Why are why not? Or what could you see yourself doing if this isn't what you're doing? Oh, absolutely. I'm having, I'm having a ton of fun and the opportunities and ments in front of us every day. You know, we, we hear about new use cases and new ideas from our user base. And hearing the stories of, you know, a successful user who has, you know, launched a new product in a pocket of his or her territory and converted a surgeon to adopt the latest and greatest technology. The impact we're seeing.
on patients from that unleashing those market forces is incredible. So yeah, I'm having a lot of fun. It's been great building a team. I would 100% do it all over again. You know, I love it. And then with building a team, with starting from White sheet of paper and now here you are a couple rounds later, is it glamorous being a CEO? I mean, you know, those visions of grandeur when you were either in college or just in general, those people who haven't been in the seat of starting something or fully leading something in terms of a company. And they may not know what comes along with that behind the scenes. Maybe they just get to see the glitz and glamour on LinkedIn or a movie or whatever it may be. But is it glamorous being a CEO to start up? Yeah, I mean, it depends on your definition of glamorous, I guess. I think I'll give two anecdotes and I'll let the audience decide if it's glamorous or not. You know, building a remote company during the pandemic, obviously a challenge. One of the things that we did, policy that we instituted early on was to have kind of, you know, buy monthly at first and then quarterly get together is with the team. And so early on in the early days of EQADMD, the founders got together in New York City. And, you know, instead of, you know, my prior career, we're staying in, you know, not five-star hotels, but we're staying in West Ends and Marriots and, you know, normal hotels. And so, you know, when we went to New York City, we ended up staying at, you know, a holiday in and Goannis Brooklyn. And because it had free breakfast and it was under budget. And so, you know, I love, like I think about that experience. And that was kind of some of the first product mocks that we put together was in that context. And, you know, I, it just, obviously the hotel wasn't glamorous, but it got the job done. And I really fond memories about, you know, that early, early point in the company's life cycle. The other kind of anecdote I'll say about the life of a CEO is, you know, I still get shipments from our swag vendor, our gear vendor. They show up at my condo. I put them all the way at the back of our closet. My wife, you know, is not very happy with me because I have boxes and boxes and boxes of sweatshirts and shirts and water bottles and, you know, all this, all this stuff. And I'm the one that goes out and mails it because I think it's really important for CEO to stay really close to those early employees and be part of that onboarding process. So every time I go to UPS and mail a new package of swag for a new teammate, you know, people think that, oh, that's an administrative job. You shouldn't be doing that. You're a CEO, but I actually get a lot of gratifying, like a lot of gratifying out of it. I really enjoy doing it. Obviously, it's not going to scale well, but it makes me think, wow, our team just got one person, two people bigger. I want to welcome them into our community. And so, no, it's not glamorous in the traditional ways. We're not jet setting and staying at five star hotels and, you know, interacting with celebrities, but, you know, it's glamorous in a different way, which is, you know, the moments that you keep and the experiences that you build are really special and look back on them really fondly. - I love that. And I promised him that I was going to reference it, but in our previous podcast, when I interviewed Dave Cariakis, who's the partner over at Providence Ventures, when I asked him the same question, he summarized it with, no, it's not glamorous. There's a lot of powdered eggs. And what you just mentioned was, you know, going to these hotels that there's where the powdered eggs are, right, it's inexpensive, you know, you don't have, and maybe it's often free breakfast. So there's not this glitzing glamour of staying in five hotel, five star hotels like you mentioned. So I thought that was funny. There's a lot of powdered eggs in entrepreneurship and early stage medtex. So thank you for that. A QD MD, you know, especially when it comes to SaaS or just in general startup, sometimes these names are creative and you don't know the story behind them. And I always love asking the question, what does the name of your company mean? How did you ultimately come to a QD MD? - Yeah, good question there. I, you know, a QD is a fascinating word. It obviously has a medical connotation. You know, your high-acuity patients, your more severe patients also has a connotation around visibility and transparency and the ability to see and understand instantly. You know, we really, we built our software and data platform to give our users med device, medtex, commercial leaders and reps. We built it to give them the QD, the ability to understand their markets easily and instantly. And that's really what we, you know, what we structured the business around is acuity, which is, you know, helping get very precise and visible onto the markets that these companies sell into and manufacturing new products for. And then the MD, you know, was initially, you know, a combo of medical device and MD, the medical doctor and the kind of unique relationship that device companies have with their user base, the surgeons and the healthcare professionals that they