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@SeanWeinstock Sean: great points.
VCs need a hefty ROI to justify the risk - crowdfund participants may not have that requirement. They may want to do it for emotional connection rather than financial gain. But that doesnt mean they dont need to assess the technical merits of the funding proposition. Wanting to cure prostate cancer should not make you back many of the completely flawed proposals out there for treating prostate cancer. Not caring about monetary gain does not equate to not needing high quality due diligence.
Your second point is definitely something we have thought about at www.tcpinnovations.com. A knowledgable third party could easily establish a crowd funded portal (essentially a VC fund with the crowd as LPs). This could be domain-specific or a general biotech fund depending on the expertise of the third party. The crowd would then be relying on the domain knowledge of the third party portal (much as many VC do).
Two problems: first and foremost are regulatory concerns. Once there is a third party "recommending" the investment, it likely falls outside of conventional crowdfunding regulation and becomes a conventional "investment advice" play - with all the attendant regulatory risks for the advisors (it would be FSA regulated in the UK, for example) making it very burdensome (quite the opposite of the intent of crowd funding). Second problem: it only distintermediates the problem - the crowdfunding investor has to decide whether the third party advisors (your "GPs") are any more kosher and capable of technical due diligence than the original crowd wanting to do the project. Thats not easy - it may even be harder than making the primary investment decision. Does www.tcpinnovations.com (who are an internationally recognized bunch of advisors to top-tier VC firms) LOOK, to an unitiated third party, like a reliable advisor? Would you trust a Professor from Harvard or Cambridge University with a supposedly viable drug development plan over a third party portal? Probably - but you may not be right to do so.
Bottom-line: it all sounds great in theory, but in practice its going to end in tears. Crowdfunders are going to lose a whole hell of a lot of money in biotech!
2 years, 2 months ago on How crowdfunding and avenging Steve Jobs could unlock a new way to fund life sciences
Nice idea in principle - but never going to work in practice.
Life sciences is a very difficult area for professional investors to make returns. There are several reasons for that: it is VERY capital intensive (if it take $500M minimum to get a drug to market, how can crowdfunding do that?) and it is technically extremely complex. There are loads of people trying to get biotech businesses funded that should never see the light of day - they sound plausible to anyone who doesnt have deep domain-specific technical expertise, but their products will always fail.
Professional VCs struggle to make these calls with expensive technical due-dilligence. How on earth could crowd-funding participants make such calls? Certainly not on the basis "well, theres a social need for that product so lets fund it".
I love the crowdfunding model. For the right kind of business, its great. Getting start-up capital for a tree surgery business in a locale that has lots of trees and no tree surgeon with a newly qualified guy who wants to work hard and build a business - thats a great model to crowd-fund. But a biotech? No - it verges on fraud to suggest that crowdfunders should even look at life-science opportunities.
If you read this, and thought "Yeah, great idea" - please think again.