Is CrowdCure the answer to the tricky dilemma of true crowdfunding for biotech start-ups & drug discovery? To find out I spoke with Charles Groome, founder of the soon to be launched CrowdCure.
Charles is a
Neuroscience graduate of UCL, who started his career trading pharmaceutical
stocks at financial services firm Knight Capital, and then left to raise a $25
million venture capital fund to invest in early-stage biotech companies focused
on longevity. Despite raising commitments for a third of this sum, he failed to
secure sufficient funds overall. He also worked to raise seed capital for one
of the companies he planned to eventually back, and so encountered most of the
life science VCs on both sides of the Atlantic. His conclusion that VC risk and
time profiles are inappropriate for drug discovery, is shared by many of us
(e.g. see Funds & Fundability). The success of Kickstarter et al drew his attention, indicating the
success of the crowdfunding approach to specific projects, with its
philanthropic nature and ability to pool small sums of money from large numbers
of people.
He’s not
alone in that of course, as many have considered this approach. The issue is generally how to marry long
timescales & high risk with investment to obtain a return. CrowdCure’s solution is first to tap into
philanthropy in the crowd, with the spice of a potential upside if a
particular project is eventually successful.
And secondly, to recognise any success as early as possible, by sharing
collaborative revenues, as well as acquisition proceeds.
How does it
work? CrowdCure establishes a “Special
Purpose Vehicle” company for each project.
As part of a
“Research Financing Agreement” the SPV exclusively licenses Project IP from the
Biotech Company seeking funding, and then sub-licenses it back to the Company,
who continue to control asset development. All future Project revenue streams
from licensing are transferred to the SPV. The SPV has two lines of shares;
voting and non-voting. The voting shares are held in trust and the non-voting
shares are distributed as “Research Income Rights”TM (RIR) to the crowdfunders
(via the online portal) and to the Biotech company. This is done in line with a
third-party attained valuation.
If the
biopharma asset develops to the point of commercial value, Big Pharma can
either sub-license it from the SPV or acquire the SPV outright.
A SPV
approach was used a lot in the early days of US biotech, and seems similar to
recent approaches taken by Versant
and Atlas
Ventures (Fierce Biotech articles). Charles is an advocate, pointing out the
benefit for a biotech being able to raise separate funds for each of a portfolio
of single projects, and subsequently selling on the projects when new skill
sets are needed. Whilst recognising that
the crowd are more interested in backing
Projects with a social cause (e.g. cure Alzheimer's) than investing in risky
and obscurely named Biotech companies. Becoming a “Cure Pioneer” recognises their
contribution, and motivates along with the chance for upside. The RIR approach seems to be novel though.
So what are
they looking for? Its early stage
pharmaceutical opportunities, pre-clinical, with a validated/proven target
being required, and hit discovery welcomed.
They will also check it out thoroughly, conducting VC’esque Due
Diligence on the science & data, requiring a sound project plan &
budget, and checking out the team & company background, IP etc. It also has to fit with their portfolio,
which will diversify, rarely addressing already invested areas.
CrowdCure
sees itself as a global portal “Crowdfunding for Life”, acting as a “Branded Venture
Broker”, enabling sophisticated investors, High Net Worths and “qualified
investors” (anyone who can answer six questions on their site) to all
contribute. They are planning to be the first
UK & USA operating portal.
Appropriate regulatory requirements are in place in UK, and nearing
completion in USA. With launch scheduled
for late July, these are exciting times.
They have
big plans – by year 5, to raise over £100m and progress at least one project
into clinical trials.
So for the
Biotech, an alternative approach to get that early capital so elusive at
present, and
for VCs,
perhaps a source of future de-risked opportunities, risk-sharing or
co-investment?
For the
investor, this is high risk investing, and Charles is keen to stress that. None the less, if you want to do some good in
the world, and would appreciate a possible upside as well, this could be worth
a look. As Charles points out, you too
can become a “Cure Pioneer”…….