use, that use their products. And so that's kind of where the name, that's where the name originates from. Cool, cool. So lo and behold, the man behind the voice at this point, Mike Monavukas founder of Acuity MD, tell us who you are, where are you from? How did you build your life, your academics falling into a professional career, which ultimately led you to founding a Cuity MD. And then when we get there, I'll ask you again, tell us about acuity MD, but who are you? We want to know who you are. Yeah, absolutely. I'm, so like you said, I'm Mike Monavukas co-founder and CEO. I grew up in the greater Boston area, have always been fascinated by healthcare and the medical technology space. I started my career actually as a medical device entrepreneur, building a, you know, a tissue measurement company, struggled to raise funding. It was a small market learned a lot. Ended up paying the bills by going to work at Bain & Company, the management consulting firm, and I worked there. For about seven years, took some sabbaticals to, you know, explore various other entrepreneurial ventures over those, over those years. I also worked at a health IT care coordination startup called Patient Ping, where I was one of the first 10 employees and got to see that business being built. I got a front row seat as the CEO's chief of staff raising two rounds of capital from venture investors like Andrewsson and Fidelity's Venture Fund and Google Ventures. And so I've got to see kind of how the sausage was made, building an enterprise software company. And, you know, a QDMD was really the culmination of those experiences, you know, figuring out how to sell and commercialize a medical device when I was in my wound-style as days. At Bain, we would drop into these big medical device and biotech companies and try to help them with their commercial strategy and apply data to drive action and workflow for the reps. And then at Patient Ping, you know, they were harnessing hospital data feeds to drive provider workflows and care coordination workflows. And so, QDMD is really the culmination of those experiences. What if we could harness the power of, you know, increasingly available healthcare data, broadly speaking, to power and prompt and drive workflows of frontline medical device, commercial workers, reps, managers, national accounts, people, so that, you know, we're able to commercialize products more effectively and, you know, smaller companies are able to get by without needing, you know, a thousand feet on the street or two thousand feet on the street for that matter. - Well, then this next question is certainly for me and it's also for the audience listening in, we've alluded to a QDMD and you gave some kind of direction of the meaning behind the name, which probably falls into the business plan, but a QDMD, act like you're meeting a complete stranger at a bar and knows nothing about technology or medical device for that matter. And, you know, they work in a completely different industry and whatever, just something super, super simple. How would you describe the purpose, the mission and what ultimately a QDMD is doing with its technology? - Yeah, absolutely. You know, so Peter Tiel has a quote that I'm gonna kind of steal here, you know, and kind of morph into our use case. And, you know, so we want to, we want these big things out of our healthcare system, like value-based healthcare, personalized medicine and new technology. But instead, you know, we got 140 surgical instruments in a train and so that's no fault to the manufacturers or anyone involved, the reality is that in order to unlock things like personalized medicine, it creates an extreme variability and variety of products that are used, right? Different sizes, different approaches. So there's extreme product complexity in the MedTech space. And I think, you know, over five or 6,000 new technologies come to market and are approved by the FDA each year. And so our platform at a QDMD is a commercial platform. It's a software and data platform that accelerates access to medical technologies and tries to cut through some of that product complexity. So if a sales rep, you know, has 20 products in their bag, they can efficiently and effectively target and find the highest value opportunities in their territory across each of the products that they sell. And so that's in a nutshell, what a QDMD does. We provide data and software [BLANK_AUDIO]
MedTech reps target more efficiently. And on top of that targeting platform, we started to layer on more CRM capabilities like forecasting and pipeline management and territory sizing and territory management and market segmentation and contract management. And so, you know, we're taking that as a foundation, our targeting platform as a foundation and then layering on other commercial facing applications that are really relevant and unique to medical device companies. Like how they contract or how they forecast or how they plan inventory, etc. And not to oversimplify it, but for those who may be aware of other things, if you could even create an analogy, is a QDMD like the hub spot for medical device reps or is there another platform that we can kind of, and maybe it's not 100% accurate, but at least steer us, like for example, I'll give you a great example also in your backyard. And I referenced him on this whole series numerous times because he's just a phenomenal human being, but Todd Hussin, CEO of Active Surgical, to wrap my head around what Active Surgical is really doing. He said, we are the ways of surgery. So basically just kind of going through, you're obviously showing that navigation of how to get around things, right? And it may not be 100% accurate, but at least a North Star