Kelly Prchal - Engage Ventures

[00:00:00] Kelly Prchal: ~When we think a natural acquisition could take place. ~

[00:00:00] Giovanni Lauricella: ~And then you guys are a year into this a year and a half. , there are no guarantees. Okay. Yeah. What time is it by the way? Oh, ~

[00:00:00] Kelly Prchal: ~we're so prompt. ~

[00:00:00] Giovanni Lauricella: ~Okay. Just remember the with 10 minutes left. Okay. You need anything? ~

[00:00:00] Kelly Prchal: ~No, I'm gonna try not to clear my throat too much.~

[00:00:00] ~I have reflux and I can tell that it's acting up, but~

[00:00:00] Giovanni Lauricella: ~This is ~

[00:00:00] Kelly Prchal: ~gonna in your post production if I'm clearing my throat you can just edit that sound out, right?~

[00:00:00] ~Perfect Where ~

[00:00:00] Giovanni Lauricella: ~do you have your stopwatch? I don't I've never used a stopwatch Yeah, it's in my Yeah. I~

[00:00:00] ~mean, it's all the way in the, you can't do this on your phone. I can, but it'll be bigger for you to see if you want. Oh, I don't need to see it. I just, ~

[00:00:00] Kelly Prchal: ~I'll be good with it. Can I see a screenshot of what it looks like? Yeah. How about I ~

[00:00:00] Giovanni Lauricella: ~sit there and No, ~

[00:00:00] Kelly Prchal: ~I want Here, I'll take the picture. That's too funny.~

[00:00:00] ~So we're going to be talking like this.~

[00:00:00] ~And then, got me like that. Perfect.~

[00:00:00] ~Oh, it looks great. Fabulous. Love it. Yeah? ~

[00:00:00] Giovanni Lauricella: ~Cool. Yeah. We can just jump into it? Okay. ~

[00:00:00] ​

[00:00:00] Kelly Prchal: we just are so incredibly blessed. We also have a really rich culture of angel investing here in the Twin Cities. And you look back to just the garage at Medtronic and the investors and family offices. And really key investments that have furthered health tech and med tech in this community. I think a lot of it has to do with our Midwest culture and wanting to help. It feels really great to make investments in things that do good in the world.

[00:00:39] And we have a really strong angel community here in the Twin Cities. And I'm really excited about what Engage is doing to help complement that by bringing some of those institutional resources in a little bit earlier.

[00:00:56] ​

[00:00:56] Giovanni Lauricella: Hi everyone. We are here today in Minneapolis or Minnesota. We might be in St. Paul. Are we in St. Paul? We're in St. Paul. Okay. And this is the MedTech Startup Podcast where we get into the minds, the hearts, and the guts of today, a MedTech investor.

[00:01:15] And I'm here with Kelly Prchal, the founder and managing director of Engage Venture Partners. And today we're going to be talking about a unique way of investing in MedTech startups. No better way to start this out than by learning who we're speaking with today. Kelly Prchal, let's talk about who you are, then we're gonna get into what is and who is Engage Venture Partners, and then we're gonna talk about how this all came to be and the uniqueness and the nuances of how you guys invest.

[00:01:42] Let's start with, by the way, thank you very much for doing this, and who are you, Kelly?

[00:01:46] Kelly Prchal: Thanks for having me. I grew up here in the Twin Cities. And I spent seven years on the East Coast. I went to Georgetown for undergrad. Came back here for grad school. I have a Master of Healthcare Administration.

[00:01:58] And I've spent the last twenty years building a career across the continuum of healthcare. Primarily the provider side, but really focused on growth, strategy some marketing and branding, but business development and growth. I've worked for a number of corporations you would know here in the Twin Cities, as well as have spent the last several years consulting first for a large firm and more recently on my own.

[00:02:27] I'm also a founder, I besides Engage I have been working with some partners on a small health startup, health tech startup focused on hearing and related conditions, mental health, cognitive health. So that is slow and I slow to grow and I know and feel the challenges that our founders do.

[00:02:49] And that is one of the unique things about us at Engage. We are all kind of founders and operators so we know the toils and tribulations.

[00:02:58] Giovanni Lauricella: So you have almost both sides of the coin with being an operator as well as an investor.

[00:03:02] Kelly Prchal: Exactly.

[00:03:03] Giovanni Lauricella: I saw the press release and this is year ago- ish, maybe a little bit more than a year ago at this point.

