MedTech Innovation: Creating a Startup Company in Orthopaedics

Abstract

Orthopaedic surgeons are in a unique position to recognize and solve unmet needs in musculoskeletal health. However, the process of innovation in the marketplace is typically taught in business schools rather than in medical schools and residency/fellowship training programs. There is a required base of knowledge, and there are numerous challenges to overcome. Up to 90% of MedTech startup companies fail for a host of reasons. Our study builds on a related 2019 publication in the Journal of the American Academy of Orthopaedic Surgeons and provides a roadmap for innovators in medical devices and related software (a.k.a. MedTech) who want to pursue and market a solution to an unmet need. For all orthopaedic surgeons, an understanding of the MedTech startup process can be useful in gauging the value of newly marketed musculoskeletal devices.

There are numerous areas for improvement in musculoskeletal medicine. Orthopaedic surgeons are in a unique position to identify and solve unmet needs. Creating a startup company is an effective means of pursuing a potentially valuable product to improve patient care. The threat of competition from existing large companies is tempered by their size, divergent priorities, and slow-moving internal processes. Large businesses will frequently acquire startup companies to build and complement their financial and/or strategic portfolios.¹

Bringing a MedTech (medical device and related software) idea to life involves numerous steps and a knowledge base to meet predictable and unpredictable challenges.² Up to 90% of MedTech startup companies fail due to several and oftentimes avoidable reasons (Table 1).^3,4 Healthcare expenditures represent 18.0% of the US gross domestic product (2024), and the industry attracts considerable early-stage funding.^5-7 Venture capital investments alone in MedTech totaled $16.1 billion in 2025.⁸

Table 1.

Reasons for Failure of MedTech Startups

Technology that does not clearly solve an unmet need

A limited market size for the technology

Regulatory hurdles and missteps

A deficient reimbursement strategy for purchasers

A dysfunctional team and/or insufficient skill sets

An unpersuasive value proposition

Inadequate protection of intellectual property

Preexisting and new competition

Insufficient or unfavorable clinical trial findings

Inability to integrate into clinical workflows

A poorly devised business model

Misaligned incentives among stakeholders

A long development timeline

Cash depletion and failure to raise needed funds

Poor sales and market adoption

Premature scaling

Dishonesty

Our study builds on a 2019 publication in the Journal of the American Academy of Orthopaedic Surgeons pertaining to the challenges entrepreneurs encounter in translating orthopaedic technologies into clinical practice.² To illustrate, we present a fictional orthopaedic MedTech startup followed by important knowledge content for commercial success. The startup journey is not as straightforward as this example. The road to success is rarely direct and never without seemingly insurmountable hurdles (eg, fund raising, regulatory approval, reimbursement, and sales).

Estim Bone Sticker

Brad is an orthopaedic surgeon who frequently treats complex fractures with delayed union or nonunion. After primary or revision surgery with implant stabilization and biological grafting, Brad and his orthopaedic colleagues have struggled to achieve consistently high union rates. They have also struggled with patient compliance when using externalized bone growth stimulation devices. Internalized electric current devices are prohibitively expensive and require another operation for removal. Biologic solutions, including bone morphogenic proteins and platelet-derived growth factor, are costly. An inexpensive technology that can ensure patient compliance is needed.

A literature review is completed, and the technology for an inexpensive, implantable, and absorbable battery device that uses direct current to stimulate bone growth is identified.^9,10 The device is low profile and contains an array of microbatteries comprising two different metals that when exposed to surrounding body-fluid electrolytes will create an electric current. The batteries are absorbed within a few weeks with the absorption rates dependent on the metals used (magnesium, zinc, and molybdenum) and the thickness of these metals.

The estimated annual serviceable obtainable market for bone growth stimulator devices in North America is more than $227 million (Figure 1).¹¹ In partnership with the scientist who developed absorbable battery technology for cardiac pacing, Brad sets off to create a battery strip that can be attached to a fracture or bone fusion site and absorb within several weeks. The university technical transfer office is notified because the technology needs to be licensed from the university, and university-owned laboratory resources will be used to adapt the technology for bone healing. After creating a basic prototype, a licensing deal is completed.

Figure 1.