for someone to be like, okay, I get that. Is there something similar that you or is it completely disruptive where it's brand new? Well, I think you have to think about the existing systems that are that these large met-device enterprises are using software systems that like SAP or Salesforce.com that were quite frankly designed for other industries. So if you think about it, CRM platform like HubSpot or Salesforce has their own schema of data. For example, accounts and contacts and opportunities are kind of the core data objects that these CRMs rely upon. Now, if you go ask a met-device rep, you know, what their language is, right? They're selling into doctors and hospitals in cases, in, you know, IDNs. There are a whole other set of data objects that are core to their commercial process, right? And so they're, you know, trying to use these horizontal CRM systems, but in reality, a lot of that gets lost in translation. Is a doctor a contact? Is a doctor an opportunity? Is a doctor an account? It's not really clear. And then you also want all this extra data to identify and target that surgeon identify what products are relevant for them, like what procedures they're doing. So to answer a question, you can think of us like a Salesforce that was built for the MedTech industry. And, you know, the benefit is that we're able to preload a number of different data sets into the CRM, so that reps don't have to manually enter any information. So instead of a rep manually entering information about a contact or an account or an opportunity, all that information's available to them, so they can figure out where to target and why. Very cool. Okay. Thank you for explaining that. So now that we know who you are, the company that you founded and now are building, I want to get into the topic of the hour. I mean, most recently, there was a press release that came out of the QDMD and you and your team raising a series A of 31 million. So that's ultimately what I want to demystify and how that came about. We're going to talk about software versus hardware and some of those nuances. But before we get into that, you had mentioned in one of your stopoffs that Bane, you had seen a couple capital raises, just to be super clear, as a founder of QDMD, is this your first capital raise that you've successfully done? Yes. Yeah. First time, first time I've raised capital as CEO of my own venture. And we've covered a few times, first time founders and first time capital raises on here. But based on the background that you shared, a lot of the other first time founders didn't have the fortune to see kind of that progressive path that you were a part of. So you've been an entrepreneurship before, like you mentioned, whether your initial startup succeeded or failed, you learned a lot from it. And then you were part of from at least a seat at the table, other capital raises. So you got to figure it out. When you ultimately founded a QDMD and now we're forced on this magical data, be like, okay, now we've got to go out and raise capital. Did you already know what to do or how to start or was it really still like this wild, wild west string pulling, calling mentors? What do I even do? Like how is that mechanical process of that magical day that you had to start reaching out to start raising capital for QDMD? Yeah. I mean, I think you always have to start with your mentors and build kind of like a personal board of directors of people that, you know, you can bounce ideas off of and give you the advice of whether or not it's a good idea to launch this venture. And a lot of those mentors were the first checks into a QDMD. And so I still started there. I did have a playbook, so to speak, or at least at least a strong bias and instinct about how to raise. I think there are a lot of different philosophies out there, but I was exposed and saw success from, you know, prior work at patient paying to a particular philosophy that I attribute to the CEO there, Jay Desai, who taught me the ins and outs of fundraising. And so I definitely had a head start about how to raise. At the end of the day, though, you need to have your vision articulated. You need to have your story of why you're doing what you're doing and why it matters down. So you need to do that regardless of if you have a playbook. The playbook is more operational of how you close a round and how you build energy and excitement around the round and how you ultimately get across the finish line. So, you know, I think as a first time founder, yes, you always need to go to your mentors. You always need to have a very clearly articulated vision and goals for the company and your financials down. But it helps to have, you know, that advice and that playbook and that philosophy ingrained in you. And that's why I'm really excited about getting on this podcast. Let's start to share a little bit more about that philosophy about my take on raising and hopefully help, you know, future entrepreneurs as well. So I'm thank you for bringing that up and that leads me to my next question here. So getting very mechanical for all these entrepreneurs to learn from you, I hear a lot from either the pitchx that I review from a lot of first-time entrepreneurs or even just the dichotomy of philosophy that I hear from what investors want to see. And you often hear that founders, whether it's SAS or a tangible medical device, you know, they're very proud of their baby. And, you know, if they've never done this before, they've never been part of the raise or had the fortune of seeing things like you did prior to even founding a QDFD if they're just starting from weight sheet of paper. When you look at these slide decks and sometimes they're 20 slides and 30 slides, 40 