Bill Canady: welcome back everyone. today most leaders assume that when growth stalls, the answer is more capital. But what if capital isn't the real constraint? What if the real problem is converting capital into capabilities, customers, and enterprise value? Today I'm joined by Heath Naquin, Senior Vice President of Innovation and New Ventures at the University City Science Center. we're going to explain why well-funded innovations fail to scale, where the conversion process breaks down, and how leaders can sequence capital against the milestones that create measurable value. Heath, welcome to the show.
Heath: Thanks, Bill, for having me.
Bill Canady: So most leaders believe, as we said in the intro, that gross stall is because of lab capital. You argue that capital is available. The real constraint is conversion. What does that mean? And where do leaders most often get it wrong?
Heath: And you know, in this environment, I mean, people be listening like, no, no, capital's super, super tight, and yeah, it is. Of course it is. But I think from my vantage point, and it depends on where you're at as a company, you know, capital usually isn't actually the problem. It's usually the structure
Bill Canady: Mm-hmm.
Heath: of the venture overall. You have a great tech and great plan and you're trying to raise capital. The issue when you keep getting told no, isn't usually, you know, the tech and it's not usually always the team. It's that the value prop hasn't been fully baked and the corporate hygiene isn't candidly there. Like you don't have any actually have that growth plan and that scale plan in a way that can be believed from capital markets. That's one slice of a part of the answer to your question. But an argument I would make for some of the CEOs, and something we talk about at the Science Center and in some of my other work, is there is an element of capital efficiency tied to corporate. Commercial milestones that often gets overlooked in doing that fundraise. And so the what I mean by that, so like in my in my day-to-day, I work with a lot of med tech and life science companies. Very capital-intensive, get those things from start to you know human launch. I mean, we're in the order of tens to fifties to hundreds of millions of dollars before it even sees light of day, right? But there's a lot of steps along the way. That if you were more capital efficient and designed things right from the get-go and you had a mind towards capital efficiency and say regulatory, knew when to spend money smartly, maybe cost you a little more upfront, but it saves you five million dollars. Hey, that's a good investment. And, you know, there's all kinds of stuff there. So I think that a lot of CEOs, at least the ones I run into in in my work, often are not thinking about the capital efficiency layer of how they're growing their company. And that does not mean being cheap. That means
Bill Canady: Mm-hmm.
Heath: being planful and thoughtful about your growth trajectory as it pertains to the capital stack and capital markets and the market itself. So that's slice two of my answer. Slice three, which gets back into where people most often get it wrong. And I think I I already brought up a couple of things that were wrong. But, you know, really. There a few more things that I mean, and granted, I see hundreds of companies a year. I I'm an active investor myself, so I see a lot of companies at all different stages. I think that a lot of CEOs as they're trying to grow and scale. Aren't necessarily thinking about growing and scaling in the right fashion towards a market reality. And it's real easy. I I I've been an operator role myself. It's I have made this mistake. So this is not trying to call anybody out. This is just it's real easy when you're in the middle of the of the scrum to to be have your blinders on like this is my mission, this is what I have to do, and lose sight a little bit of should you be growing that way or not? Is this the right team around me or not? Do I know enough to engage my experts in an appropriate way? To be capital efficient so that when I'm doing my fundraise and trying to find my capital, I'm asking for what I need related to value milestones and actually doing it in a way that's thoughtful and planful, which is real hard to do when you're on the treadmill twenty four seven. So those are just a few things and I feel like I went all over the place, Bill. I apologize, but hopefully there's some nuggets in there that were a little bit useful for the audience.
Bill Canady: That was a perfect answer and it really just speaks to the complexity of what's going on. But you really you really brought up a great point. What convinced you that this was the real problem when you're working with these guys, right? That that yeah,
Heath: the capital efficiency piece?
Bill Canady: the capital efficiency piece of it. Like what what was the it's a huge one.
Heath: so so quite honestly, this is like so again, I mentioned like MedTech Life Science, right? And it would I'd see companies and like and at the science center, we we routinely work with companies like this. So I'll do a shameless plug. I mean, we'll run 30 companies a year through our process, which is all it's all about capital readiness and raising your money, right? But you would see companies successfully raise funds, they would raise five, 10 million dollars. Great CEO, super happy, sweet, everything's going great. This is enough to get my regulatory pathway set. I can start doing my FDA approvals. then they can do my quality management system, design studies, and then some maybe some contract manufacturer stuff. And they start moving this money around for this plan that's all interrelated in some way. Right. So it's in I mean, if regulatory goes sideways, everything else changes, blah, blah, blah. So I started looking at that. And from what I can see, at least in MedTech. Two areas where people often get it wrong because they're at this earlier phase, they haven't raised money yet, whatever, is going cheap on regulatory, usually because they know a guy somewhere and they get some bad advice or maybe cheap advice. Not following the the regs, and so they they go cheap on their submissions. They have there's a timeline there while they're building out their their sort of manufacture strategy and going down the road, and then they find out eight months later. That, wait, FDA didn't approve it. You have to go back and change your study and change everything else because you didn't do a pre-sub or whatever. And I'm using some of these terms, depending on where you're at, that may not apply, but in MedTech, it does usually. And then they have to go back, do all the rework. That takes them another six to 12 months before they can go back again, hopefully get approval this time. But now they've raised a bunch of red flags, and all along the way, they have to rework the The manufacturing facility, they have to rework the production line, they have to rework the experiments, they have to do stop work orders to change the whole thing. They're still carrying the burn of all the staff that were floating around for that now, now
Bill Canady: Got big burn rate.
