Updated March 26 at 6:25pm

SEG accelerator targets health and wellness startups

Finding enough money to start a business is hard enough, but the challenge is exacerbated in the health and wellness sector. For health and wellness startups, developing products requires a lot of money and draws a special type of scrutiny …

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SEG accelerator targets health and wellness startups

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Finding enough money to start a business is hard enough, but the challenge is exacerbated in the health and wellness sector.

For health and wellness startups, developing products requires a lot of money and draws a special type of scrutiny from regulators. Together, the dynamic results in a raised risk for investors and increased challenge for entrepreneurs.

"Some of the health and wellness businesses are incredibly capital-intensive and have a lot of regulations," said Kelly Ramirez, CEO of Social Enterprise Greenhouse, a business accelerator based in Providence.

SEG launched its first-ever health and wellness accelerator earlier this year. The nonprofit, focused on cultivating organizations that positively impact society, typically works with entrepreneurs and enterprises from varying sectors. This year, however, it decided to try out industry-specific accelerators, starting first with the food industry and then with health and wellness.

"We have a broad spectrum of volunteers who're specifically interested in the industry, and they self-select to which companies they are going to work with," Ramirez added. "We're kind of like a matchmaker."

Matchmaking is undeniably important in the health and wellness startup world, because pairing burgeoning companies with willing investors can require specificity.

"They are very niche investors," said Francisco Portela, CEO and founder of Portela Soni Medical LLC. "People who invest in medical devices usually do so if they have specific domain expertise, or they've been an executive at a large corporation, or done a medical-device startup themselves."

Portela's company has reinvented the catheter, which hasn't been significantly changed since 1935 and is partly responsible for why there are so many urinary-tract infections and subsequent added costs at hospitals each year.

Portela and his team have been successful in creating a safer, more affordable catheter that's designed to reduce the number of catheter-associated, urinary-tract infections, saying initial tests have yielded a greater than 75 percent reduction in bacterial growth.

Even in the already-expensive startup world of health and wellness, however, medical devices are especially capital intensive. Additional hurdles and burdens of proof can skyrocket costs beyond what's required for other health-related industries in pharmaceuticals or biotechnology.

In order to receive regulatory approval, medical devices must be risk averse, as safe as other devices on the market and improve what already exists. The regulatory trifecta intimidates some investors, Portela said.

"That's a turnoff for a lot of investors who aren't used to investing in the space," he said. "With other industries, you can have a product that you make in your garage and sell it. But you can't do that with medical devices."

For Meg Wirth, CEO and founder of Maternova Inc., the challenge isn't associated with the high costs of developing products, but rather because they're clumped in with those type of investments.

"Our particular experience is that it is extremely difficult to raise capital," Wirth wrote in an email. "We are not building up a tech platform from scratch and we are not developing a drug, diagnostic or device, all of which do require a lot of capital up front. It's hard to find investors who understand that many emerging markets are large and growing and that a platform like ours, with exclusive commercialization rights and a strong brand, [is] a good investment."

But finding those investors and their dollars isn't easy – especially in the Ocean State. The Slater Technology Fund, a state-backed venture capital fund, has been successful in helping health-related startups raise capital by leveraging public money. But the organization focuses on other industries, too, and has a finite amount of capital. Otherwise, sources are scant.

Gov. Gina M. Raimondo, who before entering the public sector was a venture capitalist, is trying to encourage innovation and has taken some steps to provide public support to the startup world. Last month, through the R.I. Commerce Corp., the state distributed $275,000 to six companies as part of its Innovation Voucher awards.

Awardees included MindImmune Therapeutics Inc. of South Kingstown, which focuses on therapies for treating Alzheimer's disease; ProThera Biologics Inc., a Providence company that focuses on inter-alpha inhibitor proteins to treat life-threatening diseases; and NanoSoft LLC, a Narragansett firm that is developing nanomaterial imaging technology to improve different products, including pharmaceuticals.

But the financing gap is real in Rhode Island. Even Raimondo's former venture-capital firm, Point Judith Capital, which was the state's only VC company, left the state for greener pastures and moved to Boston in 2012.

Regardless, Portela, who's currently raising another round of seed funding, is bullish about health and wellness, as investors drawn to the field really want to make a difference.

"The people who invest in this space really do care about helping people," he said. "They want to believe in the technology." •

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