Can Israeli Medical Technology Lead the World?

China Medical Personnel cover

Ed. note: This is an excerpt of an interview with Todd Dollinger, Chairman and CEO of The Trendlines Group, which appeared in the Chinese publication, China Medical Personnel (March 2014). Eddy Wang of Trendlines’ Beijing office provided the translation. Read the full article (Chinese PDF).

We welcome Todd Dollinger, Chairman and CEO of The Trendlines Group, which invests in and develops medical technology innovations through Trendlines Medical, one of its Israeli government-licensed incubators. Todd will explain Israel’s uniqueness and why Israelis are so good at developing and bringing innovative technologies to market.

Todd Dollinger in China Medical Personnel magazine

Trendlines Chairman and CEO Todd Dollinger in CMP magazine

What is it about Israeli society that accounts for its successes despite all odds?

Israel is a very small country (20,700 km2 vs. 9.6 million km2 for China). It is situated in a region where its enemies surround it. It lacks abundant natural resources such as water and land for agriculture. Despite these harsh conditions, Israelis have managed to create a thriving innovation-driven economy that seeks to thwart Israel’s seemingly disadvantageous position. It may have something to do with Israel being a nation of immigrants. The modern state was established in 1948 and thousands of immigrants from all over the world built the country’s infrastructure and started its industries. I am also an immigrant. I moved to Israel from the United States in 1990.

What does the Trendlines Medical incubator focus on?

Trendlines Medical focuses on medical technologies, most often medical devices. Almost half the founders of the portfolio companies we establish in the incubator are either hospital doctors or professors at a medical school. These people come face to face with different clinical demands every day. They are looking to find the best solutions. These kinds of demands become a powerful source of innovation for Trendlines because one important mission for us is to address unmet market needs.

Here are some examples of how it works: Trendlines Labs — our invention incubator – has a formal agreement with Sheba Medical Center, the biggest hospital in the Middle East. Once their doctors and nurses identify a need and demand for a medical solution, they meet with us about it. (We spend a lot of time communicating with hospital staff.) Then Trendlines Labs will work on a solution in collaboration with the doctors. Once a theoretical solution has been found and a patent registered, the work on commercialization can begin. In addition to Sheba, Trendlines has similar agreements with other hospitals in Israel and abroad.

In some cases, doctors or entrepreneurs approach us for an investment and want to join our incubator program to further the development of a technology they are developing. Trendlines considers the proposal on two levels: One, we look at the market demand for the product. Two, we evaluate whether it is focused on solving the problem at hand.

Perhaps you noticed that I haven’t talked much about technology. This is mainly because we are first and foremost interested in whether a proposed innovation solves problems for people — for the doctors and for the patients. Investors typically ask two very simple questions:

    1. Can you do it faster, better, and cheaper? Development time and time to market are crucial factors that need to be checked as thoroughly as possible. Price is also an important concern. It needs to be competitive to be marketable. Medical care worldwide is facing a crisis: 18% of U.S. GDP is invested in medical care; almost 12% to 15% in European countries. Developing countries account for a small proportion, but they represent a huge market. China’s medical care infrastructure has been in pursuit of faster, better, and cheaper solutions. We analyze the projects based on these key points.
    2. Is the entrepreneur is a good fit [for our incubator]? We don’t just give the entrepreneurs a check. We partner with them. Typically, entrepreneurs spend two to three years in the incubator. They need to be willing to fit into our system and want to work with us. In addition to investment, we provide marketing communication, business development, and technology development services. We also help companies raise more capital. We are highly involved in each company’s progress.

How does the Trendlines incubator operate?

Trendlines establishes and invests in about 8 to 10 companies each year. Each entrepreneur must be committed and have patience, as every young company will face ups and downs. The first hurdle is the technical one, and the second is the market hurdle.

The Trendlines’ incubation model is completely different from that in the United States and of China. In fact, the U.S. incubator investments are even less than China, which I think is a very big mistake. In the field of commercial incubation, if you give an entrepreneur enough input, you will get a big return on your investment. However, this may take a long time. The process from project assessment to real investment is very long, but once we invest money, we can’t wait that long. We encourage the entrepreneurs to struggle, to find the quickest approach, and not be afraid to make mistakes. The sooner you encounter problems, the quicker you can solve them. The environment we create tolerates errors and doesn’t demand a perfect technical solution before moving forward. When we do encounter a problem or realize we made a mistake, we work to find another way of doing it. The result is sometimes something completely new. If we really can’t solve the problem, that is okay too. We may just let it be. Often, the problems aren’t on the technical level but rather on the market level. We acknowledge that not every company can be successful. This is also the risk we must undertake as investors.

At present, Trendlines has invested in more than 60 companies, and our operating mode is very flexible. Generally the size of the companies is also small, 2 to 5 people. These small companies may need to outsource some of the design, operations, and testing.  We look at all ways to do things faster and cheaper, without compromising on quality.

One of our companies has developed a product for patients with a colostomy (stoma). Instead of bags outside the body to collect waste, the company has invented a system that uses waste bags hidden in the body. Patients can easily remove the old bag and add a new bag, mimicking going to the toilet. The system dramatically improves the quality of life for these patients. The inspiration for this product was a brainwave of medical engineers in a hospital, but experienced many twists and turns during the research and development stage. Fortunately, its market prospects are very good, but the price is a bit high. We are working out how to reduce costs and bring it to market.

The average investment in these small companies is about $1 million. They are in our incubator from the beginning. We help them with legal, tax, and accounting issues, so the inventor can focus on how to develop the technology and product. The first investment mainly finances initial technology development and market research. The second round of investment usually begins after 2 to 3 years of operation. The company’s growth and incubation process usually needs $4 million to $6 million — some a lot more than that. Generally, $5 million on average supports the company to maturity. Some of our companies have received money from Chinese investors.

