Health Tech Hatch Widens Crowdfunding Choices for Health Startups

Dentistry student Alec Whitters had a new iPad and an iPhone, but the only “apps’’ available to help him study for his dental board exams were pricey stacks of paper flashcards, or hefty 500-page books costing more than $300.

Seeing a need to fill, Whitters, 25, took a break from dental school to develop mobile, interactive software for students preparing to take dental boards and other health sciences certification tests. His timing was good. Two crowdfunding ventures were just starting up to help healthcare entrepreneurs like Whitters to reach the specialized communities that might pitch in funds to help a good idea get off the ground.

Whitters’ project is one of the first crowdfunding campaigns featured on Health Tech Hatch, based in Larkspur, CA, which celebrated its public launch on Oct. 8. The new crowdfunding site’s East coast competitor, Medstartr of New York, debuted in July.

Both Health Tech Hatch and Medstartr are online forums where innovators can showcase their projects and appeal to the public and members of their social media networks for funds. This can add up to significant seed money, if enough members of the “crowd’’ respond. The method was pioneered by major crowdfunding sites such as Kickstarter and Indiegogo, where some innovators have raised millions of dollars.

But Patricia Salber, CEO of Health Tech Hatch, says health care entrepreneurs need their own crowdfunding platform, tailored to help them communicate about science-based products and services.

“We speak their language,’’ says Salber, an entrepreneurial MD and veteran health care executive.

Her company aims to foster the development of products that transform health care, such as channels where patients can communicate with their doctors, or devices that track people’s health habits and reward them for improvements. It also sees a potential client base among social entrepreneurs interested in global health and underserved communities. Health Tech Hatch held its launch event at the recent Health 2.0 conference in San Francisco, and co-hosted an after-party with its friendly rival, Medstartr.

Salber says she spotted the niche for a specialized health sciences crowdfunding site after talking to entrepreneurs in the field. Quite a few said they had been rejected by Kickstarter, a selective site that focuses heavily on design, film, theater, and other arts. Salber also found that health care innovators were less savvy about social media and other communications skills than the typical media arts campaigner on Kickstarter.

“I can tell you, that is not a skill set that most technical people and physicians have,’’ Salber says.

Health Tech Hatch can help crowdfunding campaigners learn to summarize the details of science that fascinate them so much about their projects, Salber says.

“Most people don’t want to get into the nitty gritty of how that hormone works,’’ she says. “What people want to know is: What is it going to do for me?’’

The audience for her clients will also be different than the typical visitors to a general crowdfunding site, where people can go look for the newest indie film or album, Salber says. Health care entrepreneurs need to connect with motivated patients, caregivers, doctors, students, and hospitals searching for tangible ways to improve health care training and delivery.

But Indiegogo CEO Slava Rubin is not ready to cede the class of health care innovators to specialized crowdfunding sites like Health Tech Hatch.

“That’s like saying you need a specialized eBay,’’ Rubin says. “We absolutely welcome these health care entrepreneurs, and they have plenty of experience doing great on Indiegogo.’’

Indiegogo, based in San Francisco, started operations in 2008 and now hosts more than 6,000 campaigns a month. Rubin says the site’s established, open platform and global reach gives health sciences innovators the best access to potential funders.

One Indiegogo project, iCancer, has raised more than $68,000 so far to fund clinical trials on an anti-cancer virus it bills as a potential treatment for the disease that killed Apple co-founder Steve Jobs.

Salber, however, says her business is tailored for busy science innovators looking for more assistance with crowdfunding.

Like other crowdfunding sites, Health Tech Hatch plans to earn revenues from fees subtracted from the total amount each project raises. But Salber also sees the potential to augment the fees by offering services designed to meet the particular needs of health care entrepreneurs.

As the site’s plan was being developed, its staffers worked with very young companies and taught some of them basic skills like setting up a Twitter account. But some entrepreneurs said they’d be willing to pay the company to create their crowdfunding campaigns, rather than struggling to do it themselves, Salber says.

Part of that service could involve developing a budget for the project, or providing marketing support and other expert mentoring. Entrepreneurs also told Salber they’d like a mechanism to get in touch with clinicians, patients and others who could try out early versions of their products and give feedback. Health Tech Hatch has been making those connections informally for some of its first clients, but hopes to automate the process in the future.

That option appeals to Whitters, now the CEO of Higher Learning Technologies, the Iowa City, IA, company he co-founded with a group of other dental students and friends. The startup has completed the iPhone format of its first product, a test preparation guide for the first stage of the dental board exams. (See video.)

“We could really use an easy way to contact people to test it,’‘ Whitters says.

Both Health Tech Hatch and Medstartr are still startups themselves, with fewer than 10 crowdfunding campaigns on each site.

At this point, Health Tech Hatch has two paid full-time employees, three part-timers working for equity, and two contract employees. The self-funded privatebusiness is now seeking venture firm backing, Salber says.

The crowdfunding site screens all applications to make sure the participants have the skills and commitment necessary to complete the projects they propose. Entrepreneurs set a dollar amount and a deadline to reach that goal. If the project reaches the target, Health Tech Hatch charges the credit cards of those who agreed to contribute, and subtracts a fee of 5 percent of the total. It also deducts credit card processing fees of another 2 to 3 percent before distributing the funds to the entrepreneur.

Projects can also receive the contributions if they raise at least 60 percent of the target amount, but in that case Health Tech Hatch charges a 9 percent fee, Salber says. The fees are the same whether the client is a for-profit company or a non-profit.

Salber, who is vice-chairman of the board of the National Crowdfunding Association, says one important aim of her company is to uphold the reputation of crowdfunding, so that it doesn’t come to be seen as “a form of electronic panhandling.’’ As one way to reinforce the credibility of its platform with funders, Health Tech Hatch has created a newsletter as an easy vehicle for its clients to update their contributors on a project’s progress once they receive their seed money.

The Larkspur company now offers two varieties of crowdfunding, roughly termed rewards-based and donation-based. Most entrepreneurs thank people who kick in funds with small gifts or acknowledgments. These rewards can range from a mug with the company logo to the naming rights for an element of the project. In the second type of crowdfunding, some non-profits may be able to offer their funders a tax deduction for their donations.

But next year, crowdfunding sites will be able to support clients who offer equity stakes in their companies in exchange for contributions—an innovation authorized by the Jumpstart Our Business Startups Act (JOBS Act) signed by President Obama in April. Health Tech Hatch plans to offer this equity-based crowdfunding service once the Securities and Exchange Commission issues regulations to govern the new financing method.

The startup will again be competing for health care clients with Indiegogo, which also plans to offer equity crowdfunding.

In the meantime, Whitters is satisfied with the results so far for Higher Learning Technologies, which drew nearly $2,000 in funding pledges in about a week. Its goal is to raise a total of $32,400 by Dec. 6. The money will help the startup create a platform that students can use on any computer or mobile device, so they can prep for tests at home, or in spare moments during the day wherever they are.

As one of Health Tech Hatch’s first clients, Whitters’ company benefited from personal training in social media and crowdfunding techniques. He says the specialized site for health care entrepreneurs was the best fit for his project.

“It’s really a brilliant idea,’’ Whitters says. “The health sciences community is really so different.’’

Bernadette Tansey is Xconomy's San Francisco Editor. You can reach her at Follow @Tansey_Xconomy

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  • Another crowdfunding option available to healthcare businesses is iCrowd. iCrowd is a web-based Investment Crowdfunding site designed to connect small businesses with investors. An overarching goal of iCrowd is to provide an environment that helps entrepreneurs succeed by providing money, advice and networking