slides, there's tens of slides that are all about the product. And it's just a lot about this technology and, you know, where they fall in the universe of the business and the model in the markets is an afterthought because they're so focused on the technology. And then sometimes you hear more often than not, you hear from the investors, you're like, tell me about where you fit in the universe. You know, I want to know who's on your team and who's invested in the traction that you've hit. I mean, I definitely want to learn about your baby, but I need to know where you are as a business first in terms of where you fall in this realm. Who's your competitors? Who's the potential acquirers? Much more of the business story to start with to put the framework in and then tell me about why are you unique. So sometimes I get this dichotomy of thought. And now you having successfully raised and getting into the mechanics of it, like you mentioned, you have to have your story down. What would you tell, like as you're on this loudspeaker talking to all these entrepreneurs, how would you tell an entrepreneur to put together a pitch deck to sell their technology? Is it accommodating the investors and telling that business universe story first of everything that they need to know of where they fall and then the technology or is there a technology first play with then the afterthought of the business model or is there a blend? What's your approach to building pitch decks? Yeah, I think the risk that a lot of entrepreneurs fall into is keeping the pitch deck as a separate document than what you're running the business off of what you're trying to build the business around. I think you need to align the pitch deck to what you're doing and what you're building. And so that's the first and there are a lot of different flavors, right? The team is an important aspect of that, the products, an important aspect of that, the market and how you differentiate is an important aspect of that. So I think the first lesson I would say is be true to what you're building in the pitch deck. It makes it easier to write and it makes it easier to align investors who agree with your vision for the company. So before putting any thought down and any slides together, the first question you have to answer yourself is how am I generating value for my customers? What is the value proposition? That's the number one message you need to line around for the sake of your business, but also for the sake of your pitch deck, right? And so once you have that clearly articulated ideally in one sentence, the rest of the pieces will fall together, will fall into place because you can sort of off of that kind of guiding light, you can hang off
Well, here's how our product works and why it's differentiated and accomplishing that value proposition. Or here's how the rest of the market is operating and why this is a need, right? For us, it was, hey, there's all these data vendors and there are all these software vendors and there's a ton of cost and yield loss and trying to integrate data and software in the med tech space. And so, I think the first thing to do is clearly articulate your value proposition. Make sure you have a clear understanding of that because that'll allow you to speak to differentiation. The allow you speak about the market. It'll allow you to speak more specifically about why people will buy your solution. And how many different rounds has a QDMD raised since inception? Yeah, so we've raised three rounds. The first was kind of an angel round. The second was our seed round, first venture round led by benchmark capital back, almost a year and a half ago or so. And then the third round was our series A led in most recent one, led by red point ventures. So you've now raised three rounds. I love this question because you start to understand how to build a business and some of the nuances of raising capital. What were the differences at each raise that you did? Like what was different about your approach to outbound raising capital for your angel round? Then when you switched it to your seed round and then now your series A, I mean, obviously these are different investors at each round. There's a slightly different tactics, maybe a different story. How did that evolution of your story and as well as how you raised more and more capital each time? Like tell us about each round and what you did and then the differences and nuances that you learned. Definitely, I think in general, the earlier rounds, there's less company and product to bet on and there's more founder, the greater the weight of the founder is to your betting on people rather than product market fit. And so the first round was personal network, second degree network, people have worked with MedDevice entrepreneurs who have been had successful exits, software entrepreneurs who have had successful exits. It was really, we kept it close. People who had had direct experience working with me and my co-founders and were understood what we were capable of. I think at that early stage, you're betting on individuals. And so it's really important to have experience working with that person. So that was the kind of precede angel round. The seed round, it was interesting. It was right at kind of the, I think it was four or five months in a COVID. We had some customer some traction and so we had de-risk the fact that we could actually build a commercial product. For the seed round, it was kind of face. So in the angel round, I kind of built the consortium of angels across MedDevice and software. And in the seed round, we tried to continue that and we tried to bring on enterprise software, investment funds and VCs as well as MedTech, additional MedTech angels and VCs. So I've always kind of tried to get a balance of enterprise software experts on the cap table as well as MedDevice experts, 'cause that's really what we're building. We're building an enterprise software platform for the medical device industry. And so we actually didn't pursue, for example, digital health investors or health tech investors. 