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Keeping a pitch to investors on point

When David Masters began raising money for St. Paul-based Gel-Del Technologies four years ago, one of his selling points to potential investors was that his firm’s nascent technology could be used for a variety of medical products.

By:
Susan Feyder
Minneapolis Star Tribune

http://www.nasvf.org/web/allpress.nsf/pages/9248

Starting with research that began a decade ago at the Mayo Clinic, Masters had developed a biomaterial that could be used to deliver drugs, grow new tissue or make blood vessels for coronary bypass surgery. It also had potential as a tissue filler that could be injected under the skin to erase the lines and wrinkles that people start to get when they hit their 40s.

The many possible markets for Gel-Del’s product hit a responsive chord with angel investors and grant-writing medical research organizations.

But more proved not to be better when Masters and Gel-Del CEO Phil Messina took the next step and began looking for venture capital financing.

"We talked to some firms and got turned down," Messina said. "The feedback we got told us [the venture capitalists] wanted to see this thing focused." Specifically, venture capital firms wanted Gel-Del to concentrate solely on developing the cosmetic tissue filler and bringing it to market.

Paul Knapp, CEO of Space Center Ventures Inc. and a Gel-Del director, says that narrowing the focus is part of a "natural progression" every company should make as it moves beyond the startup stage.

"For every embryonic company, the challenge is to continually refocus your efforts as you move from business model to market."

Masters believes there’s more to it than that. He said the need to focus is rooted in the difference between angel and venture capital investors.

"Angel investors like the concept of a multitude of opportunities," he said. "They’re putting in less and want to spread the risk. Venture capitalists approach things differently. They’re putting more money in, are willing to take more of a risk and are willing to follow a single thing through multiple [financing] rounds all the way to completion."

It’s easy to understand why venture capitalists would be most attracted to Gel-Del’s cosmetic tissue filler. Masters and Messina say their product, called CosmetaLife, would be a formidable competitor to Botox and Restylane in the booming market for injectable cosmetic surgery products. Initial tests on animals have gone well, and Messina says the company is a few months away from submitting data to the U.S. Food and Drug Administration to get the go-ahead for tests on humans. The company hopes to complete the human trials in 2006 and launch CosmetaLife in 2007.

Gel-Del currently has 34 shareholders, most of them local investors. Besides receiving about $800,000 from angel investors, the company also has been funded by two National Institutes of Health grants totaling $450,000.

Its venture capital goals are far more ambitious: Company officials hope to raise $6 million — all of it aimed at developing CosmetaLife.

Besides honing their pitch to venture capitalists, Masters and Messina are establishing the CosmetaLife activities in a separate subsidiary. They figure that’s another way of emphasizing the sole focus on CosmetaLife, since the funding they seek will be for that subsidiary alone.

"We have to make this switch," Messina said. "We got tired of hearing ‘too much’ from the funds we were talking to."

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