Crowdfunding in Health Care and Biotechnology

Smaller private companies are constantly in search of capital, but many find it difficult to navigate the step between a “friends and family” round or one with angels and an initial venture round. Crowdfunding has been used in a limited number of examples for life sciences companies, but where is this pathway heading? How should a company look at opportunities for crowdfunding?

During the 12th annual BIO Investor Forum, a CEO moderator, Nicholas Franano of Novita Therapeutics, asked a panel of investors and others about both crowdfunding and other funding pathways. The investor panel included:

Panelists highlighted the role that crowdfunding could play in helping early stage biotechnology companies cross the “valley of death” – when a company’s technology is deemed promising, but too new to validate its commercial potential.

Traditionally, it has been difficult for these companies to raise the capital needed for continued development. However, the recently enacted JOBS Act has made crowdfunding a promising new revenue stream that could help bridge the “valley.”

“What we have traditionally called angel investors are really archangel investors. They’re a very elite group of the angel investors,” Simon said. “They make up 3 percent of the 8 million people who could be investors, or accredited investors… Rather than trying to squeeze more money from the three percent, why don’t we try to get some money out of the other 97 percent?”

Simon sees crowdfunding as a great opportunity for new investors to invest in companies working on therapies close to their heart. Someone who has had an elderly parent with Alzheimer’s can invest in a company working to cure the disease without anyone between them and their decision to invest.

Another benefit, according to Simon, is that more companies will have the opportunity to pursue their areas of research. “The problem is not that companies fail,” Simon explained. “The problem is that not enough companies get a chance to fail.”

On the other side, Pakianathan, doesn’t necessarily see that as a problem. She sees multiple industries plagued by “Me too!” or “Me Better!” ideas. “There are too many people chasing too few ideas… that’s the problem,” Pakianathan said.

Right now, however, there doesn’t seem to be a comprehensive support system in place for companies looking to tap in to crowdfunding. Merickel and Franano pointed to a distinct lack of intellectual property support available for such early stage companies. What claims can and should a company make about their research on crowdfunding platforms? Should they file for patent protections prior to joining a platform? Further compounding this uncertainty is the fact that the SEC has not finalized rules to create the crowdfunding pathway directed by the JOBS Act.

However, if crowdfunding matures into a bridge across the “valley of death” for biotech companies, look for a new ecosystem addressing such questions to develop around it.

 

Learn more about the JOBS Act’s impact on biotech offerings and how emerging companies can leverage the new law to their best advantage in our JOBS Act Deconstructed series.

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One Response to Crowdfunding in Health Care and Biotechnology

  1. Nisha says:

    Crowdfunding would be very useful for new biotechnology company which are just starting up. By crowdfunding, new biotechnology companies will get financial help from new investors which can be very helpful to start up their research company.

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