Example of Effective Government

I just put up a post on the San Diego iHub expansion and could have included this information in it, but I thought it might minimize my thoughts. I just spent the better part of a month listening to Washington politicians argue about details that they needed included in any proposal to raise the debt ceiling. People who you hoped would act intelligently to avoid the catastrophic economic impact of our defaulting on loans. The biggest issue facing our country is the sagging economy and one of the key indicators of our recovery is job creation. During this month-long debate, it didn’t seem like any of the Washington contingent were thinking about job creation programs.

And then I attended the program that announced the expansion of the San Diego iHub to include cities along the 215 corridor and heard how government officials, educational representatives and local business people think that this program will stimulate technology development and the associated business startup and job creation initiatives in the area. I also heard speaker after speaker extol the efforts on one person who was instrumental in making this happen, Bruce Coleman, Murrieta’s director of business development. Even Joe Ayala from the Governor’s office of economic development credited the tenacity of Bruce in not spearheading efforts to expand the iHub but in convincing him that the event announcing the program was important enough for him to attend and speak at.

He was also the catalyst  for Murrieta using the EB-5 Visa program to raise the $12M needed to develop a shopping center in the city. This program requires that there be a job creation element for the investment. I have heard it being used within startups, but realizing that this could be used to raise money for real estate development was pure creativity!

If we had more government at the national level acting like Bruce consistently acts, we would be long on the road to economic recovery and not impending disaster.

Kudo’s to you Bruce! I look forward to seeing your future results

Expansion of San Diego iHub Initiative

Yesterday I attended a program in Riverside where Joel Ayala, director of the Governor’s Office of Economic Development, announced the expansion of the San Diego iHub to include cities along the 215 corridor including Temecual, Murrieta and Riverside. A number of local government officials attended the event along with area members from the business and educational communities. There was also a demonstration area, thankfully inside, of various technology undertakings along with the area companies.

The expansion area still has a lot of land for development and have established some beachheads for technology development. As example, the new Loma Linda Teaching Hospital, a 106 bed hospital that opened in April of this year. It was a joint development effort between the University Medical Center  and community investors. This is the regions most recent hospital opening. University of California (UCR) has some great programs for life sciences and engineering and CalState San Marcos has opened their re-modeled Temecula location.

I am interested in seeing how this hub progresses. There certainly was a lot of energy at the event that even the 106 degree temperature couldn’t effect.

Wireless Health – Product Development Cycle?

I had an opportunity the other day to have a great conversation with someone very involved in the wireless health industry to talk about my goal of establishing a seed acceleration program focused on wireless health products. We talked about a number of things like what I expected could be done in 90 days, is this really an incubator, how is this different from some other local initiatives? I like being tested and challenged especially from people considered experts in the field. I get feedback about how well I know what I am doing and how good I am at expressing myself on the subject. It is also a great learning experience and, quite honestly, I have a lot to learn.

Every so often, someone says something that doesn’t immediately resonate with me, but later comes back into my thoughts when I have some time to think about. During our conversation, I mentioned that the goal of the accelerator was to shorten the learning curve that all early stage entrepreneurs go through, which I feel is somewhere between 18 and 24 months. I think that much of this time is wasted by looking for the right information, contacts, processes, investors, etc. I have always believed that there are different types of capital needed by early stage entrepreneurs with two of them being Time and Money. Both are critical and precious resources and need to be monitored as much as possible.

At one point he said, and I am paraphrasing, you might be able to shorten the learning curve, but I’m not sure you will be able to shorten the 7 to 9 years it takes to get a wireless medical device developed and into the market. Although I did hear the 7 to 9 year piece, I did not immediately focus on it. Later, it hit me, why 7 to 9 years? I can understand it might take that long to get a new drug approved where the FDA needs to make sure that the drug reacts the way the manufacturer says it will and that it doesn’t cause any harm. I am also aware that some products that have stored medicine in the device, like insulin, don’t lose potency while sitting on a shelf; so you must have it some for some number of years. But a non-invasive, medical device that combines cellular/wireless capabilities with it, 7 to 9 years and 10s of millions of dollars? It makes no sense.

During my corporate career, I was always involved with products, and worked through maybe 6 different product management processes. The differences were generally how you compartmentalized the various steps and how you organized your R&D, Product Development, or Life Cycle Management tasks. One of our goals was to continually monitor and evaluate our processes and look for ways to make them more efficient. Our longest cycles were 36 months for large PBX and Central Office systems.

