A small startup with not so small ambitions located just 30 minutes north