The public ‘disengagement’ with science and the difficulty of funding research seem to be very different problems, but science project ‘crowdfunding’ may be one way of solving both. Life science and healthcare researchers now have a new incentive to ‘reach out’ to society and to ‘connect’ via the internet. The incentive is the potential for raising money for research, directly from the public.
What is Crowdfunding?
An early example of crowd-sourced fundraising occurred in 1884, when the American Committee for the Statue of Liberty ran out of funds for the statue’s pedestal. Newspaper publisher, Joseph Pulitzer, urged the American public to donate money by writing about the problem in his newspaper, New York World. He raised more than $100,000 in six months from more than 125,000 people, with most donations being $1 or less.
While the term ‘crowdsourcing’ was not officially coined until the year 2006, the practice of soliciting financial or labour contributions from a group of people, in order to complete a project, dates back to the 18th century and the creation of the Oxford English Dictionary (OED).
In 2011, the very same Oxford English Dictionary first included the word ‘crowdfunding’ as a collective noun, with the definition:
“the collective effort of individuals who network, usually via the internet, to pool their money to support efforts initiated by other people or organisations”
An alternate definition could be ‘online community fundraising campaigns’.
‘Crowdfunding’ then is a type of crowdsourcing specific to today’s digital age. Project campaigns are published online, and backers can donate or invest in the projects in return for equity, shares, rewards, and/or perks.
Crowdfunding models include the people or organisations that propose the ideas and/or projects to be funded (sometimes called the creator), and the crowd of people who support the proposals. Crowdfunding supported by an organisation (the platform) brings together the project initiator and the crowd.
Crowdfunding can also refer to the funding of a company by selling small amounts of equity to many investors. This is known as equity crowdfunding and the investors are sometimes referred to as ‘business angels’.
Why Now?
With this rapidly increasing number of creators and investors, it is not surprising that the Financial Conduct Authority (FCA) has taken an interest. The FCA have defined five main crowdfunding forms:
The FCA has proposed restrictions on investing and marketing from April 2014. The final rules affirm that the regulations cover two of the five main crowdfunding forms, loan-based (peer-to-peer) and investment-based. According to the FCA, in 2013 £28m was raised through investment-based crowdfunding, representing an increase of around 600 percent on the previous year. In 2013, £480m was lent by consumers to other individuals and businesses. The financial press has begun to analyze the implications of the FCA regulations.
Equity crowdfunding and online community fundraising campaigns to support life sciences and healthcare projects are not mutually exclusive, but the latter is unlikely to result in financial gain; it could do, but it is less likely.
Accelerated interest in the U.S. for crowdfunding arose in April 2012 when President Obama signed a bill to promote start-up investment. The JOBS Act (‘Jump-Start Our Business Start-Ups’) was referred to by the President as a “potential game changer” for fledgling businesses in need of financing. Among other things, it would allow small sums of money to be raised from investors via the Internet. President Obama also said, “For the first time, ordinary Americans will be able to go online and invest in entrepreneurs that they believe in.”
In August 2012 in the UK, Sir Richard Branson announced his support in a report in The Telegraph newspaper for the concept of crowdfunding, crowdinvesting and crowdlending as proposed by the platform ‘BanktotheFuture.com’. In February 2013, the ‘CrowdCube’ equity crowdfunding platform, based in Exeter, UK, initially launched in 2011, was authorised by the Financial Services Authority (FSA).
Has Crowdfunding Been Sccessful?
U.S.-based site Kickstarter is a platform that funds creative projects. Forbes has just announced, on 4th March 2014, that Kickstarter has just passed its $1billion in pledges.
Indiegogo, established in 2008, is now the largest global crowdfunding platform, with more than 120,000 projects registered. One of their mottos is: “to empower people to fund what matters to them”. Indiegogo emphasize the importance of preparation before launch of a good crowdfunding campaign, together with the following:
Crowdfunding in Life Sciences
What makes crowdfunding such a powerful potential lever to connect science and society is that the amount of money that can be raised in this way is directly proportional to the size of the audience (the crowd) that has been built. By regularly ‘reaching out’ with his or her science, the researcher would, over time, build credibility and with a growing audience.
Even if the audience that the scientist ‘reaches out’ to does not give money, the audience is more likely to ‘connect’ to the science, thus closing the gap between science and society. Scientists may be able to impart their message to several thousand people per year; each of these people would feel ‘connected’ to the scientists and the research; this could have an effect on policy-making decisions at government level; a population with more knowledge about life science and with more realistic expectations from scientists and health science may become more active in their own health (fitness, weight loss, cessation of smoking).