Heath: 24 months before because it all because they didn't have the if they would have spent 50,000 more up front and and maybe two more months. That $10 million they raised, which is now burnt and went up in smoke without any. Commercial milestone hit that they're now begging on a down round for $20 million to keep them alive, you know, that would have been avoided. All that starts
Bill Canady: They got the dilution issues, you got everything going on.
Heath: floating down, right? So, so it's that, and then like quality management systems, not setting up those experiments because those are those are pricey. I
Bill Canady: Mm-hmm.
Heath: get it. I literally had this conversation a week ago. They're like, well, this group's gonna charge 60 grand versus 30. I think we're going with 30. I'm like, Yeah, but the sixty grand group I know does it right. The thirty has some bad I've heard mixed reviews on and they they chose to go with the thirty and you know, we'll see how it goes. But and I get why they're saving money, but it's almost like that's why I said capital efficiency isn't about being cheap, it's about being thoughtful in deployment towards value based milestones. And I think that gets real hard to do sometimes, at least in the world I see a lot of. Does that answer your question?
Bill Canady: It really does. You know, you're dealing with some of the smartest, most innovative people in the world, maybe not always the best business people. why do you think they these capable organizations really struggle with this? Th these cap these people you're working with, why are they why
Heath: W which organizations I'm sorry? well I mean
Bill Canady: yeah, why why are they doing it? Why why make it hard?
Heath: But you know, I I've had the pleasure of working with some of the sharpest people around the around the world, honestly. Like, I mean, Nobel laureates, you name it, right? You know, have I've worked with them. on the science and innovation side. And then inevitably there's this like, you're doing cool science, you should create a company. And then, well, of course, the right person to be the CEO. is the inventor. And then it sort of like happens in this space because they know
Bill Canady: Mm-hmm.
Heath: the tech best. They know that and they do. They created it. They they have the twenty patents or whatever it is. I mean, great. Yeah. Are they the best fundraiser? Probably not. are they the best at leading a scalable and building a scalable team to re repeat the sales process in a way that can the organization consume revenue in and recruit the best talent for that? Usually not. are they willing to follow organizational processes that make the business operate more efficiently versus just the science that often creates a lot of tension. So but I think there's this big assumption that you know gets disproven regularly that at least in this at least in the beginning that the CEO should be the inventor, at least in the science and tech world. And that in my view that's often not actually the case. It's are they the right founder of the company? Absolutely. Should they be attached to it as a advisor, it's chief scientific officer and all that. Yes, a hundred percent. Should they be necessarily leading the business as it's going through capital scale and trying to grow? Probably not sometimes. And I think that's and
Bill Canady: You gotta know what you're good at. That's that's
Heath: I I think sometimes it's no one when maybe you're not the right person for that seat.
Bill Canady: As someone who advises a lot of these people, shepherds them through, what's the early warning sides that maybe there's a problem?
Heath: what on a CEO front?
Bill Canady: Yeah, well, I mean look, so like you said, they're good at something. Typically it's the technology. and they've got to get all these other things to have to happen. What's the early warning signs that you've got an issue and then how what do you do to keep it on track? 'Cause that's that's really what you're trying to you're trying to you're trying to get
Heath: Right, right, right. So to keep it on track, I mean there there's a couple things that we'll do. and well actually those things we'll do, and then there's the warning signs. There's two different sides of that. Warning signs Right, right, right.
Bill Canady: That's right. First you gotta know you have a problem. They have to admit it.
Heath: It's like a and then maybe we can fix it. So the warning signs for me, at least the and it's it's not picking on any one particular group, but morning warning side is when people leave with the tech and describing their venture, when they lead with the the technical like composition of a drug or something like look we've made this GLP one molecule. I'm like, that's cool. We've spent fifteen minutes talking about that. I still don't know what you do from a company perspective. That's
Bill Canady: Mm-hmm.
Heath: usually warning sign number one. Number two is when I see a slide deck that has a board of advisors that includes n everybody for like to advise the CEO. There's a there's 15 different advisors. They're all like Amazing scientists and are obviously like either a former collaborators or grad, you know, advis grad advisors or whatever you want call it. I don't see one business person on that on that chart. I'm like, that's probably gonna be a problem.
Bill Canady: Mm-hmm.
Heath: When I see look at all the accelerator programs and all the different academic institutions I've collaborated with, with about 30 different logos, I'm like, okay, I'm a little nervous about that. When I see Our IP comes from the university I used to be at. That raises huge investor red flags. That's gonna cause potentially all kinds of IP issues
Bill Canady: for sure.
Heath: there. And then the the final piece is really, and it's gonna be a broken record, is being open and receptive to feedback. And that that from just as a like an investor lens, because I'm not a just throw it out and I I walk away. I'm like, if I can't add some value and there's not a I can't actually like Have an honest conversation, be like, look, this is gonna get this start to go a little sideways here. That that that's that's another red flag there. So being able to accept, doesn't mean roll over, but accept feedback and and and be thoughtful about it without letting ego get in the middle of it all, that's another, you know, one lesson in red flag.
Bill Canady: That makes a lot of sense. What does that next conversation look like? where are you gonna direct them first?
Heath: But I usually tell them to start with them like, okay, step number one, let's take a fresh look at the corporate hygiene you've built so far. Like
Bill Canady: Mm-hmm.
Heath: this is and and this is not cool or the sexy startup stuff. It's just it's very boring. It's like,
Bill Canady: Mm-hmm.
