#13: Crowdfunding - Can It Fill the "Innovation Gap" in Biotechnology?

In the 12th Edition of Vital Signs SJA commented about the "Innovation Gap" in Biotechnology; "The National Venture Capital Association and PricewaterhouseCoopers concluded VCs pumped $4.73 billion into biotechs last year, a four-year high and one of the best numbers seen in the past decade. But only 153 of the 785 investment rounds for biotech and medical device companies went to startups, a 15-year low and a worrisome trend for analysts concerned about the future of the industry."

"Crowdfunding," or the process of aggregating small amounts of money from a large number of people, may be a platform for filling this Gap. Crowdfunding historically has been associated with charities and creative projects on the Internet (Social Media) where good ideas have a better chance of meeting people willing to support them. However, new Crowdfunding legislation proposed by Congress may now enable early-stage biotechnology companies to raise capital more easily from investors as well through this channel.

On November 3rd, the House passed the "Entrepreneur Access to Capital Act" (HR 2930). The Act passed by a vote of 407-17. HR 2930 dramatically lessens the requirements associated with businesses offering stock to the public.

The bill provides a crowd funding exemption from the Securities and Exchange Commission registration of securities offering, with certain limitations:

• A $10,000 limit per investor (or 10% of annual income, whichever is less)
• A cap on the amount a company can raise of $1 million per offering (and up to $2 million if audited financial statements are provided)
• No limit on the number of accredited or unaccredited investors