[00:03:09] And I saw Engage Venture Partners, you guys were based up here in the Minnesota area. And I had to learn about it and we connected then and I reached out and we were just trying to understand what you guys are actually doing. Are you an institutional fund? Are you an institutional VC firm? And so now that's where I really want to go with this.

[00:03:28] What is Engage? What are you guys? How do you invest in? Talk about all the guts.

[00:03:33] Kelly Prchal: Sure We do have kind of a unique model. It's a little bit different than your typical Institutional venture capital fund. We don't have a fund. We instead use a SPV based model. So special purpose vehicle. Which means that we're investing in individual companies and individual rounds so like VC on demand we raise for each individual investment and that just means that we operate a little bit differently.

[00:04:05] At our core, we are researchers. We are four operators and executives with experience across a Steve Sigmond variety of areas of med tech and healthcare, and we leverage our collective experience and expertise. to diligence these early stage med tech opportunities. There's a little more risk in early stage opportunities and collectively we bring our expertise together in order to know and understand what those risks are, mitigate those risks, and then ultimately find companies that we want to invest our own dollars in and then invite investors to join us in an SPV investment.

[00:04:50] Giovanni Lauricella: And talk about some of your co founders who else is involved in the team.

[00:04:53] Kelly Prchal: Sure. Yeah. I'd be remiss if I didn't tell you about them because it's really our collective expertise that, that sets us apart. My partner, Steve Sigmond and I have known each other for many years, actually. ~ When I was consulting, we met and we're doing some. Work together on a webinar at the time.~

[00:05:04] ~So ~Steve is an engineer by background, graduated from Stanford and has spent his career in finance and health tech. He has a background in venture capital and private equity. And then he was a founder of a company called Carrot Health based here in the Twin Cities. One of the recent success stories he and his partners grew Carrot Health it's a B2B software data analytics company focused on population health.

[00:05:32] Grew the company for the course of seven or eight years and sold to a large strategic a couple of years ago. So Steve really brings that tech experience as well as the core finance and venture capital analytics background. Morgan Evans is a biomechanical engineer, also undergrad at Stanford and did her MBA at Kellogg.

[00:05:57] That's where she started her first med device company. She has two, as well as a services firm that provides a number of consulting experiences to med tech founders. Her expertise is really in the regulatory process, quality, and commercialization. ~So again, another area that ~when we're looking at early stage med tech opportunities, that FDA approval process and the regulatory process really being an area that requires a significant amount of diligence and understanding and insurance that the path that the company is on feels like the right path.

[00:06:33] Our fourth partner is Ryan Spanheimer. He is a med tech patent attorney, also an engineer.~ By background. I'm the odd woman out. But Ryan has a really strong technical understanding of a number of clinical areas because of that foundation as an engineer. And he's a patent attorney, so ~He's spending a lot of time looking at the areas of his clear understanding such as neuro, cardio, vascular, ocular, ortho.

[00:06:49] He's done work over the past, . 10 plus years in all of these areas looking at patent portfolios and helping founders and companies ensure that they have the kind of coverage that they need for their IP. So really trying to find a way to design around their current patents and add to that portfolio so that it really creates those barriers of entry that you're looking for.

[00:07:15] ~So my partners are brilliant. I learn from them every day and I feel incredibly blessed to sit at the table with them. And between the four of us, you can see how we cover a gamut of those early stage areas of risk. ~

[00:07:15] ~So I want, ~

[00:07:15] Giovanni Lauricella: Thank you for that. I want to set the stage with the rest of our conversation.

[00:07:19] So imagine we have a room full of entrepreneurs who have slide decks that ~either ~will be clicking send ~and sending them to you, or they're going to learn why they shouldn't throughout the rest of this conversation. ~And also. potential investors that could join your SPVs. So let's talk from that angle and make it very educational.

[00:07:32] ~So my thing is, ~we now know that you're doing SPVs and it's on a deal by deal basis. Just to set the ~stage, we can come back to it, but ~how many investments have you made so far?

[00:07:38] Kelly Prchal: Sure, so we made our first investment in July of 2022, so 15 months ago. We have invested in six companies to date, about five and a half million dollars.

[00:07:49] Giovanni Lauricella: Okay. When we talk about what your thesis is it medical devices as we know it? Hardcore regulated De Novo's, 510 K's, PMAs. Is it beyond that? And then let's talk about the size of check that you write. Where do you invest, meaning domestically, internationally? Some of the limitations there? Get on the podium and let the world know like the limitations, but also what you guys actually can do and how you invest.

