Devices & Diagnostics

New Cleveland Bio Fund looking to invest $3M to $8M in device companies

Medical device entrepreneurs in Ohio (and elsewhere) have a new source of capital to hit […]

Medical device entrepreneurs in Ohio (and elsewhere) have a new source of capital to hit up: the recently announced $100 million Cleveland Bio Fund.

The new fund, which is backed by Chinese investors, is planning to invest between $3 million and $8 million a pop in U.S. device companies, and hopes to enter into its first deal before the end of the year. The fund expects to execute between 15 and 20 deals in the next year, according to A. Eddy Zai, a Cleveland-area investor and entrepreneur who’s the fund’s chief executive.

Cleveland Bio Fund has a specific set of criteria for companies it’s looking to invest in: It’s targeting small- to mid-size device firms that have revenues between $5 million and $20 million, U.S. regulatory approvals in hand, but no Chinese commercialization strategy.

But that’s not the end of its investment requirements. The devices the fund will invest in must conform to several realities of the Chinese market. The devices must be cheap enough to gain traction in China, can’t be overly complex in order to fit the skill level of Chinese clinicians (which in some cases is below that of their U.S. counterparts), and must work within the infrastructure of Chinese hospitals (i.e., compatability with IT systems, electrical systems, space constraints).

“The trick is finding U.S. products that are affordable to the Chinese healthcare system, and you’ve got to have technology that’s easily adapted to the hospital environment there,” said Baiju Shah, president of Cleveland nonprofit BioEnterprise, which is helping the new fund with dealflow.

Examples of devices that wouldn’t fit the fund’s criteria include anything in the neurotechnology space or expensive and sophisticated operating room imaging equipment, Shah said.

Cleveland Bio Fund will source deals on behalf of Newsummit Pharmaceutical Group, a  Chinese company that is backed by renowned U.S. venture capitalists Sequoia Capital and other venture firms. Newsummit has previously been operating on a model in which it helped U.S. drug companies with Chinese commercialization, but with the Cleveland Bio Fund, the model is now extended to devices.

“We’re intrigued at seeing how they can leverage their model they’ve developed in biopharma with devices,” Shah said.

The fund will begin by scouting deals in the Cleveland area, and then branch out to the rest of the country, Zai said.

Newsummit has already met with roughly a dozen local device companies regarding investment opportunities, but neither Zai nor Shah would reveal any company names. Newsummit has secured $30 million of the expected $100 million for the Cleveland Bio Fund, according to a statement.

Medical device sales in China shot up 19 percent last year, the Plain Dealer reported. Also driving demand for medical devices is an initiative by the Chinese government that calls for $123 billion in spending to improve the country’s healthcare system and upgrade hospitals.

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