Crowdfunding

In early 2015, a welsh-based biotech company claimed a UK record for crowdfunding in the life sciences segment (Ward, 2015). The company, Cell Therapy Limited, focuses on stem cell medicine and is co-founded by Nobel Prize winning Professor Sir Martin Evans. They have so far raised over £650,000 of a £250,000 target for 1.07% of equity (Crowdcube, 2015). This significant method of raising money, has in modern days allowed hopeful business persons to raise finance via a large amount of people investing small amounts, rather than relying on a few investors for large amounts of money (UK Crowdfunding, no date). Crowdfunding sits between three measures: financial management, tribal marketing, and entrepreneurial strategy. 

So why did Cell Therapy opt to go down the route of crowdfunding in search of investment rather than seeking a more traditional view of finding fewer investors to put up larger amounts? Let’s take a quick look at crowdfunding history.  

One of the earliest examples of crowdfunding was in the US, following their gift from French for their independence. Although the statue was a gift, the US still had to raise $250,000 for the plinth. Group tasked with raising the money fell well short, and had exhausted themselves of suitable options until a New York publisher, Joseph Pulitzer, launched a fundraising campaign in The New York World. The campaign was a huge success as after five months the money was raised with over 160,000 donators (BBC News, 2013).

Although crowdfunding seems an exciting method of raising capital, resulting in at times limited equity for investors there are some negatives regarding the concept. For example: if a company wants to raise £50,000, they have to do so within a certain time frame, and even if they raise £49,000 of the £50,000 needed, the money will return to investors. This is the case in the biggest crowdfunding website, Kickstarter, but not for Indiegogo which implies a keep it all system where all funds are kept regardless of target. So it is important to be realistic in your target amount. Also, if you opt to crowdfund a specific product or area without a patent, then someone could easily copy the idea (Finance Scotland, no date). In regards to Cell Therapy, a patent on stem cell medicine could be vital in ensuring their medical knowledge is not copied, however medical research commonly takes years to conduct so this would not be an issue for them.

Cell Therapy has reached a UK record, but why? Lots of companies achieve thousands of pounds from crowdfunding, and have failed to return dividends to investors. In my opinion, the fact that the company was medical based was a major factor. Rather than the common perception of creating a business to generate wealth, this company has its goal of saving lives, and is backed by a Nobel Prize winning Professor. If they were to decide to seek out wealthy business persons for investment, they could simply take a life-saving medical concept, and turn it into a money driven corporate company. However, the fact that the investors will receive a combined equity stake of just 1.07% makes me question their underlying morals. This could yet be a major medical development, which in time could be purchased for huge amounts of money to major pharmaceutical firms. Hopefully, this is not the case, and the company has its priorities of saving lives rather than self-wealth.          

 

Reference List

BBC News (2015). The Statue of Liberty and America’s crowdfunding pioneer. Retrieved from: http://www.bbc.co.uk/news/magazine-21932675

Crowdcube (2015). Cell Therapy. Retrieved from: https://www.crowdcube.com/investment/cell-therapy-17426

Finance Scotland (no date). Crowdfunding: pros and cons. Retrieved from: http://www.finance.scotland.gov.uk/types/equity/crowdfunding/pros-and-cons#

UK Crowdfunding (no date). What is crowdfunding? Retrieved from: http://www.ukcfa.org.uk/what-is-crowdfunding

Ward, A. (2015). Biotech company hits crowdfunding record for life sciences. Retrieved from: http://www.ft.com/cms/s/0/5d0c91d8-ae38-11e4-8d51-00144feab7de.html#axzz3Zg2ksdQ1