Achieving the Exit with Amr Salahieh & Shifamed

Shareholder Representative Services’ latest Q&A features Amr Salahieh.  Salahieh is the founder of Shifamed LLC, a Silicon Valley-based medical device incubator founded in 2009. Shifamed recently sold Maya Medical, a medical device company focused on the treatment of hypertension, to Covidien in a deal valued at up to $230 million. Salahieh discusses the incubator model, the ability to quickly accelerate a business, and the benefits of exploring funding alternatives.

Q: Is Shifamed a typical incubator?

In some ways we have an incubator model. We’re really just looking at a variety of IP and then selecting the best to move forward, but it’s mostly not coming from the outside. Most of the IP that we pursue is internally generated. There have been a number of times where physicians have come to us and suggested certain ideas, and we will consider them. It can be hard to make that work though, especially when those individuals think they’ve done a lot of work already. For example, they may think an idea is farther along than it really is.

Q: How do you decide which concepts to pursue?

The first thing we do is look at the IP. Does it make sense? Is there a space for it at Shifamed? Can we find a way to get it in? At the same time, we’re looking to see if it’s a big enough opportunity, if it’s something that we want to do. We’ve taken on some big challenges when they are big opportunities. We can also hedge our bets a little bit and pursue some easier opportunities that we could get to market quickly. We’ve done both, but in general we’re more interested in the bigger opportunities than the smaller opportunities. It really comes down to the size of the market. We also want to make sure that whatever we’re doing is going to have an impact on quality of life. In that environment, we feel like we’re really making a difference.

Q: How do you organize your team?

The model itself is premised on executing low-level activities. At the beginning, we just look for really good engineering talent, until such time that a product really warrants spending to add the layer of management that you would typically expect to see when you’re raising a larger amount of money.

There’s an infrastructure and a system, but it’s shared amongst multiple projects. No one group officially owns one project or has to bare the full burden. We have established an environment where there’s more than one project and there’s a team of people that knows how to work together. That takes time to build.

This is the value that we bring. We don’t have a ton of money. We don’t have better facilities. The only thing that we can do is leverage our experience and our ability to navigate around challenging landscapes. It’s our specialty.

Q: Given that you take on multiple projects at once, how do you determine where to allocate resources?

When we are sure internally that we have something and we’re getting closer to clinical trials, we start to really put a lot more resources on the project. If it takes much longer than anticipated, we may be committing too much and spending too much money. We take the approach of slow burn until we’re ready to take the next step.

There are some situations where you really have to go fast like we did with Maya. If there’s a really interesting opportunity and there’s a race–a bunch of different companies competing–we can move faster because we are already working together. We have a very flexible team. There’s nothing that says we can’t stop working on one project to allocate resources to another. This allows us to switch projects very quickly and easily. In the case of Maya, this is what we did. We put one company essentially in sleep mode, switched to Maya and really accelerated it. We had a team that could really develop fast.

Q: What led you to form Shifamed in the first place?

I’ve experienced a couple of typical VC funded companies. The IP you generate is owned by that particular company, which is limiting. It reduces certain flexibilities like the ability to turn off a project and generate another one. When all of the IP belongs to one company and that company doesn’t do well, you basically lose all of it. Licensing the IP out of a company is not easy either. Why would the VCs allow that? So, I tried the incubator model instead.

Q: Does Shifamed represent the next step in the evolution life sciences startups?

Well, I can only speak about what I know. It’s clearly a much more flexible system. I’m not the only one doing this or doing some variation. The key is to have a certain momentum and a team that’s really honed and able to quickly shift into high gear. When big opportunities become obvious, you may have twenty different sets of teams that are competing to do the same thing. You need to grab IP landscapes faster than the competition can. If you need to call a friend, put together a team and see if you can raise a little money, it becomes very time consuming and very inefficient. That takes six months to a year. If you don’t have to worry about these things, then you can start making progress immediately. A small team can move fast. This is clearly a preferred model for technical founders.

I would not say this is a good model for somebody who’s never done a startup before, because first you need to learn what you’re doing. If you’ve done it once, you’ve gone through a cycle once. I think this is a very good way to do the next ones. It preserves a lot of the value for you.

Q: Do you have ideas about other funding alternatives?

I think alternative ways to fund businesses are always good. We manage to get money from the NSF. That’s been very helpful for us, even in small amounts. It really made a difference early on when funds were less available. Government grants are great. They are time consuming, but they can make a big difference. You have to be patient.

Crowd funding is interesting, but I think you have pick investors carefully. Look for people in your industry who really know what they are investing in. I think that makes everything easier. You shouldn’t have to explain things to people too much. If you get people who are experts in the space as investors, you gain a lot. It also creates credibility when you go to the next group of investors. I would start with physicians and go onto industry people, build to bigger industry people, and eventually go to VCs or companies.

Q: When you have an exit like the sale of Maya, do you invest the returns back into other projects?

Yes, that’s a big advantage from a tax perspective. You can put the money straight into the other companies. You don’t pay taxes on that because you are just taking it from one investment to the other. We don’t reinvest all the money obviously, but a certain amount that makes sense for us. It’s really investing in yourself. We’ve been much more successful investing in ourselves than investing in others. In our case, this is designed into the model.

Q: Having gone through the exit process with Covidien, can you share any thoughts with other entrepreneurs who may be considering an exit?

Timing is everything. Every deal is special in its own way. Why did it happen? Why did it happen when it happened? Why did it happen with this group versus another group? For Maya and Covidien, the timing was important. We were about to take the next step to get money from VCs, sell or get a corporate partner. I knew we had a certain window. Covidien saw the value, and they decided to buy the whole company.

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