Financing Innovation - Early-stage companies are finding alternatives to venture capital. - BioPharm International

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Financing Innovation
Early-stage companies are finding alternatives to venture capital.


BioPharm International
Volume 26, Issue 4, pp. 24-26

ON A SOLID FOUNDATION

Funding from disease-focused foundations has become another important source of capital for advancing new therapies for rare diseases and other areas of unmet need as traditional venture capital funds migrate to later-stage investments. This funding is often nondilutive and can help derisk research early in the development process. Notable successes, such as the Cystic Fibrosis Foundation's role in backing development of the cystic fibrosis therapy Kalydeco, approved by FDA in January 2012, have shown the impact such organizations can play in bringing new medicines to market. Although already spending millions of dollars each year to fund work on developing new medicines for neurological conditions and rare diseases, foundations are taking steps to amplify their efforts.

THE WISDOM OF CROWDS

The JOBS Act enables private companies to have as many as 2000 investors and still remain private, opening another avenue for startups to access capital: Crowdfunding. Already popular in tech circles, crowdfunding—using social media to source small amounts of capital from a large pool of investors—has begun to create buzz in the biotech world. Several web portals such as Poliwogg, MedStartr, and ScitechStarter, have already sprung up in the US to enable crowd investments in anticipation of final regulatory rules, and companies have already begun soliciting investments through them. Although companies can only raise up to $1 million a year through crowdsourcing, it is still enough as a source of pre-angel funding.

In an early example of what could be done, startup biotech uBiome launched the world's first crowdsourced effort to map the human microbiome, the trillions of microbes that live in and on the human body, with crowdsourced funding in November 2012. The company, coming out of the University of California's QB3, seeks to put the latest high-throughput metagenomic sequencing technology directly in the hands of people who invest in the company through the crowdsourcing portal Indiegogo. By pledging $79 in support of uBiome on Indiegogo, anyone can have his or her personal microbiome sequenced. Within the first two months, it raised $120,000 from more than 1000 participants, surpassing
its initial goal of $100,000 and 1000 users.

Crowdsourcing has already been used by life-sciences companies in France with some success. Almost 20% of the pre-IPO investment in the French biotech Nanobiotix was raised through the fonds commun de placement dans l'innovation, the French version of crowdsourcing. Nanobiotix raised $18.5 million in an IPO in September 2012. The UK BioIndustry Association is basing its proposal for a Citizens' Innovation Fund on the French model.

CREATIVITY IS ESSENTIAL

There is no single path to financing a company today. Instead, companies need to take a multidimensional approach to thinking about potential funding sources. This pool of funding includes not only government grants, but also tapping into nonprofits, patient advocacy, disease-focused, and philanthropic groups.

Though venture capitalists are moving away from early-stage financing, the reality is that rather than having fewer financing options, entrepreneurial companies have a range of funding alternatives that they can pursue. Regional differences exist in both the availability and cost of capital. The only requisite to fund a company today is creativity. In a world in which we finance one in 100 companies we see, tenacity is a big asset too.

G. Steven Burrill is chief executive officer at Burrill & Company, San Francisco, CA, 415.591.5400,


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