Crowdfunding has seen a huge rise in popularity in recent years becoming an increasingly important means of financing for early stage companies.
Between 2014 and 2015, its use increased by 295% in the UK. By 2020, it is expected to overtake VC funding in Europe, which has long been considered the backbone of early stage investment. But among the success stories, there’s been criticism too. In 2015 for example, the UK’s Financial Conduct Authority (FCA) warned investors in equity crowdfunding that they could lose all their money.
In life sciences where there are high risks, perceived heavy capital needs and long development timescales, there is therefore scepticism about whether crowdfunding is right for this market.
However, following several years of very challenging funding conditions, the early stage biotech sector needs to consider all sources of alternative financing – including crowdfunding.
The possibility of raising cash quickly is one of the biggest benefits of crowdfunding.
Start-up Eyebrain is one example. It has developed an eye test for checking for neurological and psychiatric disorders and raised its first tranche of money in just three months. Fundraising via venture capitalists would usually take nine months.
Marc Lemonnier, the founder of Antabio, a Toulouse-based drug developer, and the only biotech firm in the world to achieve a successful exit for its investors after crowdfunding, has also stated that the process is “fast and simple” and a good practice run for raising larger sums later on.
Growing platforms and opportunities
Since 2014, the number of online sites specialising in life sciences has increased, sparked by the success of US sites such as Poliwogg and Medstartr.
In Europe, the most successful fundraising platforms for life sciences are in the UK, France and Germany. Leading the way for the UK, is Syndicate Room, which benefits from its ties with Cambridge life sciences networks.
The average amount raised in life science campaigns in Europe is about £400,000, but about 10 biotech and medtech companies have succeeded in raising £1 million or more, including the UK regenerative medicines specialist Cell Therapy, German drug developer Riboxx, and French medtech Eyebrain.
Recent success stories include Capital Cell which has raised £3.77 million for early stage companies, completing 14 successful campaigns. Investors have already begun to see substantial returns.
In January 2018, iQX Limited, part of iQ Group Global, announced Capital Labs, a business of its subsidiary company, as one of the first ASIC-authorised equity crowdfunding platforms in Australia. Capital Labs is a first-to-market platform, dedicated to biotechnology and life science crowdfunding investments.
Its CEO sees equity crowdfunding as the first step to preparing for a listing on a biotech-friendly stock exchange, which will also provide the first round of investors with an exit opportunity.
Top tips for crowdfunding a biotech
Crowdfunding isn’t without its drawbacks – communicating with a crowd can take a lot of time and there are concerns about the lack of risk appraisal or value that could be added. But at a time when fundraising continues to be a major challenge for biotech companies, alternative finance could be a viable option.
For those considering this route, here are our top tips:
- A crowdfunding campaign involves telling a story to the public – they will have a different approach to institutional investors so consider your message carefully.
- Seek to “cornerstone” your raise in advance as much as possible. The hardest part is the first £100k or so and then the momentum builds quickly.
- Choose your chosen platform carefully. Take references. Understand what a long-term relationship with that platform – and their underlying investors – will look like.
- Work with your chosen platform – the people behind it will know better than anyone what works and what doesn’t on their platform.