I have heard quite a lot about the FDA 510(k) process as being a big part of the problem, but have also heard the FDA say that entrepreneurs share the blame by not following procedures, or not taking advantage of pre-meetings or making changes they have requested. If the 510(k) process was put in place to facilitate getting devices into the market quicker and it is still taking anywhere north of 36 months on an exception basis, then the process is very broken.

So, I would really like to understand what the process is to get a product from concept to patient or consumer along with the timing. Can anyone share or point me to a description of the processes being used?

I look at the types of products under development in this industry and feel they are just too important to languish in development for extended time frames while there are patients or consumers who will benefit greatly by having access to them. There are some very innovative devices and applications under development. If great innovation collides head on with process, rules and policies that make it incredibly expensive and too time consuming to get into the market, entrepreneurs will turn their attention somewhere else. Whether it is to another country or industry, it is just wrong!

So, I would really appreciate it if someone can point me in the right direction. Maybe we can test some new ideas within the accelerator.

Happy Independence Day.

Jim

Free, or Almost Free Money for Your Startup

As many of you know who follow me, I am a big fan of Fred Wilson of Union Square Ventures (USV) with a blog, AVC. I have been following his blog and learning a lot for over 5 years. Fred put up a great post today, where he talks about Government Grants as a financing source that you might consider. Fred points out that among the positive aspects of government grants are that they are Free Money, you don’t have to pay it back, and you don’t have to give up any of your company stock for it.

Fred also points out that there might be some drawbacks that might turn some entrepreneurs off. The application process can be time-consuming and time to approval, if you can get a grant, may take a long time. Fred points out a few other “strings” you might encounter. He specifically mentions the Small Business Innovation Research (SBIR) grants.

Fred’s not high on startups getting this type of funding. It seems a lot of his bias comes from the investment sectors that USV focuses on. There are a number of other sectors like bio-tech including medical devices, and clean-tech that need enormous amounts of capital that are hard to fit into a VC time cycle. For example, getting a new drug approved by the FDA is potentially a 10 year process and most VC funds are structured with a 10 year life span. Or, how about the tens of millions of dollars it might take to get a medical device through the FDA’s 510 (k) process. I realize that there are VC firms that invest in this segment, but this is not for the faint of heart. A VC has to believe in the investment without clearly knowing when the device will come to market (the 510 (k) process), and they won’t know exactly how much reimbursement will be allowed by the Center for Medicare and Medicaid (CMS). So, getting some early dollars from a NIH grant to help the process along can be huge for companies.

When you read Fred’s article, be sure to go through some of the comments to get some idea about the network of conversations about grants.

In the meantime, if you are in Southern California and have a product or device that you think might fit a government grant program, there is a great resource at TriTech Small Business Development Center (SBDC) with offices in Irvine and Riverside. They recently brought on a SBIR/STTR and federal grant expert to help companies understand the available programs and whether there might be a fit between a grant and the company. They are currently putting on SBIR workshops that are worthwhile attending if you might be interested or want to know more.

Being someone who likes full disclosure, I feel compelled to say that I have been mentoring high-tech startups at TriTech for a couple of years. I recently sat through a session with one of my clients who was not convinced that going after a Phase 2 grant was worthwhile. After about an hour with the new expert, he better understood the process and why he had nothing to lose in applying.

Wireless Health: Development Pitfalls

As any entrepreneur knows, getting started with a new company is fraught problems that can turn a great idea into a big mistake. There are just so many decisions that, if the wrong one is made, can kill or cripple the company. Worse though are the startups that haven’t encountered the big “Oh Crap” as yet and there’s a glimmer of hope that entrepreneur latches onto.  These startups are under the impression that they are really close to big sales/financing/strategic partnership.  Encountering your first big speed bump can be a slow and painful experience.

Many companies entering the wireless medical device space get stuck in this last category. However, their being stuck and not able to move forward may be less about something they did or did not do and more about the pitfalls along the path of taking a medical device to market.

For example, wireless devices startups may get snared in government processes that were put in place to insure that medical products are safe before allowing them into the market (by our friends the Food & Drug Administration, FDA). Once they are found to be safe, then another government organization gets involved to decide how much Medicare and Medicaid will pay for the product (Center for Medicare and Medicaid, a.k.a., CMS).

Now if you include working with the Patent and Trademark organization on intellectual property applications and issues, that’s a total of three government organizations involved in the product realization process. And, as we know, government organizations are not the fastest groups to deal with. Not only is this two-pronged FDA-CMS process time consuming, it is very costly, and every entrepreneur in this space has to make sure that he/she has planned on having sufficient financing and investors who understand what’s required to get through the FDA and CMS.

