Good morning Armchair Army,
Welcome to today's edition of The Armchair Analyst, a 5-minute daily update on the ASX life-sciences sector.
A broker once said this to me:
“At this end of the market. People are all that matter.”
That always stuck.
But is there a framework for actually evaluating a founder or CEO?
Today I’ve enlisted the help of Michael Woods to answer this very question.
I first came across Michael about six weeks ago while reading some of his posts on LinkedIn about the healthcare sector.
They stood out as well-researched, genuinely insightful, and from someone who has thought deeply about the industry for a long time.
Michael has 20+ years of experience in capital markets and is the Chair of a private medtech company, Eyerising.
We went for coffee, which ran about two hours over, just discussing the ins and outs of investing in early-stage healthcare stocks.
One thing that we kept coming back to… People.
In particular, a structural framework for identifying if a company is inventor-first OR investor-first.
People matter in this game because if you get it wrong, you’re funding a hobby.
One of the biggest investment traps to watch out for… the founder that clings on.
Over to you, Michael.
But first…
The Pulse Check
The ABC published a two-part feature on MDMA therapy, featuring two ASX-listed companies, Emyria (ASX: EMD) and Byoxine (ASX: BXN)
🪑 Mainstream news reports like this are a way to build up interest in the macro thematic that drives interest in public companies.
The macro theme… Psychedelic medicine.
I have a saying.
It takes seeing something at least 11 times before noticing it.
This article and report knocked out one of those big “notices” for a bunch of people in the companies featured, Emyria and Bioxyne.
Tetratherix Limited (ASX: TTX) today entered a trading halt for a capital raise. (TTX, Financial Review)
🪑 With a burn rate of ~$3M a quarter, $19 million in the bank, plus $4.5 million coming from Superpower Health, TTX had plenty of capital.
TTX was clearly not “come raise”.
But it is always better to raise capital from a position of strength than a position of weakness.
Nice work to the team.
We’ll find out the price and terms in a couple of days.
Disclosure: I own 16,250 escrowed TTX shares. I’ll be bidding in this raise.
Noxopharm (ASX: NOX) announces new data showing its Sofra™ technology platform shows cancer-killing potential in vivo studies. (NOX)
🪑 The market liked this one. Decent volumes.
Osteopore (ASX: OSX) secures Hainan FDA approval for its custom orthopaedic devices. (OSX)
🪑 I had to look up what Hainan FDA approvals actually meant.
It allows foreign drugs and devices approved by the US FDA, EU EMA, or Japan PMDA to be used before they are approved for the rest of China.
NeuroScientific Biopharmaceuticals (ASX: NSB) reports an 80% clinical response among patients (4 of 5) treated with its stem cell therapy for fistulising Crohn's disease. (NSB)
🪑 Nice. Up from 3 of 4 announced in January.
Nanosonics (ASX: NAN) submits its second FDA 510(k) for expanded CORIS’s endoscope indications. (NAN)
Nexalis Therapeutics (ASX: NX1) announces a voluntary suspension of securities pending an update on its debt funding facility.
🪑 🍿
Under the Microscope
Under the Microscope
Hi Armchair Army,
Michael Woods here, Chairman of Eyerising International and the CEO of Newburyport Partners.
The Armchair Analyst and I were having a coffee a few weeks ago when I made an observation that he insisted I write down.
It is a pattern I have seen across many medtech boardrooms or pitch sessions, and one I have never seen written about.
Almost every Australian medtech inventor gets exactly one shot at greatness.
That single fact has more predictive power for investment outcomes in this sector than most investors realise.
I want to explain why and what to look for in diligence as a result.
But the TLDR…
Be wary of the inventor who has not yet built a company.
The single-idea inventor is a specific economic species
Many professors and engineers are brilliant, and almost all of them are well-intentioned.
But in most cases, a career in science or medicine has not equipped them with the tools required to build a successful company.
I’ve noticed that founders, typically clinicians or scientists who have spent a career converging on a single viable idea, feel that their invention is a one shot at greatness.
The product is rarely a project they took on as a professional entrepreneur.
It is the crystallisation of a professional identity and biography.
They are not serial entrepreneurs in the traditional sense and typically only have ideas about what is required to build toward a successful medtech exit.
This has predictable consequences:
They are resistant to getting diluted.
They are afraid of losing control to specialists they might disagree with.
They conflate their scientific brilliance with entrepreneurial and executive capability.
Too often, they reach the point in a company's life when the right move is to step back and allow capital and operators with different skills to take over, but they cannot do so.
There is no second venture waiting. There is no template for what comes after.
In fintech, mining or property, the project originator class is dense, visible and constantly regenerating.
Founders exit, find new projects, become angels, sit on boards, and fund the next cohort.
In Australian medtech, that recycling layer barely exists.
The cohort of people who have done it once is small.
But those who have done it once, let go cleanly, and succeeded AGAIN can be counted on one hand.
The corporatised individual career
Prolific founders with a track record are a better bet than first-time founders.
Everyone knows that, but the Australian ecosystem offers so few.
The less obvious observation is when a medtech company has become structurally indistinguishable from one person's career.
When the founder's biography and the company's prospectus describe the same thing in different words, you are not looking at an investment; you are looking at a corporatised individual career.
That is a fundamentally different asset to underwrite.
Biographies can exist, but only on one path. The moonshot. The singular validating outcome that justifies the career.
There is rarely a graceful partial exit.
No acceptance of a good-but-not-great trade sale. No pivot when the original thesis weakens. No cutting of losses and recycling of capital and effort into a better-shaped opportunity.
