BoneChat call #12 - Ted Bird - Creative fund raising for startups, including crowdfunding.

Okay, we are live with Ted Bird today. Ted is going to discuss innovative fundraising, uh, a topic that a lot of people are interested in. I want to say Ted is an exemplary BoneChat member. He's helped build both large ortho spine companies and startups, and he's, and he's genuinely a helpful person. So, uh, he's the perfect person for the community. So welcome, Ted, and I'm handing you the mic.

Thank you, Tiger. Good afternoon, everyone. Welcome to February, February 1st, 2024. Uh, pleasure to spend some time with you this afternoon. You know, in talking with Tiger, he mentioned 3 consistent themes and areas of interest that come up are funding, you know, for startups and for young companies. Reimbursement is an issue that needs to be considered early, as early as possible for many of these companies. And I'm sure many of you, and I know I have my scars, you know, on my back from learning, you know, in the process about, you know, what to do, what not to do. And the third one is, you know, how to build, you know, a sales force and commercialize, how to be effective and successfully commercialize your technology. So I— there's not enough time, you know, this afternoon. I plan on talking for about 30 minutes and then leave it open for dialogue and conversation. So as I was putting some slides together, I'm just going to focus on fundraising and really kind of explore the different options that are out there for companies today in an environment today that is very, very difficult in the last couple of years. So that's what I plan to cover. I'm going to share my slides and just go through it. So let me see if I can get this up and running here.

Well, yeah, while he's doing that, don't be bashful, ask questions. In the middle, raise your hand or just blurt out a question.

Can you guys see this? Yes. Yep. Okay, great. So it's a long mouthful of a title. So I'm really— it's about fundraising, you know. Uh, let me just cover my background real quick. Uh, sec. No, it's not. There we go. So I have 4 decades of experience in orthopedics. I think I have about 18 months where I wasn't in orthopedics. So it, you know, I'm kind of an orthopedic industry lifer, proud to be. And, you know, primarily commercial roles, global, not just US, but sales, marketing, strategic planning, business development, education, executive leadership, and most recently— well, throughout my career, but most recently with a focus, continued focus on management consulting and board roles across the space. You know, I started my career in arthroscopy sports medicine with the companies that— those names are no longer current, but those of you that have been around for a while will recognize Dionyx and Richards Medical. They're now part of Smith Nephew, J&J Orthopedics. I had various roles in those arthroscopy and sports medicine areas with those companies. Trauma and extremities, I had responsibility for that area with J&J Orthopedics. This was pre-Depew, pre-Depew Synthes, when it was J&J in New Brunswick, New Jersey, as a group product director for their trauma and then also their fracture management and soft goods and all their casting products. In orthopedics. Really out of my 40 years, you know, my deepest experience is in spine. Over 30 years now in spine. You know, through the '90s mostly I was with Danic, which became Sophomore Danic, which became Medtronic. Had a 3-year hiatus from the big companies where I started my consulting after the Medtronic acquisition. And then got pulled back in by J&J with the Pew Spine. Spent another second tour of duty with J&J at the Pew Spine. And then Blackstone Medical, which was acquired by Orthofix, really part of the Orthofix team that acquired Blackstone Medical and developed the spine division there. HappyFix in a role as the chairman of the board as they were raising money before they were sold to Orthopediatrics, Titan Spine as Chief Commercial Officer before they were sold to Medtronic. And today, uh, I operate as a member of the management team for a company called Dimacron in Salt Lake City, Utah, that has an artificial cervical disc. I also run Byrd Medical Group, which is a management consulting and a go-to-market commercialization solutions provider. So just through the industry knowledge, the network, the relationships with KOLs, with distributors, with GPOs, pretty much anybody in the industry. My strength is my network, and that's what I like about communities like this, like BoneChat, to help companies implement commercial strategy successfully. So the topic today is raising funds. Let me downsize this. So I kind of outlined, you know, these are 9 areas. If you think from an early, you know, seed stage startup, it could be a surgeon with an idea that wants to start his own company, or an individual. Here, you know, these are the different kind of early to later stage. It's not really in that order, but— you know, between bootstrapping, grants and awards, you know, non-dilutive grants, working with family office and individual investors, you know, angel investor networks, the Charitable Net grant or award options, incubators and accelerators, working with them, which I have my own experience actually with the University Tech Transfer Group here in Charleston, South Carolina for a couple of years. And of course venture capital and what goes with that, and then the corporate venture capital, how to strategize around working with that to get needed funding, but also to kind of set up a long-term relationship for maybe a potential exit. And then equity crowdfunding, which is relatively new, particularly for med device, that I have direct experience with in the last year. With Dymicron, where we went out and did an equity crowdfund raise last year. So dive in, next slide. So bootstrapping, you know, this is where, you know, you're basically, you know, using your personal savings. This is early, early stage, you know, company credit card or relying on revenue you can generate from the startup to fund your growth.. It does offer the advantages: complete control, avoids the dilution of equity, but very limiting in terms of your ability to grow. And, you know, if you have high operating expenses, may not be viable beyond just getting things going. You know, again, ideal for startups in their early stages or those with low capital requirements. You know, jump in if there's any examples. Tiger, can you think of— you maybe have heard of you know, a company or two that started this way where the founder, you know, or others on the call through bootstrapping, but it'll only take you so far if you have big plans.