'Cause that's not our business, that's not our business model. We're selling enterprise software. So it's important to align what you're doing with the investors you see capital from. It'll just make it a lot easier to align interests and get a quicker path to the deal. So that was the seed round. With all of my rounds, I try to time box them. So I basically had a first round of pitches that led to partner meetings in week two, that led to term sheets in week three. And then I stack, so that's like kind of a three week process. And so I staggered two waves of that just to have a backup in case that first wave didn't pan out. So I met with about five or six firms. That had already had some connections with either through our existing investors or through personal networks did kind of the first round of pitches over the course of a week, move to partner meetings the following week. And then by Friday of the following week, I started getting term sheets out. That went back to all the firms that I pitched to and said, look, I need a term sheet by Monday if we're gonna move forward 'cause I already have a couple. So the second you get your first term sheet is kind of a totally different ball game. And then kind of that third week was all about negotiating the term sheets and then keeping some additional funds, pitching to some additional funds in case, in case the deal felt rude. So that's kind of how I structured my process for the seed round. And we were really fortunate. One of my, one of the funds that I've always admired benchmark was super interested. And I was thrilled that they ended up, they ended up giving us a term sheet and we moved forward with them and have been really, really fortunate to work with Eric at benchmark and have him on our board. It's been phenomenal. So that was our seed round. Our series A was a little bit of a different story. We had started to get some buzz in the market and actually had funds come to us preemptively with term sheets and offers. And so they started to hear about the traction and we actually got full diligence deck sent to us with customer quotes and people were sending us prospects as well. Actually have like case studies that were written from the diligence that these investors did outside in on a QDMD. So the interest was definitely there from the investor community. So got to the point where we felt like we had the metrics and the milestones to justify another round. And we knew how we're going to spend the capital and we got some inbound requests and ran a process around that. So once you have that first interest it makes the process a lot cleaner because you can set timelines and hold investors accountable to those timelines and really put an end goal in sight of when you want the term sheet to be signed and when you want the deal to close. So you got to run the process. That's my number one advice is entrepreneurs. You got to be in the driver's seat of the capital raising process as a CEO. You can't just whiplash from one investor to another and not run a structured process with a funnel of how you're doing it. So I don't know, that was a lot. I guess I'll stop there. - If you saw me looking at it, I'm taking notes because I got questions I just don't want it for good to ask you. So first and foremost, let's just focus on that. You mentioned process. When you say process, what do you mean by process? And also I want to touch base on you mentioning the CEO should be leading the fundraising effort. So we've heard from time to time and of course the CEO does lead the fundraising effort. But do you ever bring part of your management team with you to do the pitches? Is there a team aspect to this? Or is it really like, if you are a founder and CEO, the weight of the world is on your shoulders and you're the one that's got to go do all this? So that's one question. The other question is that process like you mentioned. What does a structured process look and feel like? - Yeah, so typically, you have your initial pitch to someone at the firm, like a partner or MD at the firm and that's just one on one. That's just sometimes an associates in the room as well. But that's typically a smaller group. That pitch goes well then you move to the partner meeting where you're pitching in front. Typically you're pitching in front of a, you know, either in some cases the whole partnership in other cases, you know, whatever their decision-making body is, sometimes it's, you know, they need three or four, five partners in the room. So that's kind of typically one week after. And then there's a little bit of a grace period where you might have some sort of friendly calls with the fund or your sponsor and champion at the fund to almost start, you know, getting to know each other better. And those calls I'll include, you know, my co-founders and other executives, you know, to talk about the technology or talk about a commercial process. I think, you know, I think it's important for the CEO to drive the process as much as possible and to, you know, I don't love having like four people present a pitch deck in front of VCs, I think. You know, it's important to do your team justice and talk about them and, and then they're investing. The investors are investing behind a whole team, but I think it's just cleaner and easier to have one person up there presenting is my perspective.
