Entrepreneur Patrik Schmidle l How We Funded Our Medtech Startup

Funding a life science or medtech startup is uniquely challenging due to the extended time required for product development, and if applicable, product approval. Patrik Schmidle​, Founder and CEO of CARI Health shares how he navigated funding for his medtech startup that brought in millions of dollars in funding from a range of funding sources.

Transcript

Jeanne Gray: I'm Jeanne Gray, publisher of American Entrepreneurship Today and host of the podcast series, Experienced Voices, where I talk with highly accomplished people who share the critical elements that led to their success.

Our topic today on Experienced Voices is how to fund a medtech startup with guest Patrick Schmidle, founder and CEO of CARI Health, that's developing the world's first wearable medication monitor. Patrick shares how Kari Health's progress was achieved through timely funding from an investment awarded as winner of the San Diego Angel conference, which led to a substantial raise from individual angel investors and angel investor groups.

Carrie was also awarded multiple grants from the National Institute on Drug Abuse, the National Science Foundation that supported product development and human clinical trials. More recently, the startup received investments from Cedar Sinai Accelerator and the Rady Venture Fund.

Patrik, thank you for being a guest on Experienced Voices. 

Patrik Schmidle: Well, thank you for having me. I'm looking forward to it. 

Jeanne Gray: Well, I'm very much interested in hearing how you navigated through all your funding challenges, with your MedTech startup. So, maybe we'll start with explaining to the listeners a bit about your product and how it was developed, and how you became involved in starting the company? 

Patrik Schmidle: Sure. So our product is a remote medication monitor, and it's about the size of a quarter, has tiny little micro needles on the bottom, , that are pain free, that are coded with an electrochemical assay. And those are used to detect medication levels in the interstitial fluid in real time.

And essentially for two purposes, one to inform personalized dosing to. to monitor medication adherence. conceptually you can think about it as a, , similar to continuous glucose monitoring, but instead of monitoring glucose levels from monitoring medication levels. 

Jeanne Gray: When did you start the company? 

Patrik Schmidle: So in its current iteration, , , it was, , in October of 2021 is when we officially formed, , our C corp, , with our current, Focus on a wearable medication monitor.

originally when we started the original concept, , that was way back in 2015, , but we had a completely different, , idea, focus, same sort of, , target market, if you will, it's become more narrow and focused over time, , but that's when we originally started the concept and I had an original co founder, , that we started the business with.

Jeanne Gray: So how does a pivot like that occur? , you, you're, I don't know if you want to go into too much of the gory details, but you know, they, they, I wouldn't say they, I have heard that very often a, a startup pivots after the first year or two, once they've learned more about the market. So is that the case where you went along with your, , your idea, your intellectual property, but it ended up bringing you to a different place?

Patrik Schmidle: Yeah, we've, I would say that, learning about the market was definitely one aspect of it. And we, we had a couple of different pivots. , and I, I don't think we want to go into the gory details because it'll, it'll take up the entire, the entire podcast, but, 

certainly, you know, one core core theme about being part of carry health is to really listen to your customer.

And, certainly when your customer tells you that, that your solution is not the right solution for the problem that you're trying to solve, then you have to listen, you have to pivot. And, and that in a nutshell, you know, we, we've learned that and then we learned to listen and, certainly since 2021, , rather than having a solution looking for a problem, we really have a, a solution that is solving a real problem.

Jeanne Gray: That's great advice. That's something that I picked up early on. , I had two prior companies in which, listening to the customer and being open to changing your original thesis about why you're starting the company. So, , I just explore more about how when you do start the company and it is a med tech and it has a certain life cycle, life cycle of its own because of the technology.

Walking through someone who is, who is in that space as to how you navigate the funding and the horizons that come up because it's sort of a little bit like project management is you're trying to lay out milestones and goals, but it's really the funding that allows you to, to, to progress. So, so at the very beginning, when you did narrow it down to the current, product.

What was the funding in place? Was it yourself or you immediately knew you could go after something like an SBIR grant? 

Patrik Schmidle: So that's really how we got into the MedTech space is through grant funding. And originally it was through the National Science Foundation that was our original Phase I SBIR grant.