Diagram showing market size for bone growth stimulators. TAM, Total Addressable Market represents worldwide revenue in US dollars assuming no competition and full-market penetration (revenue from devices [electrical bone growth stimulators and ultrasonic bone growth stimulators] and biologics [bone morphogenic proteins and platelet-derived growth factor]); SAM, Serviceable Available Market represents revenue in US dollars from the market segment based on geography (devices and biologics in North America); SOM, Serviceable Obtainable Market represents the percentage of SAM in US dollars that can be realistically captured with the new technology given existing device and biologic competition; estimated SOM is 25% of SAM in North America in 2025; the compound annual growth rate of bone growth stimulator devices and biologics worldwide is estimated at 6.23% from 2026 to 2034.¹¹

With legal assistance, the two founders decide on a company name (Estim Bone Sticker^tm), form as a Limited Liability Corporation (LLC), adopt an operating agreement, establish a board of managers, and determine ownership interests. The team initially bootstraps the venture and obtains Pre-Seed capital from the university and a specialty society grant for a total of $250,000 to create a more robust functional prototype and perform initial animal experiments.

After an exhaustive patent search, unique features of the device are identified that are dissimilar to existing technologies. Brad and his team are confident that they have freedom to operate. The company maintains a detailed design and development file as part of the US Food and Drug Administration (FDA) Quality Management System Regulation (QMSR)¹² and successfully secures two US patents for the strip's design and function. Additional Seed funding totaling $1.25 million is obtained from angel investors, a US government Small Business Innovation Research grant, and the prize money from winning two MedTech pitch competitions.

Clearance from the FDA for eventual marketing in the United States is sought. A Pre-Sub meeting with the FDA Center for Devices and Radiologic Health determines that the device can proceed through the 510(k) pathway for Class II designation using an existing implantable bone healing device that uses electric current as a predicate. The device will require an FDA Investigational Device Exemption (IDE) to complete a clinical study to support safety and efficacy. The implant design is finalized, and an IDE is received.

The team understands the importance of how the device will be paid for hospital and ambulatory surgery facilities. A coding and reimbursement expert is engaged who determines that the device aligns with existing facility and surgeon billing codes for fracture fixation and arthrodesis. The device is expected to be priced low enough to have a minimal effect on bundled payments to inpatient and outpatient surgical sites. Importantly, a new Current Procedural Terminology Category I code for surgeon payment is considered unnecessary because the device will be implanted at the same time as a fracture fixation or fusion operation, and without a meaningful increase in surgeons' work.

A timeline of milestones has been created from the company's start (Figure 2), and a projected cash flow statement is developed with inclusion of the capital needed to achieve these milestones (Figure 3). Additional funding of at least $9 million is deemed necessary for device manufacturing, human trial, FDA authorization, and eventual go-to-market. The company converts to a C Corporation and is successful in raising $12 million of venture capital. A multisite clinical study is arranged at hospitals where there are high volumes of limb fracture and spine surgery cases. Institutional Review Board approvals for the study are obtained, and the implants are manufactured at the university laboratory that abides by QMSR. The study outcomes are favorable, a 510(k) application is submitted to the FDA, and the device is cleared as a Class II device for use in fracture and arthrodesis surgeries.

Figure 2.

Diagram showing fictional startup company's timeline of milestones and expected cash needs. As a rule of thumb, the capital requested should be up to double the projected capital needs given unexpected hurdles. The timeline of milestones is updated as the company matures. FDA = Food and Drug Administration; IDE = Investigational Device Exemption; LLC = Limited Liability Corporation.

Figure 3.

Spreadsheet showing fictional startup company's statement of cash flows that matches the timeline of milestones. The cash flows statement is updated as the company matures. State taxes are excluded in this example for simplicity due to variations in state tax rates. ^a21% federal tax on net income for a C corporation in 2026. FDA = Food and Drug Administration.

The founders and board decide that partnership with an existing fracture fixation implant company is the best way to establish a sales channel and engage widespread surgeon and facility adoption. A large orthopaedic company expresses an interest in acquiring the company for financial and strategic purposes, but only after a certain level of sales are realized to confirm market traction. The company provides initial sales support, and the product is well received. Estim Bone Sticker^tm is sold to the larger company at a 10-fold multiple of the final year's revenue, the university and other investors receive their equity payouts, and the founders agree to work with the acquiring company for a period of 2 years to facilitate the transition of ownership.