[00:08:11] Kelly Prchal: ~Sure. ~So we to say that we invest in med tech and we define that pretty broadly we like companies that are solving real world problems to make health care better a lot of what we see is med device we don't invest in bio or pharma because that's not our areas of expertise. But med device other types of health tech we definitely find interesting we may self select a little bit later with those because they tend to not have necessarily the patent portfolio, the ability to, to patent. Algorithms or software is a bit more challenging so we're really looking for those barriers to entry to be in place.

[00:08:53] We are not the very first check. We need to see some semblance of a strong executive team so it's not just a founder with a great idea. The company has~ some already~ strong progress being made. So they've got some patents filed they have a prototype or an early prototype.

[00:09:13] They have maybe had some pre sub meetings with the FDA. We're really in that kind of seed to A, sometimes B, territory. Really what we like to think of what we're doing is we're bringing those institutional dollars in a bit earlier. Typically, founders raise, a few hundred thousand maybe up to a million through friends and family.

[00:09:37] And. The larger institutionals typically aren't coming in until there's a 10 or a 20 million dollar round.~ So those earlier earlier rounds where they're, the company is raising, two million dollars, five million dollars. ~Maybe they need to do an animal study. They want to do their first in human, biocompatibility, whatever the important milestones are to get them to that larger institutional round.

[00:09:55] They spend a lot of time and effort fundraising through individuals, angel groups, and frankly, what we're hoping is that we can bring those institutional dollars in earlier, and that's what we're doing, and making it a bit more founder friendly, so we're bringing groups of investors, family offices, et cetera, into a single line item through an SPV for the founder.

[00:10:20] Giovanni Lauricella: Okay. And check sizes ranging where?

[00:10:25] Kelly Prchal: Investor checks or our checks,

[00:10:27] Giovanni Lauricella: your checks,

[00:10:27] Kelly Prchal: our checks. Typically around a half a million to I think our highest so far has been 1. 6 million. As our investor network continues to grow, as we start to have, additional family offices join our investor network, we look forward to being able to write slightly larger checks filling a bit more of those 2 million, 5 million rounds. Frankly, our founders can get back to work faster and keep moving and making progress with their company that we're so invested in.

[00:10:58] Giovanni Lauricella: So then, this question's for me, just so I can fully wrap my head around it.~ Let's just use 1. 6 million example that you brought up. ~You find a deal that you want to make an investment in. Once you lock in. Are you already negotiating? And then you have to go out and find a bunch of investors who want to satiate that particular number. Like, how does it chronologically work from deal to ~Sure ~SPV and who's jumping in the SPV to the time that you cut that check?

[00:11:19] ~Like, how does that whole process? Sure. ~

[00:11:19] Kelly Prchal: So we have a network of accredited investors, whether it be high net worth individuals, family offices, foundations, and that network continues to grow. We are constantly looking at deal flow. I think in the last year and a half, we've looked at over 320 companies and invested in six.

[00:11:40] So that gives you an idea of the selectivity. We spend a lot of time in diligence, like 90 plus days. And when we get to a point where all four of us are interested in investing our own dollars into a company, we found the SPV and we anchor that investment. Between the four of us, a fairly significant amount.

[00:12:03] We then share our diligence with our network of accredited investors and family offices. And they can ask us questions. We connect them with the founder. We spend some time doing education to help them learn everything that we currently know about the opportunity. And then they are able to make their own decision if they opt in or opt out of each individual deal.

[00:12:31] So we do have investors that take a portfolio approach, which I highly recommend and invest in multiple SPVs. Right now we're doing probably between four and six a year, really waiting for those that we think are great opportunities to make. Make a difference and that we're, we're investors ourselves so that we think or be will be a strong investment for our own dollars.

[00:12:57] Giovanni Lauricella: So that's super interesting. So once you lock on the, on your own opportunity and all four of you say yes, individualistically were interested, you put your money where your mouth is and then you take that and shop that deal around within your accredited investor network. And whoever is ~invested ~interested, they can jump in ~correct, ~but you start the match.

[00:13:16] Kelly Prchal: Yep. We anchor the deal and we'll move forward just with the four of us, if that's what it takes. But and that is what makes it a little bit unique that for founders in particular, we can't guarantee an amount. We can talk about a minimum that we feel pretty confident in based on our own investment and historical investments from our investors, but we definitely can see swings in terms of the interest and, when a larger investor or family office is in or out the check definitely gets, bigger or smaller based on their level of interest, which we can't guarantee.