And that then evolved into a Phase II. , so in total we received about a million dollars in SBIR funding from the NSF. , and then essentially we build relationships with folks at the NIH, specifically in the National Institute of Drug Abuse. And they asked us to, to see if our technology could be used to address the opioid crisis.

And, and so we, we were able to also receive a phase one from... , the NIH, and then that was followed by a larger grant, a 3 million grant that was under the HEAL umbrella, H E A L. And that really, was a catalyst for us to, to double down on our development of the MedTech device and enabled us to hire some folks, and build out our team.

but at the time we were still working on an implantable sensor. , we, then, you know, circling back to your original question, , we, we came for a number of reasons to the conclusion that an implantable sensor was not going to work either from a technical perspective or, , customer, , adoption was always going to be an issue on that front.

So, so that was when we pivoted, , in, in 2021, late 2021 towards a wearable instead of an implantable monitor and specifically, , away from. , trying to detect illicit substances, , towards monitoring medication levels. And so that was, , that was what got us towards the current situation or the current focus.

And, , you know, we're very grateful because our program directors at both the NSF and the NIH supported our pivot and, we were able to use the remaining funding under those grants to, to move into this direction. 

Jeanne Gray: Where does the product stand today? Has it been in trials or is it out in the market?

Patrik Schmidle: , we're just getting ready to do first in human studies. , we just received IRB approval, , received the non significant risk device designation, which is in the medical device world, that a, , critical, , critical milestone. And, now we're, we're getting our monitor and our sensor ready to, , first in human studies.

Jeanne Gray: So going back to the funding part of it. So you, you definitely benefited from grants, which I think most people going into med tech understand how important getting that grant money is. And then you also mentioned that you. We're able to bring on the key personnel to do the development work. So I also know you were very successful at the San Diego angel conference and getting a, an award from them.

Tell, tell us a little bit about that. 

Patrik Schmidle: Yes, that was at the beginning of our efforts to raise private funding. So for a number of years, we were using grant funding to try and advance the science and the technology, , to the point where it was no longer a science project, but, , where it. It could be converted into a commercial product if you will.

And back in the beginning of 2022 is when we said, okay, well, , you know, we still have quite a bit of runway left with regards to our grant funding, but let's raise some, some private funding to, to jumpstart our efforts and double down on our efforts. And, and so we participate in the San Diego angel conference.

That started, I think, I think we applied it was December of 21 and then, , the, the first sort of pitch session started in March, I believe. And so it lasted, I think, through April or May, , if I recall correctly, , by the time, you know, the, the, the sort of the finale occurred and we were able to receive that award, , from the San Diego angels conference.

And that really was the catalyst for us to be able to raise. a seed round from a number of, , angel funds. , and so that, , that's the funding that we're operating under right now. 

Jeanne Gray: How much was the, , award at the, , SDAC conference? 

Patrik Schmidle: So just SDAC was 350, 000, but then we were able to, to syndicate that, that deal, meaning we were able to take the terms that , under which SDAC, , awarded us the 350, 000 award and then also go to funds like new fund and co fund and medical device of tomorrow and chemical angels.

And essentially, , they, they also invested, , on top of, , the, the San Diego angels, , fund, , to, to get us to close our seed round. , in addition. Thank you. there, there was a half a million dollar, , SPD that was a combination of SDAC and New Fund Investors, , that were basically sidecar investments where, , they, they were for the most part investments that were below the 100, 000 minimum that, , was required to get on our cap table.

Jeanne Gray: , how did you take that step after winning the award at, , at SDAC to Identify the ANGEL groups, , whether there are contacts made at the conference or just by winning the award, doors were open that if you had gone directly might not have been open to you. 

Patrik Schmidle: Thinking back, we had already been talking to a number of ANGEL funds and, , typically the, the way.

That it worked was there were introductions made, , so through, through my network and, and the network of, of, of, of the company to folks that were running, , or were part of these angel funds. So we've already been in dialogue with a number of them and the feedback at the time was, well, you know, really love what you're doing, but, , come back when you, when you have a lead and, and so, , which is something that many, many startups here, right?

This is that. That essentially funds or individual angels, they, they were, they may not necessarily feel like they have the expertise to do the due diligence on, on a deal like this. And so they defer to somebody that does have the expertise. And then, and then once somebody like, like a San Diego angels conference does the due diligence and look at all aspects of the business.