The Unmet Need and Product-market Fit

Recognizing an unmet need is the initial step in MedTech innovation. Keys to success include an understanding of the market size, the important stakeholders, who pays, who benefits, and a compelling value proposition. A value proposition is a statement of the unmet need, and the benefits expected from a new solution and forms the basis of the business model.¹³

The market size and existing solutions will require exhaustive research to identify products that serve the same or similar purpose, an understanding of the potential for a new product (ie, total addressable, serviceable available, and serviceable obtainable markets),¹⁴ and interviews with stakeholders. Interviews will ideally continue throughout the innovation process during which the entrepreneur should not present a solution; rather, the interviews should focus on the perceived unmet need and elicit comments that may stimulate solution ideas.

Related or distinctly different unmet needs may be identified in the innovation process. Often, it is wise to pivot and pursue another unmet need and/or solution that has greater promise for commercial success. The terms “fail fast” and “pivot fast” are important to keep in mind to avoid wasting valuable time and resources. There is no shame in recognizing early failure and seeking a new unmet need or a different solution: These are fundamental tenets of entrepreneurship.

Picking the Right Team, Incorporation, and Governance

Finding the right team is another key to success. Knowledgeable people with requisite skills sets, the right motivation, and relevant social networks are required to build the company. Colleagues and friends who lack qualifications may not be suitable; however, they can still contribute valuable support through funding. Term sheets and a capitalization table will define corporate shares for the founders, board members, and future investors.^15,16

Forming a separate legal entity can provide continuity beyond founder involvement when the governing documents are structured to permit ongoing existence and transfer of ownership interests. Forming a separate legal entity can also help separate personal assets from business assets and thereby mitigate personal lability. The process can vary depending on the US state of incorporation. Although an incorporated company can potentially operate across all states, licenses and permits to operate in a particular state may be required.

Most startup companies form as an LLC due to simplicity and pass-through taxation.¹⁷ In the absence of personal guarantees or exceptional circumstances, the owners of an LLC are not personally liable for the company's debts and liabilities beyond their investments in the company. Articles of organization and an operating agreement are prepared, a board of managers is appointed, the official name of the company is registered with the state, and an Internal Revenue Service employer identification number is obtained for banking and tax purposes.

MedTech startups in need of substantial amounts of institutional venture capital will eventually convert to a C corporation because this taxation entity is generally preferred by professional investors and facilitates the issuance of preferred equity and future financing rounds.¹⁷ Legal assistance in crafting incorporation documents is recommended.

Business Model

A business model addresses the important question of how the company will make money and if the anticipated profitability is sufficient to attract knowledgeable investors.^18,19 Many healthcare startups will fail in raising capital because there is no believable business model. Several hurdles facing a MedTech startup are unique, and experienced investors know it. The business model starts with a compelling value proposition and includes all facets of a company required to create, deliver, and capture value as well as a plan for how the company will achieve profitability. Elements include the product category (eg, implantable, disposable, reusable, and service), key partners, costs, pricing, target customers, sales channels, and projected revenue.

Creating a timeline of projected milestones and the capital needed to meet these milestones are key in determining the timing and amount of funds to raise. A believable timeline allows investors to gauge the planned trajectory of the company and assess derisking strategies. Capital infusions are best planned to coincide with notable risk-reduction milestones—for example, design finalization, clinical trial, and FDA clearance. A projected statement of cash flows that matches milestones is necessary. The longer the timeline and the greater the capital needs, the more compelling the business opportunity will need to be to attract investors.

Product Development

Brainstorming solutions to an unmet need should be inexpensive. A device prototype may be devised from readily available objects and materials. A simple mock-up of a digital app with rudimentary animation features or a wireframe drawing of a software program may be effective in conveying the planned functionality. Prototype feedback from stakeholders and rapid iteration are essential.

As the design concept matures, a more robust minimum viable product (MVP) is created for additional stakeholder feedback on the features and design, a.k.a. human factors engineering. A product that will interact with personal health information must comply with the Health Insurance Portability and Accountability Act (a.k.a. HIPAA).²⁰ Insight from a design firm may be helpful to ensure that the device can be manufactured. A nondisclosure agreement at this point may be important before discussing the idea with potential competitors.

