Guest post: Medical device entrepreneur argues for feds to play venture capitalist

Rick Lifsitz is a serial entrepreneur. Over the past 15 years he’s helped build three companies from the ground up. He’s directly responsible for the creation of hundreds of jobs and many millions of dollars in shareholder value. His latest venture, HyperMed, provides imaging technology that addresses vascular medicine’s most vexing problems. The technology reduces costs and improves patients’ quality of life. Yet the squeeze on venture funding is forcing HyperMed to put on the brakes right at the time that it should be ramping up spending and employment.

Rick echoes Thomas Friedman’s argument that the federal government should consider providing venture funding to companies like his. I’ve posted his thoughts below.

In a New York Times Op-Ed (Start Up the Risk-Takers), Thomas Friedman calls for investing stimulus money in fast-growing startup companies with bright futures rather than funneling ever increasing sums to preserve old-line industries.  He highlights an issue that I believe has gone unaddressed by the Obama Administration and could have long-term negative repercussions on the growth of medical device startup companies such as my company, HyperMed.

The stimulus bill creates positive incentives for small businesses, but medical device and other capital-intensive startup companies won’t benefit.  Most startups that are developing revolutionary technology are cash intensive in the first three to four years.  Tax incentives mean nothing as these companies make no profits during the development phase.  Yet, it is precisely during this time that startup companies are hiring extensively, innovating, investing in capital and developing their patent portfolios to build long-term advantage.  Regrettably, the traditional mechanism to fuel this growth – the venture capital industry – is “broken” due to a lack of investment from its largest patrons – pension funds and university endowments.

As a serial entrepreneur on his fourth startup business, the current economic climate is unlike any I’ve experienced.  Rather than investing in new companies that could stimulate job growth and revolutionize the country’s position in health care, current venture capitalists are battening down the hatches, pushing companies to reduce headcount and spending and shutting down companies that will require significant investment to become cash flow positive.
Some of this activity is probably warranted but it is the death knell for innovative companies that will dramatically alter the landscape of many industries critical to the future competitiveness of the United States.

If our government is serious about its intent to change the health care system, it needs to do more than just invest in electronic medical records.  It needs to provide investment dollars to startup medical device companies that can help in disease prevention and ensure that existing, expensive treatments are cost effective.  As Mr. Friedman points out, with the current venture capital markets in turmoil, the government needs to offer investment capital to startups.

I disagree with Mr. Friedman that the distribution mechanism for this should be venture capital firms, but I do believe that a small group of successful entrepreneurs should be put in charge of reviewing plans and making direct investments in firms that will further the country’s strategic imperatives.  Entrepreneurs have a far better sense of the critical success factors for startup companies and won’t be biased by the conventional wisdom/constraints of venture capitalists. (In fact, it is to the advantage of today’s venture capitalists to constrict the dollars flowing into venture capital in order to maximize their returns on existing investments).  Whatever the distribution mechanism, however, time is of the essence.  Many startup firms have already cut critical staff and many are running on fumes.  The human capital will take years to reassemble for many of these companies, leading to delays in innovation.

I know this from personal experience.  In the last two weeks, our firm, HyperMed, Inc. has had to slow its growth strategy and cut critical programs.  We’ve developed a non-invasive imaging technology to provide early diagnosis of limb-threatening diseases in diabetics and those with peripheral vascular disease before they result in amputation.  Annual health care spending on patients with diabetes and peripheral vascular disease exceeds $120 billion in the United States.  While we aren’t curing diabetes or peripheral vascular disease with our technology, we are enabling physicians to intervene earlier in the treatment of these patients, reducing the overall cost to the health care system and improving the quality of life for potentially hundreds of millions of patients afflicted by these diseases. In addition to the physical and emotional toll, one below the knee amputation costs over $40,000 to Medicare or the insurer and then adds another $300,000 in long-term care costs.

While private investors make a good return by investing in our company, the Government (Medicare) gets an even higher return through cost avoidance.

The technology has already shown promise in other important areas of medicine such as re-sectional breast cancer, shock, and diabetic foot ulcers and pressure ulcers.

Just as the development of widely accepted cholesterol measurements enabled the growth of highly effective statin medications, our technology is already being used as a benchmark to judge the efficacy of new drug and device therapies to treat the root causes of these diseases.  This could lead to an entirely new set of therapies that would dramatically reduce the cost of treating the large and growing population of diabetics and vascular disease patients.
Our company is only one of thousands that can provide outstanding economic returns to the government and significant cost reductions in today’s health care spending. If properly funded, we will also double our employee base each year – providing well paying jobs with full health care benefits.

The future of job growth and revolutionary technologies lies with startup companies. The sooner we can get back to focusing on the opportunity at hand and not fighting for a piece of the shrinking and elusive venture capital pie, the sooner America can begin to pull itself out of this recession.

At HyperMed, we welcome a public-private partnership that properly allocates the true benefits of our technology.  We are more than happy to provide the government with an equity stake in the company on the same terms as any other investor.

Richard A. Lifsitz
Chief Operating Officer
HyperMed, Inc.

February 25, 2009

3 thoughts on “Guest post: Medical device entrepreneur argues for feds to play venture capitalist”

  1. Mentor Capital is well poised to become a significant participant in the expanding medical sector of Cancer Immunotherapy, an emerging approach to overcome the historic medical nemesis of Cancer. This is starting with MNTR’s initial $2.2 million or 20% investment in Quantum Immunologics, Inc. (QI), a private company. The QI agreement contemplates “there is potential for significantly increased investment, or even merger of the Parties.”

  2. Check this news release! “US Patent Office ruled Oculir patent invalid”.
    VCs failed to do their due diligence. Imagine investing in a company with illegitimate patent.
    Fortunately, VCs were able to recoup their investment

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