And, and basically, , write up a due diligence report that everybody can take a look at. Then it becomes much easier. They, you know, they already agreed to the terms of the deal and essentially, you know, they said, okay, yeah, for, , where the company is and, and what the potential is for the company.

We agree that this is the right valuation and we agreed to the terms and everybody else can say, okay, that's, we'll either participate in this deal or, or we don't for whatever reason. 

Jeanne Gray: And so I noticed that there were a number of ANGEL groups participating. So is it that LEAD then goes out and reaches out to their connections at the other ANGEL groups that are in the MedTech space?

Patrik Schmidle: It's different, , in every case, right? So some funds are part of what are called, what's called the, , the ACA or the ANGEL Capital Association. And so there are a number of angel funds that are part of that. And there are also, , certain funds that are part of it, either the gust platform or there's another platform.

, Can't remember the name right now, but, but essentially that those are platforms where if there's, there's a deal in place, other angel funds will become aware of that deal and then they can participate in. In our case, there was some crossover between angel investors that are part of the San Diego angels and that are part of new fund.

And, and so, , basically, , that was sort of a natural next step, right, is for us to go to new fund. And then, and then once new, both new fund and send you to angels invested all of a sudden, you know, we, we had more than a half a million dollars of funding. And then we had some individual angels that, , had already agreed , to participate that rose that road, sizable checks.

And, and so basically, , the. The Ascended Angels Conference was a catalyst for us to get to a million dollars in funding pretty quickly. Right? And that's sort of critical mass, right? Where then all of a sudden others started to take us seriously because there were, you know, we've got, we had a million dollars of investments, , multiple investors had invested and then, and then they all agreed to those terms.

And so then it was theoretically easier to, to get everybody else on board. And, , and close out the round, you know, but then, what, what transpired as we got towards the latter part of 2022 was that the macroeconomic environment really changed. And, and so rather than it becoming easier and easier to close out the round, it became almost by the day more difficult and more difficult.

Jeanne Gray: So when you bring on the private money. Do expectations change or. How are you now communicating to these groups who previously, you know, you did not have involved and you were just under the grant money? 

Patrik Schmidle: Well, sure. You know, you feel as a, as a, as a company, you feel a great sense of obligation to, , to generate a positive return on, on, on.

On the funds investment in individual angels investment. So, , so certainly, you know, while while there's also an obligation that you have to funding agencies , the, the level of scrutiny and the level of, , , pressure definitely increases. There's no question about it. , so, you know, one example that I, I sometimes share is, is that when we went through the Silicon Valley bank crisis.

, essentially, you know, we were one of the, we were one of the customers of Silicon Valley Bank. And, and over that weekend, all the, all investors were worried about their portfolio companies. Right. And, and, and so I think I sent out six emails to all of our investors over the course of that week weekend from, you know, Friday morning to.

to Monday or Tuesday when this situation was resolved to give them an update on where things stood with us. And so you definitely want to make sure that you over communicate, you're transparent about challenges that you're facing and, and not just report on the progress, but also, Hey, here's, here's some of the things that we're working through and, , because, you know, investors, especially experienced investors, they know that it always, it always takes longer than you think it always costs more than you think.

, that the key is, is that, , there has to be good communication, , about the challenges that you're facing and what you're doing about them. 

Jeanne Gray: Now being a mid tech startup, your investors know, know the lay of the land. They have long term expectations. They're early in, so are they... They're savvy now to know that you are looking for an exit in some form of acquisition or IPO.

So what's the time horizon that they have this comfort level about? 

Patrik Schmidle: Well, sure. You know, anybody that invests in medtech, especially at the seed stage, understands that that it takes time And, and certainly at the horizon, typically is in sort of the three to five year range. But many know that the specific with MedTech devices, it sometimes takes longer.

Right. and the way that, that we've always communicated, , with our investors is that, look, there, there are certain inflection points that we're managing to, , each one of those inflection points, the valuation of the company will, will increase and we'll have opportunities at each one of those inflection points.

And then we'll make. decisions around whether or not, , an acquisition is right at that time or whether, you know, we're going to wait until the next inflection point. And clearly the further, you know, you think about the four inflection points, the further we get to on that, on that, on those, to the fourth inflection point, , the, the more compelling the return is going to be, right?

