Ben Hertzog - Intelligent Implants

[00:00:05] Ben Hertzog: And so there's all these chicken and egg discussions about what do you need first and my perspective is that with a good technology and a good team, you can raise the money and with a good technology and money, you can recruit the team and if I had to, make a subjective measurement here, I'd say it's easier to recruit the team with a good technology and put that together than go raise the money.

[00:00:31] ​

[00:00:31] Giovanni Lauricella: We're here today on the MedTech Startup Podcast. And we're going to be getting in the head, heart, and gut of this MedTech entrepreneur, Ben Hertzog, CEO of Intelligent Implants. Thank you very much for being here with us today.

[00:00:50] Ben Hertzog: Oh, this is a great pleasure. Thank you.

[00:00:51] Giovanni Lauricella: So I want to kick off and set the stage with having all our audience listen in on who you are.

[00:00:57] We're going to get into Intelligent Implants and obviously the company that you're building currently, but we're here in Houston right now. Where are you from? How did you build your life academically, professionally, and that whole story leading up to the point where you became CEO of Intelligent Implants?

[00:01:12] Ben Hertzog: We had this whole discussion last night about where are you from and where are you local? So I'm this is local for me. I was born overseas. My dad was in the oil patch. Moved around a bit, but grew up here. Houston's home. Went off to grad school, came back here. The entrepreneurial community, especially med tech, has been near and dear to my heart for a long time.

[00:01:31] And I'm a, look, I'm a tinkerer, maker. I'm proud of that. I was the dork in high school, and as a young kid even, that took everything apart. And as I got a little older, I got good at putting it back together and In high school, I was the kid doing science fairs and stuff like that, and that's always been core of me.

[00:01:48] I like to make stuff. Grew up in a house where we never hired anybody to fix anything. We always fixed it ourselves, and so that was that was how I got my start. Engineering degree, Ph. D. in medical science. Very much focused artificial organs. I was at Brown Artificial Organs Lab.

[00:02:05] Artificial organs, biomaterials, cellular technology. Did, took experimental surgery, then was a TA for the class for a couple of years. So super hands on, ran the machine shop, liked to make stuff. and then, quickly realized I didn't want to be a bench scientist. And our lab was very application oriented.

[00:02:21] And so we were exposed to start ups and all that. I'm like, oh, that's what I want to do. And had a bunch of opportunities. But I had a, a pivotal moment where I had a conversation with an alumni from our lab who was wanting to hire me. And he said, when I listen to you talk, I feel like you ought to go and get some business experience.

[00:02:43] And it's something that never occurred to me, ever. And it got me thinking and realizing that I'd seen all these deals where what I, in my naive estimation were amazing technologies flounder and not go anywhere. And then some, again, mediocre technologies that were doing great things.

[00:03:00] And the common thread seemed to be management. And I said, I need to go learn, I need to learn that piece, the business side of it. So I did the management consulting thing with McKinsey Company. Ended up back here in the Houston office. Got real tied into the med tech scene. Then ended up at Baylor College of Medicine helping run their venture capital activity.

[00:03:19] And finally getting to start companies and sit on the board and play management consultant to those. And then I just got a wild hair and decided it was time to do it on my own. And started a interventional cardiology company called Procyrion. Neat story locally technology came from Reynolds Delgado at Texas Heart Institute, heart failure cardiology, cardiologists, and some local investors.

[00:03:41] The precursor to Fanon Innovation Studio, which operates here locally. They had found the technology and committed a little seed funding, and these pieces all came together. And it was an idea on a napkin at that point. And it was one of those where I said, hell, I don't know if that'll work. But with my technical background in the business and putting those pieces together, I said, you know what, I can figure out if it will.

[00:04:03] And if it does work, that's a big deal. Built prototypes in my garage, brought in a strategic investor, we went down to South America, did first in human studies and that one was off to the races. And then found the current company, Intelligent Implants after I handed over the reins to Procyrion which is my first startup, I went to Johnson Center for Device Innovation here down the hall, and was an entrepreneur in residence, and found this technology, a Swedish team that's doing this amazing stuff in orthopedics with smart implants. And I've been doing that for the last couple years

[00:04:37] Giovanni Lauricella: Now that we're there, and we're gonna pull apart and dissect everything that you said because that's the entrepreneurial story that we want. But let's talk about Intelligent Implants. What are you building in terms of the technology with the company?

[00:04:48] Ben Hertzog: Alright, I'm super excited about this. We have, the fundamental technology is microelectronics that use electrical signals to accelerate, control, and remotely measure bone growth. And so this is a technology platform that we're embedding in orthopedic implants that allows us to direct the electrical signals around an implant.

[00:05:09] And get the body to 3D print bone in situ exactly where we want it to accelerate healing. And then we use those same electronics to track and measure that bone growth and it goes to the cloud. And then we can put that in front of the surgeon. And if you take a step back and think about medical devices, this is the future we've been talking about.

[00:05:27] Smart implants. And the key piece for me was having a therapeutic and a diagnostic that are paired. Because we've been talking about smart implants for a long time, but so much of that conversation has been around adding sensors to implants. And the business model there is a little more complicated, right?