Heath: are all your contract docs in place? Do you know where your books are really kept? Do you trust how you're having is that how that's organized? Do you have all your ducks in a row on agreements with consultants, contractors, whatever? If you don't, can you clean that up? do you have things papered? Meaning if you have a license agreement from a university, make sure that is a ironclad, well documented thing, right? And so, and by the way, for those of you out there going to raise venture money, I'm assuming most folks know this, but they're at some point you'll be asked to share your data room or your deal room. This
Bill Canady: Mm-hmm.
Heath: is and that you can eat email Dex all live long day, but if somebody's ever serious, you're gonna ask to see your data or the deal room. And all
Bill Canady: You're gonna have to have a data room and it's gonna have to be managed and you know, all the
Heath: Well, right, but then they're gonna all this stuff I'm mentioning is gonna need to live there, right?
Bill Canady: Mm-hmm.
Heath: You have key person insurance. I mean, all this stuff just starts building and it just keeps growing, right? I I'll tell a quick funny story. Like,
Bill Canady: great.
Heath: so there was an there I'll give an example how important this is. This is why I'm saying I direct people to think about that first. so there was a company in the middle of about a six hundred million dollar acquisition, right? I mean, this company had been operating for like seventeen years. I mean, it's been going.
Bill Canady: Mm-hmm.
Heath: And in the due diligence that was happening, I mean major acquisition, right? We're not talking tiny dollars. The question was asked: like, hey, where was the initial corporate formation transfer of funding from the founder? So all you guys that go to Inc. file and everything else, then and establish a corporation. And it held up this acquisition for about three months and cost about another half a million dollars in legal fees and lo you know, to go back and rework all the paper so that it was a clean chain of title all the way through that whole thing. So it's not really a funny story, it's more like crap. But I mean it's like as simple as that. Couldn't ch have implications way, way down the road. I mean, honestly I don't even think the founder was really nest was just sort of hanging as an advisor these days. It was a whole it was a whole thing, right?
Bill Canady: I I've been through those. Those are really difficult and they're expensive to resolve. And a lot of times
Heath: very expensive.
Bill Canady: the deal will die in the process.
Heath: I mean th this one was going to, honestly, but it it it worked out. That in that case. I mean, there's the the case of the four million dollar intern. you know, in this case, somebody had spent like six months working on the science in the lab with the company. You know, there was a contract in place. It was a contractor 1099 relationship, everything was fine. And, you know, the parted ways, and then years later, they're in the middle again, similar type situation. They're trying to do a $150 million close. we're on a C round at this point. And when money pops up. People start paying attention. So next thing you know, this intern pops up and says, Hey, I was part of actually the inventive step of this tech. And we did that. And by the way, we had had beers one night with the founder, and he had said that maybe there'd be a position for me in the future because of all the hard work I'd done. And nobody knows if that was true or not. And probably it was. Maybe they they were just talking. Whatever. Yeah, right.
Bill Canady: People say make those comments all the time. It's it's an hey, I hope you can come back. We got a roll for you if you do.
Heath: Right. And then this happens and then he was saying like he was not provided clear direction, was not provided an opportunity, even though it was promised. And by the way, he it was not clear that the work he was doing was purely for hire in his contract, and it was sloppily done contracting paperwork. And
Bill Canady: Mm-hmm.
Heath: the decision was made, like either this is gonna make the whole deal fall apart, or we're gonna have to pay this guy off.
Bill Canady: Mm-hmm.
Heath: And so the number that it He said he'll go away for was four million dollars. So that was a very expensive intern.
Bill Canady: How do you get them through that?
Heath: for us, it actually we we do it mostly through our programming. So the way companies interface with us is usually the entry point in, it depends on where you're are is our capital readiness program. So for companies
Bill Canady: Yeah.
Heath: raising around the two to ten million dollar range, usually that they've already raised some angel money and maybe gotten some friends and family money or some grant money, that's cool. We recruit nationally for that. We we run them through essentially a due diligence process for a week. they come to Philly. We have a network of about 40 different venture funds that also will send representation and spend the whole week with us. We have every you need accounting, you need regulatory, you need QM, whatever. We we have experts in those areas, but we don't it's not about us selling services. It's about like, let's walk through where you're at as a venture before you do this raise. Do you have a dealer data room? We're gonna go through it a little bit. And by the way, let's identify all those gaps you think you don't have before somebody else does. Right. And usually what
Bill Canady: Mm-hmm.
Heath: happens is by day three, people are like, crap. I I didn't realize. By day five, they're like, I'm not sure I wanna be CEO anymore. It's a pretty intensive week, just for clarity. But it does help reframe the discussion and be like, Is this the right am I the right person at this time? For this thing, do I really want to do this? And now I have at least a much better lens than all the things I might be dealing with in the future. So that helps inform decision making. A good example, you know, we had a company come through. It was like the CEO and the the COO. The CEO was like, I don't think I'd add value to this company anymore. They resigned after the week. And the I mean, like, well, we're not trying to destroy companies here. But I also was identified as there wasn't like a healthcare economic study doing that would prevent any. venture group because they would all be asking that. And they the information was known, but it wasn't like a bona fide third party verified thing. And that was a critical gap from allowing the fundraise to occur. And then the CEO took their credit, it was like, we'll absolutely do that now. And then it they'd unlock not only some investment, but also some very large strategic partnerships because those were some of the things that were missing. And then it wasn't to pick on anybody. It was just like if you don't know, you don't know. And so, and nobody really gives you the roadmap for the stuff either. And so it's just like, let's unpack it, let's pull it from a capital side and sort of old people like me side, like, hey, here's the things that maybe you should work on. And this is how we've seen it go sideways. And then we do that. There's no cost to attend. We don't take equity. We're not you have to get yourself there. It's a very competitive process.