, , , but sometimes, you know, you, you make a decision for, in the interest of the shareholders to sell earlier and the valuation might not be quite as high as what you'd like to, like it to be, but, , sometimes those things are out of your 

Jeanne Gray: hands. It's very milestone driven then. So you're, you've put in your pitch where you anticipate the progress to be made and that would possibly trigger a need for additional funds.

So. Yeah. If you're adhering to the schedule that you, you gave them, , it really keeps their anxiety levels down, their optimism up about having made the investment, would you say? 

Patrik Schmidle: I think that's part of it. and certainly the other part of it is what, what are you doing to extend your runway?

Right. , and, and, and so one of the things that, that we've done. is we, we also, , apply in addition to opening up another funding round from private investors. We also submitted several SBIR, SBIR applications, and, we just recently, , won another award. So, so certainly existing investors appreciate that because it's non dilutive capital, so it doesn't dilute them.

And it also makes sure that, that the company has funding for, for several years to come. 

Jeanne Gray: With a number of angel groups behind you, are there any individual investors that emerge that become more, , in an advisory role or is there a distance where it's just the money at this point and you don't really need to bring on any particular individual other than your team?

Patrik Schmidle: Well, I mean, one, individual investor, , actually the largest individual investor. He's actually, , on our board of directors now. , and, and so Charles Patton, he's, , he, he's on our board of directors that we meet, very frequently. So he's become a key advisor. And then, , we have, two, , board observers that, that represent, , several of the angel funds that have invested.

, so they don't have voting rights, but, but certainly they participate in all the board meetings and, and, , one of them is Keith Richter. He's also an individual investor and he was the deal lead for both new fund and, , and at San Diego angels. And so he, he's very close to the business and we benefit from his advice as well.

, and then the motor ready, , he represents the co fund and chemical angels, , fund on as, as an observer and he's, he's. He's had multiple, , multiple startups that he's been part of, so he has a great deal of experience. So, so we definitely benefit from their guidance and their advice on a frequent basis.

Jeanne Gray: So it definitely seems that when you get the, the angel groups involved, they are also a pathway to further connections and opportunities in the funding space. 

Patrik Schmidle: There's no question about it. And, and it's been, , all the funds that we're working with have been great with regards to facilitating connections, , opening up opportunities to participate in conferences, presenting, , various, , occasions, , to, to help continue to promote the company and get us in front of, , Yeah, just to get us in front of more people because it's all about making sure that our brand and our company is in the forefront and people are thinking about as they know what we're doing and are getting excited about what we're doing so that they can eventually join the effort in some way, shape or form.

Jeanne Gray: So stepping back a little bit is that you have this great team around you. And I know from your background that you've been involved as an entrepreneur for a number of years. So what is the skill or what is the circumstance in which an entrepreneur is able to find the talent timely for what they're, for what they're doing?

Because people get to a certain point, it's, it's, entrepreneur is singular, and then it becomes a we, but you don't necessarily have that talent at your fingertips, or do you? 

Patrik Schmidle: I think it's a, it's a combination of, of constantly looking for, , for people and talent and resources to, , to help advance the progress of the company and trying to identify the right talent and the right, , the right cultural fit.

And, and constantly being on the lookout, , for that and, and also using and utilizing your network to get introductions, , proactively and then, and then trying to, , to find out, , are there, you know, when you talk to people really listen to, to where they are with regards to their career and are they, is there a certain passion that, , that comes, , when we, when they start talking about what we're trying to do, is it more than just a job for them, right?

Are they willing to contribute sometimes, , voluntarily without getting paid? Are they willing to collaborate with us on a grant proposal that potentially, , can get them to be part of the company, right? And so we've done that with a number of folks where, , where we started collaborating on a grant proposal and then we wrote a role for them in, in, into the grant.

For example, our chief scientific officer, that's how he joined the company, , with others. , , they were consulting roles, , that we carved out, and it was an unlimited, , , time, , frame, if you will. And it turns out that hey, you know, they're a good fit. Their experience makes a lot of sense for us.

And then what, when we, if and when we, we, we have funding to, to then make that happen to, to bring them on board full time, then we will do so. But we've been very. Cognizant of, of keeping the team small and, and, , , the core team very small, but working with consultants and partners to, , to, to advance our 

Jeanne Gray: progress.

