At Mutual Capital Partners (MCP), we know that we could not be successful investors and mentors to our portfolio companies if not for the incredibly talented and experienced limited partner investors (LPs) who support our fund. Our investment decisions are often shaped by the knowledge they bring to the table and the guidance they give to our portfolio companies. In this series of profiles on various LPs, we hope to highlight many of their unique experiences and insights and better share how MCP brings expertise along with capital.
MCP is pleased to introduce Dr. David Kay. He is currently a partner and board member of Crystal Clinic, a board member for the regional Arthritis Foundation, and a member of the Orthopedic Foot and Ankle Association Research Committee. Dr. Kay was the founder of OrthoHelix Surgical Designs, an orthopedic medical device company that focused on developing and marketing specialty implantable screw and plate systems for the repair of small bone fractures and deformities predominantly in the foot and ankle. MCP invested in OrthoHelix out of our first fund and the company was purchased by Tornier in 2012.
Currently Dr. Kay is working on several new startups.: Okapi Medical is a startup commercializing a new skin adhesive for surgical wound closure. Okapi Medical intends to perform an animal study in August and then proceed to commercialization within a year afterwards. Another, STARS, has developed a proof of concept surgical navigation system for orthopedic trauma and reconstruction. The measure accuracy is 1mm and is focused on the ASC market. STARS is now making improvements for demonstration purposes prior to fund raising. Finally, Rubber City Bracing has developed a new ankle bracing system to address the stagnant ankle bracing/taping market. This is a $2B annual market that has had little to no innovation and Rubber City Bracing has 11 patents have issued. A functional study has just been completed at the Duke University biomechanics lab and the pre-production braces are being distributed to professional sports team physicians for further evaluation.
Q: As the founder of OrthoHelix, you have worked closer with the team at Mutual Capital Partners than most of our LPs. How would you describe working with institutional investors to an entrepreneur who hasn’t raised any outside capital?
Institution investors have several areas of critical involvement- raising capital and identifying the executive team. They help you understand KPIs for managing your business; basic business skills that are nothing fancy. Once you’ve raised institutional capital you have to execute on your plan, which is the hard part.
Q: How did your background as a surgeon help or hurt you as an entrepreneur?
It did both- on one hand I have a good understanding of the market because of the perspective I had as an owner. I knew how a hospital makes a decision on purchasing and how things are stocked. On the other hand, as a user, I understand what their ultimate needs are as far as improving patient outcomes.
My background hurt me when raising capital because I had no credibility among the “smart” money. When I was raising from my friends & family, I had great credibility, but savvy investors didn’t give me much credibility and for good reason.
Q: What trends in the healthcare industry are you excited about?
There are positive and negative trends in the industry right now. One bad trend is the difficulty with getting insurance approval for surgery or diagnostic testing. Insurance denials are becoming more common and problematic.
Another trend is the transition to outpatient work which brings both good and bad. This presents challenges for taking care of a patient while they are at home, but allows us a chance to examine and refine procedures to make them work for an outpatient procedure. This tends to be more device dependent, which generates a large problem when Medicare or other insurance companies refuse to cover the cost of implants. It creates a conundrum that they demand the procedures are outpatient procedures but will not cover that expense. You’re left wondering how am I supposed to do this?
Q: What advice would you give to entrepreneurs thinking about pitching MCP?
Be prepared for very probing questions and be prepared for a tremendous amount of detail. You must really think everything through very well because you’ll have to be accountable. You have to answer all the questions, even the hard questions such as personnel (why is someone chosen/kept) or why are you spending money on “swag”- Bill Trainor had a great quote during our time at OrthoHelix that you shouldn’t waste money on swag.
Working with MCP confirmed my intuition that to build a great business you have to bring on the best people, reward them, provide them with the best tools and environment then let them go perform. This can be hard in a startup where you’re lacking resources to compensate a good person at the beginning, or you have to take a risk on someone with potential who has yet to prove themselves. You have to learn how to balance all the components of a business.