As part of our look into the impact of the JOBS Act on emerging growth companies, OneMedForum will feature a panel devoted to the subject of crowdfunding in life sciences and new investment strategies following the implementation of this groundbreaking legislation.
The panel, led by Aftab Jamil, Partner with BDO, Partner and National Leader for the Technology and Life Sciences Practice at BDO, will explore whether crowdfunding — which as seen success in the tech and entertainment industry — can be a feasible strategy for companies seeking seed-stage financing. Further, does crowdfunding represent an opportunity for small-scale bridge financing?
Beyond the rules the SEC passes down — which may limit how companies can use crowdfunding portals — questions remain as to how this strategy will affect later-round investors. Despite the opportunities crowdfunding represents — a larger pool of investors, direct campaigning, non-dilutive financing — do the ends justify the means? Further, just how easy will this entire process be, from a company finance perspective and from a legal/regulatory perspective?
OneMedPlace spoke with panel leader Aftab Jamil to discuss these issues. Jamil offers some discussion points leading up to the panel, and offers perspective on the state of the industry following the release of BDO’s Biotech Briefing, released earlier this quarter. Jamil points to some interesting observations related to R&D spending and liquidity which may indicate a positive trend in the industry.
Matthew Margolis: This is Matthew Margolis with OneMedRadio, today with Aftab Jamil, Partner with BDO, Partner and National Leader for the Technology and Life Sciences Practice at BDO. Aftab will be moderating a panel on January 9th during the 6th Annual OneMedForum in San Francisco. This panel will explore the impact of the JOBS Act on early stage life sciences companies, in particular the possibility of crowd funding as an early stage financing and bridge strategy. So thank you for joining us Aftab.
Aftab Jamil: Thanks for having me, Matthew.
Matthew Margolis: So first thing, I want to start with your background. Where does your expertise lie, what do you handle at BDO?
AJ: I am an Audit partner at BDO. In that role I am responsible for a number of my clients which include early stage, young, up and coming entrepreneur companies that are trying to in a way different technologies. I serve a number of biotechnology as well as medical device companies. In that role I look after their financial reporting, their risk management and how they are managing their business and in that the accountability that they have to their investors and their stakeholders. That role obviously gives me a great deal with ability as to what’s going on, what’s on the minds of these young companies and what types of technologies and devices that they are currently working on.
MM: So let’s talk about the OneMedForum panel. What are some topics and themes that you are planning to explore?
AJ: The Jobs Act was passed into law back in April 2012. There have been a number of new legal provisions that are included in that act with a view to facilitate for the younger companies to have access to capital markets to additional sources of funding and it made the process a little bit easier. With respect to crowd funding though, while there’s been as we all know that has been a phenomenon that has been going on for the last few years.
Although up until this point in time the most of the crowdfunding and the buzz that is out there has been mostly on donation type of mechanism to provide funding to these early stage companies that are trying to come up with new technologies, new ways. Some of those are obviously on the social side, more on the business side. But specifically within the Jobs Act what they are trying to do was to facilitate equity investment in those young ventures, the younger companies that are trying to have access to the market place.
That being said while the law has been passed the SEC, the Securities and Exchange Commission that monitors the investment activities and have the charter to look after the investor community, they need to come up with a different rule that will govern how the conferring mechanism will work with respect to equity financing. At this point in time those rules are not in place. So as you can imagine both the entrepreneur communities, potential investors, people who think that they will have the ability to make investment as well as attract investment, everyone is wondering what impact it’s going to have on younger companies efforts to have equity financing.
Access to additional sources of funding and if that access is granted what are — what if any safety mechanisms are in place, what are the rules by which we’re going to play this game. So there are a lot of uncertainties at this point in time. So I’m hoping that the panelist at, I believe have a very unique point of view that given their respective backgrounds we will explore some of those uncertainties, some of the challenges, what opportunities might exist for younger companies, what are some things to think about and keep in mind.
Hopefully we’ll go through the pros and cons of having that type of equity mechanism in place. So I believe that will be a discussion which we believe will be very timely given that rules should be coming out perhaps very early part of 2013 given the SEC’s deadline with respect to the rule making process. So I’m looking forward to a robust dialogue and hopefully we’ll be able to share insights from some experts who will be dealing with these issues on ongoing business.
MM: So who else is going to be joining your panel?
AJ: Well we will have an experienced venture capitalist who and his prior to becoming a venture capitalist who was in fact an entrepreneur in his own right and having been involved in a medical device company. We have another panelist who has worked as a venture capitalist and has started his own angel investor firm. So he’s done venture capitalist investing, he’s currently doing angel investing on his own behalf as well as on behalf of some of the investors.