I am sure that this is one important reason why many investors avoid life sciences deals including medical device space altogether. After all, an entrepreneur can start an consumer Internet company for a few thousand dollars, a couple of great programmers, a good understanding of the demographics of the prospective customers and someone who understands the elements of SEO and Conversion. Consumer Internet startups can begin generating money in a matter of months. Contrast this to medical devices requiring large initial cash outlays over an extended period of time; in many cases years.

I find it interesting that, when there is talk about fixing the issues in the FDA, e.g., around the long timeframe for a wireless medical device company to get its products through the FDA’s 510 (k) process, there are always many comments about making sure that the primary goal of safety isn’t overlooked. I’m clearly not a proponent of having the pendulum swing all the over and weaken the process so that unsafe products get to market faster, but who can argue that the US economy and consumers both can benefit from an overhaul to the 35-year old 510 (k) process?

On a positive note, in January of this year, the FDA announced a plan consisting of 25 proposals targeted at overhauling the approval program and is targeting to implement some changes in 2011. Their list includes streamlining the review process for lower-risk devices, clarifying when companies should submit clinical data for a 510 (k) application and creating a new council of senior FDA experts (“Center Science Council”).

As for the insurance reimbursement process shepherded by CMS, a number of major stumbling blocks are under review. For example, the current process allows reimbursement for a medical device or associated devices only if the patient is at a medical facility when using the device. Now, given the nature of wireless medical devices, this just doesn’t make sense. Why should we mandate that an elderly or ill patient, having a wireless device that collects information and sends it along to a health care professional, leave their home and travel to some medical facility to use a product that works perfectly well in their home?  Especially for a device that’s merely sending data—readings of blood pressure, etc. along to the physician. This is one that we all hope is resolved soon.

I assume that it will take some time for both the FDA and CMS to make changes and integrate the improvements into their overall processes. In the meantime, what can we do to facilitate getting wireless medical devices to market faster and have them reimbursable?

Here are my suggestions:

•    What can entrepreneurs learn about the language they should use on an application for a specific device that would both position it correctly with the FDA reviewer and ensure that it is not incorrectly categorized into a class that all but ensures a lengthy approval?
•    A medical device will have both a “patent” which needs to be innovative and not intuitively obvious while the goal of a 510 (k) application is to describe the device as very much like something that has already been approved. What is the best strategy for an entrepreneur to follow given the diametrically opposed requirements of these two required organizations? There are knowledgeable people who know these organizations and have dealt with them and can provoke great suggestions to entrepreneurs.
•    So how do we get the knowledge where it is needed? This is, in fact, one of the goals of a startup acceleration program and one that we will be attempting to resolve as we move forward with an accelerator in our region.

As we put our program together, I am constantly looking for ideas and contacts that can help with this. Any suggestions or recommendations are always welcomed.

WOW! Tech Jobs Available

On Wednesday evening, I attended Startups Uncensored #20, a monthly networking event sponsored by Docstoc, in Santa Monica. The panel consisted of Jason Nazar (CEO, Docstoc.com), Josh Meyers CEO of People Media a subsidiary of Match.com, Jeff Tinsley CEO and Founder of MyLife, Robert Angarita Co-Founder of Cramster and Mark Kapczynski VP of Corp Dev at Experian.

During their introductions where they described their companies, at least four of the five stated that they had job openings, with one having 17 openings. I am not sure if Mark from Experian mentioned openings. These are tech jobs: programmers, product managers. So it sounds like the tech job landscape is alive and well at least in LA/Santa Monica especially if you are in any of the mentioned needed categories.

Tech Stars and Do More Faster

For any of you who are not familiar with TechStars or the book that two of the founders published, I recommend that you investigate them. TechStars is a seed accelerator program that started in Boulder Colorado back in 2006 and founded by Brad Feld and David Cohen.

Brad is a Venture Capitalist and Managing Director of the Foundry, a Boulder based venture firm. He is also the author of Feld Thoughts, a popular blog where Brad covers many issues around investing are entrepreneurship. David was a Boulder based entrepreneur and Angel Investor who approached Brad with the concept that evolved into TechStars.

I did an earlier post about Do More Faster, so I won’t re-state what I covered there. I did however take one of my recommendations seriously and bought copies of the book for entrepreneurs and founders that I mentor as a holiday gift. I thought the book had a lot of great information and would benefit my clients. However, I wanted to see if they thought the same way I did.