And you mentioned about timing. I mean, once again, I know that you're in SASS. However, you also have the medical device background. And we've covered a lot of the medical device entrepreneurs who have raised capital for the next catheter, the next heart valve, the next orthopedic screw, if you will. We've talked about timing of race and preparation for race. And it's everything from one extreme of six months on the lower end to 18 months being on, like there's probably a major setback somewhere in the middle. And they had to start all over again, which took them 18 months. But we've somehow kind of whittled it down based on all of the discussions we've had thus far. Where it's like, typically nine months to a year and somewhere in between there, something like that. You just mentioned, you know, it sounds like militant in terms of your process. It's like, I get on the call is one week with a bunch of people next week we move on and then the following week. And then it's almost like a three week structured process. And it seems incredible. I mean, if the world worked like that for everybody, it seemed like a very efficient process. Are you saying that it takes you three weeks to raise all this capital? Or what is your process actually look like in terms of start day where Mike sits down and says, I'm going to start making my calls on my next round today versus when the money hits the bank. Like, how long does that process really take? Yeah, I think I constantly keep a list of investors. You know, who I want to either include in a subsequent round or think really highly of or not. And so, you know, I'll entertain some informal, conversations when I'm not in fundraising mode. I make them very explicit and say, we're not fundraising right now and have no plans to fundraise, but I'm happy to discuss what we're doing at a high level and feel them out and their funds philosophy out. So I'll do a little bit of that prework to start to build a network and have some warm leads essentially when we are ready to fundraise. Now, when we are ready to fundraise, you know, I would say it's about a, you know, week or two week prep time to call back all of those warm leads or get access to new investors that you think you have a compelling pitch to. So I'd say two weeks of setup time where, you know, you're working with your existing investors, your advisors, you're working with your own personal network to get meetings on the books. And you got to be very explicit. We are now in fundraising mode. We want to welcome you as part of this pitch process. You're one of, you know, ex funds that we're gonna, you know, we're gonna do this with in, you know, the week of ex, you know, the week of, you know, July 15th or whatever. And, and so you got to like kind of, you know, start the, you know, get the starting line in order, right? And so you bring like four, five, six, it's hard to do more than five funds in that initial wave because if you think about it, you're doing, you know, I tried to pack, you know, one to two calls a day over that first week. And that's a lot of prep. You want to like really rehearse it. You want to get the demo down, right? You know, the meetings are, you know, about an hour. So you stack that, that, you know, at least the first, and, you know, VCs are typically meeting, you know, Tuesday, Wednesday, Thursday. So you stack those meetings in those three days. And, and then, yeah, you're very clear. It really helps having like a friendly or some fun that you know, you know, you know, it really wants to invest, kind of set the tone early and get to a term sheet early. Maybe they've already done a lot of diligence about you or the business in advance. And so the second you get that first term sheet, the kind of the game changes significantly. So it's all about, you know, getting, building up to that, that first term sheet, because then you know, you're going to be able to get a deal. And it's just a matter of making sure other firms don't miss out because they're just behind on process. So you got to actually like push them along. So I don't know if it's militant, but it's definitely like, you know, one week of individual meetings, one week of partner meetings, one week to sort out the term sheets and get to an answer by the end of the third week. That's typically that's how I've run both the seed and the series A. Obviously, once the term sheet signed, your job doesn't end and you're sprinting to the finish to get them access to all the, you know, diligence documents. And you've got to make sure you have all that stuff set up in advance. You're, you know, all the administrative materials, your, you know, option grants, your board, concerns, your articles of corporation, all the blocking and tackling needs to be ready to go. So that the second you sign a term sheet, you're badgering the lawyers to get you, you know, their diligence sheet. And then in that fourth week, you have all the materials uploaded into their data room. And you're constantly, you know, constantly trying to push the timeline and push the timeline because, you know, one of my mentors and investors in a QDMD is, you know, Medtech, Medtech, Legend Duke, Roleene. And, you know, he has a famous saying that, that, you know, I love which is time kills deals. And so you got to, even if you have the term sheet signed, that's not the end of your job. So you got to push to, until that money is wired, that typically takes about a month. Once all the, you know, paperwork is, is signed with the lawyers and they put together the new round documents and red line it. And you got to be on your, on your toes during that period as well, because you need to make sure that, you know, you're not giving away too many, too many points of governance and your board is all set up and you're aligned with the investors on some of those key topics as well. So end to end, I would say, you know, two months is, is how I like to do it. I think, you know, what I really don't like seeing is when entrepreneurs let investors hang out in their data room for like, you know, it's three months or quarter. Like it's, it's like there's no reason they should have conviction enough conviction in the company that if they're hanging out in the data room for that long, they are just looking for a reason to say no and bail. They should have enough conviction about the entrepreneur, about the market and about the product when they sign the term sheet. Love that. And while you were telling that story, there's a, a very clear difference between arrogance and confidence and, and I deal with and work with a lot of entrepreneurs and there's this perception of these confident entrepreneurs who have successfully raised