Is healthcare missing a colossal crowd funding opportunity?
While the term “crowd funding”, the act of accessing large numbers of individuals contributing small quantities of cash to help fund a project, has been in popular usage for around a decade, few in the healthcare industry are even aware of the concept.
But its more common than you might think.
Think the Statue of Liberty. Think Barack Obama’s 2008 Presidential Campaign. Think movies, video games, gadgets, watches, software, hardware.
When the Statue of Liberty could not be completed, 19th century publisher Joseph Pulitzer (yes, he of the prize), raised over $2M dollars in today’s terms to complete the project through his paper, The New York World. More than 160 000 people contributed donations, ranging from 15c to $250. The paper journaled every donation, recognized the contributors in print and kept a running tally, all to generate “buzz”.
Barack Obama used similar strategies to finance his 2008 presidential campaign, raising over $750M from small donors.
Crowd funding taps into the lean startup model of business development, allowing projects to bypass traditional barriers, access early phase funding and immediately test market temperature.
For those developing projects in the healthcare sector, this is a familiar scenario, so why are we failing to capitalize (if you’ll pardon the pun)?
So successful is the funding stream that over $1.5B USD worldwide was invested in crowd-funded projects in 2013, and the figure is increasing yearly.
For those new to the process, there are 3 arms – the project creators, the web-based enabler platform, and the market (crowd). Creators post projects on a crowd-funding platform, providing an avenue for potential customers and supporters to review and commit funding. In the most common and successful model, creators define the total minimum figure required to proceed with development. Contributors pledge small quantities, and are offered some sort of reward for this. However, the transaction is only completed once the minimum figure is achieved, giving the contributor reassurance that they are only buying into a properly funded venture.
The crowd, of course, plays a pivotal role. Motivated by the desire to see the project succeed, the opportunity to shape the development of the project, or access to a product at discounted rates and other rewards, the crowd funds, shapes and promotes the campaign.
The campaign does not stop when the figure is reached either, so a fortunate few projects can generate big investments. The crowd’s interests are therefore served by further energizing itself – the greater the total sum raised, the greater the capital raised, the better the value of the delivered product for their same personal investment. In many ways, a viral campaign is a win-win.
Additionally, the market plays an important role in providing feedback to the creator and can validate the market for further investment.
Over 450 crowd funding platforms now exist, ensuring campaigns operate within legislation, taking care of the transactions and providing important information to all parties. While Indiegogo and Kickstarter remain the benchmarks, specialty platforms such as healthcare site Medstartr are emerging.
Success stories of crowd funding include video game Star Citizen ($70M); the Pebble Watch ($10M); and the Tile app ($2.6M). The Coolest Cooler (a combination of a blender, wi-fi speakers, LED light and a drinks cooler) raised $13M.
That’s a lot of money. Seemingly though, healthcare has a lot of catching up to do. Of the 80 or so completed projects on MedStartr, almost all raised between $1000 and $10000, with a highest of $35000.
Potential downsides to crowdfunding your project include exposure of intellectual property, donor exhaustion, the potential for scamming, and damage to your reputation if the campaign fails (though as Henry Ford put it, “Failure is simply the opportunity to begin again, this time more intelligently”). Remember also that campaigns rarely succeed unless you work hard to energise the crowd – no one does the hard work for you.
Healthcare providers have the opportunity to take advantage of crowd funding to make their projects come alive, with benefits to both developer and user.