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Venture-Based Economic Development II: Company Formation Strategies

Venture-Based Economic Development II: Company Formation Strategies Partnerships in Venture-Based Economic Development Presentation at Knowledge Clusters and Entrepreneurship in Regional Economic Development Conference September 2004 Mark B. Knudson, Ph.D.

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Venture-Based Economic Development II: Company Formation Strategies

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  1. Venture-Based Economic Development II: Company Formation Strategies Partnerships in Venture-Based Economic Development Presentation at Knowledge Clusters and Entrepreneurship in Regional Economic Development Conference September 2004 Mark B. Knudson, Ph.D. Chairman, President and CEO, EnteroMedics Inc. Chairman and CEO, Venturi Development Inc. Phone: 651-634-3033 E-mail: mbknudson@venturigroup.com All Right Reserved. Transmission or reproduction of this material, in whole or in part, in any manner or form or by any means, without the written permission of the author is prohibited.

  2. My Background • Management • Research and Development management, large medical device company • President/CEO of >10 companies • Board of Directors / Chairman • Venture Capitalist • 30+ Equity investments • Raised more than $500,000,000 in financing • Evaluated thousands of business plans • Entrepreneur • Founder of >25 companies • Hundreds of high value jobs created • High-Growth start-ups • SBIR and DOD grants • Economic development relationships • Assistant Professor – University of Washington School of Medicine • In-depth understanding of needs • Teacher and researcher • Author/ Lecturer • Numerous articles in professional journals • Economic development consulting: • Norway • Denmark

  3. Overview • Venture based economic development: A model from successful partnerships between entrepreneurs and EDAs • Background • How has the model worked in practice? • Restore Medical, Inc. • Larex, Inc.

  4. Venturi Model:Successful Innovation • Focus on clinical need (market) • de novo evaluation of current status • Accurate technology assessment • Thorough proof of concept: “the “critical experiment” • Efficiency • Experience • Speed to market

  5. Venturi Structure

  6. Company Resume(representative list) • Funding raised: >$500 Million • Acorn Cardiovascular, Inc. • Arden Medical, Inc. • EnteroMedics Inc. • HeartStream, Inc. • IntraTherapeutics, Inc. • Integ, Inc. • InControl, Inc. • Larex, Inc. • Medical Innovation Funds I and II • Restore Medical, Inc. • Venturi Group

  7. Success Matrix Market (clinical) Need EDAs Venture-Based ED Market Studies Technology

  8. Market Driven • Focused on market need, not technologies • Perform opportunity analysis • De novo evaluation of current status of field • Understand and reconsider current status quo • Assess needs and technology • Develop preliminary product specification

  9. VBED Process • Phase One (“Incubate”): • Develop preliminary product specification • Intellectual property strategy • Design proof of concept studies • EDA/Government seed support • Phase Two (“Critical Development”): • Complete studies (market, technology, proof of concept, and market paradigm) • Identify first “outside round” funding strategy • Go / no-go decision

  10. Need and Market Assessment • Market size • Reimbursement • Competitive landscape • Growth rate and potential magnitude • Primary research • Review literature • Contact potential users • Experts • Question: How would you prioritize markets?

  11. Technology • NO to technologies in search of markets! • Technologies must meet market need (“markets in search of technologies”) • Strategic protection available • Performance parameters well known • Confirm cost effectiveness • Do they “fit”?

  12. The Critical Development Step • Challenge new paradigm • Confirm market paradigm • Achieves the predicted outcome • Functions appropriately in application • Verify technology • Performs to specification • Will yield a manufacturable and reliable product • Question: What are the key questions this phase must answer?

  13. Next Steps • Successful proof of concept • Prioritize development based on • Market need • Adequate market size and growth • Technology development pathway • Regulatory pathways • Business plan • Raise “outside” financing

  14. Does This Approach actually Work in practice?

  15. Restore Medical, Inc. Therapy beyond surgery for sleep disordered breathing Financing history: Seed Aug. 1999 $2MM Series B Nov 2001 $12.5MM SBIR/DOD grants $1.0MM Bridge financing Aug 2002 $7.5MM Series C Jan 2004 $26+MM Larex, Inc. Nutraceuticals and natural products Financing history: Seed 1994 $2MM Co-founded by Northeast Ventures, an EDA fund Mn Power/ Cohasset business park site IRRB paid for building, company rents for minimal amount Minnesota Laborers’ Pension Fund support Recent Examples

  16. Snoring and Sleep Apnea are Serious Problem • 27mm Americans affected • It is estimated that the soft palate contributes to 90% of all snoring • Causes significant hardships: • Reduced daytime performance • Chronic lack of sleep • Embarrassment in social situations • Irritability • Scientific evidence of long-term health consequences Areas of blockage

  17. A Whole New Approach • In a procedure called “Palatal Restoration” 3 tiny inserts are placed in the soft palate • The inserts support and stiffen the palate • Stiffness reduces the tissue vibration that causes snoring • Prevents sagging palate that causes sleep apnea Note: Inserts will not be visible in the palate.

  18. The Pillar System • Tiny inserts are made of a special woven polyester material which has been used in medical products for many years • Each insert is less than 1 inch long • Inserts can not be felt and do not interfere with speech or swallowing

  19. Benefits of Palatal Restoration • Brief one-time procedure in your doctor’s office • Minimal discomfort, no heating or removing tissue • Improvement in 2 to 4 weeks • Designed to be permanent • FDA approved for treating obstructive sleep apnea You can beat OSA and be back in the bedroom again!

  20. Larex, Inc. Natural products extracted from by-product stream from timber harvesting Initial market targets: • Research on leukemia • Personal care products • Immune modulation therapy • Soluble fiber products

  21. Venture-Based Economic Development History • Initial financing lead by Northeast Ventures, an economic development fund • Plant financed by a company / city partnership and the IRRRB • Debt financing provided by a pension fund • Ongoing support by IRRRB and Blandin Foundation • 100+ jobs created in two communities, one in Minnesota and one in Montana

  22. VBED Summary Market (clinical) Need EDA funds & support Venture-Based ED Market Studies Technology

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