How to Crowdfund Your Health Startup: Advice From a Founder Who Raised Millions
Think crowdfunding isn’t for healthcare? Think again.
We recently held a Masterclass with Jim Iversen, CEO & Co-founder of Sen-Jam Pharmaceutical. A long-time member of our StartUp Health community, Iversen reveals how he raised over $3M through platforms like StartEngine and Wefunder.
In this Masterclass, originally recorded in front of a virtual audience of entrepreneurs in the StartUp Health community, we dig into crowdfunding platforms best suited for health startups, strategies for launching a successful campaign, creative investor incentives, and building a communication strategy to retain investors.
Key Takeaways
Crowdfunding can be a good fit for companies with a clear business plan, a large unmet need, and a strong team.
It's a low-risk way to test the waters and raise capital.
There are multiple crowdfunding platforms that can be successfully used for health startups.
Marketing and communication is crucial, and webinars are a powerful tool for Sen-Jam.
Offering unique incentives, like fractional royalty rates, can boost investment.
Crowdfunding can be complementary to raising capital from VCs.
Summary
Is crowdfunding right for you?
Iversen emphasizes that crowdfunding is a viable option for many healthcare startups. If you have a solid business plan, address a significant unmet need, and have a competent team, crowdfunding could be a good fit. It's a low-risk approach that allows you to gauge investor interest and raise funds.
Marketing and promotion are essential
Iversen highlights the importance of marketing your crowdfunding campaign. Social media and updates on the crowdfunding platform itself are important. However, webinars have proven to be particularly effective for Sen-Jam, enabling them to connect with potential investors on a deeper level.
Creative incentives can make a difference
Offering unique incentives can significantly increase investment. Sen-Jam, for instance, uses fractional royalty rates, where investors get a share of the royalties from licensing agreements.
Crowdfunding and VCs can work together
While some might see crowdfunding and venture capital (VC) funding as mutually exclusive, Iversen's experience suggests otherwise. Sen-Jam is currently raising a Series A round alongside their crowdfunding campaign.
Iversen's experience with Sen-Jam Pharmaceutical demonstrates that crowdfunding can be a powerful tool for healthcare startups to raise capital and build a community of supporters.
Listen to the Masterclass on StartUp Health NOW
Transcript
StartUp Health: So, when people think about crowdfunding, it's understandable for folks to think, "That's not for me. That's not for my type of business." Maybe Jim's got some magic product or startup that works better for crowdfunding than my company would. Let's start by understanding you, a bit of your background, and what you're building at Sen-Jam.
Jim Iversen: I've spent a career in supply chain. I built a number of supply chain companies, both on the engineering robotics side and on the software side. My first business started in college when barcodes first came out, writing software to tie barcodes to scales, scanners, and rate tables. This evolved into developing sophisticated automated solutions like those seen in Amazon for pick-packing and shipping with robotics. I sold my last operating company seven years ago, a software company I had in Houston. At that time, my wife, Jackie, who's a pharmacist, came to me with an idea about changing the course of inflammation and its role in most disease states. Acute inflammation progresses to chronic inflammation, which, if untreated, leads to tissue damage, disease, and death. Seeing the large unmet need, we decided to pursue this opportunity.
We began with a simple business approach: on the y-axis, we needed to de-risk on the clinical and regulatory side; on the x-axis, we focused on filing intellectual property. As we de-risked, we'd license the technology without taking on commercial risk. My largest company had 160 employees, and I wasn't interested in building a big sales force. Before 2020, we self-funded the company, ensuring we could lock down and put guardrails around our strategy. We invested a lot to get things going. In 2020, we ventured into crowdfunding. I had been a student of crowdfunding, fascinated by the Jobs Act, which disrupted the life sciences space and gave companies access to capital while allowing retail, unaccredited investors to participate. To date, we've raised close to $3.5 million, both through Reg D (for accredited investors only) and RegCF.
StartUp Health: When folks think about crowdfunding, they often think about Kickstarter, known for viral products like tiny projectors and collapsible bottles. But that's the old way. There's a whole new world now. Beyond Wefunder and Red Crow, can you give us an industry overview? What's the current state of crowdfunding for startups like those on this call?
