Investor Stories 19: Why I Invested (Medved, Neumann, Gurrieri)

NICK: John, can you walk us through a situation where you did decide to invest, what the key factors were that led you to yes, and what you’ve learned from that investment?

JOHN: Well, that’s a great question. We invested in a company called ReWalk. Rewalk is a company that was founded by a quadriplegic who got a terrible accident and got confined to a wheelchair. This gentleman’s name is Amit Goffar and he developed a set of robotic legs, an exoskeleton that allows a paraplegic now to get out of his chair and to walk again.

This company, we invested in twice and it went public I think about a year after our first investment, maybe even less than half a year after our second investment. Already distributed our shares to the investors, already passed the lockup, and what led us to go into that company was the fact that the entrepreneur was truly passionate, someone who had a track record that had already built a successful company and he understood this problem very well and came up with a great solution.

The company was close to getting FDA approval which it subsequently got. There were some great investors along side of us so it was really a consortium and a syndicate. The company had hired I think a very, very talented US CEO and operator and was addressing a huge and growing market which is inclusion, the idea that people today who are paralyzed are still sitting in wheelchairs that really haven’t changed much in 100 years.

Doesn’t make much sense to me. we just saw this as a very high concept, something that would potentially change a big part of people’s lives and the technology was proven. We co-invested along a great Japanese company in the robotics Yasakawa Company which invested 10 million dollars with us.

So it had many of the elements that we look for which are great teams, big markets, companies with traction, companies that have good sponsorship, passionate founders, differentiated technology, good IP position, everything is right there and it turned out very good for us. Now the company is public and it still got a long way to go in terms of its growth cycle but that one has certainly worked out for us pretty well.

NICK: Did you have any indication that the exit would be so quick?

JOHN: We knew that the company was waiting for its FDA approval. Our analysis led us to believe that once they got that, they would be a prime candidate for an IBO. We were pretty confident this would be a good IPO potential and that’s one of the reasons we felt comfortable investing. We invested at a later stage, the company we raised a lot of capital before, we got in. But we thought this made a great opportunity for the members of the crowd.

Again, that’s another aspect that’s a little different than our crowd, is we’re not just seed investors. We’re not angel investors only. We are investing throughout every stage of a company’s life cycle and across all sectors.

Nick: On today’s special segment, we have Sergio Gurrieri of Tech Coast Angels. Sergio, can you walk us through a situation where you did decide to invest, what the key factors were that led you to yes, and how that investment has worked out so far?

Sergio: Can talk about what may be the best company, the preferred company I have. It’s called Savara Pharmaceuticals. They’re based in Austin, Texas, and they’re developing the first and actually only inhalable antibiotic for MRSA and cystic fibrosis. So cystic fibrosis is a genetic disorder, it affects mostly the lungs. The lung get very congested in the patients and they become infected with a lot of didn’t bugs. And MRSA is a superbug which is actually resistant to the most common antibiotics. One of the drugs actually worked is called Vancomycin. It’s been around for many years but is delivered intravenously, and a drug that’s in the blood doesn’t really penetrate well into the lungs.

So Savara, they have simply reformulated the drug into a powdered form. Now you can breathe in, it goes straight to your lungs where the infection is. It kills the bugs and the patient will feel better, will require less doctor visits, and so forth.

But the reason why I invested was really the management. Management is, again, phenomenal. The board, the former head for Corporate Development from Rush is on the board of Savara, and he’s just fantastic. He knows it all, he knows everybody, he can make a very good decision in just a couple of minutes. Diligence was very strong. Savara came to us with a very extensive due diligence packet from Keiretsu in Northern California. It was much more expensive than we typically see. Financing risk was very low because they came to us at pretty much the end of their Series B. this was end of 2012, early 2013. So the company already had a lot of cash in the bank, and when you have cash in the bank, then you can execute your plan.

Again, the drug classified—has actually been awarded [inaudible] status, so there’s market exclusivity, protection. Because it was an early stage—because it was a later stage company, to compare to most companies, was green. And the time to exit was anticipated to be very short. So we invested in the end of 2012, and then maybe an extension early 2013, and the company actually has a solid chance for an exit by the end of this year. So I would say about three years from founding, so that would be phenomenal if they can do that. They might not. If not, it might take another try, might take another year, still makes an investment. And [inaudible].

So, Savara, Series B ended up being the largest raise in TCA history. That’s why it’s my preferred company. And typical angel raises, they are in the 300,000 range. That’s what you could expect if you go in and pitch to angels. A single angel group will probably give you an average of about $300,000. Savara was the largest raise in TCA history with a grand totally of 3.2 million dollars. So about ten times higher than the standard raise. And the round was a 16 million dollar angel round.

Nick: Whoa!

Sergio: That doesn’t happen every day—doesn’t happen every year that angels get together and raise sixteen million dollars. I can tell TCA only invested about 5.5 million dollars in one single company over the last three years. So it’s just a good story. And I’m an observer on their board, so I go fly to Austin every quarter and I do it because I enjoy the intellectual stimulus and motivation, and just—it’s a really nice story. And then of course you’re helping patients. Because if you get to meet a cystic fibrosis patient, they really have a lot to go through. IVs most days. At some point their lungs degenerate to the point where they need lung transplant. It’s not easy for them. So I feel very connected with some of them. It’s good to at least feel that you’re doing something useful, not just trying to focus on the financial return. That is only one of the components, one of the reasons, but not necessarily the only one. in some cases the primary reason for investing.