In December 2012, the innovation charity, Nesta produced a report, ‘Crowding In’ in which they estimated that crowdfunding could raise £4.7bn a year for UK charities by 2016.
In the UK, the research charity, Cancer Research UK (CRUK) has regularly funded research projects to the tune of fifty thousand pounds and above. Cancer Research UK launched its crowdfunding-style website, ‘MyProjects’ in 2008. On this site, you can ‘Choose the Cancer You Want to Beat’. The site has raised more than £2m and funded more than 65 projects so far, which is a relatively small amount, given that the charity’s annual income was £492.6m in 2012. Although this website does not, as yet, generate the charity’s biggest income stream, it ensures that supporters have choice and are informed with regular updates.
TargetCancer based in Cambridge, Massachusetts, is a not-for-profit foundation that funds innovative research into rare cancers. They provide seed funding to young investigators in an effort to build their research programs to the point where they can successfully apply to the NIH for substantial, multi-year grants. They also build collaborations among like-minded researchers in an effort to catalyze creative research approaches and projects. They have produced an excellent video about the history and the work of the foundation which premiered at their 4th Annual TargetCancer Gala.
Within the life sciences community, interest in crowdfunding was stirred in January 2014 by the news that The Immunity Project, a non-profit scientific research corporation, was working towards developing a synthetic HIV/AIDS vaccine. This vaccine triggers T-lymphocytes to attack the HIV virus. The project is a partnership between the biotechnology firm Flow Pharma, the digital agency SparkArt, the HIV/AIDS charity ‘Until There’s a Cure’ and with support by the venture capital investment firm, Y Combinator. In 2011, Microsoft contributed $1 million to the project. Financial support is also being raised through crowdfunding using Crowdhoster.
Using an algorithm written by scientists at Microsoft e-Science Research, machine learning is used to analyse the dataset and reverse engineer the biological process. As of 2014 it is hoped that Phase I human trials will begin, following initial research in animals. If the clinical trials show success, the organisation plans to have the vaccine ready for global distribution in 2016, at which time it will be provided at no charge to patients. But, there is the potential problem that participants will be discouraged if there is no licensed vaccine at the end.
Within a short time of release of the news of this project, debate began regarding the crowdfunding campaign tactics. An article in Nature News on 10th February, 2014 raised the question of whether, “crowd-funding in Silicon Valley, which tends to be more impressed with technology and marketing than peer-reviewed data, is compatible with medical research.”
Which Projects Would be Suitable for Crowdfunding?
Gonçalo de Vasconcelos of Cambridge-based Syndicateroom, in his online blog of 4th February, 2014 stated:
“The key difference between investing in a technology business verses a healthcare business is the motivation behind the investment. Whilst business angels invest for financial gains, most will also consider why they want to see a specific business or technology succeed. In healthcare this second component plays a larger role than usual in the investment decision.”
Jason Corum of BIOtechNOW in his online blog of 10th October 2013 has stated:
“Crowdfunding is a great opportunity for new investors to invest in companies working on therapies close to their heart. Someone who has had an elderly parent with Alzheimer’s can invest in a company working to cure the disease without anyone between them and their decision to invest.”
An example of this motivation is MitoDys an online platform for Parkinson’s disease research, which was fully funded by SyndicateRoom in 2014.
Which Projects Would be Unsuitable for Crowdfunding?
Drug discovery tends to be capital intensive with very long timescales and is not amenable to crowdfunding campaigns, as they presently stand. Many life sciences executives don’t think the model is viable for the sector, and critics raise issues of due diligence, IP concerns and issues around having to answer to many shareholders.
But crowdfunding could work for early-stage life sciences companies looking to bridge a growing gap between ‘tapping’ friends and family to getting the first round of venture capital. This was part of a discussion raised with panelists at the BIO Investor Forum in San Francisco, October 8th 2013 and which became part of The Burrill Report, entitled ‘Crowdfunding Early Stage Drug Development’.
Project Violet is an initiative launched by Dr Jim Olson, a paediatric oncologist and a research scientist at Seattle’s Fred Hutchinson Center. It aims to use ‘citizen science’ and crowdfunding to speed up drug discovery. The project enlists the help of the general public to develop new drug candidates from a novel class of “optimized peptides” (or “optides”), derived from natural structures such as potatoes, insects and plants (including, the violet). Scientists have created thousands of versions of optides, some of which could be developed into next-generation therapies for diseases such as rare forms of cancer.