Trendlines is able to expand due to support from the Israeli government. Trendlines holds an incubator franchise that is authorized and issued by the Israeli government, which issues only 20 such franchises. The competition for these franchises is fierce.

Israel leads the world in the per capita amount invested in research. This policy has created many innovative companies. Culturally, Israelis understand about taking risks and starting new businesses. Failure is tolerated culturally as well. However, this doesn’t mean that we can squander government money. Our review process on new companies is very strict. The government money must be spent on research and development and directly invested into companies.

The government regularly checks the accounts and looks at where and how money is spent. Every year the government audits us, and if our credibility is questioned, our franchise can be revoked. We strive to invest and incubate more companies than the government requires. In the past six years, we have financed $135 million in total for our companies, which put us in a positive light when the government audits us. The incubator franchise is very limited, usually for a period of eight years.

Last year, the government presented three companies with the award for Best Start-Up Company. Two of the companies that won were from Trendlines. Two years ago, Trendlines Medical won the Best Incubator award.

At Trendlines, we have an inside joke that says we can’t accept money from car salesmen and building developers because their kind of business thinking is different from ours. Car salesmen import a car from Ford, take 9 days to sell, and then replicate this process many times. Building developers generally make plans on how to build a building and give a target completion date for each stage of the project. This kind of planning can be controlled accurately. And these two types of business plans have a clear model and are often reproducible over and over.

Trendlines also has plans in the beginning, but when we start operations we may find that everything has changed, and the plan or model needs to be radically adapted or changed.

Investors need to clearly understand what they are doing and understand the risk involved. Of the 60 companies we started in the past six years, we have written off nine. We may write off more. From a macro perspective we can accept this level of risk, as the rate of return is enough to cover it. If no company failed, then it would be a sign that we have failed. For us, the more mistakes we encounter, the smarter we become in selecting and planning.

Why do Israel’s incubators interest China?

 Many Chinese groups are interested in the Israeli incubation model. Government departments generally recommend visiting Trendlines to Chinese businesspeople or groups interested in business incubation. In 2013, China Medical Equipment magazine came for a visit and interview at the invitation of the Israeli government. We realize that by communicating and sharing our experiences, we expose ourselves to new opportunities. Seeking cooperation and deals that are a win-win for both sides is one of our strategies.

From a geographical standpoint, Israel is far from main markets. We only have a population of 8 million, which is almost a third or a quarter of Beijing’s population. This is not a big market, and we need to be able to penetrate the global markets. To do this, we need to cooperate and localize products and production capability. Right now we have some products that are produced and sold in China, and Chinese investors are increasingly interested in cooperating with us. If we want to become a more powerful company, we need to do more work in this area.

For example, we have a company called ETView. It produces an intubation tube with an embedded camera to visualize the upper airway during lung isolation procedures. In this product, the tube seal is very important, and we used a very simple way to solve the seal. Then, we added a 4 mm diameter camera. On the surface, there is no difference between this kind of tube and other tubes on the market; however, our tube with a camera has added value for doctors, who can then position the tube quickly in the correct position without doing damage. As mentioned before, we strive to make our products faster, better and cheaper. The ETView tube is a lot more expensive than the existing tube, but the existing tube needs other devices/equipment to position it correctly in the upper airway, and uses up more of the doctor’s time. When you factor these things into the cost, our product works out cheaper. This is one of our successful cases. This is not only a clever solution technically but an economically savvy one. Some of the components for the device, the lens for example, is produced in China. The tube itself was previously manufactured in the United States, but it is now also made in China. Nowadays, many Chinese suppliers provide good quality products that meet high standards. Chinese enterprises are not only high in product quality, but also cheap. We are happy to see this product being sold in the Chinese market now.

Israel and China — partners?

Israel sees advantages in cooperating with China. Our “peripheral environment” isn’t very friendly, so we look beyond the countries in our immediate area for business partnerships. Our culture encourages us to try something new and dare to challenge authority. In Israel we don’t want to obedient, we want to lead. Each Israeli thinks he can become the prime minister. Everyone thinks he is the most perfect. If you have a chance to go to a big company of Israel, you will see a low-level engineer voicing his or her opinion to their project manager or company management. They will tell the manager what is wrong — and why it’s wrong. This scene is very common.

There is a saying that “you should live in interesting times.” Israel’s start-up community guarantees these “interesting times.” We can also guarantee clear, cloudless skies. China can’t guarantee this point (smile).

Why does Trendlines have an office in China?

The main reason that prompts us to set up an office here in China is to examine whether our incubator model can be established in China, and then extend the model. We need to hire and work closely with local Chinese businesspeople and professionals for it to work.

Have you always been interested in business?

When I was 15 years old I started my first business. I invested in a kind of tropical fish, a new type of hybrid angelfish. Although it was a small market, the business grew bigger and bigger. We began to import from Singapore. It was very interesting, and I learned a lot from the experience. I finally sold my shares to my partners and went on to study at college.

In 1978, my brother and I set up Trendlines in the United States. We were involved in sales and marketing different types of products, including consumer products.

My family and I immigrated to Israel in 1990 when I was 37 years old. My first job in Israel was working at a medical device company, a start-up. I feel I was very lucky at that time, as many people had failed in this field, but I succeeded. In this medical device company, I met Steve Rhodes and we formed Trendlines in Israel to provide consulting and business development services to Israeli companies looking to enter or compete in the U.S. market.

After a few years, we were increasingly involved in the incubation business. Our focus was on the invention and creation of young start-ups and commercialization of their ideas. Then, in 2007, The Trendlines Group was formally established and won the franchise for an Israeli government-licensed incubator.

 

 

 

 

 

 

 

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