The QMSR (codified in 21 Code of Federal Regulations Part 820) is part of the FDA regulatory framework for medical devices and is imperative to initiate early in a MedTech startup journey and update across the entire device/software lifecycle. The QMSR includes a detailed design and development file, management review and internal auditing, manufacturer auditing, labeling and packaging controls, and procedures to address risks and nonconformities (so-called corrective and preventive actions).^12,21

Intellectual Property

Patents provide a powerful form of intellectual property protection by granting the right to exclude others from making, using, selling, or importing the claimed invention for 20 years from the filing date of a nonprovisional application. A provisional patent application may be filed as an initial, lower-cost step to establish an early priority date and lasts for 12 months during which time a corresponding nonprovisional application must be filed to preserve that priority. Obtaining a patent does not guarantee commercial freedom; a separate freedom-to-operate analysis is necessary to determine whether existing third-party patents could block commercialization or require licensing. The Patent Public Search tool and patents.google.com are free web-based search tools for patents and patent application publications.²²

If work is completed in a government facility or in an employment setting that uses the employer's resources (eg, university laboratory), licensing of intellectual property from the employer is likely required. Academic medical centers and universities have a legal team or a technology transfer office that can assist in delineating intellectual property ownership. If one or more scientific papers to describe the new technology are planned, obtaining patent protection before publication is recommended to avoid potential-free use of the technology. An attorney with expertise in patent and trademark law can be helpful at this stage.

Regulatory Authorization

The FDA is an informed partner in the innovation process. Most devices and software solutions in health care will require FDA authorization for legal marketing.^23-27 The regulatory center within the FDA most pertinent to MedTech is the Center for Devices and Radiologic Health. The need for regulatory review should be determined early in the entrepreneurial journey. Assignment of medical billing codes and payer coverage for regulated devices and software are predicated on FDA authorization.

Medical Devices and Software

Medical devices and related software solutions are categorized by the FDA into Class I, II, or III. Class I devices are considered low risk, Class II devices are considered moderate risk, and Class III devices are considered high risk. The FDA process for obtaining a Class I designation necessitates compliance with general controls rather than a formal application. These are baseline regulations applicable to all three device categories and include FDA registration and product listing, labeling for intended use, record-keeping, verification of acceptable manufacturing practices, and reporting of notable adverse events. The FDA process for a Class II or Class III device is more involved and requires a formal application with documentation of safety and effectiveness.

The FDA provides a free Product Classification Database to assist innovators in determining the most appropriate application pathway.²⁸ For artificial intelligence-enabled technologies, there is an evolving regulatory framework that needs to be understood.²⁹ Early engagement with the FDA through the Q-Submission program (a.k.a. Pre-Sub meeting) can be highly valuable. A Pre-Sub meeting is free and allows sponsors to submit specific regulatory, testing, and clinical questions in advance and receive written feedback, often reducing the risk of downstream regulatory uncertainty and a costly redesign.

The FDA regulates some software solutions in health care as “software as a medical device” or “software in a medical device.” The FDA definition of a device is found in section 201(h) of the Federal Food, Drug, and Cosmetic Act: a diagnostic, therapeutic, or preventive product that does not work through chemical or metabolic action. If the software is predictive or prescriptive, or if the software controls the function of a regulated hardware device, FDA authorization will be required. The eventual classification (Class I, II, or III) will depend on the perceived risk.

The product design is finalized before regulatory submission: Material design changes after submission may require FDA notification or review. Many surgical devices (eg, fracture fixation implants) have gained FDA clearance as Class II devices through the 510(k) pathway by adequate testing and comparison with Class II device predicates. A predicate is a substantially equivalent and marketed device that has gained a Class I or Class II designation. The De Novo pathway is available for novel, low-to-moderate risk devices that do not have a legally marketed predicate. If the FDA approves a De Novo application, the device is classified as a Class I or Class II device.

The terms “FDA-cleared” and “FDA-approved” have different meanings. The term “FDA-cleared” applies to medical devices and related software that have entered the market through the 510(k) pathway, securing Class II status. Some Class I medical devices (eg, powered wheelchairs) are categorized as “reserved” by the FDA due to risk and require 510(k) pathway authorization. High-risk medical devices (Class III), such as heart valves, are designated as “FDA-approved” if successful in the premarket approval (a.k.a. PMA) process. The 510(k)-clearance pathway is not available for devices requiring a Class III designation.

