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Debt Financing for Growing Medtech Companies
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Debt Financing for Growing Medtech Companies

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Catherine Daly
Content Strategist

Debt financing is a helpful funding strategy that can be used by medtech businesses of all sizes to help them scale without dilution.

As a founder at the intersection of healthcare and technology, you are tasked with developing transformative solutions like data analytics, AI, and telehealth. 

These innovations are redefining patient care and modernizing the medical landscape. However, bringing these technologies to life requires significant capital, not to mention navigating a unique set of challenges inherent in the medtech field. Issues like regulatory compliance, data security, clinical validation, and ethical considerations can often seem like a complex and costly maze.

Debt can offer an efficient way to finance medtech ventures and overcome these hurdles. 

In this short article, we examine the benefits of debt financing for medtech companies and look at some examples from TIMA’s portfolio.

Investors Appreciate Medtech

Investors and lenders are increasingly drawn towards medtech startups, thanks to their promise of significant returns and impactful innovation. Here’s why they’re particularly attractive:

1. Stickiness

Medtech solutions, particularly B2B ones, often become deeply embedded in the systems and processes of the healthcare industry. Once a healthcare institution adopts a particular technology, it can be challenging and disruptive to change it. This stickiness ensures a long-term customer base and predictable recurring revenue for the medtech startup.

2. Potential and Need for Transformation

The healthcare industry is huge and ripe for technological innovation. As such, there’s a big potential market for medtech startups that can provide transformative solutions. Whether it’s streamlining administrative tasks, improving diagnostics, or enhancing patient care, there’s a wide range of opportunities for startups to make a significant impact.

3. Profitability

Medtech startups often serve clients with substantial financial resources, like pharmaceutical companies. These clients have a constant need to demonstrate innovation to stay competitive and to meet regulatory and market demands for improved and secure patient care. Consequently, they are usually willing to invest in promising technologies that can help them achieve these goals.

Medtech Startups Successfully Growing with Debt

There are several examples of medtech companies that have successfully leveraged TIMIA’s unique approach to debt financing. 

1. Lasso MD

Lasso MD is a bootstrapped, tech-enabled healthcare services company based in San Diego, California. 

The co-founders knew they could get a better valuation if they grew their annual recurring revenue (ARR) before a venture capital (VC) round. They used TIMIA’s debt financing to stimulate sales and marketing and fuel their company’s rapid growth, positioning themselves for a better valuation when the time comes to raise VC. 

Read Lasso MD’s growth story.

2. Megadata

Megadata, a healthcare analytics company, leveraged TIMIA’s expertise and non-dilutive capital to access the cash flow it needed to scale its business further and serve more customers quickly. 

Megadata is using the capital to deepen its onboarding, sales, and marketing teams and build processes that help it accelerate faster and grow its valuation. The potential for a longer-term partnership with TIMIA also creates a sense of flexibility and optionality in Megadata’s planning. 

Read Megadata’s growth story.

3. Gramercy

Starting as a bootstrapped venture, Gramercy Extremety Orthopedics (GEO) remains capital-efficient today with a small team of 11 employees. It recently accessed $1 million in capital from TIMIA to continue its growth journey and expand its revolutionary orthopedic implants with RFID technology. 

TIMIA’s funding will help GEO accelerate sales and marketing efforts so the founders can grow the business without further dilution.

Read GEO’s growth story.

Benefits of Debt Financing for Medtech

Debt financing is a common funding strategy used by medtech businesses of all sizes. Here are some of the primary benefits of using debt financing:

1. Retain Ownership

Unlike equity financing where businesses sell a portion of their company to investors, debt financing allows medtech founders to retain control and ownership of their companies.

2. Lower Cost of Capital

Compared to equity financing, debt is typically a cheaper form of financing because lenders take on less risk than equity investors. This means the cost of debt (interest) is typically less than that of equity (dividends/ownership dilution).

3. Predictability

Debt financing agreements often come with fixed repayment schedules and interest rates and can offer flexible terms including interest-only or amortized payments. This allows businesses to keep working capital in the business and plan ahead.

4. Subordination for a Blended Cost of Capital

Some debt solutions include the ability to subordinate its loans to senior debt. This arrangement provides medtech companies with an added layer of financial flexibility and security.

5. Flexibility

Debt can be used for a variety of purposes, including:

  • Extending Runway and Delaying Equity Raises — Medtech startups aiming to defer their next equity raise to prevent dilution can benefit from debt financing. It provides the necessary capital to propel the business forward without diluting equity stakes.
  • Reaching Cash Flow Positivity — Debt can provide the necessary financial boost for medtech startups striving to achieve a cash flow-positive status, a crucial milestone for any business.
  • Facilitating Business Model Transition — For medtech startups looking to pivot their business model or decrease their services revenue, debt solutions can provide the much-needed capital during this transformative phase. It can also help fund the acquisition of new intellectual property, talent, or customers.
  • Positioning for an Acquisition — For tech companies that are positioning themselves for acquisition, a forward-facing loan provides a strategic timeline to enhance key financial metrics that potential acquirers find appealing. Simultaneously, this type of loan maintains a straightforward capital structure, avoiding complications on the cap table.
  • Refinancing — Some companies need more time to repay loans that are either about to expire and need more time or are called by the capital provider due to liquidity. Others want to consolidate multiple different debt products, clear accounts payable build-up, or open a new credit line.

In summary, debt is an effective tool for medtech startups to reach their next milestone without diluting their ownership. Companies like TIMIA are playing a crucial role in bridging the finance gap for these companies, offering tech-specific expertise and flexible debt solutions for medtech startups with $2-50M in ARR.

To see if your medtech company is eligible for TIMIA’s solutions, contact our team.

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Catherine Daly
Content Strategist

Catherine joined TIMIA Capital as a freelance copywriter and social media manager in January 2019. She has 15 years experience in marketing and held senior positions at a number of technology companies including Hootsuite, Absolute, and Avnet Technology Solutions. Catherine is an expert writer and marketer and holds an executive Masters in Marketing, a Bachelor of Science in Communications and Journalism, and a Diploma in Digital Marketing.