[00:05:44] And I saw this and I said, oh, this is cool. This is what we've been talking about. But we have this therapeutic piece. If I can accelerate healing and I can improve outcomes for patients with the therapy, plus I can track what's happening and directly measure the outcome of that therapy and be able to make adjustments remotely and put all this front information in front of the clinician in real time without patients having to come into the hospital.

[00:06:08] Game changer. So that I think this is cool. I think this is the future. I think we'll look back in 10 years and wonder why not every implant, out there was smart and transmitting data.

[00:06:18] Giovanni Lauricella: So this is a class three technology.

[00:06:20] Ben Hertzog: It is. It's a, that's a long discussion there, but the fundamental stimulation technology is class three. Orthopedics have traditionally been 510K, pieces of metal and plastic. Ours is more complicated than that. But we're actually on a path to do kind of one PMA study on the stimulation activation piece of this, and then separately be able to 510K all these implants that work with that system. And so it's the best of all worlds.

[00:06:49] You have this PMA, you've got good clinical data. But then, from a commercial standpoint, you can drop a bunch of products on the market. Super excited about this. There's precedence for this but that's the path we're headed.

[00:06:59] Giovanni Lauricella: Quick pause on an educational journey for all these entrepreneurs listening in right now, who want to start companies, who might be taking over companies.

[00:07:07] How important is regulatory strategy? You have this one product that you just talked about, but you just talked about a strategy. And, what does that mean for the development of a company? How important is regulatory strategy?

[00:07:19] Ben Hertzog: Let me answer it a little more broadly because for the entrepreneur, this is the balance, we, to be successful in this field, you've got to know enough about all these pieces, right?

[00:07:28] It's it's not just the technology has got to work, but you've got to put all these other pieces in place for it to be a successful deal, and that's regulatory, that's reimbursement, that's commercial and go to market, that's the team, all these pieces. I always tell young entrepreneurs, I'm like, you've got to figure out a way to expose yourself to those things, so you and your mind can see the puzzle pieces coming together to make a complete story, and you've got to be able to communicate that.

[00:07:52] You don't have to know everything about every one of those things but you have to know enough to say, I don't know enough, I'm going to surround myself with people that know those pieces, because you're going to need people that deep dive, that focus on those things. reG, reg strategy specifically is super important, especially if you're dealing with class three devices.

[00:08:09] It's hard. It's hard and there's a lot of risk involved with regulatory strategy, whether it's in the FDA or whether it's, CE mark and you've got to have a handle on that, those risks and put them into perspective. Our whole job is risk mitigation, when you're CEO in one of these companies.

[00:08:25] Across technical, regulatory reimbursement, you're sitting there trying to systematically reduce the risk in every category.

[00:08:32] Giovanni Lauricella: And the company that you started before Intelligent Implants, Procyrion that's also a Class 3?

[00:08:37] Ben Hertzog: Also a Class 3.

[00:08:38] Giovanni Lauricella: You like the hard tech.

[00:08:39] Ben Hertzog: Yeah, and I have a perspective, it's my perspective there are people who like 510K, you know, like we talk about, doing singles and doubles, and then there's people who swing for the fences.

[00:08:49] My perspective is It's just as hard to do those easier, faster ones as it is to do the big, hairy PMAs. And, I don't know, one thing that drives me is let's do something that nobody's ever done before. I love that part. In fact, one of the most motivating things to me is when someone says, I don't think that'll work.

[00:09:11] Yeah, okay, let's see. That's motivating to me. And so you might as well swing for the fences. You might as well try to solve some clinical problems that can't be solved right now. That gets me excited. I like that.

[00:09:23] Giovanni Lauricella: So earlier you mentioned someone said you should go get business experience.

[00:09:27] Yeah. So you became a management consultant. You also joined venture like you mentioned. But you made a very interesting remark about any entrepreneur should in order to be successful has to know all these pieces or at least figure out how to learn all these pieces. Yeah. Yeah. When you left Venture and then you started Procyrion, and correct me on my chronological time frame, but when you started Procyrion, that first entrepreneurial journey, and coming from being a Ph. D., an engineer prior to that, did that management consulting experience give you that breath and exposure to being that awesome entrepreneur out of the gate?

[00:10:06] I don't know, awesome and subjective, but I certainly felt like I was better equipped. In every step you learn this new stuff and you realize how little you knew before.

[00:10:14] Ben Hertzog: And I still, I still, that happens every day, right? But, all of these, even the business acumen, the words, the lingo I learned so much doing management consulting with McKinsey. I was a fresh Ph. D. student, never been exposed to that. I came out of a technical family. My dad was a Ph. D. nuclear physicist. And so to be exposed to that and start to learn that. So important, the other piece of it was making that transition from PhD to business is, you don't need a 100 percent answer on everything, when we're doing this, we got to move fast. So how do you get to the good enough answer as quickly and capital efficiently as you can to unlock the next door, the next funding and all that.

[00:10:55] And that's a key skill. And then, maybe the third thing that I think was important was How do you tell a story? How do you communicate with investors and board members and executives? How do you think? I'm, I consider myself long on strategy, thinking ahead and what does this deal look like to a strategic?

[00:11:11] If you bucket the exit opportunities in our field, a big, a lot of it's M& A, right? Certainly historically. And so that means somebody's got to buy this. So what are they thinking? How do they think about new technologies? What does this have to look like? And the word I like to use a lot is strategic imperative.