Iversen: The two lead horses are StartEngine and Wefunder, with many other players offering services. There's a rating company called KingsCrowd, similar to Moody's or Standard & Poor's, that evaluates crowdfunding companies and those participating in crowdfunding initiatives. On the RegCF side, the main players are Wefunder and StartEngine, with many smaller players behind them. On the Reg D side, there are also numerous players.
StartUp Health: Most people on this call are curious and interested in crowdfunding. Is there a type of startup particularly well-suited for this type of raising? Or is it just a matter of your ability to execute?
Iversen: Watching the preview video, I get chills every time. Being a Health Transformer with a moonshot means focusing on what we can do, not what we can't. For crowdfunding, the primary criteria are having a business plan, a large unmet need, proprietary technology, a capable team, a clear financial goal to reach an inflection point, and the intention to make investors money. If you have these, you're a candidate for crowdfunding. We're a therapeutics company, and crowdfunding has allowed us to fund smaller studies and build value in the company, leveraging it with strategic investors.
StartUp Health: So, it's really not about the product but the process of understanding your market, company, product, and ability to execute on a plan like this.
Iversen: Yes, if you have a business model targeting a large unmet need and need capital to reach a milestone, you're a candidate for crowdfunding. Crowdfunding serves as a proxy for your business's performance. We've had two campaigns on Wefunder and are very partial to it because of their unique features, like the ability to test the waters before going public, reducing risk.
StartUp Health: It's low risk and relatively low time commitment. You said you could get a page set up quickly. How long did it take?
Iversen: Less than a day for the initial setup. Testing the waters is quick and low risk.
StartUp Health: What's the ongoing maintenance like?
Iversen: After setting up, you need to complete a RegCF form filed with the SEC and do annual filings. Wefunder has been fantastic in helping with these requirements. Once you test the waters and decide to proceed, you go live, allowing anyone to buy in if you have enough momentum. Most investors don't come from the crowdfunding company; they come from your own network. For example, our first $600,000 campaign was primarily funded by our investors.
StartUp Health: What's your first step to letting the world know about your campaign?
Iversen: Use traditional social media and the crowdfunding company's update pages. For us, Wefunder's ability to update and share links on social media has been very effective. Additionally, high communication and high touch with existing investors have led to repeat investments. Webinars have been our highest-performing method, fostering direct engagement and significant investments.
StartUp Health: How do you incentivize investors in your project?
Iversen: We offer different incentives, such as additional securities based on investment thresholds or time-based incentives. For our current campaign, we've used a fractional royalty rate of our patent portfolio as an incentive. This allows investors to receive a portion of the revenue from our licensing agreements, managed through blockchain.
StartUp Health: Is this a complicated process?
Iversen: Not really. We've developed a fractional royalty contract and can put it on the blockchain, making it easy to manage.
StartUp Health: Let's go to some questions from the chat. Arielle Messer from Insulearn, can you ask your question and give us 60 seconds about what you're building?
Arielle Messer: I'm building Insulearn, which develops automated insulin delivery algorithms for insulin pumps. What are the advantages of crowdfunding compared to raising money with VCs, and are there any downsides?
Iversen: Initially, there was pushback from VCs on crowdfunding, but it's now more accepted. We're doing a series A currently with no pushback. Wefunder sets up a special purpose vehicle, providing one line item on your cap table, which is advantageous. Raising capital is hard, and VCs involve significant overhead and time investment. Crowdfunding doesn't have that overhead, allowing us to focus on developing our therapeutics and intellectual property.
StartUp Health: Let's go to a question from Piyush Gupta from Ambrosia. Go ahead.
Piyush Gupta: We're crowdfunding on Wefunder. My question is, you tried Red Crow first? Which one is better and why, and how can we market better?
Iversen: We first used Red Crow, then Wefunder, StartEngine, Dealmaker, and back to Wefunder. The type of security you set up matters. We've always done convertible notes. Transparency is crucial; many promises are oversold and underdelivered. We've found Wefunder's special purpose vehicle and ability to do updates very beneficial. Some companies offer white-glove treatments, but they don't always deliver value.
