It's a tough road ahead for Minnesota's medical device start-ups, whose lifeblood is fueled by investment money from venture capital firms.

With government regulators becoming more strict, skittish investors are fretting about the lengthening amount of time it is taking to bring new inventions to the market.

They are betting on more mature start-ups, which is making it making it more difficult for early-stage firms to raise capital.

Four executives from venture capital firms discussed the challenges facing their industry in a Thursday roundtable discussion organized by the Collaborative, an organization that links entrepreneurs with investors. The exclusive event was a preview to the annual Minnesota Venture & Finance Conference this fall.

Panelist Joy Lindsay is president of StarTec Investments, which invests in early-stage tech companies. Michael Gorman is managing director at Split Rock Partners, a venture firm that invests in health care, software and Internet service companies. Ed Spencer Jr. is chairman of Affinity Capital Management, a venture capital firm that invests in health care companies. And Buzz Benson is managing director with SightLine Partners, which puts money in later-stage medical device firms.

Dan Carr, CEO of the Collaborative: We're coming back from the deepest recession in decades. Are there some longer-term challenges for venture capital and capital formation in this country?

Gorman: Until we're at the spot where dollars raised either exceed or are matched by dollars invested, we're still depleting the capital pool that's going into innovative companies. The industry has not yet completed the contraction, but I think the pace and that matching is getting closer.

From a more local basis, there are a number of experienced investors who are raising additional capital. Those of us who have gone through the money-raising process expect them to be successful because we know that the dollars are being concentrated in the hands of experienced investors.

Carr: Buzz, you're creating a new $100 million fund. Give us some background on the industry and specifically, the opportunity in our largest venture investment cluster -- health care.

Benson: Years ago, you might have been able to take a company public or get acquired after FDA approval. Today, the acquiring companies are looking for companies that have commercialized products.

People around the table have to fund these companies for a longer period of time, and the greater syndicate risk is also being amplified by fewer funds being raised, and there's fewer institutional investors targeting health care funds. This cycle is going to take a number of years in the med-tech space to wind down.

The positive thing is that all of the large med-tech companies have single-digit growth. There is going to continue to be a very vibrant [merger and acquisition] market for many years to supply the growth, new products and new platforms that the med-tech companies need.

Carr: What are challenges that are on the regulatory and reimbursement fronts in med-tech?

Spencer: The biggest challenge for med-tech investing now is the lack of predictability on what the FDA process is going to be and whether you can get your product paid for in the marketplace. It's really hard to calibrate how much money it's going to take to get some of these companies where they need to go. The way we look at it, it's going to cost on average $150 million to get a company through the entire PMA [pre-market approval] process.

Your [exit valuations] have to be $500 million or more to make the economics make sense.

Benson: The institutional investors are not looking for locking up their money for a long time. The 10-year fund has become the 12- or 14-year fund. The institutional investors are really looking at if I'm going to put money into this space, how am I going to shorten that length of time that I'm committed to? That's the real challenge in the industry.

Lindsay: I worry about all the angel investors -- all of us not [being] spring chickens here, are we going to be alive to see the exits at the other end? I don't know.

Wendy Lee • 612-673-1712