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How this startup leveraged friends and family investment for an oversubscribed round of funding

COVID-19 might have thrown a wrench in this health tech startup's fundraising plans, but it found a way to close an oversubscribed round anyways. Photo via Getty Images

When I wrote about fundraising early this year, I knew that I would be raising a round shortly, but had no idea I would be doing it in a changed COVID-19 world. I have experienced two unexpected recessions as an entrepreneur — in 2001 and 2008 — and each time causing huge struggles for entrepreneurs to raise funds. That is when I developed the mindset of acting like a desert rat, surviving with little help, learning to tap into the resources around you to survive and even thrive. Little did I know what was coming in March when the COVID-19 shutdown started.

Solenic Medical Inc. is a medical device company developing an innovative non-invasive treatment for infected metallic implants in the body. Using technology invented at the University of Texas Southwestern, Solenic will leverage the unique properties of alternating magnetic fields generated from external coils to eradicate biofilm on the surface of medical implants.

This non-invasive treatment addresses a major complication of various surgeries, such as knee and hip replacements, as well as in trauma related implants such as plates and rods. There are certainly challenges to fundraising for medical device companies, but each technology arena has its own challenges that I won't go into here.

The Solenic Medical team knew we needed to raise a round early this year, building upon the progress achieved since our founding investment in early 2019. The question was what type and size a round to raise.

We knew we were close to taking some valuable steps, but needed a just a little more time and funding to get there, at which point we figured we would be able to step up our valuation greatly. We decided on a modest $500,000 convertible note round, to help us accomplish at least a portion of the following items:

  • Recruit a reputable outside board member
  • Complete a planned large animal study stepping up from previous mice studies
  • Complete submission of a Breakthrough Device application to the FDA
  • Close our $1.3 million NIH grant and/or other non-dilutive funding
  • Fine tune simulation approaches to optimize the transducer design
  • File new intellectual property

We knew that some combination of these would occur in the succeeding months and would make it easier for Solenic to raise further funds.

The first domino was the on-boarding of an experienced technology executive from Virginia to join our board. The large animal study was delayed when the COVID-19 shutdown started, but our Breakthrough application and the grant application review started as the team went into virtual work mode. Progress was made on the simulations and drafting our next patent. The dominos were starting to fall in spite of the shutdown.

My philosophy was to treat the round as five different type of efforts, in pretty much five equal portions.

  • The first 20 percent in a round is always the hardest, even in closely held friends and family round. The first check regardless of size is always hard as often investors very interested in the round will wait for others to move first.
  • The second 20 percent is not much easier, still requiring a leap of faith by the investor.
  • The magic starts happening at 40 percent, where momentum picks up as you approach halfway and beyond.
  • At 60 percent you reach real momentum, where those investors who may have been waiting to move for a while now start moving.
  • At 80 percent you pick up investors who move quickly worried about missing out before the round closes.
  • With luck, you get enough momentum to oversubscribe the round and have to make the call to go beyond your target funds. For a quick hint on where I standard at that point, there's a saying that you never turn down money.

It was strange picking up the fundraising activity via zoom meetings, and it got off to a slow start as the initial circumstances of the new COVID-19 world settled in. Following my own advice from the January article, I started strategizing my communications, who might be the first check and first movers in first 20 percent, then the next 20 percent and so forth. For a friends and family round you start with your board as champions for the round, founders and management. No one is likely to be more committed and likely to get things started generally, much less in unusual financial times like a pandemic shutdown.

With an institutional co-founder like VIC Technology Venture Development and a passionate board we were able to jumpstart the round the round with $110,000 in commitments. This was quickly followed $100,000 from friends and family of board or management team members. Note that "quickly" in a pandemic was three months that in normal times might have taken only a month or so. Now that we had crossed that magic 40 percent hurdle, things started picking up speed, where members of the VIC Investor Network added individual investments totaling $140,000 to pass the next hurdle of 60 percent within another six weeks of individual presentations and discussions.

Momentum accelerated with friends and family and management team members stepping up to get us to 80 percent within few weeks. At the time of this article we are over-subscribed with more decisions to come. That is a great problem to have as things really picked up speed recently.

Though the final tally is to be determined the mix for this friends and family round looks to be pretty typical to past experiences

  • Board & Management – 27 percent
  • Family – 27 percent
  • Friends – 22 percent
  • Others – 25 percent

Because of the shutdown, this pandemic round has been unusual and at times frustrating, with some highly vocal and interested prospects going strangely silent as soon as the shutdown started, while others moved more slowly than originally expected. Regardless of how things transpired, it turned out largely familiar. As usual, the people you know the best and that know and trust you the most are the ones that are mostly likely come through for you. Building your network to increase the size of that pool is what you do far before a round starts.

Later rounds will be quite different, but the same 20 percent momentum stages will apply. It's a matter of building and nurturing a network of prospects in advance. Larger rounds involve an "institutional" friends and family network that you have known for a while. That work begins long before you start developing them as prospect for an open investment round. By the time this article is published, we expect to have the final funds of this round in the bank but have already started building relationships for the next round. It never stops, but in some ways that is the fun part of it to meet new people to share your startup's story.

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James Y. Lancaster is the Texas branch manager for Arkansas-based VIC Technology Venture Development and interim CEO for Solenic Medical. Lancaster, who lives in College Station, oversees business there, in Dallas, and in Houston.

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Building Houston

 
 

Emily Cisek, CEO and co-founder of The Postage, joins the Houston Innovators Podcast to discuss tech optimizing after-life planning, B-to-C startup challenges, and a national expansion. Photo courtesy of The Postage

Anyone who's ever lost a loved one knows how stressful the process can be. Not only are you navigating your own grief, but you're bombarded with decisions you have to make. And if that loved one wasn't prepared — as most aren't — then the process is more overwhelming than it needs to be.

On top of that, Emily Cisek realized — through navigating three family deaths back to back — how archaic of a process it was. Rather than wait and see if anything changed, Cisek jumped on the market opportunity.

"I just knew there had to be a better way, and that's why I started The Postage," Cisek, co-founder and CEO of the Houston-based company, says on this week's episode of the Houston Innovators Podcast. "My background had historically been in bringing offline businesses online, and I started doing some research on how I could make this space better. At the time, there really wasn't anything out there."

The tech-enabled platform allows users of all ages to plan for their demise in every way — from saving and sharing memories when the time comes to organizing pertinent information for the loved ones left behind. And, as of last month, users can no generate their own last will and testament.

"We launched the online will maker — it wasn't in my roadmap for another six months or so — because every single person that was coming in was looking at something else on our platform, but then going to the will part and asking, 'Hey is this something I can create here?'" Cisek says.

Recognizing that this was a good opportunity to generate new users, Cisek quickly added on the feature for a flat $75 fee. Then, members pay $3.99 a month to be able to edit their will whenever they need to and also receive access to everything else on the platform.

Cisek saw a huge opportunity to grow with the pandemic, which put a spotlight after-life planning. The silver lining of it all was that more people were discussing after-life planning with their family members.

"We're having more open dialogue about life and end-of-life planning that I don't see any other scenario really bringing that to light," she explains. "In some ways, it's been positive because having the conversation with people has been easier than it had been before."

While anyone can access The Postage's platform, Cisek says she's focused on getting the word out nationally. Following some imminent funding and partnerships, national marketing and growth campaigns are on the horizon.

Cisek shares more on her career and he unique challenges she faces as a B-to-C entrepreneur on the podcast. Listen to the full interview below — or wherever you stream your podcasts — and subscribe for weekly episodes.


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