With equity crowdfunding on the horizon, many advocates see a new era of funding life sciences innovation. However, there are a number of concerns that need to be dealt with.
Like anxious parents awaiting the new arrival, investors, regulators, and entrepreneurs are anxious about the birth of equity crowd funding, which
While there have been some notable crowd-funding successes, there have been few in the life sciences, fueling the doubting Thomases. Here are their concerns:
1. The transaction costs of creating the platforms
2. More rules and regulations, particularly when stories start to come out with titles like "How I lost my child's inheritance crowdfunding a biotech company"
3. The viability of follow-on investments for a company that has 3,000 people who invested $100 on the capitalization table
4. The higher than normal risk of investing in life science companies
5. Lack of liquidity in secondary markets
6. The unpredictability of human subjects trials and their impact on the value of investments
7. Confusion and lumping with other crowd funding platforms, like charity and service sites
8. The future tax implications of equity crowdfunding profits and losses
9. The integrity of those running equity crowd funding platforms and the possibility of fraud, abuse, and economic crime. Will there be another Madoff moment in our future?
10. The lack of entrepreneurial and investor knowledge, skills, and attitudes about equity crowd funding, portfolio management, asset allocation, and where it fits into their financing plans.
Advocates of equity crowd funding see it a way to free up millions of investors and their dollars to invest in the future. Only time will tell whether the structure, processes and outcomes of equity crowd funding justifies their optimism.