2021 was a record year for Healthcare investments and according to Silicon Valley Bank’s 2022 mid-year report venture fundraising has continued to surge. However, investment decisions are not easily made and can be a long process. How does an operating-investment firm decide which opportunities to pursue? What should an early- or mid-stage company look for in an investor? Recently, Al Reid, founding partner of Calypso Investment Partners (“CIP”), and Mara McFadden, CEO of Endolumik, spoke about why CIP and Endolumik decided to partner.
Al Reid (“AR”): Before we get into the details of our path to partnership, I would like to share a little background on our companies. As an operating-investment firm focused on healthcare and life sciences, CIP focuses on developing a diversified portfolio of early-stage ventures with strong growth potential. In addition, we work with more established companies with a strategic focus towards sustainable earnings. We look for businesses that are driven by innovative products/services, talented management teams, and a sustainable competitive advantage.
Mara McFadden (“MM”): Endolumik is the brainchild of my business partner Dr. Nova Szoka, a minimally invasive surgeon with extensive experience in bariatric procedures. She conceived the idea of a medical device leveraging near-infrared light to make the surgical tools more visible, and therefore safer during laparoscopic procedures. Dr. Szoka is a gifted clinician but had never commercialized a product before. . Conversely, I’ve spent almost my whole career in the business side of the medical device industry, so we found that we had the perfect combination of skills to launch a company.
AR: At CIP, we field pitches every day and Endolumik’s stood out for a variety of reasons. Our team meets on a weekly basis to evaluate the top line presentations. We follow-up with initial due diligence on the industry and its growth potential and profitability. We also check in with our extended network to round out our understanding of the industry. Among our three founding partners, we have some 60 years of healthcare experience in different areas, from medical devices to technology and engineering. So we each bring unique perspectives to the discussion.
As part of our due diligence, we look at the overall benefits of the product, how the product can help advance health care by reducing costs and medical errors. We’re not looking for better mouse traps; we’re searching for different, innovative approaches that can shift paradigms in healthcare delivery. We want to invest in breakthrough technologies that have the ability to really change the standard of care within an industry. So, we look far and wide for those products that we think are going to be industry game changers.
MM: We already had several investors that joined our first round of financing. The challenge with medical devices is they’re capital intensive so we had to build a conglomerate of investors to raise the $675,000 we needed for the early stage. As we were too small and too early for large institutional VCs, we found out early on that we were a better fit for Angel investor groups like CIP.
What mattered to us even more was CIP’s healthcare medical device background. On the very first call, it was evident that all three partners have deep expertise in our field. They instantly understood our value proposition — Endolumik has created a device that makes bariatric procedures safer today, and it’s ushering in a new wave in digital surgery by harnessing near infrared light to make surgical tools more visible. CIP had the requisite industry familiarity to truly appreciate what we can unlock.
AR: One of our investment criteria is how it will benefit society. As a diversity- led firm, we actively seek out other minority-owned companies.
Going into this process, we knew the growth in bariatric surgery and its potential complications. We conducted primary- and secondary research into Endolumik’s design. Let’s be honest. We look for devices and technologies that we think will eventually get acquired by larger organizations. That helps us figure out our time frame and the horizon window of when we think they will be acquired, which we hope is between three to five years. Endolumik’s product specifically could very easily complement the armamentarium of a number of different endoscopic, minimally-invasive surgical companies. All of these companies who are looking to advance and create further differentiation from the competition within their portfolios.
Since signing on as investors with Endolumik, our confidence in them and the product has only grown. Mara and Nova have received significant external validation of the product concept and business plan from industry groups. They won first prize at the Shark Tank at the annual conference for the Society of American Gastrointestinal and Endoscopic Surgeons (SAGES) in late 2021. Endolumik also won first prize at Ignite Healthcare Network’s Annual Fire Pitch Competition in early 2022.
As we close out 2022, Endolumik continues to achieve milestones against the headwinds produced by COVID and uncertain financial markets. The company recorded positive outcomes in its first human trials and submitted its 510K application to the FDA. In addition, they have expanded the Clinical Advisory Board to include well-known physicians, Dr. Raul Rosenthal, Chairman, Digestive Disease Institute of Cleveland Clinic Florida and Dr. Matthew Kroh, Vice Chair of Innovation and Emerging Technology of Cleveland Clinic.
MM: When you look at the percent of venture capital that goes into companies with female CEOs, it’s less than 2% of the total. So, we were excited to work with people who were looking beyond gender and were focused instead on the value we offer. CIP gave us a chance to share our story and vision for building the company.
Moreover, we quickly realized that CIP would be giving us more than just a check. They offered mentorship and advice and they certainly have lived up to that. I have sent many a pitch deck to the team to review and received excellent feedback. They’ve connected me with advisors and consultants. It’s extremely rewarding to work with partners who have deep personal experience in our sector.
AR: Mara has done an exceptional job of managing the funding they’ve received, running Endolumik as a start-up. She’s been approachable, transparent, and always willing to answer questions. As she mentioned, we’ve been allowed to review documents, even their case study presentations, and provide them with feedback. Our partnership works because it’s a two-way communication. We appreciate and value what she does and vice versa.
What we’ve learned in this process is that Endolumik is a beachhead investment in this space. Since our partnership took effect, we’ve been evaluating other technologies, products, and services that would be complementary to their offering. We see the potential opportunity to bring some of our investments together to present them as a package to potential buyers.
Connect with Al Reid on LinkedIn.
Al Reid is a transformational and visionary global business leader with Fortune 50 experience in strategic, financial management, and operational matters. Al has worked toward creating long-term value for companies and shareholders via the effective execution of corporate initiatives.
Mara McFadden has a long track record of engineering, launching, and managing successful medical device products and business units. Throughout her career, she has worked for several notable companies including Johnson & Johnson and Philips Healthcare, in addition to accruing six years of startup experience.