The FDA Breakthrough Devices Program was created to expedite the development and evaluation of medical devices that have the potential to provide more effective diagnosis or treatment of life-threatening or permanently debilitating diseases.³⁰ A breakthrough device may be considered high risk and require a Class III PMA application pathway, but with expedited review and feedback.

Studies and Clinical Trials

The FDA specifies the testing and studies required for medical device or software authorization (Table 2). In a 510(k) application for a device that is deemed minimal risk, an IDE and clinical testing may not be required.³¹ A 510(k) application for a device that carries greater risk, a Class III application, or a De Novo application will require clinical validation. Engaging a Contract Research Organization can be helpful in the design and coordination of clinical studies, including study sites and Institutional Review Board approvals.

Table 2.

Validating Research for Food and Drug Administration Clearance or Approval

FDA Category	Human Risk Level	Testing Requirement	Clinical Study Requirement	Example
Class I (device)	Low	Performance, +- biocompatibility, +- sterilization	+- Clinical studies	Gauze, surgical forceps
Class II (device)a	Moderate	Performance, +- biocompatibility, +- sterilization, +- electrical safety, +- electromagnetic compatibility, +- human usability, +- animal studies	+- Clinical studies	Joint replacement implant with a predicate
Class III (device)a	High	Performance, +- biocompatibility, +- sterilization, +- electrical safety, +- electromagnetic compatibility, +- human usability, +- animal studies	Clinical studies, +- postmarket studies	Osseointegrated prosthesis, implanted pacemaker
DeNovo (device)a	Low or moderate	Performance, +- biocompatibility, +- sterilization, +- electrical safety, +- electromagnetic compatibility, +- human usability, +- animal studies	Clinical studies, +- postmarket studies	Implanted bone healing monitor and software

FDA = Food and Drug Administration.

^aMay require Investigational Device Exemption for use in clinical study.

Adverse Events and Recalls

Reporting to the FDA of adverse events related to a MedTech device is required of manufacturers, encouraged for physicians, and voluntary for patients. Device manufactures report issues that could pose a risk to patient health through the Manufacturer and User Facility Device Experience database (a.k.a. MAUDE).³² Physicians and patients report adverse events for devices through the online MedWatch portal.³³ There are three classes of recalls based on the perceived level of risk to public health: Class I recall (highest risk), Class II recall (moderate risk), and Class III recall (low risk). A recall may involve removing a product from distribution or use, correcting a product, or notifying consumers and healthcare providers of concerns. The FDA will eventually audit a startup company's QMSR documents for compliance.¹²

Regulatory Processes in Other Countries

If planning to sell a MedTech solution in another country, an understanding of the regulatory environment in that country in advance of seeking marketing approval is necessary. The QMSR went into force in February 2026, replacing the Quality System Regulation which was established in 1996. The QMSR improves US alignment with the European Union MedTech regulations, primarily by incorporating the International Organization for Standardization 13485:2016 to enable a more unified quality management system.

Obtaining Payer Coverage

For devices and software solutions that require reimbursement for the purchaser, billing codes are necessary. In addition, payers must agree to provide coverage for these codes. Medical coding is complex and may require the expertise of a specialist in this area. Four categories of codes applicable to medical devices and software are included in Table 3.^34-37

Table 3.

Coding Systems Used in Payments for Medical Devices and Related Software

Coding System	Purpose
HCPCS Level I (a.k.a. CPT Category I)34	Physician service and procedure payments; factor into correct APC code assignments
HCPCS Level II35	Durable medical equipment and certain drug payments
APC36	Ambulatory surgery facility payments
MS-DRG37	Acute care hospital inpatient payments

APC = Ambulatory Payment Classification; CPT = Current  Procedural Terminology; HCPCS = Healthcare Common Procedure Coding System; MS-DRG = Medicare Severity DiagnosisRelated Group.

Securing coverage from the Centers for Medicare and Medicaid Services for billing codes in Medicare and Medicaid claims can be an important step in prompting commercial insurers to extend their coverage for the same billing codes. In 2024, the Centers for Medicare and Medicaid Services issued a notice outlining a new Medicare coverage pathway for FDA-designated Breakthrough Devices termed Transitional Coverage for Emerging Technologies Pathway.³⁸

Raising Capital

Funding Types

The capital required to bring a Medtech company's solution to the marketplace can be either dilutive or nondilutive. Dilutive funding requires giving up part-ownership (ie, equity) of the company. Nondilutive funds (eg, grants) do not require repayment but frequently necessitate progress reports.

