When the Jumpstart Our Business Startups (JOBS) Act became law in April 2012, no one was quite sure what, if anything, it would do in practice to encourage the financing of innovative companies. But beyond making it easier to get an IPO done, thereby aiding the comparatively robust IPO market of recent years, the JOBS Act also made crowdfunding a more concrete reality. It enabled the marketing of private companies to accredited investors.
One firm is plowing ahead into this uncharted territory, aiming to push beyond the often consumer-oriented efforts of major crowdfunding sites like Kickstarter and Indiegogo.
Propel(x) is a deep-technology-focused investment platform created by two Massachusetts Institute of Technology alumni. It aims to provide, as well as crowdsource, due diligence for its companies. Currently it offers something akin to public market research firms with reports and conference calls briefing potential investors on each company.
Its commitment to "deep-tech" companies and to providing research for investors who are presumed competent to assess complex technologies brings a more sophisticated take to the crowdfunding concept.
Propel(x) defines deep technology as including the life sciences (drugs, devices and diagnostics), computer science, energy and clean tech and materials, among others. The firm sees these areas as fundamentally meaningful to human advancement, as well as often being underfunded in the earliest stages.
Med tech figures prominently for Propel(x); three of its 6 initial companies are in med tech. It's a good fit since med tech isn't as costly as drug development, making the small amounts raised in crowdfunding more meaningful, and information technology is already well-served by a flood of crowdfunding outlets. In total, Propel(x) has raised $630,000 for these efforts.
It is primarily aiming for active angel investors. There are about 300,000 angel investors in the U.S., most of whom aren't affiliated with any group, Propel(x) co-founder and CEO Swati Chaturvedi told FierceMedicalDevices in an interview.
"Investors on our platform are focused on life science and tech. Almost everyone has a deep science background and this includes tech, pharma and medical device executives. But it's specific to each company. We try to find investors to match to the company," Chaturvedi said. "We need to encourage intellectual independence. We need to stop following celebrity investors and encourage independent thinking and due diligence."
The SEC regards an accredited investor as an individual with an income that exceeds $200,000 (or $300,000 including a spouse) for each of the two prior years who reasonably expects the same for the current year; or an individual with a net worth over $1 million excluding their primary residence, alone or with a spouse.
Chaturvedi along with Lisheng Wang, Propel(x) co-founder and head of investor development, both helped to found an angel group for MIT alumni.
Right now Propel(x)--and the intensive due diligence it provides--are free. But that should change soon; Propel(x) aims to become a qualified broker dealer next year.
As for sourcing the companies, Propel(x) is in talks with various incubators and academic institutions to help it funnel through the best prospects. But, at least for now, its hands-on approach means that the number of companies is limited. The investment group has also had significant interest from international investors, which is an area it hopes to ramp up in.
The startups that Propel(x) helps to fundraise have to be comfortable with everyone from venture capitalists to potential competitors being able to access due diligence about them through the firm. Chaturvedi noted that the companies it works with typically have established intellectual property, which makes it less of a risk to disclose the precise nature of projects.
"There is no exclusion of potential competitors. There's been a mixed reaction from startups. But, at the end of the day, those are the companies that will acquire them," she said. "We are leaning toward having big companies participate rather than exclude them. It's very important to start with an eye on the exit."
Propel(x) is starting to gain some traction in the venture community; Breakout Labs, the philanthropic fund backed by Peter Thiel's foundation, recently featured a Q&A on its blog about the crowdfunder. -- Stacy Lawrence (email | Twitter)