money and you brought up a really great point that I've heard in various shades from other successful entrepreneurs where it feels very two way street, meaning I'm going to go out and find good partners as investors and, and I'm going to select the five and pitch to them or I'm going to select the 15. I mean, and then there's another story to this where some of these investor or entrepreneurs who likely haven't raised before or maybe are dealing with a challenging technology or market, you can feel this energy of of almost desperation where it's like, I can't raise money and, you know, I have this investor sheet of 150 or 1000 and I've sent emails to everybody and no one's getting back. And it's a very different feel from that very, I'll use the word militant, but I, you think very organized or very clean process, but I call it confidence, not arrogance, it's completely different and, you know, you have this ability to just be like, okay, this is my product and I'm going to pitch to this amount of people and I'll let them know with good communication that they're one of 15 venture funds that I am pitching. And it, I think that's a very important topic because that desperate entrepreneur versus that confident entrepreneur that's looking for good money versus any money. What are your thoughts on that? I just want to throw that back at you because it does exist because I see a lot of high volume entrepreneurs and those two sets of energies if you will come out regularly. Yeah, I think it's really tough to do cold prospecting for to investors. I mean, if you think about, if you think about what you're asking them to do, you're asking them to respond to an email from someone they don't know and potentially invest millions of dollars in vouch for you without, you know, without building a relationship and they're asking for it on a timetable. So that's kind of an unfair request for, and meanwhile, they're probably getting bombarded by thousands of these, you know, these requests. And so I think, I think the cold outreach philosophy is not one that I would go down. I think you need to, you need to build your relationships in advance and have the pipeline warmed up when you're when the time calls. I think the other important factor is you need to raise from a position of strength. It's not arrogance. You need to raise from a position of strength, meaning you can't be desperate for needing the money. You always, and the way I approach fundraising is that with each round, you need to have an off ramp or an exit ramp if you're not able to reach the milestones justified to justify a following round, meaning, and maybe this is easier and sass than it is in Medtech. But specifically what that means is you need to have a pathway to break even and profitability off of your current round in order to justify leveling up to that next round. And with that mentality allows you to do, it allows you to approach investors with, you know what, we're going to get, we're going to be profitable or we're already cash flow positive, or we're going to be profitable in six months.
You're only going to get one app at this. This is your last chance to invest in a Q&D MD. So what are you saying? We've been talking for a while. You know, you've done your homework on the business. We'd love for you to partner like, let's go right now because I'm not going to be more desperate in six months. I'm going to be less desperate in six months, right? So you want to make the investors feel like this is a once in a lifetime opportunity for them to back back an entrepreneur. So I think being in a position of strength and not raising to hit milestones, but we're sorry, not raising because you're not hitting milestones, but raising because you just did clear a milestone and have visibility into the next milestone is a really important, is a really important mentality to take. - And so you were alluding to our next topic in conversation, which is a big one. And I'm going to front load this. You taught me this when we connected a year ago. And it was one you put the press release out on your seed round. And I saw that you had Benchmark, which was a SaaS-based investor. And you had Ajax, which is a medical device investor. And I really started to wrap my head around the nuances between raising for medical devices and raising for SaaS-based platforms. And you taught me that. And your company taught me that. That press release taught me that. And so I want to spend a little bit of time on that. I'm going to ask two questions and let you run on them, but they're both combined. So you have a medical device background, but you obviously clearly have a SaaS-based background now. What are the nuances for raising for a software-based company or a SaaS-based company versus a tangible medical device? And I'll just, I'll influence the question. We see sometimes precede, post-seed, the series A for a SaaS-based company is you're already revenue generating versus a series A for a medical device typically gets you to design freeze and maybe starting a first-in-hand human study, something like that. And it's a much smaller round, right? So 31 million, which what you raised as a series A, a typical series A for real medical devices, like anywhere between $3 and $10 million, something like that. So what are the nuances between raising for SaaS and for hardware? And then also a couple with that, you're a SaaS-based model going after the medical device industry and you balanced this investor piece where yes, you are an enterprise software company, hence the SaaS investor, but you're going after the medical device industry hence the medical device investor and the value that you needed that support from those two different philosophies. So talk about how you find and build that investor piece and the nuances behind that, which ultimately lead and segue into the difference between raising for software and hardware. Sorry for the long question. Yeah, to me, I'll distill it into three M's because there are a lot of M's in my name and it's my favorite letter. So it's milestones, metrics and multiples. I think those are the three key differences between the two industries and the two verticals. So on milestones, you know, a, one of the things I really like about software that I did not get when I was launching the medical device company is very challenging to iterate towards product market fit in a hardware environment with a highly regulated product. In software, you can push new versions daily and you can work, you know, I was working in, I was coding, I was also pitching the customers and getting feedback from the, from their use and then putting that right back into some of our, or algorithms. So the feedback