Crowdfunding: A New Untapped Opportunity for Biotechnology Start-ups?

Abstract

Crowdfunding is an evolving popular Internet-based process used to raise funding that has been employed by a few start-ups in the biotechnology industry. To solicit funding, companies profile their case on a specialized web platform (generally called a “crowdfunding portal”) to ask the site members (i.e., the “crowd”) who then choose which projects they would like to fund, in exchange for financial and nonfinancial inducements. In this paper we examine the evolving commercial and regulatory crowdfunding landscape and also identify case studies of biotechnology industry use. We find that a variety of crowdfunding mechanisms have been used and this alternative financing strategy may represent a viable option for biotechnology start-ups during early stage research or early stage clinical trials. A successful crowdfunding campaign may pave the way for the enterprise’s future capital formation phases by attracting angel investors or venture capital because it shows that the business or project is viable. However, crowdfunding, like all other forms of capital formation, requires careful planning and execution before, during, and after a campaign. Strategies that appropriately tap into this innovative and disruptive use of technology and social networks may prove to be a unique capital formation niche for biotechnology start-ups; one that has yet to be fully leveraged.