Bill Canady: you know.
Heath: I mean, basically, you know, my requirement is they have to have an actual company, they're a couple of full time employees and, you know, at least a half million dollars that have gone to the venture, but average is about two and a half. And but they're trying to do that next fundraise to actually do some get beyond yeah,
Bill Canady: Professionalized. Yeah.
Heath: they're trying to professionalize it. Which often's gonna lead to team growth, initial sales, those types of things. And
Bill Canady: Yeah.
Heath: so it's one thing to prove the tech, it's nothing to prove you have a business that a venture group will throw like two to ten million into. they do they
Bill Canady: them to funds or
Heath: do meet. It's and and of course we do additional post support stuff. They do meet folks from the venture capital. And actually we're big about not doing like we don't do pitches or demo days. It's it's really about like cultivating relationships. so they do meet Folks from the venture community and get some very candid feedback, probably in a way that most people never do. but more whether we we introduce somebody, which we do sometimes, but it's not really about that. It's more being able to identify those those gaps and and proactively fix it that really unlocks the capital. And so that's back to your original point. The capital
Bill Canady: Mm-hmm.
Heath: is scarce, like it is, but it's also not if you're doing approaching it the right way. And by the way, we have seen CEOs like. Say I shouldn't be CEO, I'm gonna go recruit a new one.
Bill Canady: N now I wanna know how many how many you decide that during your program. It's like I come in and see I'm leaving, I'm like, I think I'm the J
Heath: We've had at least we we on average about cause we only accept ten per cohort. On average about one or two decide that every cohort. Like I don't think I'm the right person right now.
Bill Canady: That is so amazing. And you have to apply about one out of ten, give or take. It's a week long. And and it's really just laying out here's what you've got on med tech as well, right? And you're
Heath: Mm-hmm. It's focused on med tech. It's it's focused on med tech to be clear. Yeah.
Bill Canady: and you're in the early rounds, but but they've raised something, right? And that's that's kind of the target market. Where do they how do they find you? How do we where do they go to get this information?
Heath: I mean, you can go to our website at www.sciencecenter dot org. I'm I'm on LinkedIn. I do stu I'm sure people will find me. So I'll put stuff out there. it's podcasts like this. So thanks, Bill. Appreciate it. And then
Bill Canady: this is wonderful.
Heath: I mean and we're we're we usually are at some of the major MedTech conferences as well. So I mean, if you ever want to find us, have a conversation, reach out. But I mean the candidly it's as apply, get it out there, you know.
Bill Canady: Yeah, you know, it's funny, particularly in professionals like like doctors and scientists, people all this, they're so good at that, but they miss this side. They need that that helping hand, that guidance, because they they've put twenty five, thirty years in this. Yeah, they they can barely, you know, deal with the business side of it. Just like I can't deal with the science side of it, you know. So, so the central question really isn't where can we find more money? It's what risk must we remove next so that the milestone will change with the value of money. So they have a chance, right? Without it,
Heath: Yeah.
Bill Canady: the the technology is just gonna die. That's that
Heath: Yeah. This is gonna
Bill Canady: that that's what it is. It's gotta grow beyond the founder and the scientist piece. It's gotta become not ready
Heath: It's out there.
Bill Canady: to commercialize, but it's got to become ready to handle that journey to.
Heath: So, so I'm gonna say something. I learned this a long time ago and it stuck with me. You know, a founder creates a science-based venture. And that that is
Bill Canady: Mm-hmm.
Heath: the word founder. You're founding something, right? And that's great. A CEO is an executive of a corporation. And that that
Bill Canady: That's right.
Heath: is an important distinction. It's the title CEO, chief executive officer, carries with it. A fiduciary obligation for a legal entity, a corporation, right? And
Bill Canady: Mm-hmm.
Heath: that is a result, that is very different than founding a tech-based venture. Two different things, two different skill sets most of the time. And so when for companies and for founders and CEOs, one of our big things is I need to switch you from having a founder mindset to a CEO mindset. I think that's part and parcel for sort of what you're trying to promote, Bill, is the mindset of things. And that's a conversion step that is not as easy as it may sound. But I I stick with bear in mind for those of you listening that are CEOs, you are not behind a passion project. You have a fiduciary legal obligation, even if it's a corporation of one, to a legal corporate entity.
Bill Canady: And you do, and it is legal.
Heath: And it's real.
Bill Canady: You it's real.
Heath: I mean so so I say that if it helps, maybe for the audience to think about and reframe a little bit, like, hey, wait a minute, let me think about how I'm doing my work and my business a little
Bill Canady: One of the most impactful thing I heard you say is people recognize that while they may love being a founder, the CEO job's not for them. And having the confidence to be able to make that, to give that company that really could potentially change the whole world, that is something special. And you're helping people go through that journey. That's powerful.
Heath: Try to try to.
Bill Canady: Well, Heath, this has been a powerful conversation for me, for every CEO listening. stop and ask, you know, it's not where we can find more money. I see it myself every day. out there, the money is out there. It's it's it's what is our real constraint? What must we accomplish next? And which form of capital is best suited for there? Am I the person to lead that? Right.
Heath: Absolutely. Right.