[00:13:55] Giovanni Lauricella: I'm going to keep my own interest going on this one. But when you call it quits, meaning all four of you are in, you get one, two handful, maybe 20. I don't know other investors involved. When do you say? Okay. I don't know how long that process takes. We're like, okay, no more. We're not going to ask anymore.

[00:14:12] We~ Sure took it and ~taken a week, two weeks, three weeks, a month. Now we've got to close that SPV and make the actual investment? ~Yep How long does ~

[00:14:16] ~that process take? ~

[00:14:16] Kelly Prchal: We typically give about six weeks from when we announced the SPV to when funds have to be wired. And we use a, an online platform to, to actually manage the SPV.

[00:14:31] But. We're making our announcement to our investor network over email, saying this is the next SPV we're doing. If you'd like information, if you want to read our research report, if you want to be invited to calls with the company and calls with Engage to learn more click here and we'll invite you.

[00:14:51] We typically give a couple of weeks then before those meetings because it's hard to get on calendars. And then we hold the meetings over the course of a couple of weeks and give another few weeks for folks to do their own diligence make a decision and participate through the portal if they're interested.

[00:15:06] Giovanni Lauricella: ~So I'm going to keep on pulling this ~Going back to what you said about ~med tech, right? And we're in Minneapolis. We're going to touch or Minnesota, the Twin Cities. We're going to talk about the ecosystem here. But you said ~med tech versus medical devices.~ And even I believe we even talked about this previously,~ that you may go later stages for tech enabled devices. Talk about the breadth of technologies that you invest in.

[00:15:16] So is it the hardcore devices and the tech enabled devices? And why would you treat some differently than others in terms of when you jump in?

[00:15:24] Kelly Prchal: Absolutely. Yes. So it's all of the above in terms of if it's solving a problem in healthcare whether it be a med device or a software, an app.~ As long as it's~ We typically don't play in the direct to consumer route.

[00:15:40] So if it's, distributed through providers, payers, through traditional distribution networks we're interested in seeing it. ~And we.~ We focus a lot on MedDevice because~ that ~is ~what, ~who we know and a lot of our deal flow. But we continue to be very interested in seeing more MedTech.

[00:15:59] We do self select a little bit later for MedTech because those barriers to entry are more challenging to demonstrate. There are a lot of extraordinarily smart people trying to solve. a variety of different problems and some of the things that we look for to help mitigate our risk in our investment is, the patent portfolio, the regulatory path the team looking at what barriers to entry are there from other competitors coming in and taking a piece of the pie.

[00:16:33] With health tech, that can be more challenging. So we want to learn as much as we can about the solution, the space, if there are barriers to entry that, whether it just be, be time, brand or if there is the ability to have any patent protection any trade secrets things that can help create that kind of moat and give a bit of a delay to allow the health tech company to really make enough progress that those fast followers can't quite catch up.

[00:17:07] Giovanni Lauricella: ~It's a bit of a sidebar conversation. Speak to it, whatever you can. Sure. ~I get asked this question a lot by especially first time founders or very early stage companies. When you're looking at a potential deal. And you are stressing on their patent portfolio, et cetera. How much weight or where do you stand if a company doesn't have I. P. portfolio protection in China?

[00:17:25] Kelly Prchal: That's a good question. And it's one that, frankly, I would have Ryan right here by my side helping to answer because we each have our own areas of expertise. Ryan, you'll have to know how I do with this answer. But in general, we're looking at U. S. protection as the primary, Europe, rest of world and what we're looking at is really understanding what are the markets that you intend to enter, and the timelines associated with those, and then how does the IP need to fall in place. It's a pathway.

[00:18:00] Giovanni Lauricella: But if someone says like they don't have Chinese I. P. It's not necessarily a deal killer right then and there.

[00:18:04] Kelly Prchal: I think it would be a question of why not? Is it because you can't get it because there's a competitor or because you haven't filed it yet? It's not on your timeline yet. It's a conversation.

[00:18:14] Giovanni Lauricella: Okay. ~And then once again in Minneapolis and Minnesota today~ Do you invest coast to coast? Do you invest internationally?

[00:18:17] ~Tell me about where those geographic ~

[00:18:17] Giovanni Lauricella: ~limitations come in.~

[00:18:17] Kelly Prchal: Nationwide. We are interested in seeing international deal flow as long as there is a relatively proximal plan to have a, C or S corp here in the U. S. So that's really where we're most comfortable.