[00:11:25] How do you do a deal that becomes a strategic imperative in a field with a lot of potential buyers? That's always what I'm looking for.

[00:11:33] Giovanni Lauricella: So then, when you started Procyrion you brought up another interesting topic, raising capital. Was it your first time having to raise capital?

[00:11:41] Ben Hertzog: Yeah. Yeah, that was my first time at the helm.

[00:11:44] Giovanni Lauricella: What was that, where'd you start?

[00:11:46] Ben Hertzog: At the beginning. It's hard. Nobody should be sugarcoating it. It's hard. It's hard in good markets. It's extra hard in bad markets. It's hard if you have a good technology and clear regulatory, it's all, it's just hard. We did, we had this seed investor.

[00:12:01] It was called AlphaDev, now Fannin Innovation Studio. So we had a little bit of capital they'd committed to work with, very little, but enough to, do some experiments and stuff like that. And we We tinkered with it for a long time.

[00:12:12] And that's one of the hardest pieces. We call it the Valley of Death.

[00:12:14] We have different names for it. But there's this period where you have this innovation, you got this idea on a napkin maybe, you're like, this could be huge. How do you prove, how do you build the body of evidence that's big enough that somebody with a checkbook is willing to say, oh yeah, I'm willing to put some more money.

[00:12:28] That's hard. It takes a long time. And so some people do it in incubators, some people self fund it, whatever. I wasn't in a position to do that. But we had a little bit of seed capital. And we just tinkered with it. And we built prototypes in my garage. And we went to Texas Heart and did flow loops.

[00:12:45] And we just started building on the evidence at every step, asking ourselves very critically, does this work? And you get an answer like, oh, this looks like it works. Let's try the next thing. Oh, yeah, this looks like it works. And then you do this animal model.

[00:12:57] And you're like, oh, damn, this works. It works really well. And so it's just chipping away at it. But there's that period's hard. And so then, a bigger angel round. We got some money out of the state of Texas from what was called the Emerging Technology Fund. That was a game changer for us, so that was our first kind of little series A.

[00:13:13] And then with that, we continued lots of animal studies, really digging in. Not only does it work, but how does it work, and how do we communicate that? How do we show people? All those people said, that'll never work. What's the compelling body of evidence that says, no, it works, and this is how it works.

[00:13:28] And and we just did that. And then we went out and said, in this field, we want to know what the strategics are thinking. I want to know I want to know how they're thinking about these new technologies. And I have this hypothesis of how this fits in the market and how useful it'll be clinically and what the market looks like.

[00:13:43] One of my other early employees who I recruited, was a buddy of mine from McKinsey that came over, and we just went through the Rolodex to start getting in front of every strategic we could. And we ended up with one of them being an investor in that deal for our Series B round,

[00:13:56] Giovanni Lauricella: And how long were you with Procyrion for? From start until when?

[00:13:59] Ben Hertzog: Depends how you measure start. Geez, I first saw it, I probably first saw it in 2009, and and tinkered with it. We raised our first real outside money in 2012. And I left in 2019, so a decade. Wow. A decade. This is hard. Did I say that already?

[00:14:20] It's very hard. This is hard. It's very hard. And it takes a long time.

[00:14:23] Giovanni Lauricella: Is that 10 year stretch, is that for Class 3, you think? Is that the swing over the fence of stuff?

[00:14:29] Ben Hertzog: No, I don't think so. I think it was it just depends on, what you're starting with. Again, if you're starting with an idea on a napkin, and you've got to put everything in place, it's easy, I try to warn people, it's easy to, and you probably should, you can't always, you don't have the luxury to do this, But you always should tinker with these things for a couple of years.

[00:14:48] Make sure you really understand that they work. Be able to go in with conviction, to a means and say, this works. I know it works because I've done it. I've tried it.

[00:14:56] Giovanni Lauricella: But on that, for once again, all these entrepreneurs listening in, tinkering it for two years, does that mean walking away from whatever else is putting food on the table and going head first?

[00:15:05] Or what does that mean?

[00:15:05] Ben Hertzog: However you can do it. Most people can't afford to walk away from everything else. It's just, you don't have that luxury. Nights and weekends or however you got to do it, but spend that time making sure it works, understand how it works.

[00:15:16] You got the IP sorted out, start to get smart on all the other stuff. But, we have all these gate fundraising gates of what do you have to raise a C to series A, B, get acquired. And it all comes down to this idea about this body. What's the body of evidence you have? And it's different at different stages.

[00:15:32] But you've just got to make the best body of evidence you can. What's the most compelling thing you can do? For every dollar you're about to spend, what's the highest value you can create with that? What's the most compelling piece of evidence you can create with that's going to open up that next gate for fundraising?

[00:15:47] Giovanni Lauricella: Was Procyrion born in Houston?

[00:15:50] Ben Hertzog: Yeah, very much Reynolds Delgado rock star interventional cardiologist, or not interventional cardiologist, he's a heart failure cardiologist. was tied to the big LVAD program at Texas Heart. And he dreamed it up. It was his idea, and then he found AlphaDev, and they got together, and then I came to work at AlphaDev and helped them work on the portfolio.

[00:16:12] And that was the one that I was like, Oh, that could be huge.