The book is a compendium of articles written by Brad, David, TechStars participants and mentors around seven themes. Everyone read the book even those who are more consumer product focused. They all thought there was valuable content and enjoyed hearing how others dealt with problems they are currently experiencing.

Interestingly, two of them signed to participate in future programs and one of them is currently talking with the Director of the Boston TechStars about being part of the next program, which begins in a few weeks. They only select 10 companies from the 800+ applicant, so getting this far in the process is huge.

So, if you are an early stage entrepreneur, you should definitely start looking at the Startup America Program, the things coming out of the Small Business Administration in relation to Startup America, TechStars.org, and get a copy of the Do More Faster book.

Startup America – Sounds Great, Now Can We Deliver?

Wouldn’t you know that just when I rant and rave about how disconnected I think the President might be, he goes and announces a comprehensive program aimed at startups and entrepreneurs. If you haven’t seen anything about it, check it out @ http://www.whitehouse.gov/startup-america-fact-sheet. There is also a good video on the subject.

Finally, there is someone in charge of a program beneficial to the startup community who really understands that creating new jobs has been done by companies less than five years old. Carl Schramm, President and CEO of the Kauffmann Foundation does. So it is perfect that he and Steve Case, former Founder and CEO of AOL are in charge of this program. Let’s hope they can keep the ball moving forward.

A sign that this time might be different is the inclusion of Brad Feld, along with his co-founder and David Cohen, and their  wildly successful seed accelerator Tech Stars are part of the pack. They committed to creating 5,000 mentors for 6,000 entrepreneurs creating 25,000 new jobs by 2015. They have already signed up 17 other accelerators to be part of the program.

Another thing that I like about the program is that there is something for everyone be you an entrepreneur, mentor, investor or other capital provider. I took away from watching the videos that this seems to be very different from other government supported programs of the past. Sounds great, great team, now it’s time to deliver.

 

My Reaction to the State of the Union Address

I was interested in hearing President Obama’s State of the Union Address on Tuesday evening. He can be an inspiring speaker although not sure as much in this speech. Part of my problem was that all the talk about innovation, job growth, needing to keep jobs from moving overseas, and need to reduce the costs of health care were tempered by my having attended a Public Policy Forum on Wireless Healthcare Reimbursement and Regulation earlier in the day. From the entrepreneurs perspective, all the innovation in the world is useless if you can’t get paid for your innovative products and/or services. In the world of medical devices, reimbursement and adhering to regulations are critical aspects of the value chain. Can’t get paid, why do it? Too many regulations with significant time lags to approval, why do it? So, an entrepreneur wanting to get their medical devices into the market and get paid for them has to deal with two parts of The Health and Human Services agency:

1. The Food and Drug Administration (FDA) and
2. The Center for Medicare and Medicaid Services (CMS).

I understand that that the FDA is chartered with ensuring that the food we eat and the drugs and medical devices we use are safe and do what they are supposed to do. I have no problem with that. After all, a bad design on a pacemaker is not something I would ever want used on me. But is there a limit? Especially, if the time to market is seriously hampered because there is just too much innovation being used?

Two Startup Approaches
During Tuesday’s forum, I heard two CEO’s of San Diego based medical device companies tell their stories about bringing devices to the market along with some suggestions for others about what they might consider to get their products to market faster. One recommended to start outside the US, which means that jobs and innovation used for the approval process leave the US. This is exactly what the President said we need to avoid. However, the FDA approval process for this device, not a pacemaker or heart valve, but a glucose testing device, was just too long. He found it easier to go to London and get his product into the European market and start getting revenues. Now he is pursuing approval in the US but it will take some time. The problem is it is just a little to innovative.

The other CEO’s company has been around since 2004 and they still haven’t gotten their approval. Six years and they still are working on the approval. His product is also innovative, which apparently presents problems for the FDA. This CEO’s recommendation is that, if your product is too innovative, you should consider breaking it into pieces and having each piece approved separately. Now there’s a solution for dealing with innovation! I do want to make sure that I don’t give the impression that I think this was something created by President Obama’s administration, which is why I mentioned he started in 2004 during the Bush administration.

So what’s the problem and where are the disconnects?
Well, with medical devices, if you want to get paid, you have to first have the product approved by the FDA. Once approved, you can apply to the CMS who is in charge of deciding whether something should be reimbursed under public health care. Of course, they also decide how much you should get paid! It is not the market deciding, but CMS!

If an entrepreneur can prove that their device is equivalent to a previously approved product (a predicate device), they can receive a 510(k) classification.  There are lots of rules and words around whether a device fits the model for a predicate device, but if this fits, the approval process can be rather short. The key here is to have your device be similar to an already existing and approved device. If you add significant innovations, then how will your new product look like something that already exists?

