Brad Vale on the Evolution of an Innovative Industry
In his constant search for the latest trends in medtech investment, Brad Vale shares some secrets to the success of one of the oldest corporate venture arms.
The Biodesign Alumni group recently had the pleasure of sharing dinner with Brad Vale, an industry leader in corporate venture funding and the VP, Head of Venture Investments of Johnson & Johnson Development Corp (JJDC). Naturally, the theme of the evening revolved around the role of corporate partners in financing and supporting early stage product growth. We walked away from the evening with three key lessons that Brad imparted on the alumni: (1) investment sources are rapidly changing in the medtech industry and will continue to involve more and more angel and corporate venture partners; (2) carefully monitoring environmental changes in the industry rather than following a rigid investment protocol allows early stage investors to be strategic rather than reactionary; and (3) invest first in the people, then in the solution.
To begin, Brad acknowledged that VC funding is going through a major change and, notably, has dropped off significantly in the medtech space. He is keenly trying to understand who will fill the gap. Brad was curious to hear from the Biodesign Alumni about the alternatives to VC funding that we have explored. How common are angel investors on boards? How many of us had explored funding outside of VCs? All of the fellows shared experiences of seeking out angel investors and/or grant money at some point in the funding process. From Brad’s perspective, while he agreed that it is common now to have angels on the board of a company or involved in Series A, this is a major shift from even just 5 years ago, when angel investors were rarely included in Series A rounds. Similarly, Brad has seen corporate venture emerge as an exploding and highly sought after source of early funding. Both of these trends are reactionary moves to fill the gap left by the loss of VC funding in medtech.
In fact, alternative funding sources is a major ongoing discussion within the industry today, catalyzing conferences and many smaller gatherings of thought leaders. Brad mentioned that JJDC, Paul Yock, Tom Fogarty and others are actively discussing how big companies can get involved with start-ups at an earlier stage. It is a win/win for everyone if big companies buy start-ups for less, earlier. Ultimately large companies are dependent on start-ups to support their pipeline of products, so Brad believes that there will necessarily be an increase in investment by corporate venture funds in the near future.
Every year JJDC invests in about 6-8 companies in both the pharma and medtech spaces. Brad does not believe there is one standard investment “protocols” – the industry is constantly changing, and it requires a firm to keep up with the latest trends in technology and investment vehicles. He thinks that one of the keys to JJDC’s long successful track record is that they are always open to where and how they invest. According to Brad, establishing a protocol that locks them into certain stages and types of investment doesn’t work. JJDC invests anywhere from $100k to $10M or more in a company – there is no magic investment number, but rather it depends on the opportunity, the stage of development, and other key variables, supporting a efficient path to extracting risk and increasing value.
When to buy start-ups is hotly debated and discussed, and of course there is no “golden rule,” but Brad suggested that companies that have some income are significantly more attractive as acquisition targets than those without income. Not only does this mitigate some risk for the acquiring company, but it also may help the start-up/new product survive within the quarterly reporting structure of a big company. Very early companies run the risk of being bought and then fighting for resources along with other internal projects if they are not generating any revenue. With regards to corporate integration, Brad cited some recent discussions with Thomas Thurston, previously in Intel’s venture group, which followed a number of acquisitions made by large companies and identified factors that lead to successful integration. One of their conclusions, and something in which Brad strongly believes, is that every integration should be tailored to the opportunity – a paradigm-changing innovation should be left alone as a standalone division, while an incremental innovation can be folded into an existing division.
While there are certain risks that JJDC is willing to take when looking at potential companies, Brad avoids taking people risk as much as possible in his funding decisions. After two decades of experience at JJDC, Brad believes that people are the most important component in a funding deal. One piece of advice he had for Biodesign Alumni early in their career is to be a part of a success story and get direct exposure to the process from conception to acquisition. Having one or more successes on your resume, even as an early employee instead of a founder, goes a long way with investors. Alternatively, for those Biodesign Alumni trying to found companies right out of the gate, it is critical to get established mentors on your board in order to make investors feel comfortable.
Overall, the Biodesign Alumni learned over dinner that Brad is inquisitive, humble and a strong believer in the people with whom JJDC invests. He does not prescribe to a rigid investing philosophy but rather is constantly investigating and learning from those around him about what is going on in early stage medtech, healthtech and biopharma investing. By always keeping his finger on innovations in investing, Brad Vale helps JJDC to be strategic, rather than reactionary, in their decisions. Given Brad’s successful track record, these are lessons worth investing in.
Excellent write-up. Thanks for taking the time to share your conversation with Brad!
Nice job Kate – well-written. Does anyone have any experiences to share in their trials and tribulations of raising seed-stage funding for a new medtech idea? What level of “proof-of-concept” have you found is necessary to get early investors onboard?