* * *
3. Hire a management team.
Weldon identified management weaknesses as another risk in the eyes of would-be investors, and an issue to which entrepreneurs often do not give sufficient attention. For sophisticated investors, people -- the quality of management -- always take precedence over the product.
Putting together a management team that sits well with investors is often a question of priorities and, thus, compromises. For Weldon the first priority was assembling a group that had been involved with a successful start-up in the same industry. That kind of team raises the comfort level of investors -- and raises the potential valuation of the company. Notes Weldon, "The managers have demonstrated the survival instinct."
Three of Novoste's five senior managers came from Weldon's previous medical start-up. The success of that venture gave Weldon added credibility as well.
Also attractive to investors is a management team that has previously worked together. "Management teams can disintegrate under the stress of a start-up," says Weldon. "You reduce that possibility if some of the people have worked together before." Weldon believes that attribute outweighs the risk of such an arrangement -- namely, that people who have worked together come to think so much alike that it's not good for the company.
* * *
4. Raise initial financing through knowledgeable private investors.
In the fall of 1992 Weldon set out to raise seed capital to get the company going. It was the first part of a two-stage financing strategy, the second being the subsequent courting of professional investors like the Hillman Co.
Weldon's experience at his former company told him that wealthy individuals were his best bet as investors in early-stage financings. They are less proprietary and less interfering than professional investors are. Because of the higher risks associated with health-care companies, Weldon enticed some wealthy individuals by allowing them to buy Novoste stock at the same price that the three founders, who had kicked in a total of $550,000, would pay -- $1 a share. That was unusual. "Most entrepreneurs don't want to let outside investors in on the first round. They fear it will dilute them too much," says Weldon. In return, Novoste required that each private investor commit to making an equal investment ($100,000) in the second round of financing. Weldon found three investors willing to strike such a deal. They were thus in for $200,000 each. That $600,000, along with the founders' $550,000, got the company up and running to a level that could attract outside investors when additional capital was needed.
* * *
5. Create a board of directors.
In assembling his board, Weldon sought balance and credibility. He put three members of senior management on the board. He then recruited two outside directors from the local community. Weldon was new to the Atlanta area, and he considered local board members a wise strategic move to raise Novoste's profile in Atlanta and to widen his own network of potential professional contacts.
Many entrepreneurs put friends or associates on their boards, without thinking through the expertise they bring -- or don't bring -- to the company. Weldon wanted to get as much talent and as broad a range of experience as he could. One outside board member was an entrepreneur who had founded a medical-device company and had subsequently sold it to a large health-care company. He had already been down a road that Novoste might well travel.
* * *
6. Find technical advisers.
Before Weldon founded Novoste, while he was still at his previous company, he had been introduced to David Williams, one of the country's leading diagnostic cardiologists, and had shown him one of his former company's early products, an innovative catheter. Williams was impressed and agreed to help refine the design. Meanwhile, Weldon flew to Rhode Island once a month to look over Williams's shoulder as he tweaked the product in his laboratory at the Rhode Island Hospital. "I wanted to develop a personal relationship with him," Weldon recalls.
When Weldon asked Williams to become a scientific adviser to the new company, Williams agreed. Weldon then asked Williams to introduce him to an eminent cardiologist, Spencer King, at Emory University Hospital, in Atlanta. King also agreed to join the advisory board, as did Robert Langer, the head of the chemical and biomedical engineering department at Massachusetts Institute of Technology, with whom Novoste's newly hired vice-president of product development, Jonathan Rosen, had had a working relationship during his years at Johnson & Johnson. The three men formed a prestigious nucleus that, in turn, attracted other scientific advisers to Novoste. All three agreed to be paid in Novoste stock, again aligning their interests with those of management, employees, and investors. Their presence also legitimized Novoste in the eyes of large health-care companies, which Weldon knew he wanted to approach to distribute products for Novoste.
Weldon says that if he were in a more low-tech industry, he would still create a technical advisory board. He says it is useful for entrepreneurs to be mindful of the so-called thought leaders in their industries. Thus, even if an investor has never heard of a company or its founder, he or she might well have heard of its technical advisers and be suitably impressed. Weldon also says his clinical advisers, high-volume users of medical devices, have improved Novoste's products by "at least 15%." And that's only half the payoff. They also have suggested a number of future products worth developing.
