Michelson Diagnostics - interview with g2i

‘Successful commercialisation of innovative technology can be delivered by a skilled, multidisciplinary team, supported by experienced ‘mentors’, but you also do need enthusiastic customers to convince early-stage investors’, according to Jon Holmes, founder and CEO of Michelson Diagnostics. Investors look at the people and skills they have, alongside the technology, as they decide where to place their funding resources. Investors will also carry out ‘due diligence’ by talking to potential customers to see just how keen they are to buy your product. Unless you're able to present a credible team and have real evidence of market ‘pull’, you'll switch off investors and you'll miss an opportunity to grow your business and achieve your aims’.

For Michelson that sector is the healthcare industry, where it has been developing an Optical Coherence Tomography (OCT) imaging instrument for use in the dermal sector. This start up company now employs 10 staff, some part time, and now has a turnover of £200,000 with rapidly increasing monthly sales. After launching in March 2006, sales of the first Multi-Beam OCT product, the EX1301 OCT Microscope, commenced in early 2008. Michelson is currently developing hand-held OCT scanners with equivalent performance, for launch in 2009.

Hand held probes such as the new VivoSight scanner, soon to be launched by Michelson, offer the prospect of clinical, in-vivo use. The resolution quality of images that is far higher than with current ultrasound, MRI or CT imaging, has already attracted steady enthusiasm from clinicians. The multi-beam optics provides a doubling of resolution quality with images provided in real-time and this is what users of the device want.

It is anticipated that the equipment will enable faster, more accurate cancer surgery, with major benefits for both the patient and clinician – removing the slow, painstaking process of taking multiple samples of tissue for analysis. Primary applications are expected to be skin and oral cancer, but many other cancers will be accessible via future variants of the probe, and there are also many other clinical and non-clinical applications for this powerful new imaging technology. At this stage the technology has been sold for research applications, and clinical trials to prove efficacy are in progress and will drive clinical sales.

The pathway to winning investment

The evolution of Michelson Ltd began in October 2005 when, as part of Chislehurst-based instrumentation and engineering company Sira Technology, Holmes won a 'Dragons' Den' style competition sponsored by the Department of Trade & Industry, Grant Thornton and NESTA. Holmes and his team were put through a course of investment readiness training under the Enterprise Accelerator programme, culminating in the presentation of its business plan to a judging panel. They won £10,000 in cash and financial advice valued at £15,000 and this began the process.

After Sira went into administration, Michelson Diagnostics Limited was launched in May 2006, but needed significant investment to take the technology from what was essentially intellectual property, a prototype and lab tests, through to something that was saleable in the hospital environment. The company was successful in winning a £116k  LDA grant to support the product development, but it needed to get enlightened investment partners on board to provide matching funds.

At this stage they entered the g2i investor readiness programme that helped refine the business case. Michelson Ltd then identified the technology as having more immediate market applications in the research field as an earlier source of revenue.  The g2i programme aided Michelson Ltd to present a more confident pitch to investors. Presentations became shorter, more intensive with more refinements to the business plan. The format of g2i, with other companies attending, provided instant feedback from other participants, providing the advantage of learning from others.

A network event organised by Grant Thornton under the g2i programme resulted in the introduction of the lead investors, London Seed Capital, who along with Catapult Venture Managers Ltd and syndicates from London Business Angels (LBA) and Oxford Innovation Network (OION), subsequently provided early stage capital of £600k in October 2007 and a further £600k in July 2008. 

“High quality training and introductions to the right potential investors were the key g2i programme outputs for us says Jon Holmes”. The ability for Michelson Ltd to then deliver on the business plan has maintained continued investor confidence in the company. A further £350k has recently been invested by LBA. This funding was raised to enable the company to weather the current banking credit liquidity problems so that Michelson Ltd can progress product commercialization throughout 2009 and raise further funds in more favourable economic conditions.  ‘The most challenging phase was getting our first £600k, when we had no sales: just a credible team and a working prototype’ says Holmes.

Looking back the key changes have centered on the company's valuation, and on adapting the business model to place greater emphasis on gaining early revenue according to' Holmes. 'Initially we focused on promoting the huge potential upside of our technology in 5 years’ time, and our business plan was all about developing prototypes and conducting trials. But investors are very sensitive to risk – we came to realise that we could make early sales of products without compromising our long term goals, and by doing so we generate cash for the business, and demonstrate that we have the skills to develop, market and sell real products – thereby reducing the risk for investors.’
 

Challenges ahead

Holmes recognises that in the future Michelson Diagnostics will need to greatly expand its sales & marketing ‘reach’ – especially in the US -and that at some stage it will look to partner with one or more established medical products firm. In addition, it needs to focus on specific applications of the technology platform that will add utility and grow its customer market. The company has already conducted trials on excised human cancer tissue in the UK, Germany and the US, and will commence in vivo trials during 2009.  'There are a large variety of applications,' says Holmes, 'and finding the right market entry point is a key part of our strategy.'

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