Amid all the controversy about equity crowdfunding, its pros and cons and risks and rewards it would be understandable if one got the impression that the concept is purely about finance – and nothing but the finance.
Actually, nothing could be further from the truth. As I’ve often said, what particularly excites me about the concept is that equity crowdfunding enables the small or novice investor to ‘dip a toe in the water’ – to invest as little as £10 perhaps – and to enjoy actively supporting a business idea that’s caught your imagination. The retail investor can practice and hone their skills on good causes without breaking the bank if the investment fails.
Taking that notion even further, I found FT Pharmaceuticals Correspondent Andrew Ward’s article (Biotech Company Hits Crowdfunding Record for Life Sciences – FT.com, 8th February 2015) fascinating. Founded by Nobel prize laureate Martin Evans, Cardiff company Cell Therapy has raised almost £700,000 for the further development of its pioneering heart disease treatment –a UK record figure that’s among the largest amounts raised through crowdfunding by a drug development company worldwide.
According to the article, this is the third example of crowdfunding in European healthcare that week after, a French medical diagnostics company called EyeBrain raised €1.3m and Scottish start-up Parkure amassed a cool £60,000 for its Parkinson’s disease research. Intriguingly, Cell Therapy’s Executive Director and co-founder Alan Reginald pointed out that as is increasingly the case, equity crowdfunding was not the finance option of last resort – actually the company declined offers from venture capital funds, actively preferring the equity crowdfunding route.
What, I wondered, makes equity crowdfunding so appealing to life sciences businesses? For one thing, I’d surmise that their mission endows them with a certain gravitas of which any other kind of developing company would be envious – and that’s likely to make them attractive to the more altruistic kind of investor. After all, wouldn’t it be good to know that the money you’ve invested, however modest the sum, is helping to develop treatments, Parkinsons Disease, Heart Disease or countless other life-threatening conditions? In the article, it is suggested that people affected by a specific disease would welcome a chance to play a role in curing it. As Cell Therapy’s Alan Reginald says, “Regenerative medicine of the kind we are working on is going to change medicine for everyone and this provides a way for anyone to take a stake in it.”
It may help that the board directors and management of Life Sciences companies are likely to be qualified individuals who are internationally recognised in their field – for example, Cell Therapy’s co-founder Martin Evans, won the 2007 Nobel Prize for Medicine for a breakthrough in stem cell research and his directors include Lord Digby Jones, former UK Trade Minister.
Of course the other side of the coin is risk – and there’s no denying that Life Sciences research is by nature a costly and time-consuming business. And the risk of failure is even higher than that for ordinary start-ups. As Corporate law and life sciences expert Charles Waddell of Pinsent Masons comments on Out-Law.com, “Drug development is very expensive and biotech companies typically have a very high cash burn.” He also adds that, “The angel investors who participate in crowdfunding may not be best placed to value biotech companies and may accept without question the valuations put forward by the biotech's management.”
A very valid point – nevertheless it would be a shame, in my opinion, if the clear need for caution were to dampen the enthusiasm a genuinely good cause can raise in prospective investors. It is possible to maintain a healthy mix in which altruism is tempered by dash of good old-fashioned business acumen – as appears to be demonstrated by the mix of some 300 large and small investors funding Cell Therapy – some with stakes ranging from £37 right up to £108,000.
We at Businessagent.com will be watching developments in this arena with a great deal of interest and advocating as always that investors temper their altruism with hard-nosed acumen!
By Sacha Bright
Links to articles cited:
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