Newland Medical Technologies
Sarah Foster, cofounder and President of Newland Medical Technologies, invented the Stone Removal Stent (SRS) along with Dr. Grainer. The concept of the SRS was to remove stones from a patients’ ureter directly. Once the patent was developed, Sarah reasoned her target customers would be urologists and medical centers and began the process of marketing her device. Upon completion of the business plan, Sarah spent the majority of her time seeking venture funding to bring the SRS device public. A Rhode Island development foundation “agreed to put up $65,000, as long as 20 percent was spent directly in Rhode Island.” The foundation also agreed to manufacture the device under one roof, which to Sarah seemed like a simple one stop solution. However, agreeing to this was one of her first mistakes. As it turned out they were not capable of manufacturing the product, which led Sarah and her team, now comprised of two more individuals an engineer and business developer, to hire multiple specialist. With a supply chain of specialists the manufacturing time increased, and it raised the possibility of miscommunication among the different companies. If Sarah had researched manufacturing companies further, rather than agreeing to the first “sweet deal” she was offered, she could have avoided this setback.
Another major pitfall that Sarah and her team encountered occurred during the pre-FDA (Federal Drug Administration) approval trials. Sarah realized that there were “serious design flaws” in the stent. Once the stent worked as expected in 15 repeat clinical trials in a row Sarah assumed the design was perfect and moved forward with her business plan, seeking approval and investors. Sarah herself admits, if she had spoken to more urologists during the trial stage the design could have been approved and worked on before moving forward.
The one thing every new venture and entrepreneur needs to help move their idea or product forward is capital from investors. The first investor that Sarah was introduced to invested $250,000 in Newland Medical Technologies and attracted two other investors to invest $75,000 each. This funding allowed Sarah to pay her employees’ salaries and rent office space. However, once the company had to find a new manufacturer and distributor coupled with fixing the device’s design flaws and re-launching the company nearly depleted all the capital received. Once again Sarah sought investors, which led her to meeting two investors each willing to put up $200,000. However, these two new investors did not have any experience in the medical industry and did not like the direction the company was going and wanted a faster return on their investment. Again, had Sarah waited until she found investors that agreed with her vision for Newland and had some knowledge of the medical industry Sarah would not have felt so torn or pressured into making a decision about the company.
Momentum began to surge for Newland and they were soon offered a deal from a medical supply distributor in Florida. The deal included a 5 year earn out for Sarah and her team, with Sarah serving as president, however it was contingent on the FDA’s approval of Newland’s latest device. At the same time Sarah became pregnant and her two new investors were demanding changes in the deal that would allow them to make more money. The dilemma Sarah now faces is how does she continue build Newland Medical while pregnant and with two unhappy investors.
The best strategy for Sarah at this point is, first buy out the two investors and second sign the deal with the Florida distributor. While it will not be easy being a new mother and running a successful business on the rise it is still allowing Sarah to fulfill both of her dreams. Though, Sarah would like to continue to produce new medical devices a 5 year earn out would allow her to do both. Clearly, she will have to release the reins on the company for sometime while out on maternity, but as long she has passes them onto a capable number two on her team the business should not be affected. Sarah would still have to raise more capital to fund Newland’s new invention, however, with a deal on the table that should be easier for her now.
Timmons, J. & Spinelli, S. (2007). New Venture Creation: Entrepreneurship for the 21st Century (12th ed.). New York: McGraw-Hill Irwin.