Yeah, every milestone generally costs you more money as you go up and, you know, they hit, you can hit the wall pretty quickly with just bootstrap unless you can get sales, you know, in the first 6 months or something.

Right. So this is an area, you know, grants, and I've sort of identified different options. There's government options, and I'm kind of focusing on the US. There's a whole world of other opportunities outside the US that I have less experience with, but through working with different companies, I know that, you know, for example, Israel, they're really, really good at getting the government is, you know, the State of Israel has this innovation, you know, department that provides tremendous, you know, grant opportunities for Israeli startups. But here in the U.S., there's the small business, you know, investment and tech transfer, you know, loans. And there's various consultants and people that are experts in this area that will advise early-stage startups on the process to do grants. And the other one on the top is the DOD, Department of Defense, you know, non-dilutive funding. So if you're particularly an orthopedic solution that it makes sense is going to be attractive, you think about for the military, then, you know, look into that. It's a pretty easy kind of a Google search to find or LinkedIn search to find experts in these different areas. I have some exposure to SBIR when I was doing the university tech transfer work here in South Carolina, because we were dealing with a lot of the just university people that were looking to kind of take their ideas beyond the tech transfer department at the university, and there are various advisors that are experts in that. The two companies down below, GrantEngine and FreeMind, are grant expert organizations that you can basically hire to help seek out grants and write grants and get it done. So there's various programs, and I've had various proposals from both of them. Freemind is very active in various investment conferences where they provide startups or entrepreneurs, you know, discounts because they're a sponsor to the different conferences, investment conferences. So take a look at— if you haven't any familiarity in the past with FreeMind or GrantEngine, those are a couple. Next box is family office and individual investors. That's usually where most startups go is to, you know, I call it friends, families, and fools, uh, F cubed, uh, you know, and, and this is where you get your family, you get your friends, you get your network, uh, involved in, in your business to, to support you. But the key, you know, here, and this is, this is part of fundraising in general, it's, it's, you always have to be fundraising as a founder, as an entrepreneur. It's just, you can never really have enough dry powder. So you need to be networking. It's network, network, network. Look for the opportunities to, you know, get involved. You know, my experience with family offices, there are a couple of different organizations that offer a service of where they have a collection of family office. One is FON, Family Office Networks.. And this is an advertisement they do for their Palm Beach, you know, group where they do mixers. And, uh, they're, they're back to, uh, you know, doing those again. You know, I, I got to know them in the, during the COVID years where everything was online, including investment pitches and conferences, which were in my experience pretty useless. But, uh, now that these, these, uh, the real way to network is to do it in place and, and, uh, in you know, face-to-face at different conferences. And generally, family offices are less formal in their approach than venture capital. They're often mission-driven, independent. And, you know, you should look for— if you've got a company that has a certain focus or approach or you know, uh, is a good fit for, uh, a family office or group that it's all about, uh, uh, you know, whatever, whatever the theme is they're investing in. It might, it might be, um, you know, uh, you know, female, female-founded or diverse organizations, female-run organizations that they want to have diverse investments. There are, there are various, you know, family offices, and there's actually some VC funds that, that are— have that as well. So it's good to research that and, and make sure you're a good fit. You're not trying to, you know, put the square peg in the round hole with, uh, with the group you're looking to, to work with.

Um, do the family offices, do they advertise their mission, uh, openly, or do you—

okay, not, not always, uh, but that's where the networking comes in. And you can find, um, in my experience, there's a couple of, uh, couple of, um, uh, databases that are out there, uh, people that have put together, and I've seen them and asked for a copy of them on, on LinkedIn, of the latest list of family offices. And there's some that are lists of VCs, and, and I've got a couple of those. I'm happy to share that. It was public information. So I, Tiger, happy to share that to the, the Bone Chat community. Because it's worth looking at that because it really, really takes, you know, an effort as anyone that's fundraising right now knows to get it done. I mean, it really takes, I would say, probably, you know, 100 pitches before you can, you know, really realize, you know, some kind of decent return on your target, Target, you can't expect to get it done with just, you know, 5 to 10 pitches. So you got to keep at it. You know, the 5th bullet point here is individual investors. You know, here in orthopedics, you know, oftentimes your solution may be, you know, you've got a surgeon that's the inventor that's involved with or you're partnering with and usually our network of distributors, or people that are knowledgeable like this group involved with BoneChat are great, you know, individual investors to kind of get involved. And it's a good idea to set up a simple SPV, which stands for special purpose vehicle, that is a simple way to do— to get your initial tranche of investors. And once you get those people to understand the clinical need you're solving and are passionate about it, that's a great way to kind of build momentum. And momentum is so critical in fundraising, not just through institutional sources who you've already got, you know, investors, you put the mechanics together of having, you know, well-organized company and, you know, board of directors. You know, good governance, good control. I'm not going to talk so much about best practices. That's a whole other talk, Tiger, I think that would be great to put together as best practices in building your company or your startup when you're fundraising. You know, things you need to think about: your quality system, your governance, your compliance approach, all things that, you know, get looked at in diligence from investors or ultimately in acquirers.

