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Seeding Seedling

The Massachusetts-based Seedling Enterprises Inc. works with inventors who have ideas but don't know how to make them commercially viable. It selects the most promising ones, develops them, and, rather than forming a company, shops them around to potential device acquirers. Venture capitalists typically aren't interested because their targeted markets are too small. While the products may be niche, the returns, theoretically, can be pretty good--almost as good as VC returns, says co-founder Josh Tolkoff.

With venture capital firms increasingly interested only in device start-ups aimed at hundred-million-dollar or more markets, finding backers for new technologies with smaller applications is almost impossible. The problem is that venture capitalists can't exit niche companies—recent IPO markets have been brutal to young companies with demonstrated double-digit sales, let alone those with smaller targets. And, potential acquirers, the big device companies who continually need new products to replenish their portfolios, aren't necessarily willing to pay for a whole company just to get a narrow technology. While they once offered premiums on the expectation they'd derive synergies from such an acquisition, they are no longer as eager to do so.

At least that's the perception of several entrepreneurs who have in the past year started medical device incubators to develop...

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