Biotech startups are increasingly turning to crowdfunding rather than venture capitalists - and it's working. For example, according to an article published on SFGate.com, Exogen Biotechnology recently raised $50,000 in just ten days using Indiegogo. Startups love crowdfunding because they give up much less control (and equity), and they are able to raise substantial amounts of money in the process.
While the benefits of biotech fundraising are compelling, a few trends are driving its growth:
-Risk-adverse investors - The recession's effects are still being felt, and investors have become reluctant to fund biotech startups due to uncertainty surrounding FDA approval.
-Limited access to capital - Whether investors are risk adverse or simply looking elsewhere, biotech VC funding has remained flat for several years. A survey by Fenwick & West suggests that VC funding will remain flat or decline further in the near-term. With fewer investors, biotech startups must get creative with their biotech fundraising. Sites such as Indiegogo, VentureHealth, MedStartr, AngelList, and RocketHub allow them to do just that.
-Citizens who want to "do something" - If a loved one suffers from a rare disease that tends to be ignored by researchers in favor of more common or deadlier diseases, wouldn't you want to do something about it? Biotech fundraising via crowdfunding sites has its appeal to citizens who are touched by these diseases. By supporting a promising biotech startup, they are helping to find the cure. In this sense, biotech fundraising has the potential to be win-win-win.
Biotech Fundraising Challenges
Biotech fundraising has its challenges though. It's not a simple matter of creating a crowdfunding campaign and watching the dollars flow in. Startups need to:
-Build a compelling pitch - Investors need a good reason to support any startup. This is true no matter how you approach fundraising.
-Establish credibility - You need to show that your startup has the expertise and systems in place to excel.
-Give something back in return - Will your campaign solicit donations only or will you offer some sort of incentive?
-Comply with applicable regulations - Biotech fundraising is subject to various securities regulations including the JOBS Act which eases some of them.
-Ensure confidentiality - Biotech fundraising often means sharing confidential information with investors. With crowdfunding, you generally have larger numbers of early investors than you would with traditional VC fundraising. For example, Exogen Biotechnology's Indiegogo campaign raised $50,000 from 300 investors. Know what type of information you are requires to share with the masses and how you will protect the integrity of your information.
Biotech fundraising is a viable alternative to traditional fundraising, but it's not without its challenges.
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