[00:16:15] Giovanni Lauricella: So then, born in Houston, raised in Houston. Yep. Let's talk about Houston, and even you mentioned Texas gave you grant money. Yeah. If we focus on the ecosystem of Houston and Texas and we can get even more philosophical or at least from your perspective of Texas and Houston as a generality, so What's great about Houston?

[00:16:38] What did Houston give you? What did Texas give you and then where does Houston and Texas fall on this medical device heat map of the world right now?

[00:16:47] Ben Hertzog: Yeah, so I guess I'd frame this conversation in what do you need to have a successful medical device company or even an ecosystem. Same conversation.

[00:16:58] You need technology, you need people, you need capital. I didn't invent this. We've had this conversation a lot. So if I look at that framework for Houston, we have always been long on technology. I'm sure you've heard it in every pocket. Largest medical center in the world, so much clinical activity.

[00:17:15] The nuance that I like to talk about there is the entrepreneurial spirit. And it's not maybe the same description as Silicon Valley entrepreneurs, but we have a med center, the whole culture here, whether it's the cowboy culture or it's the oil industry, the wildcatting culture, high risk, high reward, we love that, right?

[00:17:35] And that. We recruited DeBakey to really get the medical center started. Somebody would try anything. Texas Heart and all that grew up. We were willing to try anything here. So we ended up with all these technologies. And now we have all these massive institutions, down here. MD Anderson and Baylor and Methodist and all these. And and this culture of try anything. So we've always been long on technology, innovation, all that. On the other two, we've struggled. Capital. Lots of capital in Houston. No question. But it's not medtech capital. It's not used to that.

[00:18:07] And, I've spent a lot of time talking to people who made their money and energy, trying to have a conversation about, look, the risks of what we're doing is about the same as punching holes in the ground looking for oil. It takes a while. It's high risk, high reward. And we're going to better humanity.

[00:18:22] We're going to treat a lot of patients. It's a hard conversation to have. And, sophisticated investors in any field. They have, they know what they know, and it's very hard to break out and start making a mess. Lots of capital, but it's not DC capital, it's not traditional, it's not experienced medtech capital.

[00:18:36] And then the people, um, in one measure, I've seen data that suggests we have more engineers per capita than anywhere in the world. But again, they're not medtech engineers. And so on the people side I'd say it's you can recruit here, but we still need a lot more experienced entrepreneurs, medtech entrepreneurs.

[00:18:55] And so there's all these chicken and egg or chicken and chicken egg if there are three, I don't know if that works discussions about what do you need first and I don't know my perspective is that with a good technology and a good team, you can raise the money and with a good technology and money, you can recruit the team and if I had to, make a subjective measurement here, I'd say it's easier to recruit the team with a good technology and put that together than go raise the money. You can recruit You can do it. I've done it.

[00:19:22] Giovanni Lauricella: How's the management experience? You said a lot about engineering, right? When we look at Houston, and we'll just stay there, and then we can talk about Texas, but when we look at Houston, is it really great, and like you said, long on innovation, like really great at innovating that 0 to 1? But then what happens from 1 onward? Is that here too?

[00:19:42] Ben Hertzog: Yeah. I, we've put together some graphs that are illustrative, conceptually, you think about long on innovation. If you think about a yield curve of innovation from ideation to commercial success or wherever you want to define the end point, and you look at a well established med tech hub, you're going to have this, yield curve of great ideas, a bunch of them fall off, and then you end up with some output at the other side.

[00:20:08] And so if you imagined a, it's not linear, but a big med tech hub, established med tech hub, and you have a linear curve, I would say on the innovation front end, we start off higher. We've got all of that. We've got so many ideas. And now, thanks to the good work of TMC and JLabs, things are coming here from outside of Houston.

[00:20:26] They show up here in this room. So we're high on innovation. But then you get a point where you're 0 to 1, you're pretty good, but 1 to 2, you need experience management. You need the funding, and we just have a steep drop off. And that's our valley of death. And so overall yield is pretty low. And I think there's that gap there in the middle that really could be addressed. If I had to pick one thing it's focus on talent. Focus on getting the experienced people that can raise money, that can do it. And I think then from that starting point that's long on innovation, we can make a dramatic impact on the output on the other side.

[00:21:03] Does that make sense?

[00:21:04] Giovanni Lauricella: Completely. And going back to the Texas grant that you received. Yeah. What about the state of Texas? Is it a completely supportive state or

[00:21:12] Ben Hertzog: I think so. I think again, it's culturally, willing to take high risk. There was a time. So that was emerging technology fund that was back Governor Perry.

[00:21:20] They set up, in one of the many efforts to try to build up Texas as to leverage, take advantage of all this long on innovation piece. It was a great program. It was a program. You go to the state and they put together You know, a big group of people of experts and they were playing venture capital and it was awesome money for us.

[00:21:40] It really made a difference for Procyrion. It doesn't exist anymore. And that's unfortunate. I'd love to see more of that. But it was a great program for us.

[00:21:48] Giovanni Lauricella: By the time that you exited Procyrion, what styles of investors did you successfully raised from?

[00:21:56] Ben Hertzog: So seed. Friends and family, angels, state of Texas, early.

