Startup CEOs Share Success Stories In Navigating The Medtech Funding Gap

Leaders of Twin Cities’ CRVx, Rotation Medical talk strategy in a tough capital climate.

Medical device start-up companies in Minnesota and elsewhere in the country are facing a major problem in finding financing for the crucial “mid-period” in their development cycles – the span between initial seed funding and the late-stage rounds meant to back the final push to commercialization.
That funding gap was described by one CEO speaking at the AdvaMed 2016 Conference in Minneapolis last week as a “big, black hole in the middle.”
That chief executive, Patrick Daly of North Carolina-based Cohera Medical, and two more from the Twin Cities – Nadim Yared of CVRx and Martha Shadan of Rotation Medical – shared their stories on how they’ve overcome those funding hurdles to get their products onto the commercialization track despite the challenges.
Cohera Medical
Cohera Medical, which recently moved from Pittsburgh to Raleigh, N.C., has received pre-market approval from the U.S. Food and Drug Administration for its TissuGlu surgical adhesive, which the company touts as the first-ever internal adhesive. Cohera says TissuGlu eliminates the need for post-surgical drains in most cases of abdominoplasty – otherwise known as tummy tucks.
The product adheres the tissue flap created during the procedure to the underlying tissue, helping to reduce the fluid that can accumulate in the space, thus also reducing the need for invasive treatments and improving patients' ability to return quickly to normal activities.
Cohera last year landed a $50 million financing led not by a venture capital firm or even a big medtech firm like Johnson & Johnson. Instead, it came from a non-traditional source: a private equity firm, KKR.
Daly told attendees at a CEO event sponsored by Tata Consultancy Services that even before that round, he took a different path that ultimately benefited the company.
“When we started the company in 2006, we went with an angel round, which I think a lot of companies do, and raised about $7.5 million,” he said. “We were about to do our Series B a few years later. We had some term sheets from some pretty well-known VC funds, but something happened on the way to the bank – Lehman Brothers and Bear Stearns collapsed.
“So we were getting squeezed by the VCs to take some really rough terms. But we had around 11 angel-round folks who said they wanted to double down, and we raised $20 million in angel funding on our Series B. We kept that all the way through the Series D. We were very fortunate in our last round, which we think is our penultimate round, to raise $50 million from KKR, which is a private equity firm.
“You’re seeing more and more of that. You’re starting to see private equity dip down in into companies that are just getting by and have some interesting technologies.”
Daly added, “You can talk about where funding is going, but there’s this real big gap in the middle. There’s early money in the ‘A’ round, and there’s potential money at the end for commercialization, but there’s this big, black hole in the middle.”
Minneapolis-based CVRx capped off 2016 with not only its largest-ever funding round, but also the biggest take by any Minnesota company this year. The maker of the Barostim Neo device received a $93 million cash infusion from its Series G investment round led by Johnson & Johnson Innovation in August.

That’s a lot of financing rounds for the company, which is currently undergoing a 310-patient study on the effectiveness of implantable neuromodulator in treating high blood pressure and heart failure. Altogether, over the nine-year lifetime of venture capital fundraising, CVRx has totaled more than $283 million in five rounds.
The lion’s share of the credit goes to CEO Nadim Yared, who, like Cohera’s Daly, also serves on the board of AdvaMed Accel, the division within the AdvaMed medical device trade group dedicated to addressing the unique needs and challenges of smaller medical technology manufacturers.
Yared said that his struggle to raise funds during the mid-period was filled by a “strategic,” the medical device industry shorthand for “strategic partner’” or big corporate investor – in this case, Johnson & Johnson, which for CVRx entered picture in 2007, just before the financial crisis first opened up the current medtech funding gap.
“In February 2007, we reached out to VCs, and we reached out to strategics,” the CEO said. “That same week we had three term sheets—that was a different era, remember.
“We took the three sheets to the board, and we were most intrigued by the J&J for two reasons: One is the structure. J&J has a separate venture division that’s kept separated from its operating divisions.
“And the second was that the J&J term sheet was about 15 pages long and we felt comfortable that as we navigated toward closing there would be no surprises. Other term sheets were like one page—you sign it and start working and then there are surprises. It started a 10-year relationship with J&J and it’s been fantastic.”
Rotation Medical
Plymouth-based Rotation Medical was founded in 2009 with a “breakthrough” product that prevents the progression of shoulder rotator cuff disease via the use of an implantable collagen scaffold affixed to the affected rotator cuff tendon. The system works by inducing the growth of new tendinous tissue, thus preventing re-tears.
Initially funded by New Enterprise Associates, Life Sciences Partners and Pappas Ventures, Rotator Medical announced a $12 million Series B extension round in August by those same backers. The financing was engineered by CEO Martha Shadan, who was brought in to lead the company three years ago after working for large medtechs such as Covidien.
Shadan told the AdvaMed crowd that as a first-time start-up CEO in a tough financing climate, it was probably a good thing that she didn’t know what to expect.
“If I had known what I was in for, I would have been scared out of my mind,” she said. “Fundraising is not a process for the faint-hearted.”
Her particular strategy was to not take an initial “no” for an answer, and employing a method that proved particularly successful.
“I heard a lot of the same things from investors, and I reached out to all of them,” she said. “I finally realized I wasn’t getting the real story. They would give these canned responses. So halfway through the process I would send them an e-mail saying, ‘I certainly respect your decision, but could you give me 15 minutes on the phone? I need some help and I would like to get some feedback from you.’
“Humans react to that – if somebody says “I need your help,’ we respond. Nine out of 10 times, they’d say ‘sure,’ and set up a call. Those calls would be real conversations, and that’s where I really learned what their issues were. I used that information to refine our pitch. I did a better job of anticipating what the real questions were.”