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Caution: Doctor-Funded Startup


The customer-funded business is a viable model. The doctor-funded business is trickier. The treatment may be worse than the disease.

One strategy some biomedical and health entrepreneurs use to raise money and do customer discovery is to follow a doctor-funded startup strategy. If you are Jay McGraw and your father is Dr. Phil, that might work. But, if you think all you have to do is just get in front of a bunch of docs who will be thrilled to give you money, time, and effort to develop your wonderful new technology for equity, then you might want to consider:

1. Clinicians are certainly on the front lines and in a position to identify clinical needs and gaps like no one else.

2. Unfortunately, very few have either an entrepreneurial mindset or the knowledge of what it takes to get a product or service to market.

3. I don't believe the conventional wisdom that "doctors are lousy business people." On the other hand, like most investors, they are usually not that sophisticated when it comes to angel investing like their non-MD angel investor peers.

4. The initial seed or startup raise is merely the first step in what should be a well-thought-out capital-raising strategy to get you to the finish line. The last thing you want are a bunch of know-it-all doctors angry because they lost their money or were severely diluted by the follow-on investors.

5. Yes, you want "smart money" when it comes to investors. Docs aren't that much smarter when it comes to seed stage investing.

6. Getting money is different than doing customer discovery and market analysis. There are other ways to get in front of doctors and get their feedback and product development advice without having them invest in the company in exchange for your having to give away a big part of the store.

7. Getting surgeons to switch from one product to the next takes a lot of convincing and you must have a compelling value proposition and business model to convince them to do so.

8. Physician investors who are expected to test and use the product, let alone be early adopters and spread the word to their friends, have significant conflict of interest disclosure challenges.

9. Some doctors are cheap and many have a sense of entitlement. They may not play nice with others on your team.

10. Busy clinicians are focused on the now, maintaining their income. They won't have the same sense of urgency or pay attention to things like the founders will.

The customer-funded business is a viable model. The doctor-funded business is trickier. The treatment may be worse than the disease.

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Victor J. Dzau, MD, gives expert advice
Victor J. Dzau, MD, gives expert advice