New Minnesota-based fund has $225 million to invest in young med-tech companies

Two longtime West Coast investors in medical technology, Kirk Nielsen and Dr. Justin Klein, have joined to launch a new firm in Minnesota called Vensana Capital. Despite the challenging environment facing early-stage med-tech companies, Vensana announced this month that its inaugural fund, Vensana Capital I, has attracted $225 million in committed capital with plans to invest in a dozen or so medical-technology companies. Nielsen, former managing director with Versant Ventures, said the med-tech field is in the midst of some positive change, but much needs to be done to ensure new devices can gain reimbursement once they are allowed onto the market. Following is an edited transcript of a conversation with Nielsen.

Q: Tell me about the focus of your new fund.

A: The fund is focused entirely on medical technology. Most of the dollars are likely to go into medical device companies, but we will also consider opportunities in diagnostics, digital health and health care services. The portfolio will be relatively concentrated and will likely be composed of about 12 companies. And we intend to commit between $10 [million] and $30 million to each company. We would likely make those commitments over about a three-year timeline.

Q: You have worked in California for years. Why is Vensana setting up operations in Minnesota?

A: I've actually spent a lot of time in Minnesota since 2006, when I first joined Versant Ventures. My wife and I are native Minnesotans. And I've worked at Medtronic, so I had a network in the Twin Cities and other reasons for being here. And Minnesota is just a great market for med-tech. Versant ended up making a number of investments into local companies. When the firm decided to formalize that activity, I ultimately moved here from California to open an office in 2012. So I've been here since. And over time, Minnesota became the hub of the firm's med-tech activity. And Vensana, which is an independent firm that Versant helped to launch, is an opportunity for Justin and me to focus solely on med-tech. And we think the Twin Cities is an ideal base of operations.

Q: Will the companies you end up funding also be here?

A: So, the investment mandate is global. We are looking for the best med-tech opportunities wherever they are. However, Justin and I have been quite active locally and would expect that to continue. Minnesota remains one of the most important med-tech clusters, and it's a great place to build a company. I would expect, out of a dozen investments we plan to make out of this first fund, that at least a few of them would be local companies.

Q: If a company is going to be funded by Vensana, do you contact them first or do they come to you and apply?

A: It comes in a variety of forms. There are times that investments that we do have come to us from sources, whether it be prior entrepreneurs that we have worked with or co-investors that we have a relationship with. Or other times there are companies that we have on our radar, and [we] think they're interesting and like the spaces that they are in, and we'll end up proactively pursuing them. So it all depends.

Q: What are the biggest hurdles you see in moving from an idea to having a medical device on the market?

A: The amount of capital available for early-stage [med-tech] companies has declined pretty significantly over the past decade, and that is really a function of the fact that the time, capital and risk to develop new products has increased. We need to find more efficient ways to take these novel products forward, or else innovation in the sector is ultimately going to dry up. There are a variety of efforts being made on that front. ... But I think the area that is getting the most attention these days is reimbursement. The [process] by which these products receive procedure codes, payment rates, and insurance coverage really is broken. And we need to find ways to accelerate the path to reimbursement for novel devices, or they won't be developed. To get reimbursement for a novel product, you need to first get a procedure code that you bill under. You need to have a payment rate that is set. And then you ultimately need to get insurance coverage. And it really is just an opaque and arbitrary process.

Q: Is the FDA doing anything on this front?

A: A decade ago, the FDA was seen as a barrier to med-tech innovation. ... U.S. citizens were often being deprived of the opportunity to benefit from really important new products that had been developed, in many cases, by American companies. Since then, they have aimed to strike what I think is a pretty healthy balance. The bar for approval for high-risk products remains appropriately high, but transparency and collaboration have improved. And you know, they've designed pathways that can accelerate the development of particularly novel devices. ... It remains to be seen how some of the recently discussed changes to the 510k process [for lower-risk devices] will impact innovation in the sector. That is definitely something that we are watching as we decide where to invest.