So I think it would be some very good insight in that period of time when you're building your team. You're still working through your funding and you still have a number of years before you're going to really hit, you know, pay dirt, so to say. Can you give a little bit of insight about maybe the nuance of bringing someone on board and are there legal documents that have to be put into place that formalize a lot of the discussions of, hey, right now you're just helping me out or helping us out and you're consulting?

And then there's a flip over to, we need you to be part of the team, but they're looking for a piece of equity, just a kind of little bit of the weeds there of, cause I think a lot of first time entrepreneurs have this anxiety of how do I negotiate with someone of great talent and the person with the talent is smart enough to know they've got a negotiation going on here.

Patrik Schmidle: Yeah, it's a, I call it sort of a constant. process of alignment, right? You have to align the goals and objectives of the company with the goals and objectives of the people that are thinking about joining your team and that you're thinking about bringing on. And there has to be enough alignment, , to on both sides to, to make it work.

And, and certainly it's a combination of, of the type of work it is, , the compensation, , the equity. And it's, it's getting the right balance, , at the right time, , to, to make that work. And it's, it's definitely not, I don't think there's a magic formula to it. the key is, is to, to make sure that you're transparent, , with.

The people that you're talking to and, and, and sometimes they have to trust you because the legal paperwork is not necessarily in place. Right. And you don't want to spend the money to, to, to necessarily put it, put it in place. But, but, , the key is, is that, is that your, whatever you're promising, , that you have to deliver on because otherwise if you're making empty promises, , that.

then you lose the trust, right? Not just of the people that, that are thinking about joining, but then your team is probably going to hear about it as well. And they're going to think, well, if, if, if you're not delivering on what you're promising somebody that is thinking about joining the team, you know, can I trust you that, that you're going to deliver on what you're telling me?

And, and so it's, it's just really important that, that you're transparent and, and, and, and, and, and straightforward and, and, , it just, the, the level of communication, the frequency and the number of people that you're communicating with increases at every stage, right?

So you're, you're constantly communicating and aligning. 

Jeanne Gray: Well, you keep adding people, there are more plates up in the air as to what you're saying and what you're promising. So is there a juncture and now we're, we're talking specifically. Relative to a, you know, a high tech startup, mid tech, is that, , you as the founder or CEO, you know, you're putting your heart and soul into this, you know, and you, you have control of the ownership.

How much of it is bringing people on slowly, part time, nurturing them in, or is it one of you have your business plan written and you're saying, if I can get to a certain point, and that's part of the funding question. I'm going to go out and hire so and so here because he's going to be our, you know, our chief science officer.

Those are the things that I think a lot of the first time entrepreneurs have, is understanding the horizon that they're trying to navigate to, and, but get the buy in from people. So, so where was that with you? You were working with people part time and, and assuring them that if the funding came, they would flip to full time and then maybe potentially flip to some equity?

Patrik Schmidle: Yeah. Exactly. And, and so basically, you know, if you think about it, , I just try to think of specific examples. One was, we just said, look, you know, once the grant comes in, then we can, we can hire you full time or once, , once we close our funding round, then we can bring you on full time. And, and then, , we basically talked about the, the equity component.

Right. , at, at the same time, , when we brought them on, right. , and, and that's definitely a negotiation and everybody has different expectations and, and, and certainly some of them are unrealistic. , , you know, if you think about what it takes to start a business, , and then, you know, somebody comes on, you know, several years later, that doesn't necessarily have to take on risk to, to do that and they're getting a salary right away and they expect to get a big chunk of equity.

It, you have to balance it with the people that have been there for a while and have taken risk, right? And trying to strike that right balance, , to make sure that, that, , yeah, just to make sure that, that you're taking all those factors into consideration and have some level of fairness, , that, that is really important and it's important to me because I want to be able to look myself in the mirror and say, my team.

, is, is, is fairly incentivized. , and certainly I want them to, to feel like they're part of the company and, and it's, and the company is part theirs. And, and when we, when we have, , an exit that they all benefit from it and that it's life changing for them, right? That, that's, that's my hope.

And that's my desire. And, and certainly I don't want to make it a compelling outcome for, for everybody that, that's, that's investing along the way. , So, so anyway, so that's, those are some of the considerations, right? That you're trying to balance and then you, and then every, everybody has a different perspective on it.

