How does Crowdfunding work for a Biotech Company?

Establishing a company is difficult, especially a biotech company. Raising funds for a start-up biotech company is very critical. They require huge capital to setup the labs for research and production. Biotech companies will have huge potential for profits but often starve for capital. The high rate drug failure and a long time for approvals also add for capital starvation.

The evolving biotech companies are constantly looking for alternative financing methods, to continue their research and smooth running of the company.

Crowdfunding seems to be a probable solution. It may speed up the growth of the company thus allowing for the greatest inventions. It can return the investor in two ways – big profit returns and satisfaction as they helped in research for good food, medicines etc.

Crowdfunding

Crowdfunding is a combined effort by different persons to aid a company or organization or a cause, by pooling money, generally through the Internet. These different persons together called as the “crowd.” Gaming, software, film, media, music are some of the industries that popularised Crowdfunding nowadays.

How Crowdfunding works

The two main types of crowdfunding are donation based and equity-based. In the Donation crowdfunding group of different individuals donates money to support the project they are interested. In Equity crowdfunding, the crowd will become partners of the company they are interested in by investing in it.

A company or a person prepares a pitch with a short summary. It is similar to traditional fundraising method but here, it is through the internet. It is published on a crowdfunding website along with its monetary goal. Individuals interested in investing or donating can do so. Transparency is supposed throughout the fundraising process and project’s milestones. As each individual invests a small amount, the risk is also very low.

But will it Work for Biotech?

It will definitely and it did. Indeed, biotech companies are utilizing the feasibility of crowdfunding to pool capital. But the point to remember is that Biotech Crowdfunding itself cannot satisfy all capital needs of the company. Biotech companies, in general, need to find various ways to raise capital for their activities, as their financial requirement would be more. This may be called as hybridization. The conventional ways of funding for biotech companies include grants and foundations (non-equity sources) and angels and venture capital (equity sources). With JOBS Act, biotech companies got the chance utilizingcrowdfunding for their needs.

Equity crowdfunding seems to be a viable option for many companies with little capital requirements.  Biotech companies generally need huge capital. To make advancement, these companies collect fund in multiple rounds in many years. The fund raised by crowdfunding would not be completely sufficient for a biotech company but it will help to raise vital early cash before approaching venture capitalists or business angels.

Bottom Line

Undoubtedly, many companies are embracing this approach. It is less risky and considerable amount can be collected in short time. With Biotech Crowdfunding the companies can have a good number of shareholders thus minimising the risk of a single investor. Crowdfunding also helps to grab public attention and interest for a start-up which will make it easy to acquire capital from large financial firms.

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