Technology is developing all around us and in all manner of ways, from fitness trackers to wifi-controlled light bulbs to bluetooth gloves – and the general Internet of Things. It’s touching every sector at every level, and the possibilities seem limitless in a world where great and amateur minds countries apart can connect in an instant online. Collaboration is at a peak and marvellous ideas abound. So, then, what’s the problem?
The reality is simply that there isn’t enough money around to give every promising idea a go. As Allan W. May, founder of Life Science Angels in the US, says: ‘The cost associated with getting a company off the ground is too great. The system is broken.’ This is true for all industries, but is especially poignant in the field of medicine and medical technology (Medtech), where overlooked and underfunded developments have the potential to directly affect lives. It is worrying then that healthcare has been lagging behind ‘banking, travel and the tax man’ when it comes to implementing digital technology. Today, you can walk into a bank branch in Cambridge and check the balance of an account registered in Newcastle; yet‘as it stands, a hospital in Leeds cannot access GP records from local patients, let alone if a northerner is rushed into A&E in Brighton’.
This is one area where crowdfunding can really make a difference.
By opening up healthcare investment opportunities to the floor, we are already taking a big step forward – even if just one medical product reaches the market with the support of crowdfunding, that is one more treatment that wouldn’t have existed otherwise. It is an exciting thought that through healthcare investments you could be helping to prolong, ease or even save lives.
Crowdfunding has given healthcare the opportunity to develop faster and become more efficient than ever before.
Why do people want to invest in healthcare?
The key difference between investing in a technology business versus a healthcare business is the motivation behind the investment. While business angels invest for financial gains, most will also consider why they want to see a specific business or technology succeed. In healthcare, this second component plays a larger role than usual in the investment decision. Who wouldn’t want to be part of the cure for cancer – especially if you can make a tidy financial return while you’re at it?
Alongside this is the simple fact that healthcare and, perhaps more importantly, innovations in healthcare are always going to be necessary. For instance: the UK has an ageing population. According to the UK Office for National Statistics, there are currently 11.4 million people aged 65 or over in the country, while more than a third of the population is 50-plus. It is well known that with age comes not only wisdom but also greater health risks, and with there being fewer and fewer young people to take up the physician’s mantel, technological innovations that make treatments safer, faster and more accessible are simply invaluable.
Simply put, there is always going to be a fertile market for medical innovation – and the desire to do good clearly plays a key role in drawing investors to healthcare crowdfunding.
Abundant opportunities for investment
There is no single area of healthcare crowdfunding where opportunities are popping up – they’re arising all the time and across the care spectrum. Take for instance Oval Medical Technologies, which in 2014 successfully raised £1,118,647 through SyndicateRoom to manufacture a pilot tool for its drug-device combination study. Oval developed a self-injector that is both easy to use and conceals the needle within an unassuming bubble, making it less intimidating for children and people with trypanophobia (a fear of needles).
An innovation closer to your heart, Calon Cardio’s offering is a smaller, lighter and less expensive heart pump that aims to be safer, and last longer, than those currently on the market. While heart failure affects around 900,000 people in the UK alone, replacement hearts are remarkably scarce – less than 1% of those in need of a heart replacement will receive one from a donor, and 95% of those that do will die within the following two years. Calon Cardio successfully raised £1,210,000 through SyndicateRoom to continue preclinical trials. In time, the Calon MiniVAD could be responsible for prolonging hundreds of thousands of lives – a life-changing idea that clearly pulled at investors’ heartstrings.
One further example: Pulse Flow Technologies’ patented innovation, which successfully raised £1,764,493 on SyndicateRoom, saves sufferers of diabetes an arm and a leg – literally, in the case of the latter. Every 20 seconds, someone in the world loses a limb to diabetes, and studies show that 50% of those people die within the following two years. The Pulseflow DF is an innovation that reliably heals foot ulcers caused by diabetes within a matter of months, making amputation unnecessary. This is not only great news for people with diabetes but also for the NHS, which in 2010–11 spent in the region of £662 million on ulceration and amputation, and so stands to save a huge deal of money. So in investing, the crowd is not just helping those directly affected by diabetes, but could by extension alleviate the financial strain placed on the country’s entire healthcare system.
In short, there’s no paucity of opportunities available and the consequences of backing a good idea may reach far further than you think; you just need to decide who you want to back.
What to look for when investing in healthcare
When embarking into the world of healthcare crowdfunding, it is vital to research the market, the company in which you are considering investing and the health issue that it addresses. But don’t be put off if you aren’t a medical professional – there’s a plethora of information available online.
Typically, companies focused on new technology offer better performance outcomes than those that aren’t prioritising innovation, and these are more likely to shift market-share focus to the new product. Such companies tend to devote more of their revenue to research and development, and are normally excited to tell everyone who’ll listen about what’s in their product pipeline. If the company you’re considering isn’t offering a significantly new solution to an existing problem, then it’s unlikely to drum up as much interest as those that are.