loop is so much tighter in software that you can reach product market fit a lot sooner and more capital efficiently than you can in hardware. That's no, that's no secret there. So in terms of milestones, you know, the milestone to get to product market fit is a lot, I think quicker, whereas in the met device space, you have to go through some regulatory and, you know, design freeze and, you know, some clinical work as well. So, you know, in terms of milestones, you know, it's just, it's a lot, like the, the, the series of milestones for a software company are all kind of the same. It's like, all right, you have your MVP and then you get to product market fit and then you're like scaling your commercial team, right? Like it's like just high level, that's kind of the key milestones in the meta tech industry. There are different milestones that they run their business on. And so you need to have an investor that understands those milestones and helps you, helps you understand if you've actually checked the box on that milestone or not, right? So, and it helps you get over the hump to reach some of those milestones. So it's really important to tie your investors that first end the milestones so that they understand intimately how to overcome each of those milestones and whether you've, you know, done it or not. The second is metrics, right? You know, the metrics I run the business on and we run a QDM beyond, you know, things like annual recurring revenue and, you know, net burn and, you know, and you'll recover, recurring revenue per head count and, you know, metrics around, you know, turn rate and NRR, net, you know, revenue retention. And so there are a certain set of metrics that software businesses are evaluated on that are different than the metrics that meta tech companies are evaluated on, right? And, and value on. And that's gonna be my third point. So you need to understand, you need to pick investors that understand the metrics that your business relies on and can identify and pattern match when, you know, your metrics look different than the other companies that they've seen. They can help you either spend more money or spend less money or recalibrate your go-to-market to make sure that, you know, that your metrics align. So that's the other one, which is the metrics for a software company totally different than the metrics for a meta tech company. And then on the multiples, on the multiples, I, you know, I think, you know, software has the potential of being highly capital efficient where, you know, it's infinitely scalable, right? You can design a product and sell it to the same, you sell it to multiple customers without needing to manufacture a new product, right? Hardware doesn't have that benefit. It's a different business model. And so the multiples and the metrics to, you know, identify a high performing hardware company are different than a high performing software company, right? In hardware, you care about metrics like, you know, the cash conversion cycle, how quickly are we turning inventory into cash, right? How quickly are we at? How much inventory do we have outstanding in the channel today? Software doesn't have, doesn't really care about metrics like that as much. They care about, you know, ARR, annual contracts, how much remaining value is there in a contract, how much commitment is in a contract? And that translates into the multiples that software businesses are valued on versus hardware businesses. And so those are the three key differences. And I think it's important to find investors that understand those key differences because, you know, in terms of building the business, they're not, you know, you need to line yourself with investors that understand the milestones and the metrics that are critical to, you know, providing advice for you to grow the business. And ultimately, we'll value you at a multiple that corresponds to your industry that you're in, right? So that's kind of been my philosophy in finding investors for a QDMV is, we're an enterprise software company, we're not regulated by the FDA, we're not selling the hospital systems or providers, we're not selling the consumers, we sell into large medical device enterprises. And so that the set of milestones and metrics in order to prove that business can survive and can thrive are better understood by enterprise software investors, like Benchmark and Redpoon. That said, you know, I wanted, I wanted Med device because we're focused on the Med device vertical, it's really important to flesh that perspective out with folks who understand the industry really well. And that's why we brought on MedTech investors as well with Ajax, you know, it was different, it's a very different investment for them than any of the other investments that they've done. So, you know, it's important to have that balance on your capital table, but at the same time, like, you know, our capital is heavily skewed towards enterprise software, investors because of those three M's, the, you know, metrics, milestones and multiples. So I told you that you taught me something huge a year ago about balancing this investor pool. And now you just taught me something great again with the three M's, the milestones, the metrics and the multiples. So I hope the audience learned here as well. I know that I did. I want to say thank you so much for your time, for your insight, for obviously demystifying the SaaS versus hardware model for telling us about your entrepreneurial story of how you got to ultimately raising a Series A of 31 million for QDMD. Congratulations on your success. And I think another thing just to be very clear on the differentiation between the hardware or the medical device piece and the software piece, if not mistaken, like you said, you started a QDMD a few years ago and you're already at commercialization where a hardware slash medical device company, you know, tack on either double that time or maybe even triple that time before something like that happens. So, congratulations on your quick success. Congratulations on scaling the team and being where you are today. So fear.
time for sharing with us your insight. This is Mike Montavurkus, founder and CEO of the QDMD, and this is the MedTech Money Podcast series where we demystify raising and investing capital in MedTech. Thank you so much Mike, I really appreciate it. Thank you Giovanni for the opportunity. Take care. Thank you for listening to the podcast. If you enjoyed this podcast, please subscribe and leave a review. If you need anything from the podcast, you can always contact us at info, at projectmedtech.com. Thanks for listening and have a great day.
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