Thursday, 11 July 2013

CrowdCure: Combining Philanthropy with Upside Potential

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.

CrowdCure Ltd receives a commission as a % of funds raised, and “Research Drivers LLP”, the SPV trustee shareholder and administration entity (which licenses the whole structure), receives a small % of any future SPV income pre-distribution. CrowdCure Ltd is an Appointed Representative of an FCA Authorised Firm.

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”…….