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Exclusive: New, Hybrid Healthcare Crowdfunding and Accelerator Firm Launches


Posted in Medical Venture Capital by Arundhati Parmar on January 14, 2014

Medtech entrepreneurs now have a new avenue to raise capital through crowdfunding while also connecting with experts to get from idea to a working prototype.  


 

In the world of giving entrepreneurs a leg up to get their ideas commercialized, several types of financing and mentorship models are prevalent. But now a new model is being developed that aims to help medtech entrepreneurs searching for capital and expertise get to a working prototype.

Here's a quick review of models that are out there.

You have the traditional angel investor and venture capital world where individuals or institutions dole out money to promising startups. You also have the incubator/accelerator model where worthy entrepreneurs are housed together in shared space with access to mentors and service providers who provide savvy business advice. The hope is that the startups will get funded after they graduate from the accelerator program.

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And then the last few years have produced a new model – crowdfunding – where companies/entrepreneurs put forth their ideas on online sites like Kickstarter and Indiegogo to convince the average person online to part with their money. It’s an open question whether complex medtech, biotech or health IT companies can ever be sexy enough to garner millions of dollars that the Pebble smartwatch did through its Kickstarter campaign. And healthcare accelerators have largely ignored medical device companies. And 

Now an unlikely marriage between the above two models is taking place.

A new hybrid healthcare crowdfunding and accelerator firm is launching Wedensday in Canton, Georgia that aims to show the world that crowdfunding is an appropriate means of financing for medical device, biotech, pharmaceutical and health IT companies. At the same time, this new venture aims to help entrepreneurs have access to experts outside their area by serving as a virtual accelerator.

Called Makerstaker, the company aims to connect the dots between winning capital and creating a working prototype,

As the name suggests, “maker” is the inventor/entrepreneur looking to get his or her projects off the ground and is seeking money. “Staker” is the person who will invest in the company through a crowdfunded model and receive rewards depending on the level of investment. Those rewards could be a working prototype, and references to the staker on the company webpage among several types of rewards, says David Guy, founder and managing partner of Makerstaker, in an exclusive interview with MD+DI.

Guy and a partner will review applications from entrepreneurs who want to raise money through Makerstaker and select those that they feel will be most likely to be successful in raising money from the online throngs.

 

Depending on the amount being raised, campaigns will be given 30 or 60 days within which to reach their financial goals. They get the money only when they are able to raise the full amount in the allotted time. Makerstaker gets 5% of the money raised, similar to how other crowdfunding sites operate, but doesn't take any equity in the company, Guy says.

The benefits of the crowdfunded model are obvious. If a project succeeds and the entrepreneur is able to raise money from complete strangers, it’s a testament that there may actually be a market for the product being built. That gives them some credibility as they approach sophisticated investors.

“The venture capitalists want low risk,” Guy says. “[They say] show me a product that works, a product that people want to buy.” People vote with their wallets in the crowdfunded environment, so the campaigns that are successful show that they have traction,” which appeals to the VCs.

But Makerstaker aims to be more than the sum of its parts – in other words, it wants to more than just bringing the maker and staker together and for checks to be written from the latter to the former.

Having been at a startup himself, Guy believes that money might buy you a seat on the train, but may not necessarily get you to your destination: Successville.

Getting the right expertise is key in that regard.

With that aim in mind, Guy and his partner are building a database around the marketing, engineering, legal, regulatory and other expertise that entrepreneurs will eventually need to build a working prototype for which they are seeking crowdfunding.

Inventors who apply to promote their ideas on the crowdfunding area of Makerstaker are prompted to identify the areas of expertise they need. If the project is accepted, entrepreneurs are matched with relevant experts.

During the course of the campaign these mentors work with the entrepreneur around a virtual workbench to give them the best advice they possibly can. For mentors, giving valuable advice might mean getting hired by the entrepreneur to work on the product for which the entrepreneur is seeking funds online.

“We wanted to help the makers get initial free advice so that they can differentiate one service provider from another, but we don't want our mentors to work for free,” Guy says. “So what we recommend is that during the term of the campaign (30 or 60 days) for the mentors and makers to work together, share as much advice as needed and then to enter into a business relationship with each other outside of Makerstaker.”

The beta version of the site shows had many of the expert categories are empty, but Guy hopes to gather more experts to serve as mentors over time.

There is also a rating mechanism such that entrepreneurs can rate mentors depending on the value of the advice. The more ratings are provided, the more robust the database will be in terms of offering only the cream of the crop mentors to help future makers on projects, he explains.

Even though the team of mentors and entrepreneurs is virtual, Makerstaker goes the extra distance to ensure that mentors who want to be included in the expert database really are who they say they are. Prospective mentors have to provide resumes, LinkedIn profiles and anything they have published to confirm their identity.

“The Internet is anonymous,” Guy says. “You don’t know who you are talking to on the other end of the line.”

But on Makerstaker there is “nymity” a term that Guy says he coined to explain the opposite of anonymity. He believes that the mere fact that the expertise is virtual – a mentor may be in another part of the state, across the country or even on the other side of the globe – is a strength of Makerstaker.

And that’s unlike traditional investment mechanisms like angel and venture – which to an extent still determine whether to invest based on physical distance from startup.

“If you reduced your Linkedin Connections to a 3-hour radius near you, how would it affect your number of connections?” Guy asks rhetorically.

Only time will tell, whether Makerstaker’s hybrid model of virtual accelerator/crowdfunder will work.

But for the mean time, it is a place where medtech entrepreneurs, long ignored by general healthcare accelerators, can flock to.

 [Photo Credit: iStockPhoto user SaulHerrera]

-- By Arundhati Parmar, Senior Editor, MD+DI
arundhati.parmar@ubm.com

 


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