The founder either reaches the moonshot or they cling.
By the time clinging is visible to investors - and I have written elsewhere about founders desperately hoping for a shrinking window of redemption as their business sinks - the capital has already largely been eroded, and the board has either acquiesced or been replaced.
A Framework: The Diligence Tells
The negative tells are visible if you know where to look.
The founder is the only person who can authoritatively explain the science, and prefers it that way.
Board composition rotates around the founder rather than around the company's lifecycle stage.
Senior commercial hires are deferred for years, or arrive and leave quickly.
Capital raises are negotiated as if dilution is a personal injury rather than a structural necessity.
Pivots are resisted beyond the point at which the original thesis is salvageable.
Succession is not discussed. Not because the founder is irreplaceable, but because the question itself is treated as impolite.
None of these is individually fatal.
Taken together, they signal that the company has not yet separated from the person and that the only available exit is the one most companies do not reach.
The positive tells are equally visible and worth weighing heavily.
Has the founder ever set an idea free before?
Have they willingly accepted significant dilution to bring in operators with skills they lack?
Are they comfortable not being the smartest person in their own boardroom?
Does the founder have a deep and stable team of specialists beyond his own expertise (eg. finance, governance, project management)
Do they describe their company in terms of where it is going rather than where they have been?
Will they pivot when the evidence demands it?
These are not soft cultural questions.
They are direct predictors of whether the company will be governable through a downturn, sellable in a trade process, or capable of absorbing the operators it will need at commercial scale.
The framework applies equally to listed companies.
Listed disclosure makes some of the tells easier to see than they are in unlisted diligence, but it does not make the pathology less common.
You’ll recognise the pattern in companies you already follow.
What good looks like
Abstraction can obscure the point. Let me be specific.
In 2023, Eyeligence Limited (Now Optain Health Inc), where I served as Chair, completed a $20m round led by Aegis Ventures and Northwell Ventures.
This round only happened because of a boardroom conversation I had a year earlier about the worsening capital markets and the need to be flexible in bringing in semi-strategic investors who would likely take the business forward under renewed leadership.
Most medtech founders I know would have resisted those terms, but Eyetelligence embraced them, and a year later, the founders lost their blocking stake and became minority equity holders.
Professor Mingguang He, the clinical and scientific founder, accepted the reality of the situation, and the round closed.
Existing financial investors received significant value uplift and a meaningful secondary liquidity event at a moment when other Australian medtech investors were funding emergency bridging or down rounds.
This outcome was only possible because Ming is a prolific serial inventor.
His next venture, Eyerising International, where I now serve as Chair, was already underway.
Accepting the structural loss on Eyetelligence was bearable because the next venture was in place.
That is the mechanism the framework is pointing at.
A single-shot inventor, in the same situation, sees the loss of the blocking stake as the loss of the only company they will ever build. They refuse the round or worse, negotiate until it dies. The company decays until the window of redemption closes completely.
Ming saw the loss of the blocking stake as the price of crystallising real value for the investors who had backed him, and as the precondition for handing Eyetelligence to the investors best placed to take it forward.
He took it.
We then invited those same investors into Eyerising. Some followed. At Eyerising's most recent valuation raise, those investors are sitting on a very healthy valuation uplift.
That is what serial inventor founding looks like as an investor proposition. It is not "this company."
It is "this founder, whose next company you will also be invited into."
Where this leaves an investor
The practical implication is straightforward and slightly unsentimental.
When you assess an Australian medtech, the science is not the hardest question.
The hardest questions are about the founder's relationship to the company.
Has the founder ever let go of anything before, or is there a history of corporate ‘almosts’?
Is there a board with the standing to make them let go when the time comes?
Will the founders be willing to be diluted by an operator capable of taking the company through its commercial phase, or will every subsequent round be a negotiation with their identity?
These are not questions about character. They are questions about the structural shape of the asset.
They are also the questions that can explain significant variance in outcomes I have observed across boards, funds and capital raises in this sector over the last decade.
If I were making a list of the most under due-diligenced aspects of medtech investments, "founder has done this before and let go cleanly" would be at the top.
It is not a perfect predictor.
But it is a meaningfully better one than ignoring the risk altogether.
The Armchair Take
Firstly, thanks so much, Michael, for that take.
As I mentioned at the top…
At this end of the market. People are all that matter.
And while I think that a founder who is incredibly protective of his capital position is understandable, I always appreciate it when they actually value what they build.
Dilution should be painful.
But I think the two most important assets for any founder are…
Can they surround themselves with good people?
Can they listen?
Good people are hard to find, but if I look at my own picks on the Armchair Analyst, I have naturally gravitated towards those leaders who have done it before.
Will Knox, the CEO of Tetratherix (ASX: TTX), founded uHealth, which Device Technologies acquired in 2017.
Greg Hutchinson, the Chairman of Emyria (ASX: EMD), founded Prime Health Group, a group of occupational health clinics, which he sold to Sonic HealthPlus (and later became CEO there for 10+ years).
Finding leaders who have done it before is a massive tick.
True company builders.
The serial entrepreneurs.
The guys that just get it.
As Michael said, “founders who have done this before and have let go cleanly” understand what it takes to build a company.
It is a big part of my due diligence. Because people matter.
Again, a big thank you to Michael Woods for the piece.
If you want to learn more about Eyerising and its medical device for Myopia, visit the website.
Otherwise, give Michael a follow on LinkedIn. He publishes some good stuff!
See you all tomorrow,
The Armchair Analyst.