[00:22:05] And then and then it changed, and then we went straight to a strategic investor, with some VC. So we made that jump. And I'm pro strategic investor. People have widely varying opinions on this, but I think if you can cut a good deal that preserves your ability to continue to raise capital and preserves the auction at the end I'm a huge fan of having a strategic involved.

[00:22:28] I think, when you're a young company, you've got such limited resources the ability to pick up the phone and talk to people in a big strategic who spend all day thinking about reimbursement, spend all day thinking about clinical, all of those things. That's a huge benefit.

[00:22:43] So I believe there is a win formula for having a strategic investor in even early as long as it's a clean deal.

[00:22:52] Giovanni Lauricella: Especially as a first time entrepreneur, you did all this back work, which took years. Building the company as far as you did. How did you know when or even how to begin approaching strategics?

[00:23:03] What was your strategy with that? Especially if you're really big on them early on.

[00:23:08] Ben Hertzog: Yeah, I'd like to say it was this well thought out, planned strategy. It wasn't. But we Jace Heuring, who was my co founder in the deal. I brought him on super early. Buddy of mine from McKinsey. We just put our McKinsey hats on and say, alright, what do we do?

[00:23:22] It's who do we know? What resources and networking can we leverage to try to get in front of somebody, just start having conversations? And one of the hardest things for startups and entrepreneurs to figure out is how do you navigate those big organizations.

[00:23:35] It's hard. I don't know how to do it. I won't sit here and pretend I do. But you start to see patterns and you start and their entry points are all over the place. Could be with the technical team. You get them excited about it. All of a sudden you get bumped up the chain. Or it could be with the business guys and then you got to go convince the technical people.

[00:23:49] So there's so many entry points in big strategics. You just got to start whittling away at it. Don't overthink it. Just go do it.

[00:23:55] Giovanni Lauricella: The dynamics of big corporate strategics though, to wrap my own mind around it, because within these business development teams that are watching these technologies grow over time and building these relationships, what happens if, and correct me, I'm asking the question, do you build a relationship with one biz dev person at that particular strategic, and then what happens if they leave?

[00:24:16] Does it set you right from the get go?

[00:24:19] Ben Hertzog: Sure, it can all happen. Yeah. I just say, Just do it. Start having conversations. Because the reality is, if something's going to happen, it usually means you've hit the organization at a bunch of different call points, if you want to call them that.

[00:24:33] For one of these strategics to do something, The business, the biz dev guys can get really excited about it, and what's he gonna do? He's immediately gonna go to the technical guys. What do you think about this, right? And to the extent you can prep all of those interested parties, so where they get, oh yeah, we've seen that's really cool, it starts to gain momentum within the organization.

[00:24:50] I don't know, there's no magic bullet. Just, you gotta have lots of conversations. It takes a long time, did you raise from VCs for Presirium? In that round we brought in, yeah. And then most of the VC money after I handed over the reins to Procyrion came in later. My experience through that was strategic, small VCs and a lot of angel money, some state money.

[00:25:10] Giovanni Lauricella: Were the VCs here in Texas or did you have to branch out for those?

[00:25:13] Ben Hertzog: Yeah, Texas.

[00:25:14] Giovanni Lauricella: Oh, good. Okay. Procyrion's still alive and well.

[00:25:17] Ben Hertzog: It's doing great. Off to the moon.

[00:25:19] Giovanni Lauricella: So I think this is a, with you being a technical founder, and then now there's new leadership in Procyrion.

[00:25:27] That, that mechanical choice as an entrepreneur. I would love your feedback on that because there's, call it thousands of entrepreneurs and potential engineers and physicians listening in right now that have this shower idea that they want to go start a company with. But this notion of building something and like you said, you love tinkering and the innovation piece.

[00:25:50] But then taking that, especially a class three device and going super long on a massive clinical trial, or even worse, commercializing it. Two different skill sets.

[00:25:58] Ben Hertzog: Yeah, absolutely. Very different skill sets. There's a life cycle, of activity in companies, the innovation phase, the clinical phase, the commercialization phase, and I think you just have to be honest with yourself where you like to play. The blanket statement I'll make, as an entrepreneur, you've got to be willing to take it all the way. You gotta be willing to just block and tackle and run it to the finish line. But, I, when I do some soul searching, I like the innovation phase. I like tackling those big problems and doing something that's never been done before.

[00:26:25] That's more exciting to me than, the idea of running a big clinical trial or, building a sales force. Got, sometimes you gotta do it all but I like that innovation phase first. And I think we all have to we're, we all have to figure out where we like to play and where we're best at playing and and again, sometimes you got to run it all the way and sometimes the best thing for the company is to, bring in somebody who's got a different skill set.

[00:26:48] This is just normal stuff in startup companies. Happens all the time.

[00:26:52] Giovanni Lauricella: Once again, for an educational moment, there's a lot of companies that I run across, earlier stage, approaching mid stage and clinical phases. Yeah. And it, they are started by technical people. And there's a lot, it takes a lot of self awareness, like you mentioned.

[00:27:06] But there are also a lot of self aware people out there. There's a lot of non self aware people out there too. But, when you decide to hand over the reins, and you're looking for that successor on the CEO side to, to take everything that you've built and go, what makes a good CEO? What do you look for? What is that process of self awareness of

[00:27:26] handing that over?