Bill Canady: Thank you for sharing your experiences and insights with us. Everyone listening, you can learn more about Heath's work through the University City Science Center. he's there, like he's on LinkedIn. Reach out to him. thank you so much for having. Until next time, everyone, focus on what matters, execute with discipline, and let's keep driving that profitable growth.
Heath: Thanks, Bill, for having me.
Bill Canady: So most leaders believe, as we said in the intro, that gross stall is because of lab capital. You argue that capital is available. The real constraint is conversion. What does that mean? And where do leaders most often get it wrong?
Heath: And you know, in this environment, I mean, people be listening like, no, no, capital's super, super tight, and yeah, it is. Of course it is. But I think from my vantage point, and it depends on where you're at as a company, you know, capital usually isn't actually the problem. It's usually the structure
Bill Canady: Mm-hmm.
Heath: of the venture overall. You have a great tech and great plan and you're trying to raise capital. The issue when you keep getting told no, isn't usually, you know, the tech and it's not usually always the team. It's that the value prop hasn't been fully baked and the corporate hygiene isn't candidly there. Like you don't have any actually have that growth plan and that scale plan in a way that can be believed from capital markets. That's one slice of a part of the answer to your question. But an argument I would make for some of the CEOs, and something we talk about at the Science Center and in some of my other work, is there is an element of capital efficiency tied to corporate. Commercial milestones that often gets overlooked in doing that fundraise. And so the what I mean by that, so like in my in my day-to-day, I work with a lot of med tech and life science companies. Very capital-intensive, get those things from start to you know human launch. I mean, we're in the order of tens to fifties to hundreds of millions of dollars before it even sees light of day, right? But there's a lot of steps along the way. That if you were more capital efficient and designed things right from the get-go and you had a mind towards capital efficiency and say regulatory, knew when to spend money smartly, maybe cost you a little more upfront, but it saves you five million dollars. Hey, that's a good investment. And, you know, there's all kinds of stuff there. So I think that a lot of CEOs, at least the ones I run into in in my work, often are not thinking about the capital efficiency layer of how they're growing their company. And that does not mean being cheap. That means
Bill Canady: Mm-hmm.
Heath: being planful and thoughtful about your growth trajectory as it pertains to the capital stack and capital markets and the market itself. So that's slice two of my answer. Slice three, which gets back into where people most often get it wrong. And I think I I already brought up a couple of things that were wrong. But, you know, really. There a few more things that I mean, and granted, I see hundreds of companies a year. I I'm an active investor myself, so I see a lot of companies at all different stages. I think that a lot of CEOs as they're trying to grow and scale. Aren't necessarily thinking about growing and scaling in the right fashion towards a market reality. And it's real easy. I I I've been an operator role myself. It's I have made this mistake. So this is not trying to call anybody out. This is just it's real easy when you're in the middle of the of the scrum to to be have your blinders on like this is my mission, this is what I have to do, and lose sight a little bit of should you be growing that way or not? Is this the right team around me or not? Do I know enough to engage my experts in an appropriate way? To be capital efficient so that when I'm doing my fundraise and trying to find my capital, I'm asking for what I need related to value milestones and actually doing it in a way that's thoughtful and planful, which is real hard to do when you're on the treadmill twenty four seven. So those are just a few things and I feel like I went all over the place, Bill. I apologize, but hopefully there's some nuggets in there that were a little bit useful for the audience.
Bill Canady: That was a perfect answer and it really just speaks to the complexity of what's going on. But you really you really brought up a great point. What convinced you that this was the real problem when you're working with these guys, right? That that yeah,
Heath: the capital efficiency piece?
Bill Canady: the capital efficiency piece of it. Like what what was the it's a huge one.
Heath: so so quite honestly, this is like so again, I mentioned like MedTech Life Science, right? And it would I'd see companies and like and at the science center, we we routinely work with companies like this. So I'll do a shameless plug. I mean, we'll run 30 companies a year through our process, which is all it's all about capital readiness and raising your money, right? But you would see companies successfully raise funds, they would raise five, 10 million dollars. Great CEO, super happy, sweet, everything's going great. This is enough to get my regulatory pathway set. I can start doing my FDA approvals. then they can do my quality management system, design studies, and then some maybe some contract manufacturer stuff. And they start moving this money around for this plan that's all interrelated in some way. Right. So it's in I mean, if regulatory goes sideways, everything else changes, blah, blah, blah. So I started looking at that. And from what I can see, at least in MedTech. Two areas where people often get it wrong because they're at this earlier phase, they haven't raised money yet, whatever, is going cheap on regulatory, usually because they know a guy somewhere and they get some bad advice or maybe cheap advice. Not following the the regs, and so they they go cheap on their submissions. They have there's a timeline there while they're building out their their sort of manufacture strategy and going down the road, and then they find out eight months later. That, wait, FDA didn't approve it. You have to go back and change your study and change everything else because you didn't do a pre-sub or whatever. And I'm using some of these terms, depending on where you're at, that may not apply, but in MedTech, it does usually. And then they have to go back, do all the rework. That takes them another six to 12 months before they can go back again, hopefully get approval this time. But now they've raised a bunch of red flags, and all along the way, they have to rework the The manufacturing facility, they have to rework the production line, they have to rework the experiments, they have to do stop work orders to change the whole thing. They're still carrying the burn of all the staff that were floating around for that now, now
Bill Canady: Got big burn rate.
