From Exit to Impact: Dave Ferrera on Leading MedTech Ventures

Ty Hagler: Alright. Hello, Dave. I'm glad you joined the medDesign podcast.

Dave Ferrera: Thanks Ty. I'm happy to be here.

Ty Hagler: Ah, so Dave, I've been talking and you're four years into running a venture studio. You've got three companies in your pipeline. Could you just describe how you got to this point and then how do you return money back to the people who've invested in your venture studio?

Dave Ferrera: That's a good question. And my team and I are still trying to figure out our version of the venture studio. I think this started years and years ago in Pasadena by some tech entrepreneurs and I'm happy they did. I've been involved in startups and starting companies since the late nineties. Been with more or less the same team since about 2008. and we've already gone through a couple of startups, a couple exits. And it was around 2020 or early 2019. We thought, When we start our next company, why start one? I'm sure we have the bandwidth to start a couple. Okay. And then we spoke to a few investors and they said that sounds like a venture studio, which was the first time I really heard about a venture studio was in 2019.

I've heard of incubators, accelerators from our perspective, any company or idea that we entertain or think about, it passes our tests, it has to get to market. So if we're raising money, we're taking investor funds and they're becoming owners in our company. It's got to get to market. So we're not accelerating incubating.

We're starting a company to get to market. So we believe we have the bandwidth to do three, four or five at a time. And the reason we believe we had the bandwidth to do that is because we're also partners in a contract manufacturer here in Orange County called M4D. And they're 95 percent neurovascular startup.

So we already had the hub of our venture studio and M4D right now, probably has 20 or more customers, half are physician entrepreneurs, half are companies that they're making products or doing R & D for. If that was the hub, all we had to do was to create a pipeline.

We're in business development.

We, we talk to physicians and customers constantly who have ideas. They're seeing problems every day. So RC Medical is our, the head of our venture studio. So our RC Medical speaks to clients, customers constantly at meetings physicians are explaining problems they have, and I always get them to sign an NDA first this is your idea. If we partner together, we'll become business partners, but this is your idea. It's not ours. Is it a good solution? We go through all of that. Can we get intellectual property? Is there a path to market to get regulatory approval? Now, is it a growing market? Is there reimbursement? All those things have to check for us.

So once that happens, we'll typically co found a company with the physician or with the entrepreneur. Once that happens I'll write the pitch deck. I'll start raising money. We do a services agreement with them for D cause that's the engineering, and regulatory arm of our venture studio. Then we get to work. Outside of the venture studio, physicians will still come to us and want consulting, but if we don't form a company with them, they're not technically in the venture studio. Cause I'm not raising them funds. And they're on their own they're raising their own seed or they're a friends and family, angel networks and so forth.

But I think the venture studio model for us, it's three tiered. It, it has RC medical. It has M4D and then it has the portfolio companies. So now, RC Medical, as I said, does the biz dev, M4D does the engineering, regulatory, the manufacturing, and then the portfolio companies have a service agreement with RC Medical and M4D. And in that agreement, we're doing the financing, we're building the team. M4D is doing all the design development and so forth. How do investors get a return? It's a, traditional investment vehicle. All of our portcos are C Corps. They're not LLCs.

C Corps, in case we actually do raise venture capital money, VCs will not invest in an LLC or even an S Corp. A C Corp has a special structure. You can take foreign investments. It's not a pass through entity. It also qualifies as a 12 or 2B small business stock. Our family offices love that.

So the C Corp checks all those boxes. So we sell equity. Through, equity financings all through the SCC codes And when we have an exit, there's always a return. Our term sheets have been very traditionally clean. There's no preferred stock. It's all common stock. There's no liquidation preferences.

There's no dividends. We always set aside 15 percent fully diluted into the option pool. Employees, consultants, executives are all compensated according to the state of the art. So when someone sees our term sheet, it is a traditional term sheet. We haven't raised any venture capital funds in either of the three portfolio companies, and we founded that all three in 2021. so in 2020, we went through the research we probably had 10 or so ideas. We narrowed it down to three, we did million five or so seed financing for all three, friends and family physicians and so forth. That allowed us to either get to design freeze or in one case, get us the first demand testing.

Then that led into either seed prime or series A financings. So yeah, it's probably not your traditional explanation of a venture studio, but that's ours and it's working so.

Ty Hagler: It sounds like such a virtuous flywheel. You've got contract manufacturing, you've got full R&D in-house. You've got origination of the concepts. You've got a, like a pipeline of entrepreneurs slash physicians bringing ideas in, but also an alternate pathway if they don't fit the criteria for the venture studio, you mentioned accelerators, incubators, venture studio, and what's the difference and how do you define a venture studio compared to those other entities, let's say.

