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Is Crowdfunding the Ultimate Tool for Biotech Start-Ups in North America?

As the FDA challenges, stalls, and dissuades many emerging biotech start-ups, researchers are also troubled by the dwindling number of resources for funding in North America. Until the SEC regulates equity-based crowdfunding, this will continue to be an issue, for only a select pool of investors can offer capital in exchange for a company’s shares at this point-in-time. But even with such limitations, researchers remain optimistic that once the final touches have been made to the JOBS Act, crowdfunding will liberate their financial bindings.

One of the largest issues for biotech start-ups is establishing credibility. In order for funders to get behind the project, they need to feel confident about the professionals conducting the research. In a lot of instances, start-ups are asked to state their mission, draft a convincing pitch, and hope non-academia investors find interest in what they’re doing. With an open equity-based crowdfunding market, the public decides whether or not the biotech start-up has a worthy cause. Since most of the details are left out of the process, it is a high-risk investment for investors who are foreign to that field of study.

On the flip side of things, crowdfunding dismantles many biotech start-ups’ confidentiality protocol. Depending on the information released to their shareholders, significant discoveries become public knowledge, making it difficult to get the edge on competitors. Similarly, research firms have to be weary of their investors’ influence. For an industry so specific, biotech start-ups risk disrupting their goals for funding.

Despite these obstacles, portals such as MicroryzaPoliwogg, and Medstartr continue to grow rapidly, indicating the popularity of this funding method for biotech start-ups. Between March and April 2013, Microryza doubled the number of transactions and projects on their site. Other platforms experienced similar success in the first two quarters of the year. Depending on how well a firm can market their project, many companies will find value in the crowd, but at what cost to their research?

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Josh Sandberg

Josh Sandberg is the President of Ortho Sales Partners and Partner for The De Angelis Group. He also serves as Co-Founder and Editor of OrthoSpineNews.

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