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Biotech crowdfunding paves way for angels

Crowdfunding is coming to biotech. Credit: iStockphoto

In October, French crowdfunding platform WiSEED marked the first crowdfunding success for the biotech industry when it rewarded 200 initial small investors with a profitable exit. WiSEED, an online collective investment platform dedicated to biotech startups located in Toulouse, helped antibacterial drug discovery firm ANTABIO based in Labège raise seed funding from individual investors. A second investment from a business angel has now given initial investors their exit.

A similar initiative has been proposed in the UK to help plug the industry's early-stage funding void. The BioIndustry Association (BIA) is advocating the establishment of Citizens' Innovation Funds (CIF) to tap the growing desire of the general public to help innovative businesses grow. The system would allow individuals to invest up to £15,000 ($24,000) a year, which would be pooled into funds managed by major banks and others, to support high tech companies, including biopharma that offer the potential of an attractive return. “It's a way of engaging citizens in the industries that make a difference to them,” says Steve Bates, chief executive of BIA.

The proposal offers a tax break deduction of 40% of the amount invested and tax-free returns. Only 60% of the capital would go into innovative startups, as a way to mitigate risk. Some funds might be limited to a specific industry, taking advantage of fund managers' expertise, whereas others would likely take a broader focus, potentially focusing on a city or region to promote investors' patriotism for their home city. Although individual investors wouldn't determine the specific companies that received funding, the prospectus of the CIFs they choose to invest in will determine the characteristics of companies funded. Some funds might get very specific, established by charities championing a specific disease.

For biotechs, CIFs would offer much-needed capital, potentially with a longer time horizon than traditional venture capital funds with limited partners that expect distributions after ten years or so. The BIA is working with the UK Parliament to integrate the proposal into the annual finance bill, which would put it into the legislative program in a year to 18 months.

In the US, the Jumpstart Our Business Startups (JOBS) Act authorized equity-based crowdfunding (Nat. Biotechnol. 30, 478, 2012). But the Securities and Exchange Commission (SEC) still has to weigh in and set guidelines for who can invest, how much they can invest and other rules governing this social networking approach to investment. While waiting for the SEC, Alex Fair founded New York–based MedStartr, a crowdfunding platform for biotechs and other healthcare companies. Until the SEC establishes the rules for these initiatives, organizations are limited to accepting donations or giving rewards in exchange for individual contributions, much like creative projects do on crowdfunding site Kickstarter. Projects have raised about $55,000 on MedStartr's website since its launch in July, but Fair says the added exposure from being on MedStartr has helped companies raise $2.7 million off the website. Once the SEC establishes the rules for crowdfunding, MedStartr could allow companies to offer equity stakes to individuals on the website, although Fair expects that the SEC may still set a high threshold for an accredited investor to protect citizens from “gambling away all their savings” on high-risk investments.

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Orelli, B. Biotech crowdfunding paves way for angels. Nat Biotechnol 30, 1020 (2012).

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