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VentureHealth’s crowdfunding portal gets blood flowing into ailing life sciences sector

As life science funding slows to a meager trickle, VentureHealth is trying to speed it back up.

VentureHealth has launched its online equity crowdfunding platform for life sciences companies. It provides accredited investors with opportunities to invest in innovative medical technology that ultimately saves lives and improves patient care.

“Ultimately, we hope that this model could help change the landscape for biomedical financing,” said cofounder Andrew Farquharson. “Since our focus is on breakthroughs in healthcare, success translates to dramatic improvements in clinical outcomes.”

The company uses a “carried-interest” model, which means that it only sees returns if its portfolio companies do, rather than a broker/dealer commission-based model. Farquharson said this approach is in line with traditional venture capital funds and means VentureHealth has a strong incentive to only select the most promising opportunities.

The goal is to increase the supply of capital to exciting biomedical companies and make it easier for individual investors to put money into this sector, which is generally reserved for venture capitalists. Venture capitalists, however, are turning their interests elsewhere, which presents an issue for startups, companies, scientists, and entrepreneurs.

Fenwick & West recently released a study on the state of the life sciences funding and found that it has fallen by more than $5 billion over the past five years.

“The life science venture financing environment remains challenging, with an increasingly short supply of capital despite factors such as aging world populations and rising living standards in developing countries that will help support long-run demand for life science innovation,” said partner Matt Rossiter. “While funding from corporate investors, wealthy individuals, and disease foundations is helping to fill some of the gap, entrepreneurs that plan to seek venture capital financing would do well to carefully consider factors, such as capital efficiency and a faster path to exit, that can increase the odds of raising scarce funding.”

VentureHealth is stepping in to address these problems. Farquharson and cofounder Mir Imran have extensive experience in medical investing. Farquharson spent two decades building, restructuring, and acquiring life sciences companies, and Imran has founded more than 20 life sciences companies and holds more than 200 patents. They previously founded InCube Ventures, a life science venture capital firm focused on solving unmet clinical needs for large patient populations. As crowdfunding and online investment platforms grew in popularity and gained legitimacy, they saw an opportunity to bring investment opportunities to interested individuals.

Channel Medsystems, a startup developing “next-generation cryoablation technologies,” raised $875,000 on VentureHealth as part of its $9.7 million Series B round.

Healthfundr is another recently launched equity-based crowdfunding platform for health startups although it focuses on opportunities in health IT, digital health, and diagnostic and medical devices. In contrast to the life sciences sector, digital health is taking off, and funding is actually on the rise. There is a lot of buzz surrounding digital health right now as changes in national policy affect care providers and mobile technology opens up a whole new world of possibilities. These areas are new and exciting, but life sciences and biomedical tech are crucial parts of the healthcare ecosystem, and they aren’t (and can’t) go anywhere. If funding slows, chances are medical innovation will too, and that’s a pretty scary thought.

VentureHealth is based in San Jose, California. 

2013-06-14, Venture Beat, Rebecca Grant.

Keywords: medicine and healthcare, science, crowdfunding

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