What Epitel Learned Raising $20M After Years of Grant Funding

The advice kept coming: start with a small seed round, maybe $1.5-2 million, then ladder up. It was wrong advice, but Mark Lehmkuhle didn’t know that yet.

In a recent episode of Category Visionaries, Mark Lehmkuhle, CEO and Founder of Epitel, a brain health technology platform that’s raised over $20 million, revealed a fundamental mismatch between how most founders think about fundraising and what actually works for companies with decade-long development timelines. After years of building on government grants, Epitel eventually raised over $20 million in their Series A—skipping the traditional seed stage entirely. The lessons from this unconventional path reveal structural truths about funding strategy that most founders only learn after several failed fundraising attempts.

The Structural Mismatch

Epitel’s founding team consisted of four engineers with deep technical expertise but zero commercialization experience. They were building a medical device that required FDA clearance, years of data collection for AI training, and extensive validation across multiple environments. The traditional seed funding playbook didn’t just fail them—it was fundamentally incompatible with their business model.

“At the time when were grant funded, I would say that were getting a lot of bad advice of, oh, you should go through, you know, kind of seed stage investors, seed stage investors, when really our NIH grants were that seed stage for us,” Mark explains.

The problem isn’t that seed investors are bad—it’s that they’re optimized for a different timeline. Seed funds expect exits within 7-10 years, which means they need to see commercial traction within 2-3 years to maintain confidence. For a medical device company starting with four engineers who’ve never commercialized anything, that timeline is fantasy.

“Any seed stage investor is just not going to see the return on that investment for a long period of time,” Mark notes. This isn’t about investor patience—it’s about fund economics. Seed funds can’t hold investments for 15+ years and still return capital to their LPs within a reasonable timeframe.

Why Grants Work as Seed Capital

The NIH’s Small Business Innovative Research (SBIR) program became Epitel’s entire early-stage funding strategy. This wasn’t plan B—it was the optimal path for their specific situation. “We successfully did it on ninds grants and a few grants from the epilepsy foundation that allowed us to develop this technology and take it through the FDA. And it was all non dilutive,” Mark recalls.

Grants offer something venture capital fundamentally cannot: patient money with no expectation of near-term returns. The trade-off is significant—grants are smaller and development is slower—but for companies that need to prove regulatory competency before attracting institutional capital, this trade-off makes strategic sense.

The constraint grants impose is actually valuable. “It really, as a Founder, allows you to dig in and really think about what you’re developing. You know, who are you developing it for? Why are you developing it? What’s the value proposition? The whole package,” Mark explains. Without the pressure to scale prematurely, Epitel could focus on solving fundamental technical and regulatory challenges that venture-backed competitors might try to shortcut.

Proving Competency Before Fundraising

For Epitel, FDA clearance wasn’t just a milestone—it was the proof point that made institutional fundraising viable. “For us, to be interested by investors, we kind of really needed to get this product through the FDA to show these institutional investors that we could do something like this, because, again, were four engineers. None of us had ever commercialized anything ever before,” Mark explains.

This creates a chicken-and-egg problem that grants uniquely solve: you need credibility to raise institutional money, but you need money to build that credibility. Traditional seed investors might fund the attempt, but they’re unlikely to wait the 5-10 years it takes to actually achieve FDA clearance, especially if the team has no track record.

Grants allowed Epitel to de-risk the single biggest question investors had: can this team actually navigate FDA approval? Once they had that answer, the conversation with institutional investors shifted from “can you do this?” to “how fast can you scale this?”

Finding Investors Who See the Long Game

When Epitel finally did raise institutional capital, they targeted investors who understood medical device timelines or had experience with other long-development businesses. “It really took our board members to make these warm introductions to the type of investor that can see that long game and has the wherewithal to be able to do that. They’ve done it before. They know what it takes to develop a medical device and they’re in it for the long haul,” Mark explains.

The company found investors in two categories: those with medtech experience who understood device development timelines, and those from adjacent spaces like biotech who were accustomed to decade-long development cycles even if they hadn’t specifically done medical devices.

“One of our investors is primarily a biotech investor that I’m pretty sure were their first medtech investment,” Mark notes. “So that’s looking more towards, we understand how long it takes to develop and we can see the vision.”

This reveals an important principle: sector expertise matters less than timeline alignment. A biotech investor who expects 10-15 year development cycles is a better fit than a medtech investor who typically invests at later stages and expects commercial traction within 2-3 years.

The Strategic Investor Advantage

Epitel also brought in strategic investors—existing medtech companies who had successfully navigated similar paths. “We also have some what we call strategics that are med tech companies who have invested in us, that have been there, done that, and they see the value proposition, whether it’s specifically for use in the hospital emergency department or for home monitoring, and can see this direction over the counter,” Mark explains.

Strategic investors bring more than capital—they bring pattern recognition about what works in medical device GTM, relationships with hospital systems and neurologists, and credibility that helps in both future fundraising and customer acquisition. For a first-time founder navigating medical device commercialization, this operational knowledge can be more valuable than the capital itself.

When to Make the Jump

The critical question for founders considering this path is: when do you transition from grants to institutional capital? Epitel’s experience suggests the answer is when you’ve proven the core risk that makes institutional investors hesitant.

For a team with no commercialization experience building a regulated product, that risk was regulatory approval. For other companies, it might be proving a novel manufacturing process works at scale, demonstrating clinical efficacy, or showing that users will actually adopt the device in real-world settings.

The framework isn’t about hitting specific metrics—it’s about identifying what makes institutional investors say “this is too risky” and using patient capital (grants, revenue, or strategic partnerships) to eliminate that specific risk before fundraising.

The Size of the Jump

One counterintuitive aspect of Epitel’s strategy was the size of their Series A. Rather than raising progressively larger rounds, they jumped from grants directly to over $20 million. This made sense because medical device commercialization has high fixed costs—regulatory affairs, quality systems, commercial infrastructure, and initial inventory don’t scale linearly.

“I wanted to raise this 20 million, but people were saying, oh, no, you should start off at, you know, one and a half million or 2 million,” Mark recalls. That advice would have meant raising multiple rounds before commercialization, each requiring proof points that might take years to generate in a regulated industry.

By waiting until they had FDA clearance and could articulate a clear path to revenue, Epitel could raise the capital needed to actually commercialize rather than just fund the next validation study.

The Framework for Patient Capital

Mark’s experience reveals a framework for thinking about funding strategy in long-timeline businesses:

Match your capital source to your development timeline. If you need 10+ years to commercialize, traditional seed investors are structurally misaligned—their fund economics don’t support that timeline.

Use patient capital to prove the risks that make institutional investors hesitant. For regulated products, that often means proving regulatory competency. For novel technology, it might mean proving technical feasibility.

When you do raise institutional capital, find investors aligned with your actual timeline. Sector expertise is valuable, but timeline alignment is essential.

Consider jumping directly to a larger round rather than laddering up through multiple small raises. In capital-intensive industries, small raises just create more fundraising cycles without enabling meaningful progress.

For founders building in regulated industries or other spaces with inherently long development cycles, Epitel’s path offers a roadmap that contradicts conventional startup wisdom but matches the reality of what these businesses actually require. Sometimes the best seed round is no seed round at all.