LSI Interviews Rob Ball and Dave Blue

Rob Ball and David Blue were recently interviewed by Scott Pantel of LSI, sharing about their experience at the 2020 LSI conference which helped forge a connection that led to the most recent Shoulder Innovations fundraising, and much more.


Transcript

Scott:
All right. Rob, Dave, thank you for joining me today. These are crazy times that we’re all working through now, and LSI had the privilege of having a couple of your companies at our meeting this past February, at the Emerging Med Tech Summit.

Rob:
Of course.

Scott:
And one of the things that we’ve been getting asked quite a bit about is what’s happening with some of these companies. Tell us where they’re at today. Let us know what’s happening for the meeting that’s coming up. You guys have had some tremendous news that’s gone out recently, and so I want to thank you for giving me some time today to really just pick your brain and find out what’s going on. And so, before we jump into it, the first thing I’m curious about is I just, how did you guys meet? How did the connection come between you guys? And then we can jump into some of your companies.

Rob:
Sure. You mean the meeting between our team inside Shoulder?

Scott:
Yeah. You guys.

Rob:
Yeah. Well, I mean, I think, as you know, Scott, the medical device industry is pretty small, and orthopedics is smaller yet. And we’re relatively tight knit group of professionals. And so, Matt and I actually, Matt’s not going to be able to join us today, our CFO, but Matt and I both were in the Holland, Michigan area. So, we just met through a common connection there in Holland. But Dave and I met, boy, Dave, it’s been at least 15 years ago now.

Dave:
Yeah.

Rob:
But maybe closer to 20. But , just in sharing roles inside companies, prior to what I’m doing now, I ran a number of functions at Tornier, and Dave ran sales at Tornier. So, we got to know each other, obviously, very well there, and enjoyed a close relationship. And even through some participation with some other small companies, joined back together, and have enjoyed a great fun ride here for the last few years.

Scott:
Very cool. All right. So, some recent big news, which LSI is proud to be a part of in some very, very small way. So, tell us about the financing that you just closed, how it happened. And I’m really curious to know what you think, what’s attracting investors to what you guys are doing with the first company I’d like to talk about, which is Shoulder Innovations.

Rob:
Yeah. Sure. So, really LSI played a huge role. Scott, you reached out to me and asked us to play a role in the meeting, and we had a number of companies there to present. So, Matt and Dave were able to present Shoulder Innovations there at the meeting. And John from US Venture Partners approached us afterwards and said, “Hey, I’d love to have a little more of a conversation.” And we were at a moment in the company where we were trying to figure out our next strategic steps, and John was just really encouraging us to think through taking on some more capital, and what that would mean for the growth of the company. So, the board ended up deciding to engage that process. And so, we were able to get a term sheet put together with USVP and initiated what’s the largest fundraising that Shoulder’s done.
So, we’ve just really enjoyed a great partnership with USVP. They’ve been very, very, very helpful, and just really delighted that we were able to get connected with them. Really, our first introduction to them was it was at the conference last year.

Scott:
It’s great to hear, and that’s why we do the meetings because we want to be on the forefront of what’s next in medical technology. And we really want to play a part and have that platform out there where really interesting companies can get funded, so that ultimately they can help patients and change the lives. So, congratulations to you guys. Inside, as I’m counting, six months from the time, I think you guys were very close to closing this and meeting USVP. That’s pretty quick. What are the challenges that you guys have been facing with fundraising, either pre-COVID, or even post-COVID? What are some of the challenges that are out there right now?