What are the Pros and Cons of Crowdfunding Life Sciences and Healthcare Projects?
Instead of financial gain for the creator the main benefits will be non-financial, including seeing a new product or treatment developed.
Benefits:
But crowdfunding life sciences and healthcare projects also comes with a number of potential risks or barriers, not just for the investor but also for the creator:
Risks:
In conclusion, crowdfunding initiatives for life science and healthcare projects come at a time when developments in the internet have allowed the public to engage with science and to be a part of its development. At such an early stage it is now important to have the proper regulations in place, not just financial but also peer review and feasibility testing in order not to lose public support. Collaboration and ‘becoming part of the crowd’ may have arrived at a significant time for life science and healthcare research.
What is Crowdfunding?
An early example of crowd-sourced fundraising occurred in 1884, when the American Committee for the Statue of Liberty ran out of funds for the statue’s pedestal. Newspaper publisher, Joseph Pulitzer, urged the American public to donate money by writing about the problem in his newspaper, New York World. He raised more than $100,000 in six months from more than 125,000 people, with most donations being $1 or less.
While the term ‘crowdsourcing’ was not officially coined until the year 2006, the practice of soliciting financial or labour contributions from a group of people, in order to complete a project, dates back to the 18th century and the creation of the Oxford English Dictionary (OED).
In 2011, the very same Oxford English Dictionary first included the word ‘crowdfunding’ as a collective noun, with the definition:
“the collective effort of individuals who network, usually via the internet, to pool their money to support efforts initiated by other people or organisations”
An alternate definition could be ‘online community fundraising campaigns’.
‘Crowdfunding’ then is a type of crowdsourcing specific to today’s digital age. Project campaigns are published online, and backers can donate or invest in the projects in return for equity, shares, rewards, and/or perks.
Crowdfunding models include the people or organisations that propose the ideas and/or projects to be funded (sometimes called the creator), and the crowd of people who support the proposals. Crowdfunding supported by an organisation (the platform) brings together the project initiator and the crowd.
Crowdfunding can also refer to the funding of a company by selling small amounts of equity to many investors. This is known as equity crowdfunding and the investors are sometimes referred to as ‘business angels’.
Why Now?
With this rapidly increasing number of creators and investors, it is not surprising that the Financial Conduct Authority (FCA) has taken an interest. The FCA have defined five main crowdfunding forms:
- loan-based (peer-to-peer);
- investment based;
- donation-based;
- rewards-based and
- ‘exempt’ crowdfunding, including ‘enterprise zones’.
The FCA has proposed restrictions on investing and marketing from April 2014. The final rules affirm that the regulations cover two of the five main crowdfunding forms, loan-based (peer-to-peer) and investment-based. According to the FCA, in 2013 £28m was raised through investment-based crowdfunding, representing an increase of around 600 percent on the previous year. In 2013, £480m was lent by consumers to other individuals and businesses. The financial press has begun to analyze the implications of the FCA regulations.
Equity crowdfunding and online community fundraising campaigns to support life sciences and healthcare projects are not mutually exclusive, but the latter is unlikely to result in financial gain; it could do, but it is less likely.
Accelerated interest in the U.S. for crowdfunding arose in April 2012 when President Obama signed a bill to promote start-up investment. The JOBS Act (‘Jump-Start Our Business Start-Ups’) was referred to by the President as a “potential game changer” for fledgling businesses in need of financing. Among other things, it would allow small sums of money to be raised from investors via the Internet. President Obama also said, “For the first time, ordinary Americans will be able to go online and invest in entrepreneurs that they believe in.”
In August 2012 in the UK, Sir Richard Branson announced his support in a report in The Telegraph newspaper for the concept of crowdfunding, crowdinvesting and crowdlending as proposed by the platform ‘BanktotheFuture.com’. In February 2013, the ‘CrowdCube’ equity crowdfunding platform, based in Exeter, UK, initially launched in 2011, was authorised by the Financial Services Authority (FSA).
Has Crowdfunding Been Sccessful?
U.S.-based site Kickstarter is a platform that funds creative projects. Forbes has just announced, on 4th March 2014, that Kickstarter has just passed its $1billion in pledges.