[00:27:27] Ben Hertzog: Yeah, that's a great question. Getting back to those phases is what's the next phase? What's the next big challenge for the company? And what skill sets needed? Is it a Rolodex needed? Is it specific skills? Is it is it, or is it the, is it not the next phase? It's the one after that you're really thinking about, the commercial phase. Do you need somebody clinical is somewhat straight forward and you've got good, depends what the rest of the team looks like and the other pieces you put together. Team is such a big category, for this. How do you solve, you're constantly thinking about what are we, what's coming down the road and what team do I have to put in place.

[00:28:03] It's all, it's the same discussion, whether it's your next CEO or whether it's building out the team you need for today versus the team you need for tomorrow or the team you need for five years down the road. You're constantly thinking about that. You've been in this field, you know this better than I do, right? How do you build that team? How do you put the right people in the right seats on the bus and to optimize your chances of success?

[00:28:24] Giovanni Lauricella: So flipping gears real quick, you're currently running Intelligent Implants. You said you found it when you were over at J& J as a

[00:28:32] Ben Hertzog: At CDI, Center for Device Innovation.

[00:28:33] Giovanni Lauricella: As an entrepreneur in residence. So now you're leading Intelligent Implants. And it's a Swedish company?

[00:28:40] Ben Hertzog: Technically it's an Irish company. Okay. Swedish American founders and the core teams in Sweden, the technical teams in Sweden.

[00:28:47] Giovanni Lauricella: So going back to the genesis of our conversation about someone advising on gaining that business and management experience.

[00:28:53] Yeah. What is it like being based here in Houston and an American entrepreneur running a European company?

[00:29:01] Ben Hertzog: It's hard, somewhat, thank you. COVID and zoom, and we have a lot of more technologies and everybody's more used to using them. That allows it to happen at all. I think, there's a very common pattern of European companies wanting U. S. Leadership because in the world we're in right now, U. S. Markets the first place you go even for clinical these days, right? There was a time what? 5 10 years ago, 10 years ago for sure, where you would go get C. E. mark. First, you'd focus on Europe, you build revenues and then you'd use that to fund what you were doing in the U. S. But things have flipped, and now the big markets here in the U. S. So this is a common pattern. You see a European company with built, starting to build up the kind of management team in the U. S. So that and that was the thinking. That's what the board wanted. And this wasn't, just got hired one day.

[00:29:48] This is another one of these that evolves over time. Like I when I was an entrepreneur residence at J and J Center for Device Innovation here at TMC. Part of my mandate was helping them think about technologies that have been developed within J and J. And how do we monetize them? What do we do with them?

[00:30:02] Do we spend amount? And the other part of the mandate was working with what they called resident companies so they could invite these companies in to live at CDI. And this was the first company they invited in, and I got to know them that's really cool. And so I just started working with them and they invited me to come on as executive chairman first.

[00:30:19] And I did that, and we started working more and more closely together, and we went to the FDA and got a breakthrough technology designation for it. And that just evolved into, hey, would you be willing to come be CEO of this? And I jumped at the opportunity.

[00:30:32] Giovanni Lauricella: You're my Houston serial entrepreneur story.

[00:30:35] And, you've now started for Sirian, you're now running Intelligent Implants.

[00:30:42] Ben Hertzog: I don't know if two data points mean serial, but okay.

[00:30:44] Giovanni Lauricella: For me, you were brave and bold enough to do it again, right? And my whole thing is, we've heard line after line of, there's a lot easier ways to make money. Or survive, or live.

[00:30:58] And there's gotta be this reason. to do it not only once, but then to do it again. Yeah. And all the learning lessons that you've done, and you've chosen the hard tech, so class 3 devices. What keeps you ticking? Like, why are

[00:31:12] you doing this again?

[00:31:13] Ben Hertzog: Because I'm crazy. Sounds a little corny, but I've said it all throughout my career as an entrepreneur.

[00:31:18] It's that thought that we could develop something that could help thousands of patients, millions of patients, that's super motivating to me. That's cool. That makes it easy to work hard. That makes it easy to do this, and yes, there are a lot of easier ways to make a living. But to feel like you're doing something important, like every step of the way, I'm like, this is important.

[00:31:38] And I say that to my team a lot. I'm like, we take this seriously, what we're doing important work and we're going to, we're going to change lives with this. There's no question. And so you have those moments where, like at Procyrion, we went down to South America and we did first in human studies.

[00:31:54] And to see something you first built in your garage go into a human and save their life, it's terrifying. But it, that's, you sit there and you're like, that's why we do this.

[00:32:04] Giovanni Lauricella: Now doing it twice, when you look at hardcore, hard tech medical device innovation, luck or effort?

[00:32:13] Ben Hertzog: I'll take luck any day of the week, right? But with effort you can make your own luck, I believe that too. It takes all of it. It takes a lot of hard work, and hopefully a little bit of luck. And if you're really lucky, lots of luck, so it's both of those things.

[00:32:28] Giovanni Lauricella: And how long have you been leading Intelligent again?

[00:32:30] Ben Hertzog: Close to three years.