Rob:
Yeah, sure. I think that the number one challenge, pre- or post-COVID, is to make sure that you’re engaging with partners that you’re a fit with. And I’m guilty of spending a lot of time, potential partners in my past, with groups that they’re making wise decisions for their business, but they’re not making wise decisions about my business. And you just have to find that right partner where there’s a fit. And if you don’t find that partner, then it’s going to be a lot of spinning wheels. And so, that’s probably the biggest challenge is to figure out how to get to no’s quickly, and engage with the folks that are going to be able to engage with you, if that makes sense.
But there’s no question COVID has played a huge role. A majority of the financing that came in in this round are with principals in funds that I’ve actually never met face-to-face in person. I mean, that’s a completely new paradigm since COVID. And so, that changes a lot, both for the portfolio companies, as well as the investors. It’s just, I’m used to working face-to-face with people that are going to make that kind of commitment, and so it does, it causes you to change your thinking about how you create that trust relationship over the internet. And it is a little different.
I don’t know if it’s easier or more difficult, but it is different. In terms of communicating with folks like that, you really have to change your behaviors. It’s always the case that you need to strip off the fluff. It’s even more important, you just have to really go slow and hit the very most important parts. And so, a lot of learning, personal learning that went on to adapt to it. So, it was a fun but challenging and educational process for sure.

Scott:
Right. And I see Dave shaking is dead down there. Dave-

Dave:
Yeah. If I just could add, Scott, and I think Rob hit on a lot of really salient points that are just absolutely accurate. But making that connection at LSI meeting, when Matt and I came off the stage and we literally, Jonathan was waiting for us, and we made this connection. There had to be something that hopefully attracted him to us. And in our message, we think about things that are important to us. It’s our team. It’s the talent that’s on the team. It’s your technology. It’s the story. It’s not only the clinical story, but the technical and the economic arguments and story, as they wanted to see. And then there was that immediate connection that Rob, and Matt, and I sat down with Jonathan that just, you just knew there was a connection there.
And I think Rob was hitting on that. Relationally, it’s really important for us to have that trust and that confidence. Obviously, as COVID continued to roll out, we continued to find ourselves on a lot more Zoom calls and interacting that way. But what really helped us, I think, was to give us a foundation and a connection at that meeting. And they heard the things, what was passionate for us, and it was a checkbox for them that they went right down was important to them. And that was what started that.

Scott:
That’s really so great to hear. And I remember walking with John from one of the sessions to an evening reception that we were doing, and I asked him how things were going. Have you seen any companies you like? And he made a comment to me that there were a few companies that he thought there was a chance that something could be there. And I pumped them for info and I wanted to know, and of course he wasn’t going to tell me at the time, but it’s really cool to know that you guys clearly were one of those companies and that this came to fruition. So, again, congratulations to you guys. Dave, I saw you shaking your head when Rob was talking about going from meeting in person, to the challenges with virtual and the different approaches. Do you think that we’ll ever go back to the way it was in terms of so much face-to-face being a requirement?
Or do you think that there’s going to be a big, do you think that investors are going to change the way that they look at doing deals? I know, for example, in the past, I’ve heard from investors who say, “We’re not going to write a check until we meet with the team.” Has that changed forever, or has it changed temporarily?

Dave:
Yeah. Great question. We’re adapting to that ourselves. You’re asking the commercial guy, the relational guy that loves to be face-to-face. And I’ve had to adjust myself, but I’ve really grown to appreciate a lot of what it can do. And I think having these face-to-faces, and being able to see and watch reactions, I think it’s absolutely critical. I do think it’s going to be a part of our future, Scott. To the degree of 100% never meeting, I don’t know if that’s possible. But I can guess that, I think there’s going to be a lot less travel, and there’s going to be more of these types of virtual events.

How we talk about as a team, how we’re going to creatively train and educate surgeons on our products as well, we’re going to leverage technology wherever it makes sense. And then there’s times you just have to be face-to-face. We rely a lot on our local representation, but to your question, I do think it’s here to stay. I think it might move up and down a little bit to what degree, but I think it’s, people are growing comfortable with technology in this virtual world.