When you start adding innovations from two different technology sectors like communications and medical devices as is currently happening with wireless medical devices, then the process for approval can drag out. It seems that the more innovative the product, the less likely it can be associated with a predicate device and unlikely it will get the fast track 510(k) approval.

As part of the process they have three classifications Class I, Class II and Class III. You want to avoid being put in Class III since this is where they put products that seem to have no functional equivalents and where little science is known (like usage results from expensive clinical trials) and you have to prove the product is safe and works. I don’t want to lose my main point, which is not to lessen the requirements for safety testing but more about how adding innovation to a product. This is exactly what the President was talking about, yet these processes can, and quite often do, cripple a device’s time to market.

So, lets review the bidding on this topic:

• President Obama wants to stimulate the use of innovation in developing new products and services while keeping the jobs associated with these developments in the US and, using new innovations, reduce the cost of healthcare while providing better products and services to consumers.
• Entrepreneurs have ideas for just such medical devices and put together all the business documents to go out and raise some initial funding to have the product developed except he/she has to be fuzzy about the business model, time to market, and total development costs including any required trials. Also, there must be flexibility in milestones to allow for a moving target through the FDA/CMS processes. Not the type of business metrics that investors jump at.
• Entrepreneurs can proceed forward and attempt to move their developed products through the FDA/CMS maze and hope that everything breaks their way and the approvals don’t take years, requiring more investor funds and give up everything they have to see the process through. Or they can move it overseas losing US R&D jobs. They can also re-think the product and attempt to come up with a consumer product that will not include reimbursement in the business model or require FDA approval, but prove useful to paying consumers.
• What about meeting the needs of both the President and entrepreneurs and fix the approval process. It seems they are trying but doing it on government time, months or years versus weeks.

Someone needs to explain to the President that, in the healthcare industry, many promising solutions involving innovative technologies are not suffering from not enough R&D dollars as much as they are from the costs and time lost to conforming to government regulations. Before any entrepreneurs raise a fuss about there always being a need for more investment, I am not overlooking that. However, I think that the President has some level of control with these governing groups.

If he does start to look, he needs to make sure he looks deeper at the proposed solutions. For example, there have been a number of studies at the FDA on fixing this. There were a few finding published last year. One of the panelists at the Public Policy Forum mentioned one group who published some findings in December 2010. He expects we may hear something around July. Hmmmm, seven months, oh right, they are working on government time!

The Fit Bit – Way Cool Wireless Device

In early November, I attended a presentation by Brad Feld and David Cohen where they were talking about their very successful Seed Stage Accelerator program, Tech Stars which I will talk about in a different post. During one of the presentations, Brad mentioned the FIT BIT and pulled his off his sleeve to show us. Fit Bit is a wireless consumer product that tracks a lot of data about the person wearing it. For example, the number of steps you take each day, how many miles you’ve walked and how many calories you have burned. It will also track your caloric intake if you take the time to put in what you eat. They have a wide array of foods already in the system, but you can add your own. Below is a picture of my Fit Bit.

Another cool tracking item is tracking your movements while you sleep. It is as easy as pressing the button on the Fit Bit just before you go to sleep (You will see “START”) and then press it again when you wake up (You will see STOP). More importantly, you will be able to see your movements while you slept. For some, this will be huge! Many of us have Sleep Apnea and don’t know it. Checking out this data might show a lot of activity and lead to get some professional guidance about whether you have it or not and how to treat it before you have real problems.

I started to get interested in wireless medical/consumer products earlier this year and think they will be the next new new thing. It is amazing how many products are under development and it seems like there are just as many being developed for consumers are there are for medical applications.

FitBit is one product that will give you some insight into how these wireless consumer devices will help. It is easy to use, well thought out and useful web interface. I have been using it for a month and find that I attempt to beat my score from the previous day. I do things like park a little further from the entrance of stores or walk up and down the stairs a few more times. I also get a an accurate idea about just how active I was on the treadmill. All this for only $99. There are a few reasonably priced upgrades that I might take advantage of once I am into this for a couple more months.

One question someone asked was can you put together groups and track progress, hold special events, etc. This sounds exactly like what the Nike/Apple folks learned with the shoe/iPod connection; lot’s of people wanted to challenge other people and look at results for an activity this is usually personal. Interesting, I might look into this.

I think the FitBit is great and having fun with it. Let me know if any of you try it and your experience with it.