You are not investing in the next Facebook (but possibly something bigger)
Experienced investors understand that engaging in sophisticated healthcare investment opportunities means getting involved with a long-term game, and while you may invest in a company that could eventually become more valuable than Facebook (and some healthcare giants are), it usually takes decades, not three to seven years, to get to a multi-billion-pound valuation.
Crowdfunding is not for all healthcare projects
Biotechnology (Biotech) is a highly innovative industry that is continually expanding. It utilises living organisms to find cures for myriad illnesses, from Hepatitis C to cancer. It is also an industry in which businesses require a lot of funds in the early stage for research and development, regulatory compliance, and building and maintaining factories and laboratories. These businesses tend to be very capital intensive, often requiring tens of millions of pounds, and have very long timescales that will likely involve years of cash outflows and losses – you may have to wait decades to see whether they will sink or swim. Then, once the product is approved, there will be marketing and distribution costs to front.
Nevertheless, there has been an increase in demand for new innovations in this industry over the past few years; in 2014 Biotech experienced record amounts of investment and numbered among the top-performing industries in terms of investment raised. In the UK in 2014, the medical biotechnology sector consisted of approximately 1,013 companies that generated a turnover of £4.8 billion and employed 23,000 people. Growth has been rapid and the number of available Biotech investment opportunities has also increased alongside the industry growth. Again, the reasons for this may be linked to the ageing populations of many developed economies, increased global life expectancy and the fact that a greater number of people in emerging markets are now able to afford better medical care.
Their high early-stage costs mean that Biotech companies often find it difficult to get off the ground – and crowdfunding could offer the answer.
Biotech companies have been choosing crowdfunding to give people the chance to take a stake in developments that have the potential to transform medical science – but of course this isn’t the only reason. For companies, one of the perks of crowdfunding is that they can bring in the necessary amount of money without ceding control of the company, which is what can happen with traditional VC investments. Plus, using one of the hottest trends in alternative finance can help set a company apart as an innovator.
You may be thinking that an investment-to-payoff lead time of a decade is a little far from your ideal scale, but do not be put off – there are many investment opportunities within the healthcare sector that are less capital-intensive and run to shorter timescales. Technology in medical care, wearable technology (such as smartwatches that can measure blood pressure), and innovative products or services aimed at the NHS are all ripe candidates for crowdfunding.
The UK Medtech industry
The UK medical technology industry is a world leader. Companies are determining gaps in the industry and taking advantage of the world-class facilities and institutions that are available in the country to create industry-leading technologies. In 2013, the UK’s medical device industry was the sixth biggest in the world, and its turnover showed a sustained positive growth between 2009 and 2014. In 2014 the sector held about 3,268 companies, generated an estimated turnover of £18.1 billion and employed in the region of 88,000 people across the UK.
Medtech companies have been the vanguard of developing innovative treatments for a wide range of conditions as well as new technologies that optimise the way medical procedures are carried out, reducing associated risks and costs. In addition to the invention of many life-saving devices, investment in medical device technology has led to many UK citizens living longer, healthier and more independent lives.
Medtech is also one of the more stable sectors in the UK; where others struggled in the years following the global economic downturn of 2008, medical technology actually grew, and the combined turnover of UK medical technology companies increased by 50% between 2009 and 2012. According to a report published by the UK government in 2014, the three largest product segments within the country’s Medtech industry are single-use technology, in-vitro diagnostics and orthopaedic devices.
The difference between young and old
In terms of what health-related technology interests which entrepreneurial demographic, the split seems to be that younger developers focus more on gadgets that lend themselves to physical activity, for example fitness trackers, while the older and more experienced among us lean towards disease-relevant innovations. This seems only sensible: in our youth we are drawn to cool new wearables that record our vitals as we work to overthrow our personal bests, while with maturity comes the sombre awareness of our mortality – and the necessity of overcoming things that threaten to cut it short.
What this means to you as an investor is that there is a wide array of healthcare innovations to choose from, and they all come with different development timeframes and prospective returns. It’s your job to narrow down the choices to your specifications.
The Medtech industry is expanding as technology grows increasingly sophisticated and the demand for it becomes more and more apparent. Even the government has recognised the need to modernise the way healthcare works: in 2014 the UK’s National Information Board launched the Personalised Health and Care 2020 framework for action to support medical professionals, patients and the public in making better use of technology in the hope of increased reliability, efficiency and transparency. The push towards healthcare modernisation and development is happening, and you can be part of it.
The future of innovation in healthcare will include equity crowdfunding as one of its funding mechanisms. Not all projects will be or should be funded this way, but there are certainly solid opportunities arising all the time. And investors shouldn’t be intimidated by this sector. There’s no reason why researching medical technology companies should be any more complicated than reading up on any other industry. It also means that you’ll be putting your money into a company that is trying to save lives, which is a far more humanitarian (and perhaps noble) endeavour than most.
There are currently thousands of medical technologies and medicines looking for funding, each with the potential to make patient diagnosis and treatment a lot more effective. There are worse things you could do with your money.