Equity Crowdfunding for Biotech Startups: Does it Work?
When you hear the expression crowdfunding, you may think of platforms like Kickstarter, in which people may pay to get a product ahead of time so as to fund the company that is going to make it. The model has been very effective for many startups, however, biotech companies often follow another strategy where investors receive a stake in the business rather than a product.
Called equity crowdfunding, this model is becoming an increasingly popular alternative for biotech startups to raise the money they need to get their business began. Especially for those in medical areas, where the evolution of a medication can take over a couple of years.
Equity crowdfunding was met with some skepticism previously in the biotech industry, a field where investment in private businesses has traditionally been dominated by venture capitalist investors that are highly specialized in the area. Web Infomatrix The model has been used by biotech companies in Europe for over a decade now, so what is the verdict? Does it actually work?
A useful tool for biotech startups Although biotechs need tens of millions before they can obtain their products to the market, these numbers can make a significant impact at the beginning of the journey of a young biotech startup.
That was the case of Ecrins Therapeutics, a French firm developing new cancer medications that did its first equity crowdfunding in 2015, increasing $660,000. "The project was too early a stage to go and see the institutional shareholders, who normally become interested when the pharmacological projects approach the clinical period and also the investment ticket amounts to a few million euros," Andrei Popov, CEO of Ecrins Therapeutics, informed me. "Crowdfunding, on the contrary Search Engine Marketing Service , is ideal for companies seeking a few hundreds of thousands and is fully compatible with other small-ticket investors, such as business angels."
Fairness crowdfunding biotech startups
The research helped Ecrins get through the animal studies necessary to start its first human identification. The company then went on to perform a second round of crowdfunding that helped it get the regulatory approval to start clinical trials. "After we wrapped up the first fundraising, we kept receiving messages from potential crowdfunding investors who'd missed the opportunity," explained Popov.
Ecrins was funded through the French equity crowdfunding stage WiSeed. Active in a number of other areas of investment Pay Per Click Marketing , the system started supporting startups from the health industry, such as biotech and medtech, in 2015.
"The gap from institutional capital is that we're able to bring them access to funds in the present time in the life span of this company they wont locate any funds," Louise Chopinet, BD Manager in WiSeed, told me. "We are able to take more risk compared to classical VCs."
The Benefits of equity crowdfunding
In comparison to increasing funds from VCs, an integral advantage of crowdfunding is the rate. "Equity crowdfunding is probably the fastest way to raise money," estimates Daniel Oliver, CEO of Capital Cell -- a crowdfunding platform specialized in life sciences that works with businesses in Spain and the UK. Equity crowdfunding provides you with the possibility of getting the funding in anywhere between 1 and 4 months."
"Another benefit is independence. VCs are designed to do larger investments and generally request the company for quite heavy states, meaning that they are able to take around 50-70% of the equity of the company and will normally have a seat on the board." E Commerce Marketing Solution These circumstances can be a problem to attract new investors in later rounds and interfere with the management in a point where the company might need more flexibility. By comparison, equity crowdfunding platforms across different European countries usually take a bet as low as 5% and up to 25%.
This doesn't automatically indicate that equity crowdfunding is always the right choice for a company. VCs, loans and grants may be suitable options for biotechs. In accordance with Laurent, the round complemented cash raised through venture capital and grants, and the organization is currently considering another crowdfunding campaign.
Just having the choice can make a huge difference. "In certain markets, and Spain was one of these until recently, the lack of alternatives has been cornering companies," said Oliver.
The investor's negative
Crowd investors may start investing in biotech startups with just as little as $100, together with the average being in the range of many thousands. Meaning that a corporation may have countless investors in a single crowdfunding round.
These investors might not necessarily be life science experts. "There are some specialists, and then there are the ones that may not know something about biotech, but invest due to an emotional trigger," said Chopinet. "We suggest projects that may save lives."
Healthcare professionals, be it doctors, scientists, pharma managers, consultants, or patent lawyers, are attracted into crowdfunding platforms which support biotech businesses. For these, investing in a region where they know there's a demand can be a way of making the most of their cash. If the company is successful, investors won't only receive a return on their money, but will also have contributed to a return for society.
Nevertheless, investors have to be ready to stay with the company in the long run. "We anticipate to stay between 5 and 10 years at the biotech companies we invest," said Chopinet. "We intervene in the preclinical stage, so we don't expect to depart very soon. It is really an extremely risky and long-term investment"
Equity crowdfunding biotech startups
"It is not something for making the fast dollar, but to really participate in the evolution of the company. In this early stage you have the highest growth potential of revenues, but also in the growth of the value of the company," explained Frank Schwarz, Head of Investor Relations at aescuvest. This German platform concentrates on loan crowdfunding and is presently building a pan-European equity crowdfunding platform in partnership with EIT Health.
There are some notable exceptions. The French firm Antabio, which develops new antibacterials, has been the first biotech company in the world to make a return in crowdfunding back in 2012. The 208 investors exited 18 months following the crowdfunding with a 1.74-fold increase on the original $300,000 increased when a private investor purchased their shares.
As crowdfunding remains relatively new for the biotech industry, many companies that have raised money through crowdfunding have not had an exit yet.
In the end, the companies that get to crowdfund are usually carefully chosen. Platforms such as WiSeed, Capital Cell or aescuvest do an exhaustive due diligence process where specialists evaluate the potential of the company and help them make sure they have the ideal evaluation and strong intellectual property.
Life following crowdfunding
A mutual concern in crowdfunding is if it can dissuade VCs and other private investors from investing in the company in later rounds.
To avoid this issue, equity crowdfunding platforms frequently arrange the investors to some holding that invests in the company as a single shareholder. "We're just another regular investor," explained Chopinet.
Biotech companies have shown no substantial problem raising funds after crowdfunding. A fantastic example is the Parisian company Acticor Biotech.
Crowdfunding is actually beginning to become a means of giving visibility to validating the potential of a business. "I've calls from different investors that ask me I will put money into a specific company and some wait for our view on the project prior to investing," explained Chopinet.
"More and more, VCs are regarding crowdfunding as a evidence that the entrepreneur can communicate and sell this project correctly. Almost every single one of our rounds has had co-investments," said Oliver. "In my experience, it is like having a huge number of ambassadors to your brand."
The near future of equity crowdfunding in biotech
Regardless of the massive impact that crowdfunding has had in the economy, in biotech the uptake seems to have been slower. "It didn't rocket through the roof because the very first day, besides possibly in the UK," said Schwarz.
"There has been a good deal of skepticism around crowdfunding in the past and I believe it actually has been quite great the marketplace developed rather slowly than actually explosively. Organic SEO Marketing It means that we didn't bring in a lot of people which were just fooling around, as it occurred with the cryptocurrency marketplace."
Still, in the last decade equity crowdfunding in biotech has grown its reputation considerably. What was once an unusual fundraising method has now become one more of many alternatives for biotechs to fund their costly development process. "There was the idea that crowdfunding was the last source for businesses which weren't very great," said Oliver. "I would say those people no longer think that."
A challenge that remains, particularly in Europe, is the ability to raise funds across countries. Although EU law permits it, the crowdfunding platforms need to comply with the individual laws of each country and for many of them it is not worth the time and cash. Investors are also
not invited to invest beyond their nation -- for example, UK investors who invest within the UK get large tax advantages that they don't get investing elsewhere in Europe.
However, there are a few attempts in place to begin turning crowdfunding to an global enterprise. EIT Health and aescuvest have just launched a pan-European platform devoted to the life sciences, which will be expecting to open its first crowdfunding effort soon.
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