Ted, I think one thing should be noted, particularly with the surgeons, hospitals are no longer allowing surgeon-owned or surgeon-equity-held companies to get on contract. And so majority of the companies, unless you're public, but a majority of the time they're forcing the surgeons to be bought out of any type of equity agreements. Do you agree? Have you seen that?

Yeah, no, absolutely. There's some of the bigger, you know, GPOs and networks forbid it, but there are ways, you know, many, many surgeons, you know, set up a separate investment fund. And if you, if you set up a special purpose vehicle that, you know, is not really specific to your company, there's ways to kind of group the investments that way so that it's not a direct investment, you know, sort of an— it's an indirect investment through this special purpose vehicle approach. I've seen that, you know, be a strategy that is done where surgeons really want to invest, but they're not allowed to because their employer, ease of a hospital or a network. There's ways to do it through SPVs. But always check with your attorney. I'm not suggesting you try and, you know, take a shortcut or skirt the rules because that becomes painful for everyone later. And the last thing you want is you or your loyal surgeon friend, you know, on the front page of the local newspaper or the national newspaper.

David, what's your perspective as both a clinician, hospital owner, and entrepreneur Yeah, I mean, it, it is a problem.

It's not a universal problem. And I don't think it really comes into the strategy. Trying to go for a lot of the big name places is not a good strategy when you start because you're gonna be in Death Valley, you're gonna wait too long. So if you go to the smaller institutions, ASCs, you can really bypass those particular problems. And there, there's no way you're gonna do a national launch as a startup. Regardless. So you better be very targeted, and you just have to know which targets to go after. Great advice. The next box is, you know, the angel investor networks. And, you know, these are a few— they're everywhere. So depending on where you are, you know, look locally. You know, usually each town or state has got a group, you know, whether or not they do medtech or life science. But these are a few that I know. Do life science. There's the Bay Area Angels, there's the Life Science Angels, Central Texas Network, MD Angels is a group, for example, of MDs that look at deals. And the Koretsu Forum, which, you know, Elissa, you would, you know, mention, and I actually attended that Northwest, you know, group that did a webinar on how to pitch, you know, successfully to our angel groups at Koretsu. And the lady who did that is very, very direct, very, very good. They charge a fee for you to— you apply and they charge you a fee, you know, if you make it to go through their process. But keep in mind that generally these are going to be smaller tickets. These are going to be, you know, six-figure, you know, tickets, $100,000 or so. You're not going to get, you know, millions of dollars from your angels, but this is a kind of a step in the process for you to build momentum and to kind of get you to that next step. Any thoughts or feedback from the group on this area?

How does your pitch change, Ted, from, you know, bootstrapping, there's no pitch, but family office to angel, and then we'll get to, you know, Series A eventually?

Well, I don't think it changes too much, Tiger. In my opinion, the fundamentals still need to be there. You have to just keep it focused on, you know, the solution. Keep it simple, you know, and telling a story. That you are really solving an unmet clinical need, getting it clear, not getting too technical in the weeds on it, and telling a story about the company, about yourself, because these people are investing in— you know, you often hear the analogy, the jockey, you know, is much, almost more than the horse even. And so they want to know who's involved, you know, on the day-to-day.. And then as you get more sophisticated with institutional investors like venture capital, you have a lot more metrics you probably put into your pitch, you know, around your company. But, you know, knowing, particularly if you're at a commercial stage, you need those details about your company. But, you know, that's a whole other talk, I think, you know, pitch decks and how to do them because I've seen quite a few in the last few years and some of them, you know, if you go over 12 to 15 slides max, you know, usually you have maybe anywhere from 6 to maybe 8 minutes. It's way too much information. So there's a good kind of simple formula to stick to.

Ted, would you— so everybody has an opinion about pitch decks. Every single person. I've modified mine, and I have probably 40 slides that I cater to whomever. But I thought personally the Kuretsu, uh, presentation was the most on point and valuable. And she— what was nice about her was she, she would color outside the lines. Uh, she said one of the best presentations that she had seen had like 40 slides on it, but they were able to accomplish it in 10 minutes and they got their message across and she couldn't have seen it done any other way. And so I really, I really, I would actually go again. I take that, that little 1 hour again out of my— I think it was very, very valuable no matter where you are in your pitch.

No, it's, it's really good. And, uh, you know, a med tech conference that I've been to for the last 3 years, it's called— and you see it on LinkedIn a lot— Life Science Intelligence, LSI. I pitched there 3 times now. The great thing about LSI, they're really active in their, you know, sort of social media and marketing, and they provide— it may be free if you go to the LSI website— you can get access to videos of the various companies that pitch there. So you can kind of look at how other companies are doing it. You can even go by specialty area. You can put down orthopedics in a filter and look at all the orthopedic companies in the last couple of meetings and kind of see, you know, how they— how these different folks do it over an 8-minute period. So I found that to be helpful, particularly as I'm preparing for a conference and a pitch to see, you know, people in my same space and kind of make sure that, you know, I'm at least on point with respect to the market size, the market opportunity, and things like that., and, you know, the message that's coming across. So that's a resource for you to look at. On the charitable grants, I don't have a lot of experience with this. This is probably more for surgeons, you know, or scientists. You know, you guys are all familiar, I'm sure, with OREF and, you know, AOSSM, uh, the SOMOS, you know, Society of Military Orthopedic Surgeons. They have various, you know, annual, you know, awards and grants to help early seed stage companies. And then I came across this one, PureTech, Giving Life to Science, and that's basically a non-profit venture fund, basically to provide life, you know, for companies, you know, in the Valley of Death to get through, you know, and come alongside, not so much of a incubator but more of a nonprofit group. So it's worth looking into the PureTech. And Tiger, I assume you'll share these slides so people will have this, you know, in the future to be able to, you know, take these different organizations and just go look them up.