[00:32:31] Giovanni Lauricella: Okay. I want to get back to Mechanics on fundraising and your expertise with that. So I know that you have your philosophy on if you had a dream mix of styles of investors, we've talked about that previously. I want to get back shortly to the corporate strategic piece, but in general, depending on who you speak with, we're either coming out of it and it's starting to slightly warm up in a good way or it's still persisting, but we just came out of a pretty hard year for people looking to raise capital.

[00:33:00] Ben Hertzog: Yeah I'm not convinced we're coming out of it yet, but that, that we can debate that. It's tough.

[00:33:05] Giovanni Lauricella: Are you raising and targeting VCs or what's your target?

[00:33:08] Ben Hertzog: We are, we're, I'll talk to anybody who'll listen. That's my strategy. I think you have to. You have to in these markets.

[00:33:13] And we're raising an 8 million Euro Series A round to go do first in human. So great animal data, lots of IP. It's time to go put this in people and see that it works and prove that key pivotal point in a med tech company. So we're raising money to go do that right now. And again, talking to everybody, angels, family offices, strategics, VCs, all of it.

[00:33:35] Giovanni Lauricella: Do you have a dream mix? If you could concoct the perfect syndication, what would that look like?

[00:33:40] Ben Hertzog: Yeah, it's, I'll talk in generalizations. It's so specific to exactly where you are and what you're trying to accomplish. buT if I grossly generalize, I come, generalize it, I come to a point where I think my dream mix early on is angels, family offices, plus strategics.

[00:34:01] And then you get to a point where to maximize value creation, you bring the VCs in. Gross generalization, right? Everything else, there's a bell curve, there's outliers. But I think that's where I keep ending up. I don't always get my dream, right? You just, you do what you gotta do to make it happen.

[00:34:17] Giovanni Lauricella: But we hear also that, and I don't know if it goes in trends or waves, but we hear that corporate strategics are typically moving further down the pike, but you like them early on. You've had experience of them having coming in early on.

[00:34:30] Ben Hertzog: Yeah. How does that play? It's hard though, and not, not every strategics is equal. Made the same or thinks the same. They all have their own cultures. They all operate differently. There's corporate VCs who are I. R driven. There's corporate VCs who it's strategic, but they're graded on I. R. And then there's corporate VCs. That's pure strategic and you get a mix. Most of them are on the strategic investment side.

[00:34:54] So it's just different. It's different with all of them. And the reality is yeah, they like later stage deals. But some of the companies have gotten pretty sophisticated and pretty good at creating an environment of innovation that matches their strategic goals, right? And I think that's powerful.

[00:35:15] And I I've never been in one of those big strategics, but I'd be all for that. Like, how do we create, if we want to be an innovative company, how do we create innovations out there? Because, especially in tough markets, and MedDevice is even tougher than some of the other VC markets.

[00:35:31] How do we make sure that the innovations that we think are important to the future of our big corporate company are out there and surviving and thriving and create a universe of acquisition targets down the road? And you gotta go early.

[00:35:45] Giovanni Lauricella: So then, what about the state of the market? You've been running Intelligent for the past three years.

[00:35:49] It's still a hard, challenging ecosystem right now, but it's certainly been talked about for the past year. What's your take on that? What happened? Why?

[00:35:57] Ben Hertzog: I mean there was a whole convergence of events, you know the markets and then you know All these risks we have to manage and then you've got banking issues all of a sudden, stuff you didn't even think was an issue and you know we had companies that couldn't even get money out of their bank to pay their employees and you know everybody's sitting around going jeez.

[00:36:18] That's a risk that we didn't even know we had to think about right? And so I think, all that comes together to a point where investors are thinking about where do they put their money and what's the risk reward. And if the risks are going up, is the reward going up? If you're in your market where there aren't any exits, it's an unsolvable equation for the investor.

[00:36:35] So everybody starts holding on to their money. We've seen it before. It comes and goes. And so everybody starts holding on to their money. The chatter is we're looking later stage. We don't want to take that early stage risk. I'm a bit of a contrarian investor, so I think that, you have to have a piece of your portfolio.

[00:36:51] When you have a bad market like this, man, start going early and placing some bets. Probably at attractive valuations. Because then when things turn around, all of those, valuations are going to go up. You're going to do well. And when we're in these early stage companies, the timelines we think about, even for us to do this first in human, it's a 24 month piece of work, right?

[00:37:11] And so when we pop out the other side, the market likely will be completely different. So if you get the valuation right for us and for the investor, there's an opportunity for huge upside.

[00:37:21] Giovanni Lauricella: Is there a strategy or a potential band aid solution where, for all those companies out there who are struggling to raise capital right now, and they're hearing from VCs over and over again, we want clinical data, we need later stage deals, etc.

[00:37:37] If it's such a pandemic within itself of this gap, what are some strategies that you've endured or even experienced over your years as an entrepreneur where, okay, fine, if you're getting no's from this stereotypical group, think about this, and this.

[00:37:52] Ben Hertzog: The one that, the obvious one is grants.

[00:37:55] Grants are hard. The timelines are tough, all that. But, fund your company on grants as long as you can. Be aggressive. This comp, Intelligent Implants, because it's European based, Irish based we're not eligible for NIH grants here in the U. S., but we've aggressively gone after other grants.

[00:38:11] We got a big award four and a half million euro blended grant equity award from the European Innovation Council, European EIC Accelerator Award. That's been hugely beneficial, right? So we've used that to fund a lot of activities. And so it was It's two and a half million euros of non dilutive grant funding and then a two million euro commitment to come in the next round.

