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Crowdfunding: Breathing New Life into Biotech?

The road to market for a novel biotech therapy is among the most expensive, demanding courses for entrepreneurs to undertake, and one of their primary challenges is gaining financial support. Traditional forms of funding include seeking grants, angel investors, venture capital firm backing, or partnerships with other companies. But one seemingly unlikely funding trend has been gaining traction in the life sciences space over the past year, showing promise toward facilitating innovation in biotech – crowdfunding.

Crowdfunding sites differ from typical investing, primarily by sourcing relatively small shares from a wider audience, through the use of various models. Some models are donation-based, others reward-based, but for biotech startups, the most useful model of crowdfunding may be the equity-based approach, for which people pledge a small investment in the company and gain an equity stake if funding goals are reached. The JOBS (Jumpstart Our Business Startups) Act of 2012 has realized this model for biotech startups, by not only expanding limits on the amount small public companies can raise and increasing the potential number of investors, but also by loosening advertising regulations on private investment opportunities.

As crowdfunding platforms continue to grow in popularity and application, innovators and investors are looking to niche markets, such as biotechnology. Some key healthcare sites to note are:

    • Poliwogg, which matches early stage biopharma companies with accredited investors;
    • Microryza, which introduces individual researchers’ projects;
    • Medstartr, a donation-based platform focused on health technology; and
    • Health Tech Hatch, which helps healthcare solutions go from prototype to market.

Crowdfunding may not solely fund R&D startups, but it can certainly provide contributions towards business activities, like developing proof of concepts, prototypes, or small research projects. And while these platforms may facilitate funding and promotion, they can also provide insight into market demand, better informing decisions to potentially enter the regulatory process. Biotech companies that use crowdfunding successfully can quickly grab the attention of venture capital firms and potential industry partners.

It’s exciting to see a fairly new and trendy funding avenue work its way into such highly-regulated industries. While platform market leaders are demonstrating a focus in biotech/biopharma – which are notoriously strapped for cash in early stages – the door is certainly open for growth in other life science sectors, such as medical devices. Time will tell whether the Poliwoggs and Microryzas will be successful, but most agree that the concept is refreshing, and has potential to breathe new life (and money) into the biotech industry.