[00:18:33] Giovanni Lauricella: ~Okay. I've been told, ~Is it because of tax challenges and things like that when you start getting out of the country that it makes it a little bit more difficult to get involved in deals outside of the United States?

[00:18:41] Kelly Prchal: Yeah, there are a host of financial and legal challenges that just make it much more difficult.

[00:18:47] We've got plenty of deal flow, a great deal flow right now focused on the U. S. and that's where our comfort lies. That's we, that's our mentality is focus on what we know and what we can diligence best and U. S. based or international companies that have a plan to have a U. S. based corporation. Would be ones that we would be interested in seeing.

[00:19:11] Giovanni Lauricella: Have you invested in any ones that have a U. S. entity that started elsewhere?

[00:19:14] Kelly Prchal: We have one portfolio company that's Israeli based, which those lads make that process very easy. They've got a great pathway to U. S. investments for Israeli based companies.

[00:19:27] Giovanni Lauricella: So you mentioned that deal flow is not the problem. You have great deal flow. Once again, coming back to being in Minnesota. If you've been in MedTech, you know that there's major hubs, Minnesota or certainly the Twin Cities being one of them. In your opinion, what is so special about the Twin Cities?

[00:19:44] What's the ecosystem deliver? Why does innovation come from here? Where does it stem from? And then also how is this investor and innovation ecosystem tying together? What's so great about the twin cities?

[00:19:56] Kelly Prchal: Yeah, absolutely. And I'll caveat your question just briefly to say that we've got great deal flow.

[00:20:03] We're always interested in seeing more that fit within our purview. I'm really, I'm constantly excited to talk with founders, learn from founders Innovators are brilliant and and we're always excited to see opportunities that kind of fit within our interest and stage, et cetera. Minneapolis is such an extraordinary resource for med tech in particular.

[00:20:29] We have a really strong corporate foundation. You think about Medtronic and Boston Scientific, 3M, United Health Group. We've got incredibly strong clinical culture here with the University of Minnesota and of course the Mayo and then you tie that all in together with these resources that really allow founders and innovators to bring products to market.

[00:20:58] We have an incredible resource of, bench and lab and animal testing. And manufacturing and quality and reg and I all of these resources that come together allowing a founder here in the Twin Cities to, have a dream, create a prototype and bring that prototype to market through, sales and distribution.

[00:21:26] We have absolutely incredible resources here in the Twin Cities and a lot of those come together through, medical Alley. So thanks, Frank, for everything you do.

[00:21:36] Giovanni Lauricella: Thanks, Frank.

[00:21:37] Kelly Prchal: And and we just are so incredibly blessed. We also have a really rich culture of angel investing here in the Twin Cities.

[00:21:47] And you look back to just the garage at Medtronic and the investors and family offices.

[00:21:54] And really

[00:21:55] key investments that have furthered health tech and med tech in this community. I Think a lot of it has to do with our Midwest culture and wanting to help. It feels really great to make investments in things that do good in the world.

[00:22:13] And we have a really strong angel community here in the Twin Cities. And I'm really excited about what Engage is doing to help complement that by bringing some of those institutional resources in a little bit earlier.

[00:22:30] Giovanni Lauricella: I Want to talk about, I know that you're quite prideful about the diligence process that Engage offers.

[00:22:36] And I want to tie the conversation together off of a two part question. So first and foremost, what does that diligence process look like? If I'm an entrepreneur and I'm in the audience listening to this right now, and I want to click my click send, I'm sending you my slide deck. What can I expect if you start showing interest?

[00:22:55] I think equally, if not more importantly for the filtration process of this bigger world of investing, what do you see in entrepreneurs or slide decks or technologies? That turn you off. Even if it's an opportunity that could be of interest, maybe you've invested into an adjacent technology, but you're seeing these patterns of entrepreneurs reach out to bad decks, not great storytelling, whatever it may be.

[00:23:17] So talk about your diligence process of when you decide to invest and also. What turns you off about not wanting to invest in some of your deal flow?

[00:23:26] Kelly Prchal: Sure. I'm sure that would be incredibly helpful for the audience. We start by dividing and conquering on a first look. So we're, whichever of the four of us partners a company comes into we're going to take a look ideally at a pitch deck to ensure that we're a fit.

[00:23:43] Is it the right stage? Are they raising the right kind of amount of money? If they're raising 200, 000, we're not a fit. If what their team looks like, there's a few things that we can get an idea of just the basics, as well as that basic technology what is the core vertical area that the technology is focused on?

