Life science start-ups turning to crowdfunding

European life sciences companies are slowly turning to crowdfunding as a credible source of investment for financing nascent medical research.

Between 2010 and June 2015, 42 life science companies successfully finished online crowdfunding campaigns, bringing the total money raised in the sector in Europe to almost €23 million, according to a new report, ‘Analysis of Crowd-based Financing in European Life Sciences’, published by German market analyst Biocom AG.

“With respect to the high capital demand in the life sciences, it was only a question of time before firms jumped on the bandwagon of crowdfinancing,” says lead author Sandra Wirsching.

But crowdfunding is patchy, with activity limited to a handful of countries.  

The most successful fundraising platforms for life sciences are in the UK and France. UK platform Syndicate Room, profiting from its ties with well-heeled Cambridge life sciences networks topped the table, followed by French Wiseed with 15 financings since 2010.

Next is Germany, which in the last two years has seen platforms such as Seedmatch and Companisto add biotech and medtech firms to their portfolios.

Number of crowdsourced life sciences fundraisings in Europe, 2010-2015

Between 2014 and 2015 there was increasing specialisation of online sites towards life sciences and there are now four European platforms with a predominantly health or life sciences bent.  

In France, the platform Wellfundr opened an equity-based investment scheme earlier this year, and in August MyPharmaCompany launched its services. In Germany, medtech focused Aescuvest was founded in 2014 and began its first campaign in July 2015. In Spain, Capital Cell was founded in 2014.

These sites trail their forebears in the US, where sites such as Poliwogg and Medstartr have been around since 2012.

The average amount raised in life science campaigns is about €550,000, but 10 biotech and medtech companies have succeeded in raising €1 million or more, the UK regenerative medicines specialist Cell Therapy, German drug developer Riboxx, and French medtech Eyebrain among them.

Europe has a finance gap for companies looking to grow. With venture capitalists often not willing to make investments of less than €1 million, crowdfunding sites are proving a good way to get off the ground.

Their real benefit may be the way they allow entrepreneurs to reach thousands of people to talk about projects, the report suggests. “Above all, it is considered as a marketing tool and add-on to other financing instruments,” said Wirsching.

CEO experiences

The possibility of raising cash quickly drew Serge Kinkingnéhun down the crowdfunding route. He is head of Eyebrain, a start-up which has developed an eye test for checking for neurological and psychiatric disorders. “The first tranche [of money] came in three months. Fundraising via venture capitalists usually takes up to nine months,” he said.

Marc Lemonnier, the founder of Antabio, the Toulouse-based drug developer and the only biotech firm in the world to achieve a successful exit for its investors after crowdfunding, reports a similar experience to Kinkingnéhun, calling the whole process “fast and simple” and a good practice run for raising larger sums later on.

“We raised €300,000 within three months,” he said. Christophe Ricard, wealthy business angel and former CEO of the Swiss pharmaceutical group OM Pharma, later bought up the crowdfunded shares, meaning Antabio’s micro-investors got back their original investment plus an extra 70 per cent less than two years later.

Lemonnier believes there is a ceiling on how much a company can raise through crowdfunding. “Compared to other sources of investment, an entrepreneur will rarely raise millions,” he said.

Riboxx head Jacques Rohayem raised €1 million through crowdfunding in half a year and expects to start a Phase I clinical study of a drug aimed at preventing cancer relapse, called Riboxxim, in early 2016.

Although he has enjoyed more success than many, he does not see online investing taking off everywhere in Europe. “Of course, crowdfunding works best in prosperous countries like Germany, where people have money to spare for such investments. I don’t know if people in Spain or France have money left over to make €1,000 or €2,000 investments,” he said.

The chief executive of Iproteos, Maria Teresa Tarragó, said she is realistic about the limits of crowdfunding for life sciences projects.

“Biotech projects are difficult to understand for people not familiar with the subject,” she said. Despite this, Tarragó whipped up €100,000 for experimental treatments for schizophrenia, Parkinson’s disease and epilepsy, which later opened doors to pharmaceutical company interest. 

Too many investors

Quick money is good, but some CEOs interviewed for the report relayed the frustrations of raising money through lots of small investments – often made by amateurs. 

“Communication with the crowd takes up far too much of the entrepreneur’s time,” said Ulf Pommerening, head of EBS Technologies, a German firm which is developing treatments for neurological disorders caused by stroke or brain injury. “This is especially exasperating when you have to deal with people that have invested just the minimum amount of €5.”

Fearing that scores of investors could spook angels and venture capitalists, some crowdfunding sites block those investors looking for tiny pieces of equity.