Medical technology (medtech) angel investments can be a great opportunity for physicians to engage as mentors with startup companies within their field of expertise. A cardiac surgeon, for instance, can offer expertise to an entrepreneur building a new stint. Typically the physician will make some level of investment and be heavily involved in the company, hopefully seeing it and their investment prosper.
Another route is to invest in multiple companies and be much less involved. Obviously, it would be difficult to offer day-to-day or even month-to-month mentorship for more than one or two companies as a busy physician. In this case, you need to be economical and look for resources to help you with your investment selection. Most major cities have angel investment groups that, for a nominal fee, will help you vet companies and offer other resources as you make your investment decision.
Your best option for plugging in to medtech angel investing in Seattle is WINGS.
Whichever route you take (mentor or passive investor), be aware of the risk and return. While not much has been written on the subject, the white paper “Returns to Angel Investors in Groups” by Robert Wiltbank and Warren Boeker does a nice job of setting the expectations.
Here are seven things you need to know when considering medtech angel investments:
- Risk. 30% of your investments will fail. 30% will return your money. 10% will go big. 20% will return something. To succeed, you must understand this and have the wherewithal (assets) and stomach (guts) to ride out the losses.
- Return. 27% IRR. Most of this coming from the 10% that are home runs. See Returns to Angel Investors in Groups.
- Time horizon. Companies that fail (lemons), fail faster than those that succeed (plums). Proper investment requires patience and the ability to reinvest over periods of time.
- Invest 5-10% of your portfolio assets. Your risk is concentrated and your return is dependent upon “home runs.” Subjecting more than 5-10% of your assets is just too risky.
- Diversification. Single company risk is big with these investments. Prudent investment requires investing in at least 15 to 20 companies.
- Involvement. If mentoring within your field of expertise is the desired path, how much time do you have to devote to it?
- Do your due diligence, or depend on a group such as WINGS to help you do it. Success rates and due diligence are highly correlated.
If you’re serious about becoming a medtech angel investor, learn the local landscape. Spend some time with local groups, such as WINGS. Figure out how much you want to invest and what role you want to take on. Most importantly, know your downside risk, be mechanical in your decision-making and limit your investment to 5-10% of your total portfolio.