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Jason Lettman, partner at Lightstone Ventures, set up shop in Ireland after Lightstone closed its debut fund. Hear how he views Medtech from the other side of the Atlantic.
Jason is a Partner of Lightstone Ventures. He focuses on medical device and biopharmaceutical investments out of the firm’s Palo Alto office. Jason joined Morgenthaler Ventures in 2009 and serves as a Principal.He represents Morgenthaler on the boards of Relievant Medsystems and Second Genome, Inc., is a Co-Founder and on the board of Tarsus Medical, and a Board Observer at Moximed and The Foundry.
Tom Salemi: Hi, everyone, welcome back to the Medtech Talk Podcast. I am your host, Tom Salemi. Thank you for joining us today. We’re traveling a bit away for today’s interview. We’re going to be speaking with Jason Lettman, who’s a partners at Lightstone Ventures. Jason grew up in Minnes9ota, relocated, like many VC’s do, to California, worked with Morganthaler and then Lightstone. And upon the closing of Lightstone’s debut fund, Jason moved across the Atlantic, set up shop in Ireland, where Lightstone is doing some medtech investing. I actually last saw Jason in Dublin when I was there for a conference last year, so he is still there, setting up a home with his young family, at least a temporary home, and finding gr eat opportunities in medtech in Ireland. It’s clearly an area of interest for large medtech companies and for VCs as well, particularly those who are feeling a bit put off by the med device tax and other disincentives for creating medtech startups in the US. So let’s have a visit with Jason Lettman from Lightstone.
TS: Jason Lettman, welcome to the Podcast.
Jason Lettman: Right. Thanks for having me, Tom. Appreciate it. Good to be here.
TS: I think you may be our first international Podcast for Medtech Talk. You are in Ireland. I was going to say you’re in Dublin, but I don’t know where your offices are, where you’re living exactly. But how did a fellow from Minnesota who escaped to California – not Southern California, completely different – find his way over to Ireland?
JL: I was trying to find weather almost as bad as Minnesota. But serious answer is I think as we’ve evolved our strategy and as part of Lightstone, we’ve become, I think, more international in a lot of ways, and so expanding into Europe and into Ireland specifically made a lot of sense for a number of reasons. And I moved over in July and things have been going great so far.
TS: And how has the move gone? You’ve got a young family there, right? So are they enjoying the adventure?
JL: Absolutely. We have two girls, 4 and 6, and they are both – they’ve almost lost their California accents entirely at this point. So they’re enjoying it. It’s been a fun adventure for them. It’s actually a great place to raise a family here. So it’s been a lot of fun.
TS: That’s terrific. I’ve been to Dublin twice and loved it both times. Reminds me of a lot of Boston. We had our Medtech Investing Conference in May. We had some discussions about the pressures on medtech in the US. And there’s a general feeling that every other country in the world embraces medtech, does what it can to sort of encourage it. And as Hanson Gifford made the point, in the US we get a tax. We don’t get the encouragement of the financial breaks; we get put upon by more financial obligations. What is it like on the other side of the fence? How green is the grass that you’re seeing in Ireland and in Europe?
JL: Yeah. I think a lot of that is still true, unfortunately. I do think even despite some of the economic pressures in Europe more broadly, it’s been a relatively strong place for early stage medtech in particular. And I think within the US, I do think there are encouraging signs in devices, particularly for late stage companies. We’ve seen a decent IPO window, we’ve seen a relatively strong M&A environment over the last 6 months. And I think there’s reasons to be hopeful at the FDA and then the reimbursement landscape as well. But I think early stage has been a different story. I think raising money for big new ideas in devices is a real challenge, and frankly, I think it’s easier right now to raise money for a series A in Europe than it is in the US. And I think in some ways, Ireland in particular has been leading the charge on that. There’s a ton of early stage activity here. There’s a number of seed funds and a pretty strong angel network in Ireland that is trying to really capitalize on some of the natural strengths that Ireland has in terms of the ability to develop and discover and create new devices. They have a very strong R&D talent pool here, and I think they’re relatively tied into the strategics and multinationals. So many of them have a presence here that they’ve been successful, starting in funding in early stage companies in a way that I think is different than the US.
TS: And are you as a representative of a US VC, are you able to plug into that network and that environment right away? Or is there a challenge sort of being an outsider moving into that space?