Rob:
So, it seems to me though, there’s certainly, there was some interactions that you did face-to-face in the past that everyone knew wasn’t more effective face-to-face, but it just was what you did. And I think that’s gone forever. I mean, the dam is broken. That’s gone forever. But a lot of, for all of us, what we enjoy about our work is the relationships. And I think we all probably miss, I think would’ve been much more fun, Scott, to do this meeting face-to-face, and a drink, or some chicken wings or whatever. I mean, it’s just, that’s part of what’s fun about what we do. And so, there’s no question that part’s coming back. Right. We all want that to come back. That’s part of what we enjoy about our work.

Scott:
Yeah. I agree with the guys, and I think it’s pretty safe to say that we’re all going to travel less. We’re still going to need to travel. And so, the pressures on those groups that hold events, or put things together, to make sure that they are high quality and they’re run properly because we’re going to be making trade offs. Now, we’ve learned that we can do things a little different, but I agree with you guys, there’s still a need to get out and meet in person. I’m just going to do it less, and I’m going to pick the ones that I feel like I get a big return on.
So, it comes squarely back to LSI. If we’re going to keep running these events, we’ve got to do it right. It’s going to require really strong companies. And I want to talk about some of your other companies when we get to it, but before we go there, so what are you guys going to do with this capital? What’s next for Shoulder Innovations? What does this capital infusion do for you guys? We have a meeting coming up in three months, where hopefully we’ll hear about some short-term stuff that you’re working on, but what does this do for you guys moving forward?

Rob:
Yeah. That’s great, Scott. One of the things that I think was attractive to us by the investors in this round is we’ve just been really efficient with our capital. Our strategy has been to do a very modest commercialization of products as we are developing an entire suite of products that can hit the market simultaneously. And so, the strategy behind this round is we’re very much on the very cusp of all of those products being ready. And this round is really about buying all the capital assets necessary to deploy those that technology in the field. And so, that’s really what this round is about. It’s not about hiring a huge commercial team or a lot more R&D. It’s really about deploying technology that we’ve already developed. So, we’re in the process of just building all sorts of material right now, and just excited to get that into the hands of customers.

Dave:
Yeah. And I think the story is what Rob is saying is for us, it’s really driving to repeat users, adopters, and believers, and be able to prove that in the handful of markets across the country, both in the academia, and the community, and the metro areas. And if you have that nice blend, there’s a lot of things that we benefit from that strategically as well. And at the end of the day, we have to prove that and we want to prove that. So, it’s a real efficient way to extend our capital runway.

Rob:
And of course, that’s not possible without the technology. I mean, the InSet™ glenoid solves a fundamental problem in shoulder arthroplasty. We’ve proven that. It’s in the literature. And so, we do have a lot of demand for what we created it, and we’re confident it’s going to have a huge return.

Scott:
Can you guys share anything, if I’m, we’ve got some strategics out there that given the current environment are looking for opportunities, I think more so than ever. What’s the message for strategics or potential funding sources for your next round? Is that something that you’re going to save for the meeting in February? Or can you give us a little prelude to what a strategic might be thinking about if they’d like to get involved with what you guys are doing?

Rob:
Yeah. We’ve obviously, as you can imagine, Scott, spoken with a lot of strategics. A lot of them understand our story and our strategy. That’s not changed a ton. And so, they mostly know what it is. Obviously, we’ll be sharing more in February about the next technologies to hit the market in a more public forum. But I’ll just maybe say that the moment is now, if you’re interested in engaging the technology we have. Otherwise, we’re just planning on taking market share from you. So, I’ll just lay down the gauntlet like that. How’s that?

Scott:
I like that. Okay. So, you guys have some other things I’d like to talk about in terms of other companies. Before we shift gears to that, is there anything else you’d like to share with the audience about Shoulder Innovations? I think you’ve shared quite a bit here. Again, congratulations, but any parting words for those that are maybe on the sidelines, checking things out? Anything you want them to know?

