Crowdfunding: This Could Change Healthtech Startup Funding Forever

“The cheapest form of capital is customer revenue”

David C. Jones, Altus Alliance

Crowdfunding has had success in high-tech, where people are eager to explore new models. MedStartr is bringing this concept to healthcare where it can be particularly challenging to get a startup off the ground. They have a twist on crowdfunding to address requirements of healthcare, an increasingly popular way to raise capital for startup technologies and interesting projects.

MedStartr is like most crowdfunding sites that are non-equity. They have plans later to have an equity model once SEC rules are clarified. In the meantime. MedStartr is attempting to hit the sweet spot that crowdfunding poster child, Pebble Technology hit. That is, customers get a great deal and early access to a product. Meanwhile, the startup gets non-dilutive funding and market validation to help it grow to the next stage.

“Advertising is the tax you pay for being unremarkable.”

Robert Stephens, founder of Geek Squad

Stephens had to bootstrap his business and didn’t have the money to advertise. His business flourished because of word of mouth referrals. A successful MedStartr project will have visionary customers be the initial users who can then lead to the first wave of word-of-mouth referrals.

Inbound Capital: Inbound Marketing Meet Capital Raising

Crowdfunding also borrows principles from Inbound Marketing that have proven to be a game changer for the customer. As Brian Halligan (CEO of Hubspot and his co-founder, Dharmesh Shah coined the term), puts it, when you’re using Inbound Marketing, the thickness of your brain matters a lot more than the thickness of your wallet. For startups with finite money and time, inbound marketing has two key benefits that are critical to an early stage company that realizes that the cheapest form of capital is a product order:

  1. It Costs Less – Outbound marketing means spending money – either by buying ads, buying email lists or renting booths at trade shows. Inbound Marketing means creating content and talking about it. MedStartr gives startups a platform to share their story in video and text format.
  2. Better Targeting – Techniques like cold-calling and blast email campaigns are notoriously poorly targeted. You’re reaching out to individuals because of one or two attributes in a database. When you do Inbound Marketing, you only approach people who self-qualify themselves. With crowdfunding, that is honed even more as only those who want to work with the company sign up. Targeting benefits all parties — it saves customers, partners and startups.

To address the challenges in healthcare, MedStartr has focused on the following items to contrast it with Kickstarter which generally doesn’t accept health related projects:

  • It’s the only crowdfunding platform designed specifically for healthcare where doctors, patients, hospitals, pharma, and payers are all important backers of innovation. Previously, hospitals, doctors and patients never had an effective way to do this.
  • Enables a highly motivated population to support and directly affect the change that may help make them or their loved ones healthier. For example, there is a diabetes project and STD-focused project amongst the launch companies. [Disclosure: My company, Avado, is part of the launch of MedStartr.]
  • Fraud prevention is central to their value proposition. They do this in two ways.
  1. Bringing the crowd to crowdfunding with an event model that enables people to get to know the entrepreneurs in real life. MedStartr’s founder is the organizer for the world’s largest healthcare innovation meetup group in the world, Health 2.0 NYC
  2. MedStartr created a credentialing service to ensure that patients and doctors are not mislead

Partnerships Mitigate Risk for Established Industry Players

Large companies receive many new ideas and companies that sound great, but need to be tested and developed further. They may be attractive but often products need to get to the next level to be a viable investment of their time. In the past, there was not much they could do. Now, they can cut a deal such as “get 500 patients and 25 doctors lined up, get their feedback, raise $x,000, and we will give you another $y,000 for the pilot study.” That is exactly what crowdfunding intends to do. It engages the community and provides entrepreneurs with three benefits:

  1. Customers who are looking for the new technology
  2. Media attention and social media buzz
  3. Funding from the people and doctors who will be their customers.

With the partner program industry partners can support the new technologies they believe in, build a customer base, market test, and get great PR all in 45 days or less. In an industry that acted more like railroad companies than nimble tech startups, this is a much-needed shift. MedStartr has already had a major pharma company, medical society and ACO decide to be a launch partner with MedStartr they’ll be announcing in the coming weeks.

With the need to reinvent healthcare and the challenge to getting a startup off the ground in the healthcare industry, MedStartr seeks to fill an important market gap. By no means will it replace venture capital, but it can get more companies to that stage of their company’s development. It will be interesting to see how the crowdfunding model takes off in healthcare.  If it is any indication, even before launch, project backers found their way into the private beta, resulting in several MedStartrs (that is what the project makers call themselves) alarmingly emailing and tweeting, “We’ve been backed!” and the new catchphrase for those that seek to change the industry with disruptive innovation: “You Back it / We Hack it.”

Dave Chase is the CEO of Avado.com, a Patient Relationship Management company. Previously he was a management consultant for Accenture’s healthcare practice consulting to 25 hospitals and was the founder of Microsoft’s Health business. You can follow him on Twitter @chasedave.

3 replies »

  1. I agree with Lance. Crowd Funding is great for patient facing innovations, unfortunately if it is research based many crowd funders may “pass” on the idea.

  2. Medstartr and crowdfunding for healthcare innovations will work for patient-facing, non-regulated applications. Research-based innovations may be a tougher sell. Clients of mine who are SBIR / STTR recipients from the DoD, NSF, and NIH may explore the Medstartr option, but their path-to-market timeframe will be too long to fit the model of an ideal Medstartr project.

    However, a crowdfunding attempt may bring some exposure and inadvertant PR. Regardless, the best funding options for research-based startups are:
    -customer revenue
    -partnership R&D investment
    -angel investor capital and venture funding (where appropriate)

    As for exposure, instead of relying on a crowdfunding “bump” SBIR-funded companies should delve into “thought leadership” – blogging, speaking, personal brand, content marketing initiatives, etc.

  3. Super piece Dave! It was just a matter of time for a Kickstarter derivative player to stake a claim in the healthcare space. Bravo to Alex Fair and the Medstartr team!