And so you have to listen to advice and then decide on what, what applies and what advice you're going to take and what you're not going 

Jeanne Gray: to take. If the individual has been, had the experience of a prior start up, it's a much easier conversation than trying to lure someone in who is, who wants to be part of a start up but really doesn't have the, the data points of understanding of, of the trials and tribulations of, of, of building themselves into a, a start up situation.

Patrik Schmidle: Yeah. Yes. And no, I think in general, I mean, and I put myself back into the shoes when I joined a startup, when I was in, you know, not too early in my career, I was in my, in my thirties and my mindset was just, you know, I want to get as much equity as I can and, and, and didn't really, you know, think too much about what it took the company to get there.

It was just more about, Hey, I, you know, I want to negotiate the best deal I can possibly negotiate. And, and so, , And then sometimes people just have completely unrealistic expectations, right? , and, and, , whether or not they have been in startups. , So it's just, you have to have a dialogue with them and, and, and make sure they understand that you can't correlate in the perceived value with percentage of.

Of equity they're receiving and also helping them understand, look, you know, there's, there's already, you know, six people or five people that are on the team that, , that have a certain percentage of equity. Right. And, and, , and, and so that has to be balanced. Right. And they took risk early on. , while, well, necessarily while the person that's, that's joining now has had a nice cushy salary and, , , , no risk and, , and so say anyway, so it's just a balancing act, right?

you want to make sure that whoever joins has that same sense of, , , ownership and, and passion for the business, right? And regardless of whether they have a hundred chairs or whether they have. 100, 000 shares. It really, you want everybody to feel like they're part of the company and part of the mission and that they're going to benefit when, when there's an exit, 

Jeanne Gray: do you, do you have any go to person?

, at this point, you're, you're the, the CEO, you have bad days, you have bad situations. , is there, is it, you know, they always talk about having a mentor, but at some point you're so knee deep in it. , yeah. Are there people that can help you, , from the angel groups or from your, your prior relationships?

Patrik Schmidle: I think I'm really fortunate. , so I certainly, , the, our board is extremely helpful and supportive. So both, , Joya and, and Charles, , I can, I feel like I can go to anytime. , and, , in addition, my family is very supportive, so my wife has to listen to a lot. , so sometimes my kids do too. They just kind of nod, , on the way to school.

But, , but I'm also fortunate because I, the, the, the company is part of a number of different ecosystems, whether it's EvoNexus, whether it's MedTech Innovator, whether it's Cedar Sinai Accelerator, whether it's part of cool companies. So, so I've been fortunate enough to, to build relationships with lots of other CEOs that are going through similar, , things.

And so, and, and, and I can reach out to them and, and, you know, I talk, when I talk about with other founders and other CEOs. I'm also part of a CEO circle, , that we're basically, there's a group of CEOs that gets together every month and, , and so, you know, you, you put all these, , I call it sort of a, , a support network, if you will, that, , so I, I don't feel, I don't, I don't necessarily feel like, you know, all the pressures on me or on my, on our team, you know, we have, we have a wide sort of.

Support group that, that helps us and helps make the company better. And so I feel grateful for that. 

Jeanne Gray: So as we wrap up, is there a, one piece of advice you would give to a first time entrepreneur, , heading into, , med tech. 

Patrik Schmidle: Don't do a hardware. There's a reason the word hardware is in hard day, you know, build a software company.

, I'm kidding a little bit, you know, but, , but yeah, I mean, if you're going to build a medtech device company, just be prepared, , that, that, , there's going to be ups and downs. There's going to be, there's there, it's going to be a long journey, \ , and, , and make sure that, , that you have the support system, , to, to help you along that journey.

And that you personally have the resilience and the grit to see it through because at the end of the day. , it's, it's not for the faint of heart. , no startup is, but especially in the MedTech device space. 

Jeanne Gray: Well, Patrick, thanks so much for being a guest on Experienced Voices. I think there'll be a lot of listeners out there going through the startup process and would value some of your insights.

So thank you again. 

Patrik Schmidle: Well, thank you for having me. And , all the listeners, , feel free to reach out to me on LinkedIn.

Jeanne Gray: You have been listening to the podcast series, Experienced Voices. To hear more and subscribe, visit americanentrepreneurship. com forward slash podcast, where you will also find a form for listener feedback.