Launch. Struggle. Recap. Relaunch. Grow. IPO: It’s That Easy
ACT 1
Scene 1: A founder-innovator refuses to give up
It was 2015, and David Muller, PhD, MBA, was not going to give up on Avedro, the ophthalmology company he had founded. He believed in its potential and would find new investors to replace existing investors. The latter group was weary. The FDA had denied market clearance a couple of times, resulting in the need to pony up more capital.
Dr. Muller contacted Gil Kliman, a general partner at the well-respected venture capital firm InterWest Partners. Dr. Muller, who had been a pioneer of the renowned Lasik procedure, and who himself had an excellent reputation, knew InterWest had enjoyed successes in the ophthalmology space. Gil himself was the real deal, an ophthalmologist who had practiced for years at the top of his field and had then earned an MBA from Stanford, launching his second career in venture capital.
Gil respected Dr. Muller and thought Avedro had ample potential to treat keratoconus, a disease with no proven cure. He appreciated what Dr. Muller’s company was trying to do for patients and well understood the reality that Avedro’s investors were tapped out. He enlisted Reza Zadno, an entrepreneur-in-residence at InterWest, to conduct due diligence. Reza was an engineer and serial entrepreneur who had led medical device companies, including an ophthalmic device company, to successful exits. Reza saw Avedro’s potential.
“The product worked, and it was safe,” he said. “I really believed the initial target market for the treatment of keratoconus was much bigger than the company believed.”
InterWest liked the technology, a breakthrough treatment to treat a sometimes-blinding eye disease, and the market.
Scene 2: A seasoned investor builds a new investor team
Gil called Jonathan Silverstein at OrbiMed, another respected healthcare investor, to ask if he wanted to round out the financing. Both had previously co-invested in a company in the ophthalmic device industry.
In deciding to invest, Jonathan said, “I trusted Gil’s clinical judgment, and I liked the ophthalmic space. Avedro had a clinical solution to a bad disease . . . I wanted in.”
The investment InterWest and OrbiMed made in Avedro significantly diluted existing investors. Then again, the new investors were high-quality, and the company had no viable alternatives. Act I of the Avedro success story, therefore, starts and ends with Dr. Muller and his commitment as founding CEO and serially successful entrepreneur to save the company. It also starts and ends with the early investors and their acceptance of the unfortunate dilution.
ACT II
Scene 1: Seasoned co-investors recruit a seasoned CEO
Life goes on, as does business. Gil and Jonathan got to work, starting at the top. They brought on Reza Zadno as CEO. He had previously led companies to successful outcomes. He possessed the technical background to contribute to the product’s continued development. It took some convincing because Reza lived on the opposite coast from Avedro, but eventually he agreed to join as a consultant and acting CEO. Soon enough, he was permanent CEO.
Reza said, “Not all money is the same. I had worked with Gil, and he knows the target customer very well, literally. He is a board member who attends ophthalmic conferences, symposiums and advisory meetings and feeds market knowledge and perspective back into the company. He does all that without micromanaging or interfering in the day-to-day company business. Jonathan, meanwhile, is a one-of-a-kind investor. He is your business conscience. You better listen to him if you want to succeed.”
Scene 2: Board and management update the strategy
The company board consisted of Gil, Jonathan, an independent director with industry expertise, and two early investors. Reza immediately challenged the Avedro go-to-market strategy, which was to start with the keratoconus market as a mere prelude to the much larger myopia market. In extensive market research, Reza found that the keratoconus market size likely surpassed that of prior estimates. With the board’s approval, Reza repositioned Avedro to build its business wholly around the keratoconus indication.
“The disconnect between early estimates and our more optimistic estimates was based on clinician underdiagnosis,” Reza said. “Because there were no effective therapies for keratoconus, there weren’t any effective diagnostic tools available.”
Scene 3: The board restructures itself
Avedro received its FDA approval in 2016 and grew rapidly. In anticipation of future financing and a possible IPO, Reza, Gil and Jonathan knew they needed to restructure and strengthen the company’s board. Wanting to make the board less venture-investor centric, Gil and Jonathan recruited first, a retired Fortune 500 company CFO and second, the CEO of Glaukos, Tom Burns. Glaukos was a public, ophthalmic device company and coincidentally, a portfolio company of InterWest and OrbiMed. They also recruited Bob Palmisano, CEO of a public, orthopedic device company and prior CEO of IntraLase, an ophthalmic capital equipment company. Bob was a well-known and widely respected executive.
The board now had a medical-device-market execution orientation.
Scene 4: The board fills out the management ranks
Working with Reza, the board evaluated Avedro’s management team and made changes. Recruiting and hiring top management talent is a big responsibility for a board, and in this case the directors’ professional networks helped a lot. Gil and Jonathan compiled a long list of prospects for multiple positions based on the high priority needs of management.
First up — a CFO who had deep experience with medical device financing, including M&A and IPOs. During a board meeting, directors nailed down a job spec and discussed candidates. Within months, a medical device exec with public company and M&A experience filled the position. Other key hires included the chief commercial officer and an exec who could develop an insurance coverage strategy for Avedro’s product.
ACT III
Scene 1: Avedro enjoys success, at last
By working closely with its experienced board, Avedro made tremendous progress. By 2018, the company could tout rapidly growing revenue for a product that treated keratoconus, a disease with no effective therapies. The market was growing, and the company’s IP would keep competitors at bay for the foreseeable future. Finally, Avedro could go public.
Gil, Jonathan, and other board members were well known in the investment banking community. The previous successes of board members helped position Avedro as a company to watch. Several top investment banks, knowing of the successes of Gil and Jonathan, wanted “in” on an Avedro IPO. Ultimately, JPMorgan Chase and Bank of America Merrill Lynch led the offering. The 2019 IPO exceeded expectations and served as a fitting liquidity event for founders, investors, and employees. They had given so much for so long to bring a life-enhancing product to market.
Scene 2: Success builds upon success
But wait, the story goes on! Soon enough, Tom Burns, CEO of Glaukos and an Avedro board member, disclosed to the board that Glaukos wanted to acquire Avedro. This unsolicited interest stunned Avedro’s board and management team. Tom, of course, had to resign from the board, and then Glaukos made an offer. The board could only speculate as to what provoked the sudden and positive offer. It soon became clear that Glaukos viewed Avedro and its rapidly growing revenues as a key component of its own growth strategy.
The merger happened. Gil continued his career as an investor. Jonathan retired and focused on philanthropy. And Reza moved on to lead yet another venture-backed company.
Avedro stands as a fine example of investors bringing to the table much more than cash. It recruited experienced, successful co-investors who together created the optimal capital structure for success. They helped recruit key executives, and they restructured the board. They fully realized the potential of the company Dr. Muller had launched.
Director’s Notes
I have seen this pattern over and over — high performance, collaboration, and value-add. I have also seen the opposite pattern too many times to count — dysfunction, blame, and hubris.
This is an important lesson for every entrepreneur and investor: select seasoned investors if at all possible and make them a vital part of the company’s growth team.
(Note: I originally wrote a case study about Avedro for The Entrepreneur’s Journey, a book I co-authored with angel investors Hambleton Lord and Christopher Mirabile. I have adapted the case study for this article. You can read the original case study, and many more, in The Entrepreneur’s Journey.)
Joe Mandato is a former leader of a number of high-growth technology companies and currently an investor, board director, university lecturer, and author.
