Is Crowdfunding The Future For Biomedical Research?

7/11/13Follow @3nt

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that Microryza makes no determination of the merits of the scientific project. That is left to individual funders and the wisdom of crowds. If you would like to make a charitable contribution of $50 to a young researcher, how do you decide which project to potentially fund?

One way is to look at the institution the researchers are associated with, but I’m not convinced that is a great differentiator unless you are an alumni looking to support your alma mater.

Microryza provides no links to research papers, but instead offers a short summary of the project goals, why the research is important and how funds will be used.

The site encourages the production of a video pitch where the researcher tells you about the project and why you should fund it, but these are of variable quality.

What I was after was an independent third-party endorsement, someone whose reputation I would trust who might say, ‘yes, what Atif Syed is trying to do with nanoparticles is worthy of support’. Science is typically funded by peer-reviewed grants, so placing the burden on the public to assess the merit of a project is not necessarily the approach I would adopt.

The risk is the public will more readily fund projects that are around themes or topics they can more readily understand, e.g. research into Alzheimer’s disease, while more esoteric projects may be ignored. Science funding should not be a beauty contest.

Crowdfunding of scientific research also needs to be fun and engaging, and for me Microryza misses this element — just receiving a report at end of a project isn’t enough when there’s a lot of competition for my donation. The popular crowdfunding site, Kickstarter, does a good job of building in different levels of donor recognition based on how much money a person contributes. While I was not looking for a T-shirt or a coffee mug, more engagement with the researchers might have been one way to achieve this.

Despite the inherent limitations in the model, there are many projects on Microryza that look worthy of funding, including the nanoparticle project from Atif Syed that I encourage you to check out, but ultimately I’m not convinced this is the right way to fund science.

However, what the experience of trying to raise money by crowdfunding may do is help scientists become more entrepreneurial in focus, and stimulate them to setup companies in the future. What they are learning to do on sites such as Microryza is sell science to investors. That may be a skill well worth learning.

In the United States, the Jumpstart our Business Startups or JOBS Act, signed into law by President Obama in April 2012, will allow businesses to raise small amounts of capital from private individuals through crowdfunding without the need to have an initial public offering (IPO). This means that instead of funding a project, an entrepreneurial scientist could use crowdfunding to startup a company to commercialize their research.

Before equity crowdfunding can take place, the Securities and Exchange Commission (SEC) must issue new rules. Once the rules are in place, I would not be surprised if we saw a start-up biotech company get some of that kind of equity investment.

Crowdfunding may not be a panacea for the cutbacks in government funding of biomedical research, but it could, along with angel investing and venture capital, become a new component in how startup companies are funded. The prospect that this could stimulate biomedical innovation is one that excites me.

Pieter Droppert is a management consultant, lawyer, science writer and editor of the Biotech Strategy Blog (http://biotechstrategyblog.com) on science, innovation and new product development in the pharma & biotech industries. Follow @3nt

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  • FundMyMedResearch

    We, at http://www.FundMyMedicalResearch.org, are a non profit who have decided using crowdfunding with a different angle. We ask people to make donations that will be invested in biotechs looking for funds to finance their first clinical trials. The non profit uses donations to invest in shares, and so get regular updates from the biotech that are shared with donors. Furthermore, in case the biotech gets bought, money comes back under donors’ control that can decide what will be the next biotech receiving an investment. Think of it as the Kiva for biotechs.

  • Nick Dragojlovic

    One way of making it easier for donors to select worthy projects is for research funding bodies to endorse proposals that they have deemed fundable but for which funding was not available on either their own crowdfunding websites or on third-party portals. See:

    http://nickdragojlovic.com/why-science-funding-bodies-should-use-crowdfunding/

  • Lah99

    Biotech is risky and requires a lot of money to get to success, if achievable. One must distinguish between making donations to something one believes in and investing with the expectation of a return. For the former, there are plenty of portals for making these “Crowdfunding” donations. Investing requires a different kind of diligence and disclosure which can be achieved by a crowdfunding mechanism, but still requires these essential elements.

  • Louis Ferland, PhD, PMP

    Interesting new model. A new organization, Bio, Tech, and Beyond is just being set up in Carlsbad, CA, in an effort to “democratize biological research” and make it available to “citizen scientists”. Basically, it will be an incubator space available for rent at very low cost. The set up of the incubator itself will be financed through a crowd funding effort. This is not quite the same as crowd funding of individual projects but I think the concept is worthy of checking out: http://biotechnbeyond.com/. They had their ribbon-cutting ceremony just last Friday, and are having their crowd funding kickoff event tonight. Perfect timing!

  • Phil Pogge

    I think the real value of crowd funding is to get market validation. I don’t think it is a good way to bring capital into a business or funding into a research effort.

    Today, there are two different types of crowd funding platforms. There are rewards based like Microzyra and the granddaddy of the space Kickstarter. These platforms do not sell any securities or equity interests in a project or venture. Instead, it is a donation (which is necessarily tax deductible). Rewards based crowd funding is a great way to get market validation. The project sponsor needs to drive traffic to their campaign. The platform helps, but in almost all campaigns, the large majority of people donating came from the network of the campaign sponsor.

    The other type of platform that has been authorized, but is still not legal because the rule making from the SEC is not complete, is where shares are sold. We call this equity based crowd funding. While congress had the best of intentions in creating this, the downside is too great for most people. If there is any malfeasance (real or perceived), the investors will have the ability to go after the personal assets of the managers. Additionally, the cost of having scores or hundreds of small investors is not inconsequential. There is an ongoing cost to provide them tax statements and required government filings which in a couple reporting cycles could exceed the value of the cash they contributed.

    In summary, I think rewards based crowd funding is great and there is too much risk with equity based crowd funding.

    You can follow this link to get a free promo code for our Udemy course on crowd funding: http://www.capitalcrowdfunding.com Included with the courses is tips and tactics to execute on a great campaign. We also include a 45 minute interview with the manager of three successful crowd funding campaigns.

    Phil

    Co-founder INVESTyR

    INVESTyR is making the world a better place by expanding access to capital