Yeah, yeah, we're recording the call, but we can upload the slides to BoneChat Slack.

Okay, then also, this is, you know, a very active space, and it's worth, again, for early-stage companies to seek out and take a look what's out there in terms of incubators or accelerators and programs like MedTech Innovator. You know, they do a cohort every year of at least, I think, 20 companies, and you apply to get accepted into that cohort, and they come alongside and provide tremendous resources and mentorship to a network of subject matter experts and consultants and on your pitch, on your regulatory, your quality, your clinical or commercial, you know, needs as a company. But look locally, you know, each area these days have various incubators. So just put in wherever you are, in your state or local or region about medtech or life science incubators and accelerators. You know, in Houston, this Texas Medical Center is well known for, for being a great incubator source for the Houston area. Of course, corporately, J&J, you know, has their JJDC Development Corporation. They've got JLABS. They offer all kinds of resources for startups where they You know, I get invited to all their various webinars and things that they do where they offer, you know, pitch options and they can help make the introduction to the right person for the right company within J&J, of course, orthopedics, that's the Pew Synthese. So, you know, most of us either work there or know people there to go directly to them. But that's one. And then Startup Health is, I think was the number 2 incubator on the top 15 list last year, is another one to look at. They can even give you a workspace and access to equipment and software. Okay, so venture capital. I found some ugly pictures of vultures here, one with blood dripping off his beak. But, you know, it's been a horrible few years, you know, dealing with venture capital. There are some great venture capitalists, or maybe some on the call here, you know, that are great partners with great experiences. A lot of orthopedic people that have gone into venture capital, and there's a few, you know, orthopedic-focused venture capital funds, you know, as well. But in the last few years, you know, VC funds, the whole word venture is kind of a a misnomer, you know. It's— they don't really want to take any risk, you know. Most of these— it's very rare that you can find a venture capital, a VC group that is willing to take on particularly an earlier stage company or project, particularly if it's a Class 3 that has to go through an IDE or PMA study, you know. They don't have the timeline to go, you know, 7 to 10 years and $50 to $100 million to do an IDE. They generally want to be growth capital, you know, so if you've got your regulatory pathway all set, they're happy to jump in and be, you know, like this vulture with the blood off the beak there, you know, the last money in and the first money out. But they, you know, generally they're beholden to their members and try Tiger, you said at the beginning, you know, there's this general feeling coming out of JP Morgan that it's time for a resurgence. You know, there is money that's been sitting on the sidelines, and these guys, these firms, these funds are beholden to their members. You know, they have to put the money to use, and there's a lot of money that's been stacking up because they've been pretty risk-averse. And, but generally they have my message is spend time networking, spend time really researching the different firms because you can look at their websites, you can find out what their criteria is. Always research the group. A warm introduction is always better than a cold call. These guys get approached by hundreds and hundreds of— tens of hundreds of companies every month. Don't try to do the square hole in a round peg engagement approach. So if you don't fit their scope, just move on to another fund. There's lots out there. Most of them have an average 5 to 10-year timetable. They raise the capital, they identify the deals, they manage the portfolio, then they want an exit. So if you're expecting longer than that, there's a very small minority that are long-term investors. And they have clear expectations on their internal rate of return, return on investment. Depending on the stage, they might want, you know, anywhere from 20x return on investment for early stage to, if you're lucky, you know, a 3 to 5x ROI for more of a late-stage entry.

But Mark Pascogliosi made a really good point that you have to note the timing of the VC fund. So they're, you know, it's a 15-year horizon and they're raising money for the fund, and once the fund is fully capitalized, then that's the perfect time to meet with them. If you're too late or you're too early, you're going to miss the wave.

Yeah, so get that information on the funds, you know, that make sure— no point in calling on them if they don't have an active, you know, funds to invest, or they you know, the fund is, is old and already invested, or they're not ready to invest yet. So those are good questions to ask. Another—

yeah, another, another thing that my experience is, they're looking for— they're looking for home runs. They're not looking for a double or single. And so if you can't show there's a billion-dollar, you know, opportunity, you know, in market, then they're not even going to talk to you. They're swinging for the fences., and they're only gonna, they're only gonna hit a home run 1 out of 10 times, and that's fine for them.