Indiegogo, established in 2008, is now the largest global crowdfunding platform, with more than 120,000 projects registered. One of their mottos is: “to empower people to fund what matters to them”. Indiegogo emphasize the importance of preparation before launch of a good crowdfunding campaign, together with the following:
- An ‘engaging’ pitch (honest, transparent, authentic), preferably with a video.
- An attainable goal, set conservatively, to get initial momentum; or break it up into smaller, attainable projects.
- Unique perks, such as thank yous, coupons, classes, unique articles.
- Proactive communication throughout the life of the campaign; one or two updates per week to celebrate milestones or new media; asking for feedback is important.
Crowdfunding in Life Sciences
What makes crowdfunding such a powerful potential lever to connect science and society is that the amount of money that can be raised in this way is directly proportional to the size of the audience (the crowd) that has been built. By regularly ‘reaching out’ with his or her science, the researcher would, over time, build credibility and with a growing audience.
Even if the audience that the scientist ‘reaches out’ to does not give money, the audience is more likely to ‘connect’ to the science, thus closing the gap between science and society. Scientists may be able to impart their message to several thousand people per year; each of these people would feel ‘connected’ to the scientists and the research; this could have an effect on policy-making decisions at government level; a population with more knowledge about life science and with more realistic expectations from scientists and health science may become more active in their own health (fitness, weight loss, cessation of smoking).
In December 2012, the innovation charity, Nesta produced a report, ‘Crowding In’ in which they estimated that crowdfunding could raise £4.7bn a year for UK charities by 2016.
In the UK, the research charity, Cancer Research UK (CRUK) has regularly funded research projects to the tune of fifty thousand pounds and above. Cancer Research UK launched its crowdfunding-style website, ‘MyProjects’ in 2008. On this site, you can ‘Choose the Cancer You Want to Beat’. The site has raised more than £2m and funded more than 65 projects so far, which is a relatively small amount, given that the charity’s annual income was £492.6m in 2012. Although this website does not, as yet, generate the charity’s biggest income stream, it ensures that supporters have choice and are informed with regular updates.
TargetCancer based in Cambridge, Massachusetts, is a not-for-profit foundation that funds innovative research into rare cancers. They provide seed funding to young investigators in an effort to build their research programs to the point where they can successfully apply to the NIH for substantial, multi-year grants. They also build collaborations among like-minded researchers in an effort to catalyze creative research approaches and projects. They have produced an excellent video about the history and the work of the foundation which premiered at their 4th Annual TargetCancer Gala.
Within the life sciences community, interest in crowdfunding was stirred in January 2014 by the news that The Immunity Project, a non-profit scientific research corporation, was working towards developing a synthetic HIV/AIDS vaccine. This vaccine triggers T-lymphocytes to attack the HIV virus. The project is a partnership between the biotechnology firm Flow Pharma, the digital agency SparkArt, the HIV/AIDS charity ‘Until There’s a Cure’ and with support by the venture capital investment firm, Y Combinator. In 2011, Microsoft contributed $1 million to the project. Financial support is also being raised through crowdfunding using Crowdhoster.
Using an algorithm written by scientists at Microsoft e-Science Research, machine learning is used to analyse the dataset and reverse engineer the biological process. As of 2014 it is hoped that Phase I human trials will begin, following initial research in animals. If the clinical trials show success, the organisation plans to have the vaccine ready for global distribution in 2016, at which time it will be provided at no charge to patients. But, there is the potential problem that participants will be discouraged if there is no licensed vaccine at the end.
Within a short time of release of the news of this project, debate began regarding the crowdfunding campaign tactics. An article in Nature News on 10th February, 2014 raised the question of whether, “crowd-funding in Silicon Valley, which tends to be more impressed with technology and marketing than peer-reviewed data, is compatible with medical research.”
Which Projects Would be Suitable for Crowdfunding?
Gonçalo de Vasconcelos of Cambridge-based Syndicateroom, in his online blog of 4th February, 2014 stated:
“The key difference between investing in a technology business verses a healthcare business is the motivation behind the investment. Whilst business angels invest for financial gains, most will also consider why they want to see a specific business or technology succeed. In healthcare this second component plays a larger role than usual in the investment decision.”
Jason Corum of BIOtechNOW in his online blog of 10th October 2013 has stated:
“Crowdfunding is a great opportunity for new investors to invest in companies working on therapies close to their heart. Someone who has had an elderly parent with Alzheimer’s can invest in a company working to cure the disease without anyone between them and their decision to invest.”
