Monday, March 4, 2013

Crowdfunding: A Bad Fundraising Strategy for Biotech

This article in GEN suggests that crowdfunding isn't all it's made out to be, at least for biotechnology startups.  Here are a few of the main reasons:

  1. Regulation is still in flux.  Regulations surrounding equity based crowdfunding are still being hammered out and investment-based crowdfunding will still need to go through brokers.  Seems like the crowdfunding platform is an extra layer of complexity in this situation.
  2. Low ceiling on funds raised.  There's a maximum of $1 million raised per 12-month period.  This is completely absurd for most biotechnology projects.  You might be able to hire a small group of software developers for a web startup for this amount, but $1 million per year is the burn rate for a medium- to large-sized academic lab consisting of graduate students and postdocs (who make 50-70% of market wages with no loaded labour costs of benefits or pensions).
  3. 10-20% of the total amount raised goes to fees.  Enough said.
  4. Loss of confidential data.  If you need to disseminate information to the crowd to raise funds, it's guaranteed that a competitor will see it.  In biotech, competitors with more people, funds, and technology will take a key idea and run with it - way faster than you can.

The rest of the article at GEN is definitely worth a look!