Heath: 24 months before because it all because they didn't have the if they would have spent 50,000 more up front and and maybe two more months. That $10 million they raised, which is now burnt and went up in smoke without any. Commercial milestone hit that they're now begging on a down round for $20 million to keep them alive, you know, that would have been avoided. All that starts
Bill Canady: They got the dilution issues, you got everything going on.
Heath: floating down, right? So, so it's that, and then like quality management systems, not setting up those experiments because those are those are pricey. I
Bill Canady: Mm-hmm.
Heath: get it. I literally had this conversation a week ago. They're like, well, this group's gonna charge 60 grand versus 30. I think we're going with 30. I'm like, Yeah, but the sixty grand group I know does it right. The thirty has some bad I've heard mixed reviews on and they they chose to go with the thirty and you know, we'll see how it goes. But and I get why they're saving money, but it's almost like that's why I said capital efficiency isn't about being cheap, it's about being thoughtful in deployment towards value based milestones. And I think that gets real hard to do sometimes, at least in the world I see a lot of. Does that answer your question?
Bill Canady: It really does. You know, you're dealing with some of the smartest, most innovative people in the world, maybe not always the best business people. why do you think they these capable organizations really struggle with this? Th these cap these people you're working with, why are they why
Heath: W which organizations I'm sorry? well I mean
Bill Canady: yeah, why why are they doing it? Why why make it hard?
Heath: But you know, I I've had the pleasure of working with some of the sharpest people around the around the world, honestly. Like, I mean, Nobel laureates, you name it, right? You know, have I've worked with them. on the science and innovation side. And then inevitably there's this like, you're doing cool science, you should create a company. And then, well, of course, the right person to be the CEO. is the inventor. And then it sort of like happens in this space because they know
Bill Canady: Mm-hmm.
Heath: the tech best. They know that and they do. They created it. They they have the twenty patents or whatever it is. I mean, great. Yeah. Are they the best fundraiser? Probably not. are they the best at leading a scalable and building a scalable team to re repeat the sales process in a way that can the organization consume revenue in and recruit the best talent for that? Usually not. are they willing to follow organizational processes that make the business operate more efficiently versus just the science that often creates a lot of tension. So but I think there's this big assumption that you know gets disproven regularly that at least in this at least in the beginning that the CEO should be the inventor, at least in the science and tech world. And that in my view that's often not actually the case. It's are they the right founder of the company? Absolutely. Should they be attached to it as a advisor, it's chief scientific officer and all that. Yes, a hundred percent. Should they be necessarily leading the business as it's going through capital scale and trying to grow? Probably not sometimes. And I think that's and
Bill Canady: You gotta know what you're good at. That's that's
Heath: I I think sometimes it's no one when maybe you're not the right person for that seat.
Bill Canady: As someone who advises a lot of these people, shepherds them through, what's the early warning sides that maybe there's a problem?
Heath: what on a CEO front?
Bill Canady: Yeah, well, I mean look, so like you said, they're good at something. Typically it's the technology. and they've got to get all these other things to have to happen. What's the early warning signs that you've got an issue and then how what do you do to keep it on track? 'Cause that's that's really what you're trying to you're trying to you're trying to get
Heath: Right, right, right. So to keep it on track, I mean there there's a couple things that we'll do. and well actually those things we'll do, and then there's the warning signs. There's two different sides of that. Warning signs Right, right, right.
Bill Canady: That's right. First you gotta know you have a problem. They have to admit it.
Heath: It's like a and then maybe we can fix it. So the warning signs for me, at least the and it's it's not picking on any one particular group, but morning warning side is when people leave with the tech and describing their venture, when they lead with the the technical like composition of a drug or something like look we've made this GLP one molecule. I'm like, that's cool. We've spent fifteen minutes talking about that. I still don't know what you do from a company perspective. That's
Bill Canady: Mm-hmm.
Heath: usually warning sign number one. Number two is when I see a slide deck that has a board of advisors that includes n everybody for like to advise the CEO. There's a there's 15 different advisors. They're all like Amazing scientists and are obviously like either a former collaborators or grad, you know, advis grad advisors or whatever you want call it. I don't see one business person on that on that chart. I'm like, that's probably gonna be a problem.
Bill Canady: Mm-hmm.
Heath: When I see look at all the accelerator programs and all the different academic institutions I've collaborated with, with about 30 different logos, I'm like, okay, I'm a little nervous about that. When I see Our IP comes from the university I used to be at. That raises huge investor red flags. That's gonna cause potentially all kinds of IP issues
Bill Canady: for sure.
Heath: there. And then the the final piece is really, and it's gonna be a broken record, is being open and receptive to feedback. And that that from just as a like an investor lens, because I'm not a just throw it out and I I walk away. I'm like, if I can't add some value and there's not a I can't actually like Have an honest conversation, be like, look, this is gonna get this start to go a little sideways here. That that that's that's another red flag there. So being able to accept, doesn't mean roll over, but accept feedback and and and be thoughtful about it without letting ego get in the middle of it all, that's another, you know, one lesson in red flag.
Bill Canady: That makes a lot of sense. What does that next conversation look like? where are you gonna direct them first?
Heath: But I usually tell them to start with them like, okay, step number one, let's take a fresh look at the corporate hygiene you've built so far. Like
Bill Canady: Mm-hmm.
Heath: this is and and this is not cool or the sexy startup stuff. It's just it's very boring. It's like,
Bill Canady: Mm-hmm.