JL: No, I think it’s been – I think like any new environment, it takes time to develop relationships and trust, and I think that’s a process. But the local community has been very welcoming. I think they’ve seen a number of US groups like Lightstone come over and set up offices. Polaris, DFJ, Arch. There’s a number of strong US groups that now have operations here that are alongside and looking to syndicate with the local groups such as Fountain and Seroba Kernel, Delta ACT and others that are actively funding device companies. And so I think that’s been a good fit. I think the goal for many here is to try to bring some US funds over that can hopefully help lead and build larger syndicates. As we know, developing device companies is not getting any cheaper these days, so we’re seeing more and more of cross border syndicates, if you will, these days.
TS: I’ve been over there twice, again, for two medtech conferences, and both times have walked away feeling really energized by the support for medtech there. But you also wonder if it’s more sizzle than steak, if it’s going to – if it has a sustainability to it. Hearing you talk, hearing of the other VC firms sort of setting up shop there, I get the sense that this is something that is definitely taking root.
JL: Yeah, I think so. And I think there is a lot of enthusiasm and excitement here. And I think there’s very strong new company creation here, which is always one of the more exciting things to see and be a part of. And I think there’s reasons to be optimistic. I think time will certainly tell. We’re in this for the long run. If we’re going to take the time and effort to set up an office here and invest here, particularly in early stage companies, we need to be in it for the long haul, and we need your ten year plus efforts. And so you need to be willing to be patient and focused. And I do think we’re off to a good start, and time will tell how sustainable it is, but I really do believe that there’s something here that can be sustained and should be.
TS: Now, for the sake of candor, one of the things that brought you over there was one of the investors in your new fund is an Irish entity, and they did want to have a presence in Ireland. Can you talk first about the fund? Tell us a little bit about the size and the focus. And then share what your experience – what the relocation has been like, what setting up has been like, and sort of what benefits are you seeing being in Ireland. Are you finding deals that perhaps you have missed before? Are you able to make connections that you’re going to be able to leverage to help your US based companies as well?
JL: Yeah. Absolutely. And as a fund we closed last April, so a little over a year. It was a $172 million fund, first time fund for Lightstone, as you know. But the combination of 2 teams and Morganthaler and ATB that have been around for a while. And the goal within the new fund was to largely continue to do what has made it successful before, and fund big breakthrough ideas, primarily early stage ideas, but also look for the select opportunistic or late stage deal that we could do. And so when we looked at Ireland in particular, we felt like we’d be in a unique position here to do a few things: one, to incubate new companies and start new companies like what we’re doing with Fire1; two, look at local companies, which I think has been definitely lived up to what we hoped. There is a strong local base here, but there’s also a number of opportunities in Europe more broadly that are, I think, on our radar now, which probably wouldn’t have been before. And I think we’re finding value there, which is particularly important on the biotech side of the portfolio these days. And I’d say the third thing we’re actively doing is trying to work with our existing portfolio to either relocate operations here or help them establish European offices, and we have a number of ongoing efforts right now within the existing portfolio, roughly 40 companies across Morganthaler and ATB that we’re still managing, that are pursuing that. So those are some of the things that we’re actively doing. And I’d say although we’re still relatively early in this effort, it feels like we’re hopeful on executing on all three of those things.
TS: The first investment you made has been well publicized, the Fire1 effort with Covidien and with the folks at The Foundry in NEA. How has that developed? Any news on that?
JL: Yeah. So it’s been going well. As you know and will recall the effort was really to work with The Foundry, who’s a group we’ve obviously had a lot of success with with Ardian, Evalve, Cabochon and others. And then essentially incubate the company and set it up in Ireland. And meanwhile, working with Covidien originally and now Medtronic, to develop a project that would be right up their alley, and hopefully something that they would want to acquire down the road. And so that’s been what we’ve been doing. Obviously the Covidien Medtronic merger as not part of the plan. We didn’t necessarily see that coming, so that has caused, I think, us to make sure that we’re bringing the team at Medtronic up to speed on the project and the model at Fire1. But I think we’re now through that, and we’re fortunate that we have, I think, a good group of both investors and, at Medtronic, folks that are supportive of this effort. So it’s been going well.
TS: And have you made any other investments in Ireland?
JL: Yeah. We just did. We haven’t announced it yet, but we did make an investment in a biotech company that is brand new startup that we spun out of an American University and are in the process of incorporating it and establishing it here in Ireland. It’s an exciting space and I’d love to tell you more about the team and the space but we’re keeping it stealth for now. But when we get to the point of talking, I’ll be sure to let you know.
TS: It’s a biotech. I guess I think medtech when I think Ireland. Is the infrastructure there for supporting startup biotechs as well?