[00:24:05] Is that something that is a really crowded space? Is it a space that we know well, that we can diligence? We'll take a kind of a look at the deck to say, does this make sense to have a phone call? The next step would be to get on a virtual call and hear the pitch. And that may just be one of us to start getting all four of us in a room, even virtually is really challenging.

[00:24:30] It may be a shorter conversation. We're really looking at who is the team, how experienced are they? Have they done this before? What are their credentials? What do they look and sound and feel like? Do I. Do I believe the story that they're telling me? Because part of what's important is their ability to go on and raise future rounds as well.

[00:24:48] What is the patent portfolio? What does that look like? We certainly we'll do a deep dive into that earlier rather than later. Same thing with the reg process. What's the pathway? What's the timeline? Are you realistic about the timeline? What, conversations have you already had?

[00:25:06] What's the exit strategy? What's the commercialization plan? And then what is historical financing? And what does the future financing look like? Key terms of the round, etc. If all of those, and, of course, is the technology interesting? Does it set itself apart? Is it, if it's a device, is it solving a problem?

[00:25:30] Ideally, it's improving patient outcomes, reducing costs, reducing risk, ideally more than one of those things. And and is it an area that we feel like we can dig into? We have a great network of clinicians and researchers across the country through, the four of us in our networks. that we lean on from a clinical standpoint to check in and just get the sniff test.

[00:25:55] Does this sound like this is something that would be useful in your field? And then if we continue to move forward, we're leveraging those resources and our collective expertise more and more to dig in deep. If all four of us end up on a call with the company, it means there's a really strong interest and we continue to diligence will open a data room.

[00:26:16] We'll dig in and diligence, the team, if they've done it before, we'll try and talk with past investors past board members do a number of interviews. Like I said, typically over 90 days that we're spending in diligence to really understand for each of the four of us and our areas of expertise Are we uncovering, turning over every rock in order to ensure that we are finding any risk and identifying if they're comfortable with it or not.

[00:26:49] Giovanni Lauricella: You've brought up the topic of team when you're doing diligence a bunch of times. You made it clear earlier on that if it's a solo founder with an idea, you're not investing in that person. You also said typically seed Not yet. Not yet. But it could be seed, series A, series B. When you do say team Once again, I'm sure it varies, but how do you qualify that?

[00:27:09] Is it? Could you invest in a co foundership where there's just external consultants besides those two people? Or are you looking to have some overly resourceful slash under resourced startup that simply still has some amazing management team this early on?

[00:27:25] Kelly Prchal: It's a variety. And we certainly understand as founders ourselves, we know what it takes. To bootstrap, and we're not necessarily saying there have to be, multiple salaried employees. A couple of co founders in key, with key areas of expertise, and some great resources that are brought in with a plan to expand those resources to a more robust executive team over time is certainly reasonable.

[00:27:52] You asked the question about things That might make us think twice or turn us off aside from something just being not in an area we feel like we can effectively diligence I think if there are any extraordinary deal terms that we know would make it hard for a future institutional round that, that's definitely something that is a little bit of a red flag.

[00:28:17] We're really focused, especially in this economic climate on ensuring that we know that companies have made, taken the steps to engage future investors, strategics, whatever the process needs to be for that particular situation. And they're starting to have those conversations early. They're being strategic about their pathway to that exit strategy in order to ensure that our current investment will live on in future rounds.

[00:28:50] Giovanni Lauricella: What makes a good pitch deck from an entrepreneur in your perspective? What are the fundamentals that you need to see?

[00:28:55] Kelly Prchal: Simplicity. But covering all of the basics. I am not going to be concerned about, if you're calling your service addressable market 2. 1 billion or 2. 2 billion based on whatever footnotes. That is not material to me at this point. Just like some of those hockey stick graphs of the, profitability, future profitability. That's all in the future and nothing's guaranteed. It's really about who is the team, and what are the steps that they're taking to move the company forward in a way that is realistic.

[00:29:32] That is, not. Overly costly. We love a scrappy CEO. And you'd be incredibly surprised the variety of spending that we see in terms of burn rate. We've seen some very scrappy companies get, to 510K approval with very, fairly limited resources in comparison to others. It's all about respecting those investment dollars and really putting them to work in the best way possible.