Dave:
Well, I’ll tell you, from my standpoint, I’ve been fortunate and blessed to be able to work with these guys for so many decades. And when you go back, and this group really represents the first modular shoulder system in the world, the first reverse shoulder system in the world, the first stemless shoulder system in the world, the first software planing system in the world. So, it’s so fun to be a part of the innovators and the creators of innovation, as Rob had just mentioned.
And the thing that I’ve always appreciated over these decades of watching these guys work is how they think with the end in mind, but they’re also thinking a decade ahead. So, as they develop and they patent these products, they’ve already got the next decade behind it already strategically planned out. And that’s what’s fun about the innovation platform. And you think about a systems approach that we’re doing, these guys continue to do that. We did that at Tornier. We did that at DePuy, and these guys are now being able to do this again. And I think that’s what’s exciting is people don’t see us coming because they don’t understand how we think and what we look at, strategically, to solve problems, as Rob has mentioned.

Scott:
All right. That’s really exciting. And I think it’s a perfect segue into, you’ve got these other companies, we’re going to hear about a few of them in February. I just read a press release about Medical Ingenuities, and what’s going on there. I’d love to learn more about that. But before we get into the specific companies, you said the way you guys think. So just, could you share with the audience, tell us about Genesis and cultivate(MD). What’s the broader mothership vision here with what you guys are doing on the investment side of things and the portfolio?

Rob:
Yeah, sure. So, Genesis and cultivate(MD) go hand in hand. Think about Genesis as an investment of talent into organizations, and cultivate(MD) is an investment of capital, financial capital into organizations. And so, what Genesis and cultivate(MD) bring together is the ability to deploy capital in a very early stage environment, but have talent that goes with it so that we could be sure that the capital is wisely deployed. And so, we’ve got 10 companies in the portfolio. It’s been a really exciting, I’ll call it last three months, and probably three, four months to come. We’ve had, boy, I think four clearances for human use here in the past just a couple of months, really, and probably a few more the way over the next couple of months. So, it’s been an exciting time for the portfolio, and we’re looking forward to the exciting things to come for patients, really.

Scott:
Okay. Will you guys, so you’re such an interesting group. In fact, Rob, we had you on an investor panel. We had a couple of your portfolio companies represented raising capital. We had you on an investor panel talking about where you guys are investing. So, fast forward to February, which hat will you be wearing? Is it both, raising capital for portfolio? Is it also looking for opportunities, or what’s the strategy? If I’m an entrepreneur out there, would I’d be having a cocktail with you to catch up, or a cocktail with you to catch up and see if maybe you have some capital for me, as well?

Rob:
Yeah, sure. So, I think it’s a great question, Scott. A subset of our team, including specifically me, are really focused in Shoulder Innovation. So, we’ve definitely adjusted our organization to make sure that we can give Shoulder the right focus to be very successful. So, that’s definitely the case. We have a whole team in Genesis that is still looking at new investments, and interested in and finding opportunities. Of course, there’s always a bias towards the portfolio that’s already in, and making sure that things go well there, but always looking for new new opportunities for sure.

Scott:
Okay. Give us a teaser for what we might hear in February. What’s the most exciting thing going on with your portfolio companies? I know we’ve got a couple of others that we’ll be presenting. What can you tell us about those companies? And for folks that would like to get involved even before the event, one of the great things we’ve had is we have people making connections before our meeting. Then at the meeting, they’re already at the, they’re in the red zone. So, what’s exciting, and how can people get involved if they wanted to reach out to you earlier?

Rob:
Yeah, sure. I think a few things around our portfolio that exciting. Virtual Incision just had approval for an IDE some weeks ago here. So, they’re going to be going into human use on their pseudo portable robotic systems. So, excited about that. Embody, Jeff Convoy, the CEO to Embody, will be presenting there at LSI, I think. They had a recent [inaudible 00:20:13] clearance for their rotator cuff augmentation device, and a lot more technology to come there. And they’ve got a massive platform of really interesting technology, so I think that’s something to really watch out for. One of our portfolio companies, Happy, presented last year. We presented again this year, which is a porous peek polymer material with HA embedded in a combination of peek solid devices for spinal and other applications. So, there’s a sampling of things that you’ll hear about there at LSI, but all of them really advanced stage, and making great progress.