We will have an experienced attorney who will help us explore what are some of the regulatory requirements and challenges and things that we should be and entrepreneurs should be watching out for as they get into the equity financing mode through crowd funding. So the different angles that we believe should be explored in the panel that was the basis of this panelist.
We are looking forward to that dialogue to cover the implications for not only young companies but what does that mean for the venture capital community, what does that mean to angel investors? Having the crowd funding does that replace, does it supplement, does it contradict or does it support the types of more conventional equity financing rounds that have been available to younger companies to help on their innovation efforts?
MM: Interesting. So what types of attendees on the One Med Forum do you think will gain the most insight out of this particular panel?
AJ: Well we’ll welcome everyone to come and listen to the dialogue because obviously the crowd funding mechanism it opens up the opportunity to individuals who make small investments. So far the basic community or investing has been the game that is played by high networked individual or institution investor. So those people who are more of a general interest.
But I think where the discussion will be very helpful will be to entrepreneurs who are contemplating different ways of raising equity financing, companies that are perhaps seeking seed money or early rounds of funding or looking for ways to have a bridge financing in-between rounds or trying to expand their investor base. I think those people who will have a very meaningful with visibility into where things stand and as we progress from here once the Securities and Exchange Commission comes up with the rules, what are some of the things that they should be thinking about now before they engage in the dialogue.
Likewise there are a number of online portals that have come up in anticipation of the new rules. What are some of the things entrepreneurs should look out for as to what roles these intermediaries will play and what are the potential benefits of going after one versus the other. So we believe that all the different stakeholders will get — there will be something for everyone from that panel. But the entrepreneur community I think probably stands a chance to learn the most out of our discussion.
MM: Great. So let’s switch gears a little bit. Your team recently released a BDO Biotech Briefing. I want to talk a little bit about the state of capital raising in life sciences today. What are some particularly interesting trends that you found, looking at R&D spending, for example?
AJ: Absolutely. As you know that the young companies that are trying to innovate in areas of drug discovery or medical devices and other research that goes in there. The catch for them is that it’s a strategic asset, it’s essentially a lifeline. There are a majority of these younger companies obviously will be pre-revenue. So every dollar that they need to get they need to be strategic about where they spend it, how they spend it, how they pay themselves.
So the BDO Biotech Briefing that we released just a few weeks ago looks at the R&D spending trend, liquidity as well as data points like employees for close to 100 biotech companies that make up the biotech index on NASDAQ. We have been looking at the R&D spending trends over the last four years, so we release this report every year. What’s very interesting is that last year when we released the report, that was the first year on record where the overall life sciences industry, there was a decline in R&D spending. There was a question that was being asked last year whether the dip into R&D funding means that the life sciences community in the US is moving away from investing in innovation.
It was very encouraging to see that despite the tough economic times that we’re living through the vast majority of the companies that we looked into they in fact increased their R&D spending. Also very important and encouraging to see is that these companies while increasing their spending from an R&D standpoint did maintain their liquidity on a fairly consistent basis. Which means we were looking at roughly how long a period of R&D spending these companies are maintaining liquid assets to fund those type of innovation activities.
It was very encouraging to see that despite the increase in their R&D spending there was a good level of maintenance of liquidity. It was also very encouraging to see that life sciences companies continue to have the ability to tap into capital markets and raise funding. Be it the equity funding or in the debt market. So it was very encouraging to see and it’s a great insight as to what the trends are and hopefully your audience listening to that can go to our website at www.bdo.com and take a look at the full report.
MM: OneMedPlace will also be offering this report as a downloadable PDF. So lastly Aftab what projects are you working on now?
AJ: As I mentioned, Matthew, I work with a number of companies that are innovating and they are trying to go and do amazing things in the market place. I am currently working with a number of clients but one particular company they are trying to prepare themselves to hopefully in the early part of next year launch their IPO. They are hoping to take advantage of the Jobs Act new progressions to allow them easier rout to tap into capital markets.
So I am working diligently to help them go through all that they need to go through and prepare themselves to transition from a privately held company to a public company with the view to obviously have additional ways and access to capital markets. That’s the part of my job that I love the most, helping my clients and entrepreneurs to graduate into the next phase of their corporate life and is been truly amazing run.
MM: That was Aftab Jamil partner with BDO discussing the state of life sciences and changing tides in early stage capital raising. Aftab will be leading a panel in the morning of January 9th during OneMedForum exploring the impact of the Jobs Act on emerging growth companies. With OneMedRadio this is Matthew Margolis signing off.