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Insight & Intelligence : Apr 17, 2013
Two Roads to Wowing the Crowd
Poliwogg eyes biopharma startups seeking millions; Microryza connects donors to researchers needing thousands.!--h2>
A year has passed since President Barack Obama enacted a law intended to spark business growth by encouraging “crowdfunding” of startups. Much of the law remains to be implemented, but that hasn’t stopped crowdfunding sites Poliwogg and Microryza from employing different models toward raising money for biopharmas and researchers, respectively.
Poliwogg: Big Investments Wanted
This month, Poliwogg is launching its platform, focusing on helping fund small- and mid-sized companies in biopharma and other “healthcare” specialties, as well as in community-based businesses and projects, and portfolios of high-yielding investment-grade assets.
Gregory C. Simon, Poliwogg’s CEO, told GEN the crowdfunder is not about raising money from individuals, but seeking out investors willing in return to hold equity stakes in companies looking to raise between $2 million and $10 million.
Poliwogg envisions crowdfunding part of what a company seeks, then persuading venture capitalists to fund the remainder after conducting its own due-diligence review. It’s hard, Simon said, to predict how the percentages will ultimately shake out.
If it raises the funds sought, Poliwogg collects a 5% or 6% fee from what it raises.
“We fund these companies; they get across the ‘valley of death’ one way or another. They either fail, which is highly possible, or they succeed. They get a proof of concept. They get a critical clinical trial done. All of a sudden, they’re interesting to a biopharma company or a VC,” Simon said. “Think of this as a feeder for biopharma and VC funds. Neither VCs nor companies get into that level. But if you don’t grow companies at that level, you’re not going to get the companies at the bigger level. That’s why we’re called Poliwogg: You’re not going to get a frog if you don’t invest in the poliwogg.”
But will VCs, already gun-shy about early-stage biopharma, stick their necks out to invest in Poliwogg’s startups? “The smart ones will,” Simon predicted.
Microryza: The More Traditional Approach
Taking a different approach is Microryza, which a year ago this month began crowdfunding projects in biopharma and other sciences. Unlike Poliwogg, Microryza applies the more traditional crowdfunding approach, presenting on its website projects by mostly individual researchers seeking thousands or tens of thousands of dollars for projects.
A glance at the Microryza site on April 12 found 48 projects in the “biology” category that includes biopharma research. Elizabeth Iorns, Ph.D., is seeking $15,000 toward a mouse model of a noninvasive method of preventing transmission of the BRCA gene mutation to offspring by selectively targeting sperm that carry it. Dr. Iorns is co-founder and CEO of Science Exchange, a community marketplace for scientists seeking services from research institutions worldwide.
“The fundamental question I am trying to answer is whether PARP inhibitors can be used to prevent the production of BRCA mutant gametes,” Dr. Iorns stated on Microryza. “If that is successful, we can move quickly to testing with male BRCA carriers.”
The research entails treating male BRCA1+/- heterozygous mutant mice with PARP (olaparib) or a control and bred with wild type female mice. Mice pups will be pups will be genotyped to determine whether PARP led to fewer BRCA1 mutant carrier pups being born than the 50% expected to carry the mutation. As of April 12, Dr. Iorns had won $3,456 in pledges, 24% of goal.
Wormfree World Institute, a nonprofit research center, has exceeded its $15,000 goal as backers agreed to help fund the screening of 1,000 potential drug compounds directly on human intestinal hookworms. The institute’s founder and chairman is Raffi V. Aroian, Ph.D., a professor at University of California, San Diego.
“The impact of experimental compounds will be assessed based on parasite motility, size, and coloration. Post-screening, we anticipate designing an in-depth drug development effort around our best lead compound(s),” the institute stated at Microryza.
Microryza takes a 5% transaction fee if a project reaches or surpasses goal. The site also charges a credit card processing fee of roughly 3% for payment processing. Over five weeks ending the week of March 19, the site doubled week-over-week its numbers of transactions, projects, and users, founder Cindy Wu says on a video clip posted on the crowdfunding platform’s website.
“At Microryza, we’ve created a Kickstarter for research,” Wu declared, referring to a pioneer crowdfunding site focused on cultural projects. “Today, research funding is broken. The funders are so conservative that they only fund the most obvious ideas. We fund the long tail of ideas, the ideas that they won’t fund, and the outliers that matter.”
Crowdfunding and the JOBS Act
Microryza and Poliwogg have emerged in the year since enactment of the Jumpstart Our Business Startups (JOBS) Act. It encourages crowdfunding in part by exempting from U.S. Securities and Exchange Commission registration rules any transactions to sell crowdfunded securities by businesses raising up to $1 million within a 12-month period—or up to $2 million if the company provides audited financials.
Another provision raises from $5 million to $50 million the limit on “registration A” public offerings that private companies can raise in a 12-month period, without having to file public financial reports. JOBS Act also raises the maximum number of shareholders for a private company from 499 to either 2,000 people or 500 “unaccredited” investors (making less than $200,000 annually, with a net worth below $1 million).
Because JOBS Act isn’t fully implemented, Simon said, Poliwogg cannot promote its investment opportunities directly to investors, or even disclose specific companies seeking funding to anyone but accredited investors: “We’re looking at an Alzheimer’s company that has had a very interesting approach. We’ve got a pediatric device company. We’ve got a health IT company.”
Once the law is implemented, Poliwogg can disclose the companies, even promote them on social media, but only accredited investors can invest in them.
For now, investors must register and declare that they are accredited. Only then can they look at the companies seeking funding. “What we can do is go the old fashioned way, to broker/dealers and investment advisors, and say, ‘We have a company that’s doing Alzheimer’s.’ They can go to their investors and see if they are interested,” Simon said. “And the answer has been, capital-Y, capital-E, capital-S.”
The effect of JOBS Act on Microryza could not be learned; Wu had not responded at deadline to emailed questions from GEN.
While the regulation-writing effort is expected to pick up steam now that SEC has a permanent chairman, Mary Jo White, some in Congress have criticized lack of progress. On April 11, the House of Representatives’ Small Business Committee held a hearing where members criticized SEC for foot-dragging: “The JOBS Act makes important progress in giving job creators the freedom to achieve prosperity. Unfortunately, one year down the road, we are still waiting on the SEC’s ground rules that are long past due,” committee chairman David Schweikert (R-AZ) said in his opening statement.
Lona Nallengara, acting director of the SEC’s corporation finance division, countered that SEC is swamped, since it must also write regs for the Dodd-Frank and Consumer Protection acts: “The Commission and the staff have made progress on, and continue to work diligently in, implementing the JOBS Act mandates,” she told the panel.
A year ago, GEN observed that “crowdfunding by itself is less likely to aid biopharma startups than startups in other industries since most such companies require multiple millions of dollars to conduct research and carry out clinical trials.” While that may yet turn out to be true, Poliwogg and Microryza have shown that through their varied approaches, biopharma researchers and startups need not miss out on the crowdfunding fun.
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