Dave Ferrera: The venture studio from our perspective is we are, we're there from let's say Art-to-Part. and we're also raising the money. So from the concept to the regulatory approval and commercialization, and then all the financing. So if you're just there as a co-founder and you're not helping and raise the money the money without money without capital, you can't execute. So you got to be able to raise the money at the right time at the right valuations. That's the kind of the key point and I think that's why venture is in the term because I think when this started back in Pasadena. These co-founders I think it was a tech company, they exited, they did extremely well and they wanted to do something else and entrepreneurs approached them and they seed financed all these new these new co's and then then eventually they brought in other capital investor, but we have to get these companies financed.

And I think that is, that's really the toughest part. So that, there's other investment funds in our neurovascular field. but they're not venture studios, so they will fund investors. They'll join their board of directors. They may direct them to some other service companies, but they're not in control.

Each of the companies that I co found, I'm not just a board member and co founder I'm actively raising funds. I'm involved in their operating planning. The op plan is how are you going to, say you're going to put the money to work. We're regulating these companies more or less.

So they hit milestones and they have, the quarterly board meetings. These have to be effectively managed and also run.

Ty Hagler: So Dave, there's a statement saying you back the jockey, not the horse. And you've brought some really incredible people into your team so far. How do you find the partners for these companies that you're starting?

Dave Ferrera: Yeah, that's the tough part of this is forming the team.

And, I was fortunate enough 2007 I co-founded a company and the co-founding member of that, of the company had his own incubator and he had very experienced chief operating officer, very experienced R & D engineers.

But, and I was paying them a service, a monthly service, but at some point in time, I knew I had to hire my own team because we were going to get launched. And when we got launched, I hired a regulatory executive and a R & D manufacturing executive. And those two became my business partners. I hired them in 2008 and I've been with one of them ever since.

One of them just left the team about a year and a half ago to do, his own projects.

Then when that company exited, that was MindFrame, they sold in 2011. We then formed Blockade Medical with those two partners. And, so I was, I'm Biz Dev CEO. What one guy is R&D manufacturing, one guy is Regulatory.

Those are the three legs of a good MedTech team. We formed blockade medical got that financed also friends and family physicians. That's when we met our fourth partner who also worked in medical devices, but he was more of the contract manufacturing person and that led to the formation of M4D.

So once that was formed, we knew we had a hub. And that was going to be, the mothership of all of our portfolio companies, all of our startups. So it just took time to build the team.

Now we have the team. And the good thing about it for me is I'm the oldest Guy in the group, so no one's going or except me.

So I'm 57. I think Randall's 42. Dawson is 37. And I have a great young team that I'm working with and we will add to the team. We brought in a CFO recently. That's equally as important having a financing strategy, a regulatory strategy, a manufacturing strategy is all key.

And there's other venture studios in MedTech. ShifaMed is a very successful one. That's up in the Bay area. The Foundry is also very successful. They've been doing this a lot longer than we have. They have a model and I'd never met either of the owners. I would love to meet them someday and ask them, how do they go, from increasing and growing because we're at a point now where we're about to take off in 2025, but it probably took us, Seven years to get to this new launchpad

Ty Hagler: Which is really cool to see how you've logically assembled each of these components, and you have to have such a high performing team in order to be able to execute on each of those levels.

Dave Ferrera: And everyone's growing, I'm involved in a Orange County executive group. I'd learned from my group. Randall's part of a COO group in Orange County. Sam's part of a CFO group. So we're all looking to grow individually, which then helps our team grow. And as we start new companies, I meet new investors.

So that's given us, a broader path to getting companies financed. And then once we start having exits, investors want to find out what's next. So our three running now, Single Pass will be the first to exit. If not in 2025, early 2026. Infinity Nero actually closing the financing on that and the next four to six weeks. So that's going to give us runway to the end of 2026. Sonora's we get that very well financed earlier this year. That's, when oversubscribed, so that's going to be financed until the exit, which will hopefully be in 2027. So we have a string of companies that will begin exiting in the next 12 to 15 months, the next two years and three years.

As one exits and we have three more companies that are on deck that we're doing diligence now ready to finance

Ty Hagler: That's incredible. You've got such a flywheel that's built up right now, and it sounds like you also have really good relationships with the acquirers, the strategics as well, that they've come to expect that they're also buying a good product from you as well, right?