[00:30:08] Giovanni Lauricella: The other major point that I wanted to get to that I think is really interesting is, when we think about some of these massive big institutional funds, they raise 50 million, 100 million, 300, 500 million. They typically have some sort of rolling close, but when it's closed, they just have to invest those dollars.

[00:30:27] You're investing literally on a case by case basis. I know that you mentioned that you do have a network of accredited investors, but even more you want that network to constantly grow because not every person in that network is going to invest in each deal. Correct. It would be great, but it likely doesn't happen.

[00:30:44] What are you doing to educate potential investors? How do you expand that accredited investor network? Because that's your lifeblood.

[00:30:52] Kelly Prchal: It's really more about growing our network of investors. We are not we are not convincing anyone to join an SPV.

[00:31:00] We're providing information and they are making their own independent decisions to join the SPV. But when we think about growing our network I think a huge part of what we do. is ensuring that our investors understand the company, understand the investment have an opportunity to ask questions, are excited about any SPV that they join with us.

[00:31:25] And then their their word of mouth, their ability to tell a friend about Engage Venture Partners or a colleague. Is really what is so important to us and we have some great corporate support from, our legal counsel and Medical Alley and other investors in town, other funds in town that that know about what we're doing.

[00:31:53] We can really be collaborative which is really, it feels nice Minnesota nice here that we can be collaborative with other investors and funds. But we're spending a lot of time educating potential investors on why our model is different. It's not a hard conversation because we don't have any upfront fees.

[00:32:13] Our investors are able to see our deal flow. They, we have a services agreement. There are legal things But there's no obligation to participate in any of our deals and they don't pay any subscription fee or annual fee. So from a value standpoint We feel like that piece of the conversation is very easy to have we do have a small management fee one time management fee at the close of the SPV and then carried interest on the back which is very typical of an institutional investor ~.~~And but we are spending a lot of time just having conversations, letting people know about what we're doing, and seeing if there's an interest to see more.~

[00:32:43] Giovanni Lauricella: ~And any, as long as they're accredited, anyone can be an investor, right? ~

[00:32:43] Kelly Prchal: ~Yeah, we definitely have intro conversations to make sure that we're a fit. But we're definitely interested in talking with any accredited investor who has an interest in what we're doing, certainly. ~

[00:32:43] Giovanni Lauricella: And when you invest, do you take on a Board seats or observer seats or do you co lead or lead?

[00:32:49] Kelly Prchal: We sometimes lead and we sometimes follow on. If we lead we are very likely going to ask for a seat on the board. And every deal is its own basket of terms. And so if we're following on typically, the terms have all been decided. And and we are ensuring that we're comfortable with them before opening the SPV.

[00:33:09] But there's a wide range Of how we invest in different companies.

[00:33:13] Giovanni Lauricella: And once again, going back to the~ accredited ~investor piece, we're coming off of a hard time. ~Some still say we're in a hard time after a great time of dollars flying everywhere, but There's something special about the health care environment or the ecosystem in the industry.~

[00:33:19] ~There's something especially for me. I've 15 years. I love medical device. I love med tech. But it's a choice to be in here, right? ~And investing in these very oftentimes long investment cycles or investments like these startups that take a while to get through these regulatory hurdles, etc. Transcatheter heart valves, for example.

[00:33:32] So when dollars are vying for being placed anywhere they can, cryptocurrencies, real estate, manufacturing plants, whatever it may be, How are you convincing and telling those stories to people who want to get involved in medical device?~ Sure. Because you're vying for the same dollars. ~

[00:33:52] Kelly Prchal: Yeah, we have a wide variety of investors, which I love.

[00:33:55] So we have some, retired physicians and healthcare executives that want to see and stay in the know in healthcare and med tech. We have some investors, institutional investors and family offices and whatnot that historically haven't played in the med tech space because they don't necessarily have the ability to diligence at a level that they're comfortable with which makes us a great partner for them.

[00:34:21] ~We, uh, have.~

[00:34:21] ~I'm totally forgetting the end part of the net what you want me to get to. I ~

[00:34:21] ~don't know, so I'm just basically saying. A dollar from an investor can be implemented or invested anywhere, right? We're convincing them to invest in medical device, which is a tough ~

[00:34:21] ~spot. Yeah, I remember where I wanted to go now.~

[00:34:21] ~So you're gonna have a little editing to do. He's a pro. ~We are focused on med tech because that's where our knowledge base is. That's where we think we can bring the most value to our investors. Like I said before, it also is a really It's a heartwarming place to invest your dollars. We have strong industry here in the Twin Cities, and we feel great about the investments, and there are a lot of opportunities in MedTech.

