Crowdfunding is an ancient concept, but with the development of web based portals for easy, safe participation, this new market has exploded over the last five years. With blockbuster successes making global headlines, it is easy to see how the industry has raised billions for a range of companies and projects.
As a technical advisor to Snowball Effect, a New Zealand-based equity crowdfunding platform, I am often asked whether equity crowdfunding will work in the biotech industry. Within the industry, we are all used to pitching our wares to prospective investors, but can we successfully pitch to the crowd to raise the type of capital necessary to commercialise a biotechnology? Of course, there are unique challenges associated with biotech investment, but the short answer is YES.
Quantum of Investment
Developing a biotechnology is typically a long and expensive journey where a return on investment can take several years. The level of fundraising tends to be technology-specific, but investments exceeding $10M are fairly common. With current legislation, it is not currently possible to raise this level of investment through equity crowdfunding in New Zealand. However, Snowball Effect can be used to raise investment up to $2M, which can be a significant percentage of a larger cash raise. And some technologies will benefit from having a groundswell of public support and awareness driven by the crowd.
Crowd Understanding of an Investment
Currently biotechnology investment makes up a very small percentage of crowdfunding investments. It is easy to see how the crowd can relate to and invest in mainstream projects, such as computer games, movies, musical endeavours and IT applications. The crowd needs to understand how their investment will grow, and these projects are typically easy to conceptualise. However, biotechnology applications are often perceived as overcomplicated and difficult to envision. In my view this is complete rubbish. If we are able to successfully pitch to investors, we should be able to pitch to the crowd.
Antabio is a great example of a biotechnology company raising capital through equity crowdfunding. Having struggled to raise funds through a difficult economic cycle (2012), they turned to the French crowdfunding platform WiSEED to raise €300k (as part of a €1M raise). The key challenge identified by Antabio was connecting to the crowd’s needs. As with most biotechnology applications, the answer was simple: they were addressing a major unmet medical need.
It is early days in New Zealand’s equity crowdfunding evolution. At this time, there is only one equity crowdfunding opportunity available: The Patriarch available through Snowball Effect. However, the biotech industry needs to explore fundraising options that include some element of crowdfunding and develop new ways in which to engage with and connect with the crowd.