Dave Ferrera: Yeah, the neurovascular field is smaller boutique. I mean if it's a six billion dollar global market, that's nothing compared to the other markets. Okay. That's not a big market, the strategics are Johnson and Johnson strategic, Stryker, Medtronic, so they're always looking to fill the gaps in their sales bag.

And yeah, I know some of them intimately and they certainly all know who we are and we, I see them at meetings and our key opinion leaders sometimes are their advisors and they're probably saying, yeah, this is something to watch. This would fill a void in your bag. And that's, what's key.

It's not just solving the problem that the physician has, but being aware of what your competition is also working on, if you're able to figure that out. Where is the market going? There's great strides and say OCT imaging in the neurovascular field Now that was primarily cardiology for decades.

It's coming into neuro now Is that going to become the new way of imaging? Aside from say DSA or say, I mark because there's no way to really understand once you put an implant in, is there good wall opposition? Is there healing happening? Venous sinus stenosis treatment.

Everything the venous sinuses has been off label in neurovascular for the past decade. We were the first or second to emerge with our startup and now there's four companies that are in this space so you got to be listening to your customers and it could be 1 or 2 people that are saying this is what's next, but you got to do your diligence.

Read the journals is the reimbursement. Talk to the FDA with an early pre sub. And the FDA is evolving. That's really changed quite a bit in this past year, at least from our group and the neurovascular field big flux and changes. And, but, we got to be collegial with the FDA and, work together to bring these new treatments into the marketplace because our customers are demanding it.

And, and the FDA wants to make sure we're, we're doing things safely and properly and providing the evidence. And it's, it's elevating the whole field,

Ty Hagler: Sometimes if you're creating new devices, they might not fit neatly into the existing regulatory approval process as well.

Dave Ferrera: Not at all. Yeah, I'm dealing with that firsthand right now.

Ty Hagler: You've got so many awesome stories from your career and I thoroughly enjoyed your book, Innovation in Translation. You open with just -- I'm impressed you put your opening story in the book like you did, because it just speaks to, you're not going to always stay exactly within the the predetermined rules in order to make these devices happen, right?

It's hard for a reason, right? That I'm curious, like what inspired you to write the book? Did you feel? Like putting these stories down on paper. The process you went through for that, you could just share a little bit more about your process there.

Dave Ferrera: So 2015 I read a book called Pitch Anything by Oren Klaff. I bought it out of Hudson News at an airport and I read it and the first chapter. I've been raising money pitching and so forth. The first chapter explained what the person you're pitching is going through in the first five minutes.

And he discusses this like the primitive prehistoric brain that's in fight or flight mode. So you're providing a pitch. And you better make it very exciting in that first three to four minutes. It's gotten almost be scary, but it's got to be exciting. So the big idea has to be front and center.

It isn't the team, what got you into that pitch was not because you're a bunch of rock stars or think you are. It's, yeah, they already know who you are. Okay. Now let's get to the pitch. Okay. They're already done their research on you. So that first three to four minutes, that big idea, it's got to be exciting, scary, all these things.

Because that, that, that investor has the attention span of all of us, three to five, seven minutes maximum. They're not going to sit there for 30 minutes taking notes. And you've all done this in college. You get bored with your professor, you get lost, but you can focus for three to five minutes and that's about it.

And so that investor is either thinking I either want to eat it, kill it or F it. That's what they're thinking. So that was his first chapter. And then I was like, who is this guy? And then I read, chapter two, three, four, and it was all that. I was like, all right, I got to contact him.

So that's how I met Oren. And that was before Blockade was even entertaining an acquisition by Bolt. So we met and he came up and we just got along and I told him stories about my career. And he's wow, you should be teaching people how to do this. And I was like, really, who wants to learn how to do this?

This is not an easy life. I go, it's exciting and fun, but I'm giving you the snippets of how to be a MedTech entrepreneur. So I met his ghost writer and we went through the process of writing a book from her perspective. And I wrote several chapter summaries. Mixed in stories of the chapter one that I have there about going to Argentina and I had to get the devices through customs because we were starting a clinical trial.

I had to solve a problem. It was my own problem. I needed a solution. So I became very entrepreneurial in 24 hours and I got the job done. So I won't. I won't ruin the story there, but then I, I got fired from the first company I co-founded by a CEO and that's in the story. I've been divorced, I've had to fire partners. I've had to fire employees, So all those things are what happens in any company. And it isn't just medical devices. It's any business. And I do explain, they're investing in you and, or they won't invest in you. If you'd never done this before, then you better have a lot of friends and family money because you're going to fail and it may not be big failures, but I go through all that, and that was the result of this book Innovation in Translation.

