BioStar Ventures has a “secret sauce” that sets it apart from other venture capital firms investing in seed to early stage medical technology companies, according to Jim Bennethum, who is a director and a limited partner. Based in Petoskey, Michigan, BioStar specifically targets investments in medical devices in the cardiovascular and orthopedic areas, which account for nearly 80% of the total medical-device market space.
“At BioStar, an international group of 15 highly acclaimed physicians specializing in interventional cardiology and cardiothoracic and orthopedic surgery leads the firm’s general partnership that runs our three investment funds, and they also are investors in those funds,” he explains. “These doctors are key thought leaders and seasoned practitioners who are in the operating room every week, using cutting-edge technology for cardiovascular and orthopedic interventions. This group gives our team a competitive edge for investing in high-quality cardiovascular and orthopedic technologies.”
Through its close ties to major hospital systems in Michigan, BioStar is able cherry-pick the most innovative and promising medical devices for development and clinical approval leading to commercialization. Dr. Louis Cannon, BioStar’s founder and senior managing director, serves as president of the Cardiac and Vascular Research Center of Northern Michigan, which is affiliated with the McLaren Health Care Corp. Dr. Steven Almany, BioStar’s managing director, is the director of medical innovation at William Beaumont Hospital in Royal Oak. Both McLaren and Beaumont are involved in clinical trials for new medical devices seeking FDA approval for use in the U.S.
“Our doctors take part in these clinical trials, so they know which devices represent state-of-the-art technologies, how the FDA regulatory system works and what insurance companies are willing to pay for,” Bennethum says. “They are extremely adept in evaluating the potential of new ideas and applying their knowledge to the deal flow of investment opportunities that come our way.”
Currently, BioStar has more than $100 million in committed capital across three funds and actively manages a portfolio of anywhere from 10 to 18 medical-device assets. The firm’s investment model takes seed and early stage inventions through the development, human-trial and regulatory-review stages to the point where they are market-ready and FDA-approved. Then BioStar helps the companies in which it has invested to sell the medical devices and associated intellectual property to global medical-device distributors, such as Medtronic, Johnson & Johnson and Boston Scientific Corp. The window between initial investment and exit through sale to a major acquirer is usually three to five years.
“We come in early and typically invest $3 million to $5 million upfront,” Bennethum explains. “The bigger venture capital funds tend to watch what we’re doing and then invest in the second round of funding. We usually reserve capital to deploy in follow-on financing rounds, so we can maintain our equity position in the company.” BioStar’s second fund is on track to deliver a gross cost multiple of greater than 6X, according to Bennethum.
BioStar Ventures participates annually in the Michigan Growth Capital Symposium and benefits from the networking opportunities offered by the event. “We look for companies to invest in, and we talk to potential investors,” Bennethum says. “We’ve always had good leads and follow-up from our contacts at the symposium.”