Scott:
All right. The question, I want to go back to the earlier part of the conversation, jumping all over the place here. But it just occurred to me, we had another LSI alumni company that shared with us, they’re about ready to make an announcement about a financing they closed, and they were bragging about where they met this investor, and it was out on the patio overlooking at Pacific Ocean. So, can you guys trump that with John? Did you meet him, or was it somewhere boring, like in one of the partner, where did you guys meet John? I think you already said it was right after your presentation, but where did the actual meat of the conversation happen?

Rob:
Yeah. So, we met in, I think you had a room set up for after talk meetings. So, we met there. So, it was pretty boring, a dark windowless room. But I will say, you mentioned your little conversation walking over with John to dinner, I actually ended up, just by happenstance, sitting with John to eat, and enjoyed just a spectacular meal there out on the cliff. So, there’s no question, the location of your meeting, Scott, is really pleasant. No question about it. So, it was really nice.

Scott:
Well, thank you. We’re going to try to outdo things this year. As we mentioned prior to jumping on this, we’re going to be tenting stuff outdoors. We’re going to take more advantage of the outdoors and the views. And so, the team’s working really hard, and again, it wouldn’t happen without great companies like those in your portfolio.
And I really personally am excited to hear what’s next for you guys. So, one of the questions I’ve been asking folks, and this will be the beginning of a series of stories that we’re going to do on companies. But one of the things I like to ask, and let’s start with Dave on this one, I’m going to put you on the spot. Because we all talk about how difficult things have been and how we’ve overcome those challenges, and a lot of it comes back to new ways to operate. We’re doing these Zoom calls. But on a personal note, Dave, what is the best thing that’s come out of COVID for you. The last nine months of being shut down, on a personal level, what’s something great that has come out of COVID?

Dave:
Well, I’ll tell you, for a guy that basically lives on the road, a little bit of balance on that part of my personal life, traveling so much for business and being able to use this medium of technology has actually been great. It’s kept me home a few more nights. So, I really appreciated that. And that’s where leaning into this technology, we had to, but it actually has created some balance and some benefit. That’d be my first thought.

Scott:
I love it. Rob, how about you?

Rob:
Despite schools closing being unfortunate for the kids, for the first time in a long time had, we got four kids, two high schoolers, two in college. Fortunately, we’ve got the space at home, but we had all six of us at home, either working or doing school, and just were able to spend a ton of time together that we wouldn’t have otherwise. It was a really neat six month period, if you will. So, folks are heading back to school and such now, but it was a really fun time from that perspective. So, despite all the other challenges, that was a real blessing.

Scott:
That’s great to hear. And when we ended the meeting-

Rob:
How about you, Scott?

Scott:
What’s that?

Rob:
How about you?

Scott:
I agree. The balance, and not being on the road, and being home more with the family has been great for me. I think it’s been great for my boys. The verdict’s still out with my wife. I think she wants me to get back out there. No, it’s just the family time, the balance of more family time, and figuring out a way to get some things done that we didn’t think we could do in the ways that we’re doing them now. So, that’s been a real blessing, more time at home.
And we’re really looking forward to leading our sector back out and getting together in person. And again, we can’t do it without leaders like you guys, without great companies like those that are in your portfolio. And at the end of the day, we really believe that it’s all about changing patients’ lives. And the way we do that is by innovating and connecting innovators with capital sources. And if LSI gets to be a part of that in some small way, we’re very grateful for that. So, I want to thank you guys for your time today. Can’t wait to see you in a few months, and looking forward to the future for all of your companies.

Rob:
Yeah. Appreciate it very much, Scott.

Dave:
Yeah. Thanks, Scott. It was good to connect with you. Appreciate it.