And I have a second book that I'm drafting. It's more about the legal aspects. You need a lawyer for anything, forming the C Corp, filing money, financing, filing intellectual property, defending yourself in lawsuits, suing someone, maybe a regulatory attorney to deal with the FDA, an M&A attorney, HR attorney, you need lawyers for everything. I probably have nine attorneys working for me right now but you need this and you only learn this. As you go through the process so

Ty Hagler: I have to say I read your book on a flight and a trip out and back and it was a page turner and at one point time I busted out laughing on the airplane as I was flipping through it. This is awesome. I used it and we were running an ideation workshop and your example of Elizabeth Holmes has been, of Theranos fame and the way you talked about what she did from a failure standpoint of that, she wasn't willing to compromise her vision in the face of reality.

And, that willingness to accept a failure and, be, come clean with it was the biggest thing she just kept pushing off further into the future. And eventually went to jail for not willing to be willing to confront the brutal truth of, did her technology work or not. And I used that in an ideation session and they kept laughing of Guys, you got to keep me out of jail.

We've got to accept the brutal truth of whether or not this idea works or not. And I found it like both funny and truthful at the same time, which, the best comedy has a, a dose of reality to it, right? So it

Dave Ferrera: The airport. You would walk through and see her holding her little vial of blood and you're like, wow, that's amazing, good for her. And this was back almost 10 years ago. And I would get the wall street journal delivered to my front of my driveway. I'd go out there in the morning, I'd pick it up and I remember the day I read the front page and I forget the author from the Wall Street Journal.

And it was about her being investigated. And I was like, you got to be kidding me. And I read that whole article basically in my shorts in my driveway and John Cary, I think was his name. And I was like, I couldn't believe it, but it was reputable newspaper, and we all know the story, right?

Yeah. She just would not admit failure. And she had put together a board of directors that, it's all star team of like our nation. No, she had Larry Ellison. She had George Schultz, she had former generals. I'm like, how did she meet these people? Because the problem she was solving was massive, right?

Blood testing from a finger prick, a set of six vials coming out. I knew nothing about phlebotomy or blood work. And people I talked to that were in there It's impossible what she's doing. You can't do it. And I'm like I didn't understand either side of the story. So I was like, Hey, listen, anything's possible.

It wasn't, but it ended up being the grandson of George Schultz, who was secretary of state for Ronald Reagan was the whistleblower I mean this young intern who also I think went to Stanford and was like, this is wrong. And he got, banished by his grandfather. I think they made amends before he passed away, but she would not admit failure.

And in our case with with Nirvana, that's my black eye so far. And, the leadership team just would not admit failure. And that, that resulted in a company being sued and filing for a bankruptcy. Yeah, and you have to learn from that and and then when you give a pitch to a new set of investors or even existing investors, you just get it.

Hey, listen, I'm not perfect. We screwed up here. And this is how that's not going to happen again. And that's why you have, a quarterly board meeting. You have independent board members. It isn't just three people, friends and family. The boards I have at least five to seven members, at least two independents and they can be selected by the board.

It isn't just me. So you've got to have that independence and also the review of everything you're working on.

Ty Hagler: It speaks to leadership, integrity, scientific integrity, making sure that you're putting something out there that's really going to do good in the world and, return to the investment. The I think you and I share, this is going to turn into the podcast.

It's a fan club of Oren Klaff. But

Dave Ferrera: that's that's right.

Ty Hagler: Pitch anything book was what inspired you to write Innovation in Translation. And then I think like as far as books you'd recommend to medical innovators, is it just Oren Klaff that you'd recommend?

Dave Ferrera: The first book, I read business book, it was autobiography of actually Lee Iacocca. I read it back in college, I think in 89. That got me more interested in business. So reading a biography of a business icon that I respected when I was in school, And, he was the founding for the Ford Mustang. Then he left to save Chrysler, either, lead, follow, get out of the way. I love that saying, I see him on television. That was a book I had read, it was a different time. iCon Steve Jobs: The Greatest Second Act in the History of Business, love that book then in early 2000, book called the Art of the Start, by Guy Kawasaki and Guy was the evangelist for Apple. He was the head of marketing, but he called himself evangelist and he evangelized the Mac. Then Guy at some point left and formed his own venture group. And. Yeah, I don't talk to Guy is I haven't probably talked to guy in five years, I got to talk to him.

I played ice hockey with him in Redwood City. I played my whole life, I still play beer league ice hockey. So I get more interested. Okay. How do you form the company? Cause I was fired from the company that I first started. I wasn't a business guy back then I was an engineer.