Yeah, again, this is just, you know, one box in those 9 boxes I put down at the beginning of the presentation. But, you know, we're hoping that they start doing more risk and more venturing than they have in recent years coming up. And then, you know, corporate venture capital, you know, the big— in orthopedics, you know, there's the big the big 3 or 4. There's J&J, Stryker, Zimmer Biomet, and of course Medtronic on the spine side. And my message here is engage these partners early, you know, just to start the relationship. You know, generally these larger organizations change a lot. So you do need to, you know, regularly stay in touch with them to determine that the the person you were dealing with is still there and not in a different seat in a different division or left or affected by a riff, you know, lately. But, but, uh, you know, the, the message coming out of, out of the corporate folks, the business development folks, and my experience from sitting in those, those chairs is, you know, they want to hear about the deals, they want to understand the landscape. And, um, generally they're kind of hesitant to just to want to sign an NDA. They want non-confidential information, but it's a good idea to, to find out for your company and your product and your solution, you know, who, who the players are in these different companies. Engage them, you know, go to AAOS or, or, or, or AOSSM or ANA or, or NAS and, uh, and start that relationship. Uh, Boston Scientific, I made their logo bigger than anybody else because they are, you know, famous in the past few years for just doing deals. Incredible. You know, they've paid, you know, $500 million for Vertiflex, you know, for an interspinous process spacer. And unbelievable, you know. And they bought Axonics recently for $800 million for a leaf vent, you know, on that. So in the pain area, in the pain management area, you know, they're, it's a very hot space right now. And Boston Scientific is really carving out a leadership space in that area.

Okay, Mark's got a question.

Go ahead.

Okay, so I have a kind of a cautionary tale, uh, that reflects the risk in this, and that is if you do a deal with corporate venture capital, um, and it goes badly, they will not quickly make a decision to sever the deal and you're, you're going to sit there burning cash. We, uh, one, one of my startups, we did a deal with Smith Nephew. We made the mistake of doing the deal with marketing who then turned it over to sales who told marketing to go screw themselves. And because at Smith Nephew, they're two different cultures. We didn't really, we did not appreciate that fact. And so while they sit there and dilly-dally, You're sitting here burning cash. We've had to actually go to court to get it back. Anyway, just an aside.

