A strong technology platform and a deal with a strategist

The success story of the winning micronano start-up 'LipoCoat wins MicroNano Start-Up of the Year contest 2016' reported Signalement in edition 1 of 2017. “A firm Business Case, good market chances and solving a problem of today”, no further description was given at the time. Here is the promised backstory, mainly based on a conversation with Raoul Oostenbrink, director of business development at LipoCoat, the winning pitcher during the international MicroNano Conference and with Willem van den Berg, managing partner at Value Creation Capital and Tech Nano Fund. As a tech investment expert, Van den Berg chaired the jury that declared LipoCoat the winner in December 2016. “A bio-inspired coating that acts as a cell membrane mimic to prevent attachment of biological material”, is layman's terms for what LipoCoat makes and applies. LipoCoat coatings show a strong similarity to membranes that are present in every cell of the human body and which can be applied using a secret recipe and patented process to a coating layer of a few nanometers thick. The coating can be tuned per application. The LipoCoat coating prevents proteins and bacteria from adhering in situations where such contamination cannot be used: with medical devices such as catheters, implants and contact lenses. LipoCoat founder Jasper van Weerd (shown on the left) started the company in mid-2016 following his PhD research at TU Twente, together with chemist Pascal Jonkheijm and biologist Marcel Karperien. Raoul Oostenbrink came on board before the company was formally founded. “Jasper's PhD research was funded by the nanotechnology program NanoNextNL. Before that program, I was already a business development manager to guide promising developments towards commercialization. We first explored where the best application opportunities would lie and we ended up with medical devices.” Within the NanoNextNL program, government funds were available to help new companies get started. “We applied for a 'grant' of € 125K. It was not granted. We then tried again and managed to obtain a €100K subsidy based on a new plan. This could be started. Then came the commitment of €50K from the Dutch Student Investment Fund (DSIF), from Neelie Kroes and with the matching via the university, the target market could then be developed towards a product.” Why is there now a 'firm business case'? “An important milestone that was achieved was a strategic partnership with a major international party in the world of ophthalmic products. Such a 'strategist' buys exclusivity during the exploration phase to see if the technology fits his product. Acquiring such exclusivity involves a significant sum of money, which is common in the biotech industry.” Willem van den Berg agrees. “That's nice, because as a start-up you are in a 'windless' phase at that moment. Then it is very nice if you can get a good OEM on board. It's great if you can make a deal like that. Parties often want much more than you want to give away and is good for you.” Raoul: “My experience in biotech helped. The company can now continue for more than a year and a half, partly thanks to a favorable soft loan in tranches from the RedMedTech fund of the Health Valley region of Arnhem Nijmegen.” We are talking about the medical device market here and you are dealing with regulations that must be met through long-term acceptance tests. “The target market for catheters still needs to be developed. That's where I come from.” During the conversation, Raoul and Willem agree to discuss further about possible scale-up and collaboration in that process. That conversation is part of winning the contest during the MinacNed conference last December. When will LipoCoat start production? “If the customer from the ophthalmic (ophthalmic, ed.) world gives a 'go', we can probably produce within six months. To achieve this, the ISO 13485 file must first be completed. Our customer is then the 'legal manufacturer'. To produce we need no more than a few square meters of business space, with some cooking kettles. The coating of the first medical devices is done at the customer's premises, based on our process.” And the catheters? “That depends on whether a 'strategist' can be interested in the application there too,” says Oostenbrink. “The lead time for this depends on clinical studies. The process of applying an additional biocompatible layer is known. I am confident that the 'time to market' can be limited to one and a half years.” “Are there also competing developments?” Willem van den Berg wants to know. “What Lee Ayres does with his company Encapson, also in Enschede, with Sono-Coat, ultrasound technology, is that comparable?” Raoul: “That is a coating with different properties, especially suitable for imaging. Can be used complementary to our coating. In theory, a mix is possible.” What future developments does LipoCoat foresee? “We will mainly develop new target markets. This can be anywhere where biofouling (the popular word for rotting 'caking', ed.) can become a problem. This could be in the food industry, medical diagnostics or when using scientific instruments and tools. We will conduct explorations for each target market. The platform is standing. It is then a matter of 'tuning' the recipes based on the knowledge to be built up from the relevant application field.” Oostenbrink sees limitless possibilities. “But of course you have to be careful that you don't run everywhere straight away.” What is the comment of the investment expert, Willem van den Berg? “During the entire contest we had at the MicroNano Conference, I was positively surprised by the quality of the twenty start-ups that pitched. There was also a great variety, with some being further along in the development of their business than others. LipoCoat stood out in terms of technology and potential of the platform on the one hand and also in terms of the hands-on approach of the team with a link to application fields on the other. By adding a number of business-oriented people to Jasper van Weerd, I already saw the quality of the approach. That a good foundation had also been laid through a deal with a strategist, we as a jury did not even know that at the time.” Van den Berg is happy with the attention the government is now paying to technology start-ups. “As a result, corporates are also slowly realizing that there is potential. There is now also more willingness to invest among larger funds. That can make things more difficult for us. When people start thinking in terms of big money, 'valuation' expectations are also inflated. Then entrepreneurs sometimes assume very high valuations at too early a stage. We sometimes let go of great deals because we think the valuations are too high and insufficient returns can be achieved for us as an investor in the follow-up phase.” “For most investors, technology start-ups are still difficult to assess. This means that we can make a difference with our hands-on, entrepreneurial scale-up approach in combination with our network. It is overhyped in terms of multiples for small companies. The shore also turns the ship here.” Willem proudly reports that he is very happy that his organization has gotten the HighTech and Nanotech fund off the ground. “We have now also created a cyber security fund with a focus on the Internet of Things world, Security of Things Fund.” The fund manager also sees that Value Creation Capital also invests in scale-ups. “We would like the combination of start-ups and scale-ups. We have a special approach for this that we call 'click & grow', locking in the value for partial exit of the DGA and from there working on a new scale-up and growth strategy.” Lessons learned? Raoul Oostenbrink is excited about the MicroNano Conference. “Fun, beautiful international event, important for the Netherlands. Please continue with this and do not lose attention to start-ups.” Willem van den Berg sees value in the combination of MinacNed and FHI. “How you bring things together and organize them is great!”