Bootstrap funding of a startup relies on the founders' personal funds. Early-stage funding that is obtained in exchange for equity is termed “Pre-Seed” money and can be obtained from the founders, their families and friends, and angel investors. Subsequent early-stage funding (so-called “Seed” money) can be secured from pitch competitions, angel investors, crowd sourcing, venture capital, and grants (eg, Small Business Innovation Research grant). Later capital raises are termed “Series” and are typically sourced from venture capital firms.

Experienced legal counsel is required to craft or negotiate the most appropriate terms for investors that reflect the company's stage, risk profile, and growth potential. Early-stage financing may take the form of equity investments (eg, preferred shares), convertible instruments (eg, convertible debt), or Simple Agreements for Future Equity (a.k.a. SAFE notes) which convert into equity in later financing rounds depending on the company's structure. A capitalization table shows the breakdown of equity ownership and is used to model how additional investments dilute existing stakeholders.¹⁶ The further along the MedTech journey, the lower the expected return on investment for later-stage investors.

Incubators and Accelerators

Healthcare incubators and accelerators can be valuable resources for building and funding entrepreneurial ventures.³⁹ Incubators focus on startup companies that are in the product development phase, whereas accelerators focus on helping the growth of startup companies that have a defined product. Both incubators and accelerators may offer physical space with close access to other entrepreneurs and a network of venture investors. In addition, some provide capital. Many universities and academic medical centers have resident incubators and host their own or external accelerators.

The Pitch

A concise pitch is an important component in raising capital from all sources. A PowerPoint pitch deck is often preferred over a formal business plan document.⁴⁰ Potential investors need to understand the key business elements in a succinct manner (Table 4). Additional information can be incorporated in a “leave behind” deck for interested investors. The pitch presenter(s) will need to clearly articulate their company's risks and be able to explain how these risks have been or will be addressed.

Table 4.

Contents of a MedTech Pitch Deck for Startup Competitions and Investors

Management team and company name

Short humanizing story

Value proposition

Description of solution

Market size

Intellectual property and freedom to operate

Research and development

Regulatory authorization

Payer coverage

Business model

Company exit (acquisition)

The monetary “ask” from investors

Manufacturing a Device

An Original Equipment Manufacturer may be required for device manufacturing. A manufacturer will need to follow the FDA QMSR to ensure quality and safety standards.¹²

Sales, Advertising, and Distribution (Go-to-market)

The entrepreneurial journey may take several years before sales are realized. In the evolving paradigm of value-based care, a device or related software solution that provides improved outcomes at a similar or lower cost than a competitor's solution is preferred (Figure 4).

Figure 4.

Diagram showing a purchaser's assessment of comparative products.

The target customers for sales will depend on the product. Customers may be other businesses such as hospitals (so-called B2B sales) or the population-at-large (so-called B2C sales). Web-based and print advertising, educational conferences, and in-person device demonstrations are a frequent means of advertising. Physician key opinion leaders can often stimulate product interest.

Sales channels include in-person, on-line, and brick-and-mortar stores. The appropriate sales channel will depend on the MedTech product. If a new device or software solution has a marketed predicate, incentivizing a vendor familiar with the predicate to promote use can be effective. If high-level technical training is necessary (eg, a joint replacement robot), a more expensive employed sales force may be necessary.

Company Growth

Few startup MedTech businesses grow long-term on sales alone. A startup with a desirable product(s) will often be acquired by another company. This can be a favorable situation for all stakeholders, including patients who will benefit from product continuation and refinement. A startup could be purchased by another company, and the product discontinued as a strategy to defend an existing product line. A small fraction of startup companies maintain independence and grow to the point of requiring public capital on a stock exchange for continued expansion (ie, Initial Public Offering).

Summary

Creating a MedTech startup company can be an impactful means for orthopaedic surgeons to improve patient care. Important elements in the journey are the team, the projected market, and the business model. Ultimate success requires an understanding of the process and perseverance.