Waiting for the Dough

The CFO of a start-up maker of medical devices is prepared for years of intense capital-raising efforts and tough cost-allocation decisions on the way to profitability.

Sometimes, attaining success is a matter of patience. That’s especially true for executives at start-up companies not likely to feature a black bottom line for years.

At Sanuwave, a company that develops innovative, noninvasive medical devices that use shock waves to treat a variety of ailments, there’s more to do during those years than make and market products. The first priority is overcoming the biggest risk facing the company: that the Food and Drug Administration will not approve the devices. Toward that end, clinical trials must be conducted for every “indication” — medical lingo for a condition that makes a particular treatment advisable — that the company thinks the devices will be used to treat.

For Sanuwave’s CFO, Barry Jenkins, that precarious situation requires a steadfast focus on two areas: raising the capital needed to fund the trials and develop the products and, just as important, allocating the available capital in the best way among the many clinical and R&D projects proceeding simultaneously.

That’s not to say that preparing the company’s financials isn’t important, particularly since Sanuwave went public at the end of September. Jenkins says the company became aware of investors who were interested in it but preferred the idea of owning public stock — which they could sell at some point — over making private investments. But to avoid spending the millions of dollars needed to execute an initial public offering, Sanuwave went public by merging with an existing, inactive shell company.

It was the latest step in the evolving identity of Sanuwave, created in 2005 when two venture-capital firms bought the orthopedic division of HealthTronics — a company best known for its lithotriptors, which use shock waves to blast kidney stones into small particles. The division the firms bought was at that time producing shock-wave devices to treat plantar fasciitis (a painful heel condition) and tennis elbow.

Jenkins recently spoke with CFO.com about his overlapping priorities and the business realities facing an immature publicly held company. An edited version of the interview follows.

How have you been funded so far?

Our two primary investors, Prides Capital and Nightwatch Capital, were already invested in HealthTronics and liked the [orthopedic division] assets. After the division was purchased, they continued to fund us through early this year — over $32 million in total.

The venture funds are still involved, but like many funds, their available resources have been under pressure. So we knew it was critical for us to spread our investment base, which was why we decided to go public with the reverse merger. There were a number of private accredited investors we had talked to that would be interested in us if we were a public company. It gives them a known exit versus being locked into a private company and not knowing what their exit strategy could be down the road. We raised almost $2 million from these investors. It was somewhat of a “friends and family” round.


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