MCGC Panelists Will Parse Startup Stumbles and Recovery Strategies

Bad things can happen to good startup companies.

“The path to success is rarely ever a straight line,” says Paul McCreadie, partner and chief operating officer at Arboretum Ventures in Ann Arbor.

“There is no shortage of examples of the problems that can occur when early stage companies are in the process of growing or launching a product,” he observes. “Things don’t always go according to plan, so there is frequently a need to redirect or add resources or take other remedial actions.”

McCreadie will moderate a panel on Tuesday, May 14, at the 2019 Midwest Growth Capital Symposium that examines the glitches and fixes needed to keep a startup company on track.

Panelist Julia Owens, CEO and founder of Millendo Therapeutics, will share some of the hurdles her startup has encountered and overcome. Two additional panelists from the venture capital business ─ Todd Creech, partner at HealthQuest Capital, and Jeff Terrell, principal at Hatteras Venture Partners ─ will share their strategies for helping portfolio companies manage and recover from unforeseen setbacks.

Examples of challenges that early stage health-care companies may face include:

  • Inability to raise money
  • Unexpected product failure
  • Sudden change in the market or regulatory requirements
  • Departure of key executives

To address these problems quickly and effectively, it is important that the leadership team, the board of directors and the investors are all closely aligned, according to McCreadie. In cases where a startup company has a capital shortfall, the board and investors may help the leadership team work out a new financing structure. In the event of a departure by a critical member of the leadership team, the board might work on behalf of the CEO to identify a new candidate for the position.Product failures can be more challenging. “If the product specification and product performance are at right level, the company may just need more people, money and time to develop it,” McCreadie explains. “However, if the product failure is due to an unsurmountable underlying technical issue, it may mean the company is not viable.”

These “come together moments” require a rationalization of the plan and an acceptance of how the playing field has changed. “The board, investors and leadership team must recognize that a gap has to be closed and then work together to find a solution,” McCreadie says.

Changes in the market or regulatory requirements may unexpectedly derail or slow the pathway to obtaining FDA approval to bring a product to market. In such instances, more capital may be needed to extend the startup’s runway.

“Everyone needs to come together and work shoulder-to-shoulder in these situations ─ much more so than they would under normal operating times when things are moving along according to plan,” he says.