By Brian Smith, CEO RedCrow
Where does a cutting-edge healthcare startup seeking funding go when the check writers don’t want to write the check? How does the investor who is not part of a venture firm gain access to the early investments that we have heard about? RedCrow was built to be that solution for companies and investors. The RedCrow model is unconventional, the founders are a pairing from different worlds, and it all started with the premature birth of a 1.4oz baby
There has never been a more opportune time to start a medical technology or healthcare company. Recent advances in the industry, an increased focus on outcomes, efficiency and cost, combined with an aging population provides unprecedented potential for early stage medical, healthcare and biotech companies to make a difference in people’s lives and be financially successful.
However, it is extremely difficult in this economy for these early stage companies to raise the necessary capital to move forward. Venture capitalists have become increasingly risk averse when it comes to funding early stage medical companies. Innovative entrepreneurs are developing products and services providing breakthrough capabilities to diagnose, monitor, assist and heal people. They typically tap into friends, family, or local angel investors to get sufficient funding to demonstrate their concept. Just when these entrepreneurs feel confident that they really have something special, they realize that it will take several million dollars to productize their concept, pass regulatory approvals, build up production, protect their IP, and staff up – essentially bringing their product to market. Securing this level of funding, or the lack thereof, causes many of these businesses to fail in what has been labeled “the valley of death”.
Meanwhile, there are a large and growing number of medically savvy individuals who have significant investable assets and are seeking the opportunity to invest in promising medtech start-ups, leveraging their own expertise to identify financially attractive opportunities and provide not only dollars, but also advice, to help these companies thrive. Until recently these individuals have not had direct access to these investments.
Fortunately a new investment vehicle – equity crowdfunding – has recently been introduced and is rapidly gaining popularity. Many have heard about crowdfunding efforts through platforms such as Indiegogo or Kickstarter to donate money to a cause. However, a much more powerful and lucrative method of raising capital is via equity crowdfunding – offering an equity position directly to individuals through an Internet portal or website, in exchange for capital. This was enabled by legislation as part of the JOBS (Jumpstart Our Business Startups) Act in 2014, allowing equity crowdfunding platforms to promote start-ups to accredited investors, with Title III passing in 2016 opening equity crowdfunding to non-accredited investors.
Enter RedCrow, co-founded by myself and Jerry Harrison, a Rock and Roll Hall of Famer and pioneer of crowdsourcing in the music industry. As a former investment advisor at Morgan Stanley I experienced first hand the access limitations described above. This realization, as well as a personal event, inspired Jerry and I to form RedCrow with a mission to bring this new approach to raising capital to medtech/healthcare – where it was sorely needed and where the results would benefit society. I know this all too well.
In 2003 my wife Jessica and I were expecting our first child. Jessica was 24 weeks pregnant when I received a call at work that she was being rushed to a Boston hospital as she had begun to dilate. At around 2AM Jessica’s water broke. Our daughter was born at 1 lb. 4 oz. and survived for only a few hours. After experiencing such loss, I was determined to support any cause to make labor and delivery safer and to do my part to prevent other parents from going through such a tragedy. I joined the March of Dimes and served on the board of the Boston Chapter, chairing the largest walk that the chapter has ever had. Through this work I became close with Dr. Jonathan Davis, Chief of Newborn Medicine at Tufts. One day I received a call from Jon telling me about a medical device that one of his colleagues was involved with that was looking for early stage funding. The device was an improved fetal monitor, which extracted fetal and maternal heart rate better than any other on the market. A meeting was set up and I brought along a colleague – another senior VP from Morgan Stanley. Besides being blown away by the vision, we learned that the startup was looking for capital as many VC investors and institutions had turned them down. While Morgan Stanley could not get behind the investment as it was still deemed to be too risky, I felt strongly enough about it that I eventually decided to leave Morgan and pursue helping this startup gain traction. Later that month I resigned from Morgan Stanley and took a business development position with the company in exchange for stock options.
Over the subsequent years, I learned that many accredited investors had a massive appetite for early stage deals, as many of them had never had these types of opportunities presented to them before. Most of the time, these opportunities existed only for large family offices or those who were in the know. I also got a taste of just how difficult it is for a start up with real potential to actually raise early funds, especially in healthcare. Healthcare is supremely challenging, as investment groups often do not have knowledgeable professionals on staff to truly vet the space. As I observed the evolving phenomenon of crowdfunding – billions of dollars of donations being funneled through these platforms – the seed for RedCrow was planted. It was apparent that this would be a game changer for how companies raise money and how investors get to diversify and invest.
In 2016, Jerry Harrison and I would start RedCrow – an online Investment platform for early stage healthcare companies making a social Impact that focuses on attracting investments, feedback, knowledge, and collaboration from the massive healthcare community. RedCrow is a platform that can process direct investments, but more than FinTech, at its core we are building the ultimate social community in healthcare where those early stage entrepreneurs now have a place to not only market to the masses for an investment, but receive vital feedback from healthcare industry experts at the same time.
At RedCrow, we say “Knowledge is power” and “Invest in what you know”. RedCrow assembled a strong team of medical, financial, marketing and technical experts to ensure that the companies selected for listing are disruptive and viable, and that we have dedicated resources to help them succeed. What better way to determine whether something will work than to let the wisdom of the crowd have a voice in the very early stages. Our platform includes a two-step method to maintain the quality of companies listed. The first step is “Discover Supernovas”, in which selected companies share their profiles with the RedCrow crowd prior to fundraising. This step enables the companies to gain valuable feedback from the crowd, shape their message, and gain buzz and momentum. We also perform our own due diligence on the company with the aim of positioning them for success. If a decision is made to go onto the second step – “Invest”, RedCrow works with the company to create and implement a marketing plan, complete regulatory paperwork and offering documents. Only RedCrow registered investors are able to view the offering deals, at which point each investor can make his/her own decision about investing. RedCrow facilitates the investments with its direct invest technology and tracks progress towards the company’s goals.
This model of equity crowdfunding has gotten off to a great start at RedCrow. Within the first year, five companies on our platform have closed on their funding. Most recently BrainCheck closed a round which exceeded their original goal of $1.5M. We are now scaling up, reaching out to more startups, incubators, accelerators and institutions. We have over 100 medtech/healthcare companies in our pipeline. We are simultaneously growing our crowd of investors, with a recent partnership with the Innovation Institute (www.ii4change.com), which has the potential to add over 200,000 medical professionals to our crowd of investors.
With this new approach to connecting those with knowledge and money to early stage medical companies that need both, RedCrow is breaking down one of the major barriers preventing entrepreneurs from introducing innovative products and services that can benefit society .. enabling medically savvy individuals to invest in what they know!