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Finance & Business Development Table 1: Name Principal(s) Sector Crowdfunding Type Website Medstartr Alex Fair, Mike Pence healthcare, medical devices, digital health donation/rewards medstartr.com Health Tech Hatch Pat Salber, M.D. healthcare donation/rewards healthtechhatch.com Microryza Cindy Wu, Ph.D./ Deny Luan, Ph.D. biomedical and life sciences research donation/rewards microryza.com IAmScientist Borya Shakhnovich, Ph.D./ Claude Sheer biomedical and life sciences research and other scientific disciplines donation/rewards knowledgexchange.iamscientist.com Petridish Matt Salzberg/Ilia Papas biomedical and life sciences research and other scientific disciplines donation/rewards www.petridish.org Poliwogg Gregory Simon healthcare and biotech equity corporate.poliwogg.com Healthfundr Jared Iverson, J.D./Sean Schantzen, J.D./Kerry Lowder, M.D. biotech, medical devices, and healthcare equity healthfundr.com VentureHealth Mir Imran/Andrew Farquharson biotech, medical devices, healthcare, and digital health equity www.venturehealth.com potential new "science patrons" interested in making an investment in the "$160 billion-dollar U.S. market of unfunded research projects." EQUITY CROWDFUNDING PORTALS Prior to passage of the JOBS Act, life sciences crowdfunding portals had to be built and operated using the donations/rewards financing model. However, over the past year since passage of the act, three crowdfunding portals built on equity-based financing have emerged. Healthfundr (healthfundr.com) was launched in May 2013 by Jared Iverson and Sean Schantzen, two attorneys with extensive backgrounds in raising capital for life sciences ventures. The Healthfundr portal is designed to help private, early-stage healthcare companies raise $2 million to $5 million through an equitybased crowdfunding mechanism. Although the JOBS Act legalized equity crowdfunding, Schantzen believes the $1 million annual crowdfunding investment cap will not meet the capital needs of many life sciences companies. "Most life sciences companies are not going to be able to get by with just a million dollars in capital a year, if you use the 10 year/$150 million life sciences commercialization costs model," said Schantzen. Instead, Healthfundr intends to use its crowdfunding portal as sort of a matchmaking platform for companies it selects to showcase (2 to 4 percent of applicants) and appropriate pools of investors registered at the site. Schantzen notes that Healthfundr doesn't make recommendations for investors; it just makes opportunities available to them. "Investors must decide for themselves whether or not an investment is right for them," emphasized Schantzen. Unlike many of the donation/rewards crowdfunding sites that depend on portal volume, Healthfundr intends to work with only a handful of companies at a time. "We are a highly selective, curated portal and want to work on a small number of deals that we personally believe in and are a good fit for our funding model," said 52 LifeScienceLeader.com November 2013 Iverson, Healthfundr's CEO. CHALLENGES While many healthcare and biotech entrepreneurs are very excited by the prospects of life sciences crowdfunding opportunities, there are a substantial number of challenges — mainly with equity-based crowdfunding — that must be addressed before this new funding paradigm can be validated. First, the SEC has yet to release the regulations that lay the groundwork for equity crowdfunding. In the absence of these regulations, only accredited investors, not the general public, can invest using equity-based crowdfunding portals. However, many crowdfunding experts expect the regulations to be released sometime in 2014. But it is generally assumed that it will be many months before the SEC establishes formal procedures for registering portals and issuers. Second, companies that use equity crowdfunding portals will not be allowed to send out mass solicitations to prospective investors at will. The JOBS Act stipulates that equity-based crowdfunding can only be conducted through brokers or portals registered with the SEC. This may actually limit fundraising opportunities. Also, companies that raise between $100,000 and $500,000 via an equity crowdsourcing portal will be required by the JOBS Act to have their financial statements reviewed by an independent certified public account. Companies that raise funds in excess of $500,000 are required to have audited financial statements. Both of these accounting services can be costly and are not typically required of companies that raise less than $1 million through conventional funding mechanisms. Finally, once a crowdfunding offering closes, companies will be required to annually file financial statements with the SEC and compile annual investor reports for its shareholders. Complying with these regulatory requirements may be burdensome for most start-ups, especially for those that raise less than $1 million.