JL: Yeah. It’s interesting. I think we were more focused on the medtech opportunities when we set down this path, but we’ve been I think pleasantly surprised at the local biotech landscape. It’s certainly not as robust as what we see back in California or Boston in the Cambridge area. But there is a small group of people and companies here that are working on new therapeutics such as heart metabolics that are going on in others that are local, and through that I think you’ve had growing confidence that we could do something here on the biotech side. So that’s the effort. And I think there are a lot of similarities in biotech here as there is in devices in terms of the manufacturing and early talent base. I think there is folks here that can add to a startup in its early phases, and hopefully build something here on the biotech side as well.
TS: And how have you been managing working with the firm that’s in California? Your partners, are they still in Menlo Park? I’m here, it’s 9:30 where I am right now. You’re finishing up your Thursday. It’s 3:30. Everyone’s just getting up over there and probably just beginning their first conference call at 6:30 in the morning. Has it been a challenge, sort of coordinating schedules and working from a far?
JL: Yeah. I think that’s probably been the part I underestimated a little. It is – you’re working in Europe and have connections in the US; I think you end up working two jobs in some ways. The eight hour delta versus California just naturally requires a day to start here at 4. But it’s been working, and we’ve had some of the guys in California, they’ve had to sacrifice by starting early, and I’ll probably have to sacrifice by staying up a little later, particularly on Mondays for partner meetings to make it work. And I’ve been trying to push my happy hour back until at least the partner meeting wraps up. So there’s sacrifices all around. But it’s worked so far. I think the time zone change with Boston and getting back to Boston regularly has really not been that difficult because when you think about it, flying back to Boston from Dublin is just about the same as flying out from the Bay Area to Boston. So that part of it hasn’t been too bad.
TS: How often have you had to come back?
JL: It’s been pretty regularly. I’m on seven boards at this point. We have a couple that are based here, so that certainly helps. But still actively involved with the portfolio back in the US. So it’s probably, I’d say once every couple months, give or take. This is annual meeting season, so it’s back for both the firm’s annual meetings. But it’s good. I think that’s just part of being in an outpost, so to speak. It’s important to get back and see everybody and reconnect, so I do try to get on a plane pretty often. And then we’ve had Mike and Hank a number of the team make a trip over here as well. So that’s also good.
TS: There are worse places to go, that’s for sure. Final question –
JL: That is for sure.
TS: How do you see this playing out over the next 5 years? Are we going to continue to see the pendulum swing to that side of the Atlantic for medtech innovation? Or, as you alluded to earlier, things are beginning to improve here in the US. The FDA seems to be getting more in line with industry, the device tax could be on the way out. There seem to be some adjustments in the favor of medtech. But do you see things swinging back? Or is this sort of an irreversible move toward not only Europe, but places outside the US?
JL: Yeah, it’s a great question. I certainly – I don’t have a crystal ball, either, but I do think that the trend towards Europe and OUS broadly is here to stay. I think historically in devices, and we’ve been a very US-focused industry, and for a good reasons, but I think many of those reasons are changing. There’s more capital now off shore, the pricing and approval processes outside the US I think are improving and making it easier, and making it easier to access places that you wouldn’t have probably thought about five or ten years ago. So I think we’re going to see more of that. I think whether it’s Europe and Ireland or Asia, I think across the globe we’re going to see syndicates from many different places, companies that have operations across the globe, firms with offices across the globe. I think that there’s going to be more of that. And I do think we’ve come off a pretty nasty time in devices, but I think if you look over the last 12 months, there are reasons to be hopeful. I think M&A has been relatively strong. The IPO window has been great because you’ve seen companies like Glaukos and Nevro and others get out and be very successful. And yet, there’s still not much capital. So it may take another year or two or who knows for the recovery to fully kick in. But I do believe it’s on the way up.
TS: Well, I certainly hope you’re right. And I certainly hope to visit you out there in Ireland some time soon. It’s always a treat to go out that way. Thanks for taking the time today.
JL: Yeah. Make it happen. Be good to have a pint over here and would love to see you, absolutely. Thanks for having me.
TS: Excellent. Well, go start your happy hour.
JL: Still a little early for that to start at 2:30.
TS: Take care. Thanks for the time, Jason.
JL: OK, absolutely. Thanks, Tom. We’ll talk soon.
TS: Well, thanks, Michael Ackerman, for joining us, and for sharing Oculeve’s approach for dry eye. Just one of those great medtech stories that keeps you excited about the sector, the real promising technology that’s been pushed along on relatively little private capital and is yet still positioned to generate a big earnout for its investors, and create a really meaningful and beneficial product for patients. So hats off to all involved, including Allergan for stepping up so boldly to make that acquisition. And we hope you enjoyed this peek inside Oculeve, and join us next time for another tale of medtech innovation.