No, Mark, it's a great point because, you know, be careful about what you give away, you know, in these deals. You don't want to give the store away and have these entities have so many rights that you're really limiting yourself in the future and try and You know, I've done deals, you know, in spine with Medtronic where, you know, they want to dip their toe in the water and start with a pilot, you know, distribution deal for you. But that makes it disruptive for you if you've got your own network of distributors, independent distributors or direct reps, and there's confusion in the field, there's channel conflict. But if you feel really strongly about the partner, you know, for example, Titan Spine, we started that They did that with Mazor Robotics where they started with a distribution deal and moved into, you know, a billion-plus-dollar acquisition. Titan Spine, we did the same thing. You know, we knew we needed to get an exit for 3D-printed inner body cages, not 3D-printed but titanium, because everybody was going titanium and started with distribution pilot larger and then ultimately a 4x 4x return on a $60 million revenue product or company. So there's different ways to think about it, but there's definitely, you know, warning signals all around to be aware of. So I'm going to spend some time on equity crowdfunding because this is relatively new, and I have very recent experience in running a campaign last year. So I actually learned about equity crowdfunding at an investor conference 2 years ago. It was LSI, I think 2022, and someone came up to me and said, you know, there's this new way that the rules have changed where the government— it used to be that the most you could raise was $5 million There's two different versions of her equity crowdfunding. It's either Regulation CF, which is for crowdfunding, or Regulation A. It used to be the cap max you could raise was a million on a, on our, on a CF, which is less stringent requirements, and $5 million. They raised it to $75 million every year for the Reg A back in, in 20 2021. And so that opened up a lot of interest in saying, well, maybe this is a possibility. And then there were some, you know, orthopedic companies, one in particular, Monogram Orthopedics, went through the pandemic with 3 or 4 equity crowdfunding raises and raised up to $30 million. So it got my attention, but I learned a lot, and I'm going to share this with the group. I just talk about, you know, what is CF versus Reg A+, what's the difference between using a platform like StartEngine versus self-hosting through your own website. You know, what is the process? What are the costs? What are the key success factors? And, you know, what are some, some recent companies that have done it? So CF versus A+. Regulation CF for crowdfunding means you can raise up to $5 million a year. Non-accredited investors are allowed the, uh, you don't have to have, you know, your, your finance, your financials audited, you know, through the GAAP, you know, a GAAP certified audit, which is, you know, expensive and timely, especially for a smaller company. You don't have to go through the SEC to get qualified, which takes time and, and costs money. So it's faster to get started. It's overall lower cost option. To go out there and get your raise, you know, out, you know, online basically. Reg A+, they have two different tiers. Up to $20 million a year is possible through a Tier 1 raise, and the largest is up to $75 million for a Tier 2. The Tier 2 is if you expect, you think you're going to be very successful and you want to, you know, give yourself the option to raise as much as possible. It does require 2 years of GAAP financial audits, so that you've got to account for the time and the cost to do that. For the tier— I believe tier 1 and tier 2, you do have to get qualified by the SEC, so it's kind of like a mini IPO. It's quite a process but not, not as bad. And you have ongoing reporting requirements depending on how much money you raise. So it takes a little longer to get started and it's more expensive on the upfront cost side. So the difference between using a platform like StartEngine, I call that an equity crowdfunding hosting platform, and they're probably the biggest out there and you've probably seen them a lot, you know, online. You got Mr. Wonderful from Shark Tank as a spokesperson for StartEngine. Versus a self-hosted site, i.e., setting it up through your own website. I'm going to explain what I went through. I actually signed an agreement initially with StartEngine because that's who Monogram went with, and it's, it's in effect an all-in-one solution because you have to have— you're required to have these different partners and areas of compliance. You know, when you're, when you're raising money online, you have to have a FINRA registered broker-dealer, you know, um, uh, review all, all of the investors and, um, the, the transactions before they're approved and done. You have to have a transfer agent to manage, you know, the transaction, uh, and keep track of all the shares and the equity. And you have to— probably the most important partner is marketing, you know, because it's heavy, uh, you know, social media. So it's all digital marketing, and you gotta the best you can, you can find in that area. So StartEngine offers that in one package and say we do all of that for you under one umbrella. So it's, uh, particularly for regulation CF, it's easier, it's faster to get started, um, less expensive. Uh, they, they give you an overall fee and generally it's somewhere probably between 5, 6, 7— it can go up to 10 or 15% of your total raise just to work with the platform and that's all inclusive. And, you know, there might be some additional fees, transactional related fees and legal fees, you know, on top of that. But the downside, and this is what I learned from my friends at DealMaker who Monogram went to for their second raise, was you don't control any of the data. You know, data is key. You know, understanding who the investors are, what, you know, what the age range is, you know, how quickly, how deep they're going down into your website to look at your material, what material works, what material doesn't. You're at the mercy of the, the hosting platform, StartEngine. And, um, you're also competing for the attention of, uh, investors on that platform against other companies that are on the platform raising. So the analogy is like, you're like setting up a pop-up cart. A site or a store within the StartEngine mall where the investors are browsing for investment opportunities. So you can easily get lost in all that noise. So the option we chose, you know, for the Dime-a-Crown raise was a self-hosted site. And that's basically— analogy is like you're opening your own unique store, or in fact your website, and all of your various hosting partners, your marketing, um, investor acquisition partner, you know, your— if you want to go with a separate, you know, broker-dealer, separate transfer agent, can all, can all manage through the deal maker. Is kind of like the Shopify to an at-home business, you know, the mom-and-pop shop setting up, uh, selling chocolate chip cookies out of, out of their house. You know, use Shopify to ship and bill and do all the backend work and do the transaction and the accounting piece. DealMaker does all that, but they go, they went further. They became kind of like a start engine, but allowing you to still have your own site, your own. We were able to have our own invest.dimecron.com site, all managed by DealMaker. They bought the best of the best in terms of marketing. Who did all the marketing work for Monogram, which is why I kind of followed that group over to, to DealMaker. And all under one umbrella. They are a FINRA-registered broker-dealer. They have a transfer agent service. So I chose to go that way and to use them. But, you know, you own— the issuer owns all the data. You have that, you know, in your control. And with the experts, you know, at DealMaker, they can help you analyze and make decisions on your marketing. You're not competing with other companies to raise capital. So that's kind of why we went that way.

Ted, is the Dimecron crowdfunding site still up so we could see it as an example?

No.

Okay, taken down. Well, yeah, I think we finished the campaign in July of last year. I haven't looked. It should still be up where it directs people to say stay tuned here in case we do a future raise. It's called invest.dimecron.com.

We'll share that.

Okay. Yeah. So what is the process? You know, who are the partners required? What's the cost? So I really went to school on this to learn about this, to learn about platforms, to learn about self-hosted sites because I had to convince my board of directors very conservative group out in Utah. You know, when I first mentioned equity crowdfunding, they're like, Ted, what are you talking about? Kickstarter? GoFundMe? You know, I said, no, this is a new world, guys. It's all digital. It's, it's, uh, it's, you know, you got to get with the future. They, they supported me, but, uh, this is what you need. I mean, you need, you need to have an auditor if you don't already have a good, you know, auditor. There are, there are equity crowdfunding specialist auditors that do it, you know, effectively, less expensively. So I found out who's the best there. But if you just go with your normal auditor, many of them also, you know, lawyers— when I first talked to the corporate lawyers for Dimecron, they were— they didn't want anything to do with equity crowdfunding. It's like, well, you're gonna have to find someone else to work with because that sounds too risky to us. And the auditors were the same way. So, you know, we chose to do a Reg A+ because we wanted to try and raise, you know, $15 million to start. And so it took longer and it was a little more expensive to go through that process. You need lawyers, crowdfunding lawyers, and I kind of learned who the best are. There's one called CrowdCheck that prepare your SEC filing and to keep you, you know, on the straight and narrow with the SEC. And all the state filing fees, but that can be another, you know, anywhere from $50,000 to $75,000 to get that done. And then you're going to need probably annually at least $25,000 to $30,000 a year to keep that current. You need a transfer agent, someone to manage all the investor transactions and the shareholder ledger. You know, there's a setup fee, usually somewhere around $10,000, and then $5,000 to $10,000, and then approximately 3% of the raise in processing fees, particularly if more credit cards are used versus bank transfers, which generally they are. You know, that, that can add up as part of your raise. So equity crowdfunding is an expensive way to raise money. I'll give you my, my conclusions at the end because we're already just, you know, at 3:50 PM here at Eastern. Uh, broker-dealer, you have to have that. It's $25K to set up. That's another 1% of your total raise. And then Number 5 is probably the most important: your marketing, your investor acquisition partner, you know, the group that really are the digital Google Ads, Facebook Ads, you know, TikTok, YouTube experts about how to find those investors and nurture and bring them in through the funnel and down to a close.

