To move the cancer diagnostic tool he invented from concept to development -- that is, from R to D-- Tom Grogan, MD needed capital. Not just millions of dollars, but tens of millions.
At stake: making cancer treatable and curable. Tom had invented a medical device that accomplished this while reducing the risk of misdiagnosis and vastly speeding up the laborious by-hand diagnostic process. Before Grogan's invention, patients would often have to wait days or even weeks for a prognosis and misdiagnoses were far too frequent.
With drawings, a few slides and a short presentation, Tom and his fundraising partner presented to thirty-five venture capital firms around the country. In an eighteen-month span, they received thirty-five rejections. Typical rejections went something like this:
"This is a naive proposal from an unwitting academic."
"It's a long-term project taking five to ten years to profitability. . . yet we have computer deals that give three to five times return on investment in two to three years."
"We've run the idea by several groups of practicing physicians, and they don't see the need."
Although Grogan likens the process of pitching to and getting rejected by VCs to proposing marriage thirty-five times with thirty-five rejections, he says the rejections played a key role in his ultimate success: in 2008 his startup, Ventana Medical Systems, was acquired by Roche for $3.4 billion, becoming Roche Tissue Diagnostics. Today, the diagnostic tool Grogan invented, the Ventana BenchMark System, is in its third generation and is used for 20 million patients per year in more than 100 countries. Grogan writes about this in his new book, Chasing the Invisible: A Doctor's Quest to Abolish the Last Unseen Cancer Cell.
Above all, he says, the rejections taught him a number of key lessons about pitching to VCs, lessons he was able to incorporate and use as he continued his quest. Here are Grogan's insights for all those on the bumpy road to raising capital:
1) Explain the value of solutions with real-life applications over pie-in-the-sky ideas
Sometimes investors just need to be brought back to the ground. Somewhere around VC meeting number thirty, Grogan gave his pitch to an investor who shrugged him off by saying that he had just started a company whose founder, a Nobel Laureate, was taking them into the scientific stratosphere. And that far from rocket science, Grogan's idea was too practical. Too earthbound. Grogan responded that Nobel versus practical brought to mind James Clerk Maxwell -- the father of modern physics -- whose mathematics explained the propagation of light. It was a Nobel-worthy idea, but would have had no practical use without Thomas Edison's more practical invention of the lightbulb. Given the everyday utility and economic value of Edison's bulb, wouldn't a VC bet on Edison over Maxwell? With this comment, the investor found the spark he was looking for. He ultimately became one of Ventana's early backers.
2) Go beyond the elevator pitch to unleash investors' curiosity
Just as it's important to have a well-honed, polished twelve-minute elevator speech, you also need to find a way to engage with potential investor's senses and unleash their curiosity. When Grogan met one investor who saw his device's medical promise, he invited him into the lab to sit with him at the microscope. They talked about patients whose care the device had altered and the lives it had saved. A mother of four misdiagnosed and mistreated for breast cancer. A ten-year old boy falsely diagnosed as having a lymphoma in the tonsil but in fact had infectious mononucleosis. And many more... Seeing the biopsies for himself and understanding the implications, this investor ultimately became Grogan's first backer. The key was demonstrating the transformative power of the invention.
True, not every VC you pitch to will be curious, but watch for the light in their eyes -- then grab it by engaging them with information they can see, touch and relate to.
3) Don't quit until you've gotten a substantive, fact-based rejection
Although amply skeptical, the rejections Grogan received were not substantive. Grogan's device sought to automate and vastly speed up cancer diagnoses that were being done by hand. The VCs rejecting him did not fully understand or take into account the medical realities underpinning the need for automation. They were also unaware of the often-unspoken uncertainty of diagnosis his fellow physicians were reluctant to discuss. They were unfamiliar with the chemistry behind Grogan's device. But a rejection means nothing if it's not founded on substance. Don't ever quit, Grogan says, until you have a rejection that is substantiated by facts and technology or science.
The experience of learning from rejection also set Grogan up for success when the next major funding challenge appeared on the horizon after initial funds were secured: holding an IPO to raise the hundreds of millions it would take to produce a medical device worthy of FDA approval and a global business.