Is crowdfunding a viable source of capital for biotech companies? μBiome thinks so; they are a startup biotech company that raised $351,193. They asked for $100,000. That’s right; over three times their goal.
“[Crowdfunding for biotech] is an idea whose time has come,” says μBiome’s CEO Jessica Richman. “The fact that we did it is proof of that. We’re the first ones but there will be lots of others.”
Is there a way that crowdfunding could help private biotech companies raise millions? Maybe.
So far all known health and science project successes fall in the thousand-dollar ranges—good, but not even close to what it takes to pull off a research program in biotech. That’s because currently crowdfunding in the U.S. is rewards-based meaning there is a “reward” for making a donation (μBiome offered a tangible reward to donors: data on their own microbiomes.) Alternatively, Equity-based crowdfunding resembles buying stock. The “investor” receives a portion of ownership; but like stocks, equity-based funding is regulated by U.S. rules and regulations. The rules to legalized equity-based crowdfunding are being written by the SEC and it is expected to be fully legalized by January 2014; and when that happens, the sky’s the limit.
Crowdfunding’s primary scope involves funding. But what happens after a campaign? For two companies presented on Medstartr, a donationbased platform focused on health technology that launched in July of 2012, it led to their businesses being bought. This was a direct result of their online campaigns according to the platform’s co-founder Alex Fair, who goes on to say “[Crowdfunding] definitely is a path, and it gets companies across the reef, where they can get stuck in their funding mission.” Analytics from projects posted on the Medstartr site reveal thousands of page views that generated an average of 1.2 news stories and 2.3 partnerships in the last six months. “Those partnerships are key. That’s what makes these companies get to the next new level.”
The funding plight of new biotechs, and historically low success rates in National Institutes of Health research project grants, are big reasons why stakeholders are hopeful about crowdfunding. But analysts see it as complementing, rather than replacing, traditional funding sources in academy and industry. For one, there are potential downsides to crowdfunding, like communicating with a large, unruly shareholder base—a problem that would be especially acute for new companies without dedicated investor relations, says Luke Timmerman, vice president of life sciences initiatives at Xconomy, who has reported on crowdfunding in biotech.
Even so, crowdfunding might be a lifeline. “I think it’s entirely possible that companies could get started this way and raise their first million or two dollars through crowdfunding, if they have a compelling idea and good pitch,” says Timmerman. “If they make some progress in the lab then they can turn some of the more traditional venture capital private equity sources,” he added.
As the industry waits for answers, there are signs of progress overseas: In the UK, the BioIndustry Association is backing the establishment of Citizens’ Innovation Funds (CIF), a system for people to invest up to £15,000 ($24,000) annually, which would be pooled and managed by professional investment managers to support technology and biotech firms.
And in Labège, France, through 200 small investors, the antibacterial drug discovery startup Antabio raised €300,000 in less than three months through the French crowdfunding platform WiSEED. The funding helped Antabio complete proof-of-concept studies for two of its discovery platforms, and a business angel acquired the shares of the crowdfunders allowing them to exit with a profit, notes Delphine Ortega, business partnering manager at the company.