Heath: are all your contract docs in place? Do you know where your books are really kept? Do you trust how you're having is that how that's organized? Do you have all your ducks in a row on agreements with consultants, contractors, whatever? If you don't, can you clean that up? do you have things papered? Meaning if you have a license agreement from a university, make sure that is a ironclad, well documented thing, right? And so, and by the way, for those of you out there going to raise venture money, I'm assuming most folks know this, but they're at some point you'll be asked to share your data room or your deal room. This
Bill Canady: Mm-hmm.
Heath: is and that you can eat email Dex all live long day, but if somebody's ever serious, you're gonna ask to see your data or the deal room. And all
Bill Canady: You're gonna have to have a data room and it's gonna have to be managed and you know, all the
Heath: Well, right, but then they're gonna all this stuff I'm mentioning is gonna need to live there, right?
Bill Canady: Mm-hmm.
Heath: You have key person insurance. I mean, all this stuff just starts building and it just keeps growing, right? I I'll tell a quick funny story. Like,
Bill Canady: great.
Heath: so there was an there I'll give an example how important this is. This is why I'm saying I direct people to think about that first. so there was a company in the middle of about a six hundred million dollar acquisition, right? I mean, this company had been operating for like seventeen years. I mean, it's been going.
Bill Canady: Mm-hmm.
Heath: And in the due diligence that was happening, I mean major acquisition, right? We're not talking tiny dollars. The question was asked: like, hey, where was the initial corporate formation transfer of funding from the founder? So all you guys that go to Inc. file and everything else, then and establish a corporation. And it held up this acquisition for about three months and cost about another half a million dollars in legal fees and lo you know, to go back and rework all the paper so that it was a clean chain of title all the way through that whole thing. So it's not really a funny story, it's more like crap. But I mean it's like as simple as that. Couldn't ch have implications way, way down the road. I mean, honestly I don't even think the founder was really nest was just sort of hanging as an advisor these days. It was a whole it was a whole thing, right?
Bill Canady: I I've been through those. Those are really difficult and they're expensive to resolve. And a lot of times
Heath: very expensive.
Bill Canady: the deal will die in the process.
Heath: I mean th this one was going to, honestly, but it it it worked out. That in that case. I mean, there's the the case of the four million dollar intern. you know, in this case, somebody had spent like six months working on the science in the lab with the company. You know, there was a contract in place. It was a contractor 1099 relationship, everything was fine. And, you know, the parted ways, and then years later, they're in the middle again, similar type situation. They're trying to do a $150 million close. we're on a C round at this point. And when money pops up. People start paying attention. So next thing you know, this intern pops up and says, Hey, I was part of actually the inventive step of this tech. And we did that. And by the way, we had had beers one night with the founder, and he had said that maybe there'd be a position for me in the future because of all the hard work I'd done. And nobody knows if that was true or not. And probably it was. Maybe they they were just talking. Whatever. Yeah, right.
Bill Canady: People say make those comments all the time. It's it's an hey, I hope you can come back. We got a roll for you if you do.
Heath: Right. And then this happens and then he was saying like he was not provided clear direction, was not provided an opportunity, even though it was promised. And by the way, he it was not clear that the work he was doing was purely for hire in his contract, and it was sloppily done contracting paperwork. And
Bill Canady: Mm-hmm.
Heath: the decision was made, like either this is gonna make the whole deal fall apart, or we're gonna have to pay this guy off.
Bill Canady: Mm-hmm.
Heath: And so the number that it He said he'll go away for was four million dollars. So that was a very expensive intern.
Bill Canady: How do you get them through that?
Heath: for us, it actually we we do it mostly through our programming. So the way companies interface with us is usually the entry point in, it depends on where you're are is our capital readiness program. So for companies
Bill Canady: Yeah.
Heath: raising around the two to ten million dollar range, usually that they've already raised some angel money and maybe gotten some friends and family money or some grant money, that's cool. We recruit nationally for that. We we run them through essentially a due diligence process for a week. they come to Philly. We have a network of about 40 different venture funds that also will send representation and spend the whole week with us. We have every you need accounting, you need regulatory, you need QM, whatever. We we have experts in those areas, but we don't it's not about us selling services. It's about like, let's walk through where you're at as a venture before you do this raise. Do you have a dealer data room? We're gonna go through it a little bit. And by the way, let's identify all those gaps you think you don't have before somebody else does. Right. And usually what
Bill Canady: Mm-hmm.
Heath: happens is by day three, people are like, crap. I I didn't realize. By day five, they're like, I'm not sure I wanna be CEO anymore. It's a pretty intensive week, just for clarity. But it does help reframe the discussion and be like, Is this the right am I the right person at this time? For this thing, do I really want to do this? And now I have at least a much better lens than all the things I might be dealing with in the future. So that helps inform decision making. A good example, you know, we had a company come through. It was like the CEO and the the COO. The CEO was like, I don't think I'd add value to this company anymore. They resigned after the week. And the I mean, like, well, we're not trying to destroy companies here. But I also was identified as there wasn't like a healthcare economic study doing that would prevent any. venture group because they would all be asking that. And they the information was known, but it wasn't like a bona fide third party verified thing. And that was a critical gap from allowing the fundraise to occur. And then the CEO took their credit, it was like, we'll absolutely do that now. And then it they'd unlock not only some investment, but also some very large strategic partnerships because those were some of the things that were missing. And then it wasn't to pick on anybody. It was just like if you don't know, you don't know. And so, and nobody really gives you the roadmap for the stuff either. And so it's just like, let's unpack it, let's pull it from a capital side and sort of old people like me side, like, hey, here's the things that maybe you should work on. And this is how we've seen it go sideways. And then we do that. There's no cost to attend. We don't take equity. We're not you have to get yourself there. It's a very competitive process.