An example of this motivation is MitoDys an online platform for Parkinson’s disease research, which was fully funded by SyndicateRoom in 2014.
Which Projects Would be Unsuitable for Crowdfunding?
Drug discovery tends to be capital intensive with very long timescales and is not amenable to crowdfunding campaigns, as they presently stand. Many life sciences executives don’t think the model is viable for the sector, and critics raise issues of due diligence, IP concerns and issues around having to answer to many shareholders.
But crowdfunding could work for early-stage life sciences companies looking to bridge a growing gap between ‘tapping’ friends and family to getting the first round of venture capital. This was part of a discussion raised with panelists at the BIO Investor Forum in San Francisco, October 8th 2013 and which became part of The Burrill Report, entitled ‘Crowdfunding Early Stage Drug Development’.
Project Violet is an initiative launched by Dr Jim Olson, a paediatric oncologist and a research scientist at Seattle’s Fred Hutchinson Center. It aims to use ‘citizen science’ and crowdfunding to speed up drug discovery. The project enlists the help of the general public to develop new drug candidates from a novel class of “optimized peptides” (or “optides”), derived from natural structures such as potatoes, insects and plants (including, the violet). Scientists have created thousands of versions of optides, some of which could be developed into next-generation therapies for diseases such as rare forms of cancer.
What are the Pros and Cons of Crowdfunding Life Sciences and Healthcare Projects?
Instead of financial gain for the creator the main benefits will be non-financial, including seeing a new product or treatment developed.
Benefits:
- Reputation and Profile Raising: For the project organisers, the charity or the academic centre.
- Market Knowledge: A successful project can show initiators that there is an audience, demand or market and in an unsuccessful campaign, can provide market feedback.
- Market Engagement: Crowdfunding creates a form where project initiators can engage with their audiences and audience can engage in the production process by following progress in the project’s crowdfunding page.
- Market Testing: Project initiators can have instant access to good market-testing feedback.
- Learning from the ‘Wisdom of the Crowd’: Good ideas can break through which may not fit the pattern required by conventional financiers to attract financial support.
- Empowering the Public: They may re-engage with science by becoming involved in its success.
- Education: Health education of the public may be an outcome of their involvement.
- Science Communication in the Media: A greater understanding of the process of research may reduce the sensationalised and ambivalent media reporting of the past.
But crowdfunding life sciences and healthcare projects also comes with a number of potential risks or barriers, not just for the investor but also for the creator:
Risks:
- Loss of Reputation: Failure to meet campaign goals, to obtain public support, to reach financial goals, to generate interest or to deliver on a project can adversely impact on an initiator’s reputation (individual, business, academic, charitable).
- Failure of the Project: Repeatedly being asked to fund projects with an inadequate scientific or technological basis may result in disillusionment, with the risk that the public understanding and support for science will be adversely affected. Regulation and peer review of these projects at start-up is therefore required.
- Lack of Returns: If it is made clear to donors at the start that their money is to be used to ‘do good’ rather than to make them rich, then this should not be a problem. But it is not always made clear.
- Intellectual Property (IP) Protection: Developers and content producers may be reluctant to publicly announce the details of a project before production due to concerns about idea theft and protecting their IP.
- Donor Exhaustion: If the same network of supporters is approached multiple times, support may cease.
- Lack of Regulatory Framework: More regulation needs to be in place to ensure that abuse of funds does not occur; concern about this may become a barrier to public engagement.
- Lack of ‘Due Diligence’: Non scientists from among the general public are likely to donate to causes they feel emotionally ‘connected’ to. They may not check or research the literature to determine whether the project has a sound basis. A mechanism should be in place from each project creator to provide this evidence in an understandable form or else to attract investors with greater knowledge in the area and then leverage their capital with smaller investors.
- Managing Communications: Large numbers of investors and supporters need constant updates and this can be a substantial task which may divert efforts away from the project itself.
- Keeping up with Rule Changes in Financial Regulation: In the UK, the new FCA rules, commencing in April 2014 will no doubt be modified as crowdfunding becomes more ‘mainstream’.
In conclusion, crowdfunding initiatives for life science and healthcare projects come at a time when developments in the internet have allowed the public to engage with science and to be a part of its development. At such an early stage it is now important to have the proper regulations in place, not just financial but also peer review and feasibility testing in order not to lose public support. Collaboration and ‘becoming part of the crowd’ may have arrived at a significant time for life science and healthcare research.
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