Equity crowdfunding can step in to plug the valley of death in drug discovery

As if getting the science right is not hard enough, young biotech companies starting on the long journey of drug discovery and development quickly realise the bigger hurdle is finance.

Jude Cook has an answer.

Her Edinburgh-based crowdfunder, ShareIn, is a website built to attract technology and health companies. Along with platforms such as Microryza, RocketHub and GeekFunder, it is part of a wave of online equity crowdfunding sites that allows scientists to seek funding directly from the public.

Among the firms that have pitched through ShareIn is Holoxica, a company that creates 3D holograms and holographic displays for use in medicine, science and engineering.  

Another start-up Parkure, found great success through the website, raising seed cash to fund its work on developing a treatment for Parkinson’s disease.

“The company said it wanted to test drugs on fruit flies that have been genetically engineered to develop Parkinson’s,” Cook said. Contributions of £500 were sought from would-be investors. In return, they were offered a slice of any profits generated from a successful drug.

The pitch struck a chord: the company was able to collect £60,000 from 60 individual backers.

It is the first time equity crowdfunding has been used to finance drug discovery for a disease such as Parkinson’s, Cook claims.

The idea is taking off elsewhere. Cardiff-based Cell Therapy and a French medical diagnostics company, EyeBrain, both recently raised over €2 million through online backers.

A study published in Drug Discovery Today confirms the growing trend and suggests researchers who start online campaigns may increase the likelihood of success in securing traditional grants or private investment.

New financing

Crowdfunding is “democratisation of finance”, said Cook, who was formerly a chartered accountant.  

She came up with the idea of starting the site in 2011. This was in the midst of the financial downturn when banks were hesitant to lend to start-ups.

Back then, a lot of people told her they could not see her scheme working out.

Investing in companies over the internet sounded risky. It felt a lot like the early days of e-commerce, when there was a lot of scepticism about buying online.

“People told me investors needed to see ‘the whites of peoples’ eyes’ when they’re hearing a business pitch,” Cook said. She went on to start the site with her three co-founders nonetheless.

Now, she sees crowdfunders turning the tables a bit. “We’re making institutional lending platforms up their game and cut back on layers of intermediary costs for start-ups,” she said.

Investor protection

Although expected failure rates are high, no more so than in the field of medical science, the law in the UK currently says that people who demonstrate they understand the risks of equity crowdfunding are allowed to invest up to 10 per cent of their savings.

Before throwing in their money, amateur investors have to take an “appropriateness test” where they are faced with questions like, ‘Can you get your investment back? and ‘Can you sell your shares?” This way Cook and her colleagues can vet prospective clients.  

You can put too much emphasis on protection, Cook says. “Of course start-ups go bust and investors lose money every day: it’s called risk-reward,” she said.

“Let’s be grown-ups. We’re allowed shop or gamble online. Why not let people invest too?”