StartUp Health: Appreciate the question. Let's go to Anthony Khan from MedCoShare.
Anthony Khan: Can you expand on generating revenue from blockchain through license agreements?
Iversen: We partnered with Figure Securities, a platform for accredited investors, which has an alternative trading system for trading on their cap table. They will also help us with blockchain contracts. We've allocated 20% of our patent portfolio to a fractional royalty rate, distributing revenue from licensing agreements to investors automatically. This process helps entrepreneurs who develop patents but struggle to raise capital.
StartUp Health: Time is a valuable asset. How do you assess if crowdfunding is the best use of your time?
Iversen: Our marketing person and I have a weekly call to plan our communications calendar. Crowdfunding is open 24/7, and hitting certain milestones leads to promotional pushes. I spend one to two days a week on marketing, coordinated with our other activities. This time investment is well spent, as the money raised is put to immediate use.
StartUp Health: Let's go to a question from Warren Marcus from WiNK Therapeutics.
Warren Marcus, PhD: You mentioned repurposing a drug. Do you need a new IND, and are you using CROs and CDMOs?
Iversen: We have four lead assets, each at different stages of development. We're doing a phase two trial for an upper respiratory infection COVID therapeutic, combining an antihistamine and anti-inflammatory. We've partnered with Duke University and received investments to support our trials. We use US-based CROs for proof of concept and conduct trials in cost-effective locations like Nepal. We're repurposing drugs, combining them in novel ways, and leveraging AI for further discovery.
StartUp Health: Warren, it sounds like you and Jim could have a good conversation about cost-effective drug development. Let's go to a question from Ronak from MedCoShare.
Ronak Vyas: How do you come up with your valuation, and is there a point where crowdfunding isn't worth it?
Iversen: Our mission is to develop accessible therapeutics. We aim to give retail investors the opportunity for significant returns. Our valuations started at $15 million and have increased over time. We use convertible notes, with investors holding debt until conversion. We're raising $10 million through a series A while continuing crowdfunding. Crowdfunding allows us to stay true to our mission and advance our science without the overhead of VC covenants and reporting.
StartUp Health: Let's squeeze in one more question about marketing and finding investors. Marc Mathys, can you ask your question?
Marc Mathys: Yeah, hi, I'm running CNS Therapy. What we're doing is we're treating long-COVID and chronic pain with a combination of neuromodulation behavioral therapy. My question is: How do you find investors and market your campaign?
Iversen: We use Pitchbook to sort potential investors and upload them to our investor relations database. We track analytics closely and work to convert potential investors. Social media and crowdfunding updates help build our network. We also use webinars to engage with investors, providing transparency and updates on our progress. Despite many promises, most picks and shovel services haven't produced significant results. We've not spent money on ad campaigns but focus on direct engagement and communication.
StartUp Health: Jim, you mentioned success with webinars. How do you frame a webinar, and what makes it successful?
Iversen: Webinars focus on relevant updates about our lead assets, providing transparency and education about our work. We invite investors to participate and ask questions, fostering engagement and building trust.
StartUp Health: We're nearing the end. Jim, you talked about the emotional side of building a community of believers. Can you expand on that?
Iversen: The invested dollars fund our engine, but the kind words fuel our soul. We receive notes of appreciation and support, echoing our work's impact. I make it a point to personally thank every investor, acknowledging their comments. This personal touch is a significant part of our success.
StartUp Health: What's your final takeaway for this group?
Iversen: If you're interested in crowdfunding, try it. Testing the waters is not a big time investment. If you believe in what you're doing, this is an opportunity to share and gain support. Every founder has to sell their vision, and crowdfunding is a way to do that effectively.
StartUp Health: Thank you, Jim, for sharing your insights and for your continued support of other founders. Thanks to everyone who participated and asked questions. Let's keep this conversation going on the Hub and share your crowdfunding experiences. Join our upcoming Masterclasses and Office Hours to continue learning and growing together. Thank you, everyone, and be well.
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