Nothing Ventured : Medical Products Inventors Face Unhealthy Times as an Ailing Economy Cuts Into Capital
Visiting his sick mother at a hospital four years ago, Robert Markuswatched in disbelief as nurses wrestled the aching patient onto a cold, hard bedpan.
“It was a god-awful thing to see,” Markus said. “Bedpans are the only things left in a hospital that haven’t changed since the 19th Century. I thought, ‘There’s got to be something better.’ ”
Natural curiosity, bolstered by the thought of hospital patients’ discomfort, drove the 70-year-old retired restaurateur and his partner to a garage workbench, where they tinkered for more than a year until they came up with an electrically powered, inflatable bedpan.
That, as it turned out, was the simple part.
Years later and $100,000 poorer, Markus is still waiting for an investor--any investor--to take a chance on his product. Scores of letters and phone calls have turned up no leads in his quest to market the state-of-the-art bedpan, which consists of a flat, U-shaped piece of canvas that is slipped under the patient, then inflated.
Lacking financing, Markus and thousands of other small medical-device inventors across the nation find themselves facing an acute problem: how to move a product from the drawing board to the hospital ward--and make a buck doing it.
Although entrepreneurs say that such inventions have great potential benefits, poor economic times have all but driven small inventors out of competition.
“As much as I enjoy working on products that are hopeful and uplifting, the fact is that these are troubled times, and what’s paying off is paying attention to projects where there is little pain and trouble,” said Russell R. Diehl, managing partner of Diehl & Co., a venture capital firm in Newport Beach.
Such venture capitalists, as well as bankers burned in the easy-money 1980s, have become skittish about financing new products. Friends and family members, who in better times might have been financial backers, are cash-poor themselves because of the recession.
The scenario is the same for inventors of all kinds. But it is especially frustrating for designers of medical devices because the products they have perfected after years of development could be used to benefit patients as well as make the inventors’ financial dreams come true.
“It is incredible,” Markus said of the financing drought. “The medical industry has almost consistently yawned in my face. There just is no money anywhere.”
Indeed, the days in which venture capitalists and other entrepreneurs garnered 30% returns on even small, one-product start-up companies is long past, Diehl said. “It used to be that the venture capitalist was considered to have the Midas touch. But now it’s much more difficult to raise funds.”
Today, an investor is lucky to see a 10% return on his or her investment as the recession and capital-gains laws stifle profits, Diehl said. With few exceptions, venture capitalists now prefer to sink their money into middle-sized companies that have success records and only temporary cash-flow problems.
Roscoe E. Schmerse Jr. has heard that before. He invented what he calls the safest cotton swab in the industry.
Schmerse’s inspiration for the invention resulted from a day of people-watching at John Wayne Airport. He and a friend noticed a passerby with a flat-top haircut resembling that of rap singer Hammer. A few months later, Schmerse developed a swab with a similar flat top. Because it does not taper at the end, the swab cannot enter the ear canal and damage the eardrum.
Despite its practical design, Schmerse has been unable to find financing for his invention.
“I have talked to zillions of people,” Schmerse said, including cotton-swab manufacturers. He is now considering talking to family members and friends to raise cash. He has even made a videotape to take to suppliers in the hope of making a sale.
“I don’t know what else to do,” he said. “I’ll even go to the swap meet.”
Don Milder, a partner at Crosspoint Venture Partners in Newport Beach, said that Schmerse is typical of small inventors. They have the creativity and gumption to develop a product, but they lack the business and marketing skills to be successful entrepreneurs.
A former medical-device company executive, Milder has seen his share of product blueprints and business proposals from small, independent inventors. The vast majority are rejected, he said, not necessarily because the products have no medical benefit but because their applications are not universal enough to anchor a growing company.
Single-product companies founded by inventors with little or no business savvy are risky because, lacking diversification, they typically reach plateaus after a few years. Such a company, to be viable, should be based on a highly technical product and have “an ability to grow rapidly,” Milder said.
“They may come up with some very clever ideas that are worthwhile,” Milder said of inventors. “But they usually target a niche in a relatively small market size.”
Inventors who do have an inroad with venture capitalists, Milder said, are usually experienced engineers who once worked for medical-device companies, know the business and have contacts.
“Those are the people we like to back,” Milder said. “They know how to take a product idea to the market.”
But venture capital is not the only way to go, said Stephen Paul Gnass, founder of the Hollywood-based Invention Convention, which held its yearly symposium this past weekend at the Pasadena Center.
While emphasizing that there are no shortcuts to success, he said that small inventors can bypass “cold calling” by showing off their wares at trade shows.
Such shows, he said, can improve an inventor’s chances of getting noticed.
“That’s a major key,” Gnass said. “Most independents don’t have the business experience, the savvy or the contacts. Networking is the key.”
If the inventor’s property is good, Gnass said, it is like “valuable real estate.”
But ultimately it is up to the inventor to push the product. In the current economic climate, getting a new product to the market will take more effort than ever, Gnass said.
The first step, he said, is to define a goal. Should the product be sold by mail order? Would a joint venture be feasible? Should the inventor start his or her own company?
All of those tactics have proved successful for some, disastrous for others.
“They really have to clarify those issues,” Gnass said of inventors, “or they will end up on wild goose chases.”
Leonard Holtz, 72, of Sunland, who had a booth at the Invention Convention, said he defined his goal out of necessity. Holtz, a diabetic, was frustrated by the difficulty of inserting a needle into an insulin bottle. So he invented a small plastic cap that fits over the bottle and secures the syringe firmly to the top, preventing the needle from bending or breaking as the insulin is drawn out. He makes the caps in his garage.
The device, which he invented two years ago, could be a great help for elderly diabetics who have shaky hands and often break needles in bottles or scratch them against the metallic insulin caps, dulling the points, Holtz said.
With faith that his product will eventually become a moneymaker, Holtz and his son have turned out 350,000 pairs of caps (diabetics usually need two bottles for a single injection) and have been trying to sell them independently at $9.95 a pair. But not being a businessman, Holtz said, he does not know how to get his company off the ground. Subsequently, he has not yet made a penny on his $118,000 investment.
His luck may soon change, thanks to trade show networking.
Holtz said that, after dozens of rejections, he and partner Austin G. Lynn had decided to go the mail-order route.
But two weeks ago he attended a convention on diabetes at the Anaheim Convention Center. There, he gave away hundreds of samples and brochures--and has already gotten several calls from interested pharmaceutical representatives and physicians. A licensing agreement may be just around the corner.
“It think this is the turning point,” Holtz said Friday. Attending the show “was the best idea I had. I’m really walking on air.”
