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Pathfinder Inc

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Pathfinder Inc. is developing a prototype for an image-guided surgery device. Pathfinder needs further financing. Based on the people, the opportunity, the context, and the deal, Pathfinder is ready to proceed and should approach VC’s for further funding.


Pathfinder’s IGS product is in its R&D phase and requires a substantial sum of money to work towards a completed product. PTI raised $1.1 million in a SBIR and $1.1 million in a 2005 round of Seed Financing. The terms of the 2005 round Seed require Pathfinder to raise a substantial sum of $3-5 million, making external funding a necessity. PTI can approach VC’s and issue equity, or PTI can approach banks and finance their work through more debt. “Companies that have debt outstanding are more likely to find themselves in a position in which they are financially weak and therefore vulnerable” (“The Financial Perspective”, Sahlman p. 15), and debt financing increases the risk to which shareholders are exposed. The downside of debt financing in addition to Pathfinder’s capital structure makes equity financing a necessity.

PTI’s 2005 round of Seed Financing is a note convertible to preferred stock. If PTI does not currently have a call option for the convertible note, PTI should renegotiate in an attempt to create a call option. This option will allow Pathfinder to purchase the converted stock at a later time.

The People

Every good venture needs a team of individuals with “the right experience, skills and attitudes, given the nature of the opportunity, the context, and the deal struck.” (“Some Thoughts on Business Plans”, Sahlman p. 3). PTI has a strong team of medical and business professionals. Dr. Bob Galloway, one of PTI’s founders, is not only a Professor of Biomedical Engineering, but also a Professor of Neurologic Surgery and a Professor of Surgery at Vanderbilt University, a highly recognized medical University. PTI’s other founder, Jim Stefansic, is a Master’s student at Belmont, a “Top Ten” business school! PTI built a team that boasts great strength in the necessary aspects of this company type. The people are an excellent fit. As PTI develops further, it is important that they proactively recruit highly qualified individuals to contribute to their already competent team.

The Opportunity

There must be a large market opportunity for the product or service a company is to substantiate VC investment. The best markets are the “large or rapidly growing markets”, as these markets are often easier to obtain a large share rather than having “to fight with entrenched competitors for a share of a mature or stagnant market.” (“Some Thoughts on Business Plans”, Sahlman p. 3). PTI is in the healthcare market, which is and has been one of the largest markets in the U.S., with consistent growth and total yearly expenditures projected at $1.9 trillion for 2005. “Venture capitalists are usually looking for an enterprise that has the potential to grow to a significant size” and generate a substantial ROI (“Venture Captial”, Bagley and Dauchy p. 26). PTI projects considerable growth and profits of 3 to 8 times their revenue.

PTI found a niche within a niche in the healthcare market. They took the IGS niche to the next level with a product that goes beyond the rigid body applications already in use. Barriers to entry for a medical device such as PTI’s device are high, and the novelty of PTI’s product reduces the risk of facing an entrenched market. There are currently no comparable IGLS products on the market such as that of Pathfinder’s product. Furthermore, PTI is farther along in their research than the few other companies conducting soft-tissue research, and Pathfinder’s exclusive license to Vanderbilt intellectual property gives them a leg up on the competition.


The context of the business deals with the factors that affect the outcome of the opportunity, but that are generally outside the direct control of management. Externally, the healthcare market will always be a large and growing market in the U.S. People will always need healthcare, and the American standard of healthcare calls for the best equipment and procedures available. Pathfinder’s IGS is in an excellent position to fulfill a need/want within the massive healthcare market. The threat of substitutes at this time is fairly low in that there are relatively few companies researching IG liver surgery, and Pathfinder is farther along than any that are researching IG liver surgery.

The FDA presents an obstacle for the IGLS system. Pathfinder must complete validation and verification tests demonstrating the safety of the IGLS system. The FDA can be unpredictable in its assignment of clearance for medical devices. Although the actions of the FDA are ultimately beyond Pathfinder’s control, Pathfinder addresses the issue by actively recruiting employees with considerable experience in dealing with the FDA.

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