So then began reading reading I did all the Tony Robbins work, right? This was also back, years ago. It wasn't until, 2015 where I met Oren and really learned about pitching. So I think I, I understand a lot about forming the business, why you formed the business, solving the problem, getting a solution, and that's all important. That's where it all starts, but then you got to raise your money. And that's where I really embrace Oren's thought process. He's elevated that to a new, I guess narrative and he calls it The Game of Money and he's on LinkedIn and I was explaining earlier that he explains the cheat codes that we all see in all of our term sheets, and what are cheat codes and I was even baffled until he really made it crystal clear.

It's when you speak to venture capital or most sophisticated investors. They want preferred stock and preferred stock. As it means you get out first and then into common stock. So that's your second hit. And sometimes those they'll sneak in what's called the liquidation preference could be one X or two X.

So the money they put in, they may get it out double right? And then they convert to common and then there's also a dividend, right? The cheat codes right there. There's actually four returns. It isn't just one return in common stock. There's four returns. Those are the cheat codes that I think very few first time entrepreneurs understand.

I Bet Mark Zuckerberg didn't understand any of these. If you watch the Social Network movie, when he's negotiating his terms and getting his financing, he didn't know what these cheat codes were. He didn't know what liquidation preferences were and preferred stock. I think that's how he got rid of it.

His partner, Eduardo Saverin, he probably got him out and Mark got more equity and Eduardo got his stock sold. But these are terms that go into the deal. So You know, I'm learning more about these from, investment bankers such as Oren, and I don't know many investment bankers who are discussing the deal terms as, you know, This is where the banker makes their money. And even Oren said, he works on a deal for six months. He may get six to 8 percent of the deal where the CEO has been in the deal for eight to 10 years. And he walks me with 5%.

So the banker is getting more money than the CEO for a fraction of the time put into the deal. And these are things not to scare away the entrepreneur, just the facts. The people in finance. They make money and that's you know, are we conducting business or are we doing finance? We're conducting business me and you the bankers are conducting finance and there's a difference a big difference and that it's better to understand that going in because you still need to raise capital.

You need to raise your money to get your solution to market and really do good things. Just understand when you get to market and your company is exiting for whatever call it a hundred million dollars. Don't expect as the founder or owner to own 80 percent of the company, unless you're Elon Musk.

Okay. Unless you put in all your money, which is very rare. You're going to walk 10%.

Ty Hagler: Well, it sounds like you've also learned a lot from Oren and just how you've structured the, you said, a clean term sheet for your venture studio companies as well. Yeah, and I think I came across you because I was following Oren Klaff podcast. In part because I had read his book, Flip the Script, and I'm a big fan of his writing as well. There's a connection there from through just, understanding the writing and the ideas there.

Dave Ferrera: Yeah. I think what I've learned over the past, say eight or nine with him is. Get a clean term sheet without cheat codes. And, single pass have clean term sheets. Our investor came out of, China. And that's a company that has a headquarter in Suzhou and also one here in California. Single Pass and Sonora's have, have common stock. The stock option pools are 15 percent fully diluted. Employees, consultants, executive leadership team. They're very good clean term sheets, investment documents and it has common stock.

VC's wouldn't touch our deal. I'm not raising enough money for venture capital I'm, not raising 65 85 million dollars. I'm raising series of a million five Series A's of 10 to 15, maybe a B of say 20, 30 million dollars all in is just not enough to captivate a venture capital investor who wants to put 30 million to work on their own, so maybe there's 100 million all in.

So I think the venture capital into MedTech is really dilute. It's really shrinking. Most MedTech investments are, angel investors, Medtronic has a strategic fund J and J does. So, unless you're raising more than 65 million or so, you're not going to get venture capital.

And these angel groups are great most of them are former executives. They've had exits, they know the space. Then also going to Why Combinator or, Innovator. Those are great places to learn because those are, followed by strategics. So if you bring something to one of those groups that fits a gap in their portfolio, then they're going to want to invest.

I think that's a good path for the MedTech entrepreneur.

Ty Hagler: Dave, you have so much wisdom and experience with this. I learned a lot from you every time that we talk or even just reading your book. I appreciate you taking the time to come on the podcast with me today. If anybody wants to get in touch with you, what's the best way to, connect with you or to follow you?

Dave Ferrera: I think the easiest way is to find me on LinkedIn. I'm pretty visual have a marketing team that, I'd say weekly puts out something so you can find me on LinkedIn and then I'll connect with you there.

Ty Hagler: Very good. All right. Thanks so much, Dave.

Dave Ferrera: Thank you.

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