[00:38:33] So we have that chunk of money, already available in this round that we're raising now. That's big. So look for those opportunities wherever they are and it's, try your best to get that. That's all, the non dilutive parts, free money.

[00:38:45] Giovanni Lauricella: When it comes to sizable rounds, and you're looking at, how do family offices versus angels play versus the corporate strategics and institutionals? Is it a completely different psychology?

[00:39:00] Ben Hertzog: Yeah, and even within those, there are all kinds of different angels, right? They're sophisticated angels. They're unsophisticated angels. A lot of angel investing is, happens more with the heart. Then the brain then family office the same way.

[00:39:16] Widely varying levels of sophistication maybe, approach maybe. How they think about investments, how they think about timelines and things like that. Just, and so it's all over the board. And you've got to, you've got to be able to adjust your pitch depending on your audience like any other time you're pitching.

[00:39:35] So it's, it's hard, it's really hard for entrepreneurs to navigate family offices, for instance, right? Yeah. They don't.

[00:39:41] Giovanni Lauricella: How do you even go about finding them?

[00:39:42] Ben Hertzog: I don't have a good answer for that.

[00:39:44] Giovanni Lauricella: Are those just cocktail parties?

[00:39:45] Ben Hertzog: Yeah, lots of networking and word of mouth. And, there are some conferences focused on that, but I wouldn't say I'm good at that.

[00:39:51] Giovanni Lauricella: Yeah. And your, one of your philosophies would be at this point in the game of medical device innovation and where we are in the ecosystem, VCs. play a really strong beneficial part later in development?

[00:40:03] Ben Hertzog: Like anything there, there's a bell curve, but gross generalization, I just, if you think about to the early days of VC and what those people looked like, they were operators, they'd started companies, they were used to rolling up their sleeves and being hands on and the fund sizes, what was the average fund size?

[00:40:20] Fifty million dollars or something, a hundred million dollars maybe for a big fund. And then those funds become successful and they raise 500 million dollar funds. It's a different, the finances, the math is completely different. And if you can find one of those really good operator VCs that rolls up their sleeves in that early stage, huge value add.

[00:40:40] When you get later stage, the value add is often, strong connections with strategics and acquisition and kind of, helping you craft the company into something that's going to maximize shareholder value. That's a little later stage thing. Ideally you have somebody that knows all of that and they're out there.

[00:40:57] But early on, having investors, angels or family offices, maybe strategics who have a little different view on timelines and, a little different sensitivity to valuations and stuff like that. I just. That, that, that feels like a more attractive mix early on to get you through all that, like to get to where we're trying to get, which is, let's get first in human data.

[00:41:17] Once you have first in human data, then the conversations, they change.

[00:41:21] Giovanni Lauricella: So I want to sign off with on your personal journey, everyone needs a strong network, especially as an entrepreneur, to be able to have that charisma, to be able to go network that desire, to be able to go network and build that community around you to help you along that journey.

[00:41:35] Yeah. Do you have a mentor that you want to give a shout out?

[00:41:41] Ben Hertzog: I, I don't have one particular mentor. I it's, it takes a village, right? I think that's what it is for me. I, and talk to everybody. I know, one of my key lessons is, you got to turn over every stone. You never know what's underneath there.

[00:41:57] Talking, I'm always, I'll talk to anybody who'll listen, right? Networking. Even if you look at it and you're like, Ah, this is going to be a waste of time, you just never know. Man, network, talk to everybody, and build that network so you have a rolodex of people that you can call when you've got a question and you need some advice,

[00:42:13] Giovanni Lauricella: Final sign off line from you is, for all those entrepreneurs thinking about becoming a medical device entrepreneur for a Class 3 device, what should they philosophically be thinking about when they're going into this fire?

[00:42:27] Ben Hertzog: Find your passion, right? Find something you're really passionate about that you think is going to make a difference and just be willing for a, hard, bumpy ride.

[00:42:38] We always, we hear these founding stories and we see the exit and the big win. You hear a lot less about the ones that didn't make it, but even on that one, it's not a straight line, right? This line goes all there, there are peaks and valleys and you're zigzagging all the way around and just be be prepared for that.

[00:42:54] And if you're passionate about it. and you feel like you're doing good work, it makes it all worthwhile.

[00:42:59] Giovanni Lauricella: This is the MedTech Startup Podcast, and we just got inside the mind, the heart, and the gut of this incredible serial entrepreneur in MedTech here local in Houston, Ben Hertzog, CEO of Intelligent Implants.

[00:43:15] Thank you so much for your time.

[00:43:15] Ben Hertzog: Yeah, really appreciate it. Yeah, awesome. Thanks, man.

[00:43:20] ​

[00:43:20] Giovanni Lauricella: I drank this ice cold brew something that Texas made. And the guy warned me, and I'm a coffee drinker, and the guy's just be careful and dilute this thing. I'm like, I just stepped off the plane and I woke up at 4 I'm drinking this thing. I finished this thing at 2 o'clock in the afternoon yesterday. I literally laid in my bed after getting back last night. My heart was going. I literally didn't sleep at all.

[00:43:42] So I'm waking up

[00:43:45] ​

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