And that's because most of the investors are potential patients.

Consumers? Well, that's what I— that's what we found, you know, at Dymacron. We just found that, uh, that, you know, the message— I'll address that when I get to the slide here. It talks about key success factors. Um, and then investor relations, you know, you have to either have someone internally that pursues the leads on the phone, but you can hire experts that do that and, and pay pay for that to really, you know, if you don't, you're a small company, you don't have time for this, you know, you need to put that in your budget, but it's an important partner to have. So key success factors, number one, before I even get to use good partners, and not that DealMaker wasn't, was a bad partner or StartEngine is a bad partner, you really have to have the right product, the right company, the right story because, you know, you're selling to retail, you know, Joe Average Lunch Bucket, you know, Joe Q. Public, or, you know, who's looking to, you know, stops their scroll to see something of interest and is interested in giving you anywhere from $500 to $1,500 towards your campaign, and they don't understand the science or anything else, but if you have a good story, the other— and so what we found at Dymicron is many of the interested parties were enamored by the artificial disc that we were offering with a new material because it, it's clear that it's, it's, it's a better option by eliminating wear debris in, in a, in a joint versus polyethylene and all these other materials that wear. Um, they, they really wanted to get it in their own neck. They had degenerative disc disease or a family member, and they wanted to find out, could they get in the study? And so we spent a lot, inordinate amount of time dealing with that and not so much, you know, having a successful fundraise. So my conclusion, you know, my takeaway from equity crowdfunding is I think it's a good option for life sciences or medtech if you've got more of a consumer-oriented product like a wearable diabetes, you know, monitor system or something like that where, you know, you can build a network of customers and momentum for your company that way. But for a more technical product, particularly, you know, Dymacron with the Class 3 artificial disc, that still has to go through and do a PMA IDE, it's not a great idea. And we we shut it down after about 6 months. We raised about $500,000 and said, we're not gonna keep, you know, spending the money on this. You know, we tried it. We, we were trying to follow the footsteps of, of Monogram Orthopedics, which had a total knee, 3D-printed total knee and a, and a robot system. And they raised all this money in over 3 campaigns. But the sizzle worked for them. It didn't, didn't work for us. And in the end, if you look at Monogram, I feel they made a— and the founders may call me after this because this will be public information now that this presentation will go out there— that they converted to an IPO, you know, on NASDAQ. But strategically, I don't personally think anyone should do an IPO until you're really ready for it and you've got revenue because you're going to be, you know, beholden to the markets, you know, every quarter to talk about your results, and you could really kill your valuation by going there if you're not ready. But marketing is key to do it. A really strong partner that understands what you're selling and has compelling materials and can give you good data keep your, you know, offering simple. Just make it ordinary non-voting shares and communicate, communicate, communicate. Do webinars, you know, get out there. Even today we do a monthly newsletter to our investors. We have, you know, just for that half a million, we have— I think the number is like, um, 170 different investors. And so we've got to keep them informed about what we're doing as a company, but so that, you know, they don't get upset with you. These are some companies I mentioned. Monogram, you know, over 4 campaigns, they started with the Reg CF, they went to Reg A+, they started with StartEngine Seed Invest, they went to StartEngine, then they went to DealMaker. And, you know, I made the— I'll admit I made the mistake of chasing the exciting, you know, story that Monogram, you know, had with the results. And, and, and painfully learned it, it was, it was, uh, not for everyone, you know, and I don't think it is today. Joe McGinley runs McGinley Orthopedics, tried it. He's got some orthopedic, he's orthopedic surgeon in, in the mountain states that, uh, tried Reg A. He, he's really struggled. He's got, you know, a special drill and saw, you know, product. Um, Brad Estes is in Raleigh-Durham. He's got a, a hip surfacing product for Cytec Ortho. They did a Reg CF. I think they did okay, but pretty technical sale, and that's a Class 3 device as well. So almost at the top of the hour. I think that's where I finish, and sorry I didn't leave more time for the group to ask questions, but we took a stab at it.

That's a lot of information, great stuff. Yeah, it's really, really interesting. I didn't anticipate the, uh, kind of the negative, uh, review from your experience because like you said, Monogram looked like a crazy success with $30 million. And I seems like one of the advantages is, uh, instead of a step function of, you know, Series A, Series B, and large tranches With crowdfunding, you literally see money just drip into your business account every day. It's sort of a streaming money, right, instead of big events.

