However, it is extremely difficult in this economy for these early stage companies to raise the necessary capital to move forward. Venture capitalists have become increasingly risk averse when it comes to funding early stage medical companies. Many innovative entrepreneurs have started developing products and services providing breakthrough capabilities to diagnose, monitor, assist, or heal people. They typically tap into friends, family, or local angel investors to get sufficient funding to demonstrate their concept. Just when these entrepreneurs feel confident that they really have something special, they realize that it will take several million dollars to productize their concept, pass regulatory approvals, build up production, protect their IP, staff up, and market their capabilities. Securing this level of funding with the risks of an unproven customer base causes many of these businesses to fail in what has been labeled “the valley of death.”
Meanwhile, there is a growing number of medical professionals and other medically savvy individuals who have significant investible assets and they are seeking the opportunity to invest in promising medtech start-ups. They can leverage their own expertise to identify financially attractive opportunities and provide advice to help these companies thrive. Until recently, these individuals have not had access to investment opportunities with early stage medtech companies. Professional investment advisors cannot provide this access and most of these individuals do not qualify to be limited partners in a VC fund.
Fortunately, a new type of investment vehicle - equity crowdfunding - has recently been introduced and is rapidly gaining popularity. Many people have heard about crowdfunding efforts using platforms such as Indiegogo or Kickstarter to donate money to a cause and receive a trinket or at least a good feeling in return. However, a much more powerful and lucrative method of raising capital is via equity crowdfunding. Such a method of offering an equity position directly to individuals through an internet portal (website) has been enabled in the US by recent legislation as part of the JOBS (Jumpstart Our Business Startups) Act. Title II of the JOBS Act, passed in 2014, enabled equity crowdfunding platforms to be introduced to promote start-ups to accredited investors. Title III, passed in 2016, opened equity crowdfunding up to non-accredited investors, but with significant restrictions. The equity crowdfunding market size was $2.5B in 2015 and is projected to grow rapidly to over $96B by 2025, reaching 1.8x times the size of the global VC market!
Brian Smith (formerly an investment advisor facing the limitations stated above) and Jerry Harrison (a pioneer of crowdsourcing in the music industry) formed RedCrow in 2016 with a mission to bring this new approach of raising capital to a specific niche - medtech/healthcare - where it is sorely needed and where the results will benefit society. Others have formed non-curated equity crowdfunding platforms that allow any business to be listed - what we call the yellow pages approach - which provide limited value-add to the companies listed. Alternatively, RedCrow assembled a strong team of medical, financial, marketing, and technical experts to ensure that the companies selected for listing are high quality and have dedicated resources to help them succeed. RedCrow sought out a crowd of accredited investors with expertise in the medical area who make reasoned investment decisions as well as provide valuable feedback to the companies throughout the RedCrow investment lifecycle.
RedCrow developed a unique two-step method to maintain the quality of companies listed, while positioning the companies for success. The first step is “Discover Supernovas.” In Discovery, a company shares its profile with the RedCrow crowd prior to fundraising. This early exposure stage enables the company to gain valuable feedback from the crowd, shape its message, and gain buzz and momentum. In parallel, RedCrow performs its own due diligence on the company, again with a goal of positioning the company for success. Once a decision is made to go on to “Invest” (the second step), RedCrow works with the company to create a marketing plan including a professional 3-5 minute video profile, which has proven to be successful in our social media campaigns. Once RedCrow and the company complete the regulatory paperwork, and assuming the momentum is strong, the company’s pitch deck and offering documents are placed on the Invest platform and the marketing campaign kicks into high gear. Only RedCrow registered investors are able to view the offering details. At that point, each registered investor can make his/her own decision about investing. RedCrow facilitates the investments, utilizing its direct invest technology, and tracks progress towards the company’s goals.
This model of equity “niche-funding” has gotten off to a great start at RedCrow. Within the first year, five companies closed on their funding. Most recently, BrainCheck closed on a round that exceeded its original goal of $1.5M. Another company that closed a round, Ixcela, has signed on for a second round. We at RedCrow are now scaling up, reaching out to start-up companies, incubators/accelerators, institutions, and start-up contest competitors. We currently have over 100 medtech/healthcare companies in our pipeline and are simultaneously growing our crowd of investors. As noted in the January 9th issue of Bankless Times, RedCrow recently formed a partnership with the Innovation Institute (www.ii4change.com) which could add over 200,000 medical professionals to our crowd of potential investors, advisors, and doctorpreneurs.
With this new approach to connecting those with knowledge and money to early stage medical companies that need access to funding and expert knowledge, RedCrow is breaking down one of the major barriers preventing passionate entrepreneurs from introducing innovative products and services that will benefit society. Simultaneously, we are enabling medically savvy individuals to invest in what they know!
For more information, visit the RedCrow website at redcrow.com, check out linkedin.com/company/redcrow-crowd, or contact Tom Vogelsong at firstname.lastname@example.org.