Bill Canady: you know.
Heath: I mean, basically, you know, my requirement is they have to have an actual company, they're a couple of full time employees and, you know, at least a half million dollars that have gone to the venture, but average is about two and a half. And but they're trying to do that next fundraise to actually do some get beyond yeah,
Bill Canady: Professionalized. Yeah.
Heath: they're trying to professionalize it. Which often's gonna lead to team growth, initial sales, those types of things. And
Bill Canady: Yeah.
Heath: so it's one thing to prove the tech, it's nothing to prove you have a business that a venture group will throw like two to ten million into. they do they
Bill Canady: them to funds or
Heath: do meet. It's and and of course we do additional post support stuff. They do meet folks from the venture capital. And actually we're big about not doing like we don't do pitches or demo days. It's it's really about like cultivating relationships. so they do meet Folks from the venture community and get some very candid feedback, probably in a way that most people never do. but more whether we we introduce somebody, which we do sometimes, but it's not really about that. It's more being able to identify those those gaps and and proactively fix it that really unlocks the capital. And so that's back to your original point. The capital
Bill Canady: Mm-hmm.
Heath: is scarce, like it is, but it's also not if you're doing approaching it the right way. And by the way, we have seen CEOs like. Say I shouldn't be CEO, I'm gonna go recruit a new one.
Bill Canady: N now I wanna know how many how many you decide that during your program. It's like I come in and see I'm leaving, I'm like, I think I'm the J
Heath: We've had at least we we on average about cause we only accept ten per cohort. On average about one or two decide that every cohort. Like I don't think I'm the right person right now.
Bill Canady: That is so amazing. And you have to apply about one out of ten, give or take. It's a week long. And and it's really just laying out here's what you've got on med tech as well, right? And you're
Heath: Mm-hmm. It's focused on med tech. It's it's focused on med tech to be clear. Yeah.
Bill Canady: and you're in the early rounds, but but they've raised something, right? And that's that's kind of the target market. Where do they how do they find you? How do we where do they go to get this information?
Heath: I mean, you can go to our website at www.sciencecenter dot org. I'm I'm on LinkedIn. I do stu I'm sure people will find me. So I'll put stuff out there. it's podcasts like this. So thanks, Bill. Appreciate it. And then
Bill Canady: this is wonderful.
Heath: I mean and we're we're we usually are at some of the major MedTech conferences as well. So I mean, if you ever want to find us, have a conversation, reach out. But I mean the candidly it's as apply, get it out there, you know.
Bill Canady: Yeah, you know, it's funny, particularly in professionals like like doctors and scientists, people all this, they're so good at that, but they miss this side. They need that that helping hand, that guidance, because they they've put twenty five, thirty years in this. Yeah, they they can barely, you know, deal with the business side of it. Just like I can't deal with the science side of it, you know. So, so the central question really isn't where can we find more money? It's what risk must we remove next so that the milestone will change with the value of money. So they have a chance, right? Without it,
Heath: Yeah.
Bill Canady: the the technology is just gonna die. That's that
Heath: Yeah. This is gonna
Bill Canady: that that's what it is. It's gotta grow beyond the founder and the scientist piece. It's gotta become not ready
Heath: It's out there.
Bill Canady: to commercialize, but it's got to become ready to handle that journey to.
Heath: So, so I'm gonna say something. I learned this a long time ago and it stuck with me. You know, a founder creates a science-based venture. And that that is
Bill Canady: Mm-hmm.
Heath: the word founder. You're founding something, right? And that's great. A CEO is an executive of a corporation. And that that
Bill Canady: That's right.
Heath: is an important distinction. It's the title CEO, chief executive officer, carries with it. A fiduciary obligation for a legal entity, a corporation, right? And
Bill Canady: Mm-hmm.
Heath: that is a result, that is very different than founding a tech-based venture. Two different things, two different skill sets most of the time. And so when for companies and for founders and CEOs, one of our big things is I need to switch you from having a founder mindset to a CEO mindset. I think that's part and parcel for sort of what you're trying to promote, Bill, is the mindset of things. And that's a conversion step that is not as easy as it may sound. But I I stick with bear in mind for those of you listening that are CEOs, you are not behind a passion project. You have a fiduciary legal obligation, even if it's a corporation of one, to a legal corporate entity.
Bill Canady: And you do, and it is legal.
Heath: And it's real.
Bill Canady: You it's real.
Heath: I mean so so I say that if it helps, maybe for the audience to think about and reframe a little bit, like, hey, wait a minute, let me think about how I'm doing my work and my business a little
Bill Canady: One of the most impactful thing I heard you say is people recognize that while they may love being a founder, the CEO job's not for them. And having the confidence to be able to make that, to give that company that really could potentially change the whole world, that is something special. And you're helping people go through that journey. That's powerful.
Heath: Try to try to.
Bill Canady: Well, Heath, this has been a powerful conversation for me, for every CEO listening. stop and ask, you know, it's not where we can find more money. I see it myself every day. out there, the money is out there. It's it's it's what is our real constraint? What must we accomplish next? And which form of capital is best suited for there? Am I the person to lead that? Right.
Heath: Absolutely. Right.
Bill Canady: Thank you for sharing your experiences and insights with us. Everyone listening, you can learn more about Heath's work through the University City Science Center. he's there, like he's on LinkedIn. Reach out to him. thank you so much for having. Until next time, everyone, focus on what matters, execute with discipline, and let's keep driving that profitable growth.