That's correct. And, you know, I think the Reg CF route, it makes more sense. And the key is that maybe you already have some momentum through your friends and family network and people that want to generally, you know, jump on and help the early part of the raise. And that's what the experts say is momentum is key. If they see that there's already some investors, then others jump on. But, you know, I've had a number of companies and founders, you know, reach out to me and say, hey, I'm thinking about the Reg CF, Ted, what do you think? And I share what I just shared with you guys, my experience, and it's, you know, the, the various platforms and the people doing these services tell you how simple it seems, and that, you know, we, we manage the raise and you manage the company, but you have to dedicate, you know, a good amount of time and effort to it and money. So, um, it's, it's not, not, uh, not what I had hoped it might be.

Yeah, go ahead, Mark's up, and then Kyle.

Yeah.

Do you think, uh, the crowdfunding works with, uh, tech products that are like software-related, AI-related, that a consumer patient can identify with? Um, not too technical, not too arcane. Like, I like what you said about the, the disc being a little over the top, but some other wearables being something that totally could understand. It just made a lot of sense to me. Do you think that they could relate to the, the technical software side if it's something that is beneficial to patients?

Yeah, as long, as long, just like we all hear on the pitch decks, is crystallize your message so it's really clear, the value proposition, and it's compelling. But, but the sizzle of tech, that's how Monogram sold their, their offering so well. They, they showed the kukla white box robot that they put their logo on, and they showed it with, with some guy with dry ice and a fan, you know, showing smoke, literally smoke and mirrors, you know, around this special end effector that they had and say, wow, it's a robot doing the total knees. And, and look at the market, look what Stryker and Mako has done to that market, and we're gonna totally, you know, turn it on its head. And, um, they, they started just— the money started flooding in. Wow, that's why you— I, I went with that marketing partner, but, uh, the sizzle, sizzle sells online. Thank you, Kyle. And then Alessa, thanks for this, Ted. So you've been around for, for a minute here, and you've clearly experienced an awful lot firsthand with these different investment vehicles. I'm sure you've also seen, uh, plenty of examples outside of your influence of things that have gone well and things that have gone poor poorly. Have you mapped out or thought through, with all that experience, what you would, would, um, I guess, a blueprint for ideal, all things considered, if you were starting from scratch? Yeah, and that's where I mentioned at the front end of this, you know, that I think of best practices. You know, what I covered this afternoon was just options. You know, these are the different, you know, routes you can take and provided some, you know, general experience about that. You know, really for me it's been really just the last 5 to 7 years I've been really focusing on fundraising. Before that I was more in operating roles for, for companies. But, uh, you know, and of course the dynamics change, you know, the dynamics have changed in the last 2 to 3 years, you know, in fundraising. But the getting the fundamentals right for your story, um, and your company, you know, to ensure that you're really, you know, locking down the key important things that you need to have that any— that you would as an investor want to know, that you have confidence in the management team, that their quality system is top-notch, their strategy for, you know, if it's the regulatory pathway they're using, do they have reimbursement figured out, if that's an issue, their commercial strategy, you know, those 4 or 5 things. So I think there's an opportunity, and I'm happy to kind of do that next, is start to map that out because any one of those things can kill a deal. You know, the first diligence, the first couple of calls they make, and they say, oh no, their quality team isn't very strong, or they really don't have the manufacturing expertise, or they're small fish in a big pond with a contract manufacturing group and their supply chain issues. Just get the fundamentals right and get that 10 to 12, you know, pitch deck that you have that you constantly need to adjust, you know, depending on who you're talking to, really nailed down.

Good question. Less, hopefully you're not driving.

No, I'm in a car line picking up my son, but a question for you, Ted. What— so I did a little stint consulting with a private equity firm, and what they were looking for was, you know, companies where there were less than 5 people that could say no. When you're looking at a crowdfunding option and there's 14,000 people, like Monogram has on the, on the cap table, um, I mean, would that completely eradicate any type of acquisition, or what have you seen?

Well, generally, no. The structure is, um, to do non-voting shares, so they have such a small piece, even though there's a lot of them, that it's not going to affect the ability— you know, they're not going to be able to say no, uh, in generally. So The— and that's where the management by the digital, you know, management of these large cap tables, it's scary because, you know, a strategic or a private equity group might look at that and say that's way too complicated. But if you're dealing with it all pretty much on one spreadsheet together with your partner, dealmaker, or whoever it is, StartEngine, it's very manageable. And they they basically— all the disclosures are in, and the lawyers make sure that you enforce the fact that read the materials before you sign and invest, because they're basically signing away their rights to say no. But for companies like yours and others that are out there that are starving and looking for capital, not getting it from private equity or not getting it from venture capital or corporate venture, where else are you going to go? So that's where it's like, okay, well, we have to expand our captive. We have to get creative because, hey, we've got to survive. We have to, you know, resource our business. We need the funds. That's my argument.

It's not unlike a large corporation where you have thousands of employees that have 100 shares. You know, they don't— the employees with 100 shares have no voting rights. That, you know, the board and the large shareholders make the decisions. Any other questions? This has been fascinating. All right, no other questions. It's a wrap, and we'll see you guys next week. Thanks, Ted, great stuff.

Great, thanks everyone. Have a good February.

See you, bonechatters.

Bye-bye.

Thank you, gentlemen.