[00:34:44] We also feel great about the fact that we're investing in things that will make the world better, that will improve health care for my kids and their kids and future generations. So that is certainly something I think that's important about MedTech.

[00:35:01] You mentioned longer hold times, and I just want to clarify, there's a wide variety. Pharma, for sure, is typically longer. We're not in that particular vertical. And HealthTech and MedTech and MedDevice can have a wide range of kind of hold times, if you will. I think it's really interesting to think about MedDevice. And those natural acquisition points where medical devices may get acquired by a large strategic. Oftentimes they don't need to wait and commercialize on their own because the strategic is going to leverage their sales and distribution channels. So those hold times may not be as long as you think. And one of the things that we spend a lot of time talking about with our investors with each SPV is what do we think that timeline looks like and why in terms of the regulatory approval process and what are those natural acquisition points. And what does that mean for the length that this investment could hold?

[00:36:10] Giovanni Lauricella: ~And then ~Because it's a deal by deal basis. Do you guys also look or try to follow on if you can in subsequent rounds?

[00:36:17] Kelly Prchal: Certainly that's an interest of ours. We want to continue to support our portfolio companies. ~We have I don't even know if I can, we I don't even know if I can say by the time this publishes.~

[00:36:22] ~So ~we are currently doing a follow on round for an existing portfolio company. And we, believe in the strength of the company and the investment, and we're really excited to be a part of their next round of financing.

[00:36:36] Giovanni Lauricella: ~And then in terms of My final question that I really want to wrap my head around, which is why, and then this institutional piece.~

[00:36:36] ~So I should say raising a fund. So this was a choice and this is a style and this is what~ I really liked about this episode and this conversation that you and I have had is, we've covered corporate venture capital, we've covered angel groups, we covered family offices, we've covered institutional venture funds as we typically know them.

[00:36:49] But this is this case by case SPV deal. And there was this one day where you magically said, Hey, with three or four other partners and said, we're going to not raise a massive big fund, at least starting off today, we're going to do this SPV style of investing. And we know plenty of first time fund managers who said, Hey, I want to be a venture capitalist. I have the experience. In some capacity, I'm going to go trout and raise a fund. Maybe it's a 10 million fund or a 15 million fund or a 25 million fund to start with to get that traction. But You chose this path. I'm curious. What's that

[00:37:26] story?

[00:37:27] Kelly Prchal: I think part of it is the genesis of how we came together. So Steve and I knew each other for years. Morgan and Ryan as well. Actually, Frank connected us and we started Angel Investing together. And we realized that our ability to diligence these earlier stages was unique and probably deserved a few more zeros on the end. And so we formalized it into Engage. It's been a choice to have this model because it gives our investors the flexibility to support the teams and the companies and the technologies that they are interested in supporting and Everything that we've heard from our investors that choice has been really important to them they're an engaged group and they want to have a the knowledge and understanding and have the option of opting in or out.

[00:38:21] ~That doesn't mean that going forward we may not also have the ability to have an institutional investor kind of opt in to every deal and formalize it in a way that is less burdensome from an administrative standpoint. We certainly would be remiss if we didn't think about how we should do that, but for the most part,~ Even the family offices are very interested in our research and understanding particular companies and technologies and investing in those that really speak to them.

[00:38:34] Giovanni Lauricella: So Engage Venture Partners. huge value proposition is the tactical and thorough diligence that you offer. Not only to your investors, but obviously what you can bring to the startups that you actually invest in.

[00:38:46] Kelly Prchal: Yes, and allowing us to invest earlier. So bringing those earlier dollars in larger chunks, hopefully, for the founders. But also from a value standpoint for our investors, those earlier investments often have when you look at the risk reward opportunity some benefits if you're able to mitigate those risks. ~And that's certainly what. We think we're doing ~

[00:39:04] Giovanni Lauricella: I want to say thank you so much to Kelly Prchal, the founder and managing director of Engage Venture Partners. Today, this has been the MedTech Startup Podcast where we did get inside the mind, the heart, and the guts of this particular medical device investor.

[00:39:20] Thank you so much for being with us, Kelly. Thank you for having me.

[00:39:23] ​

[00:39:23] Giovanni Lauricella: So for all those who live in Saint Paul, I want to apologize for saying Minneapolis countless times today. We actually are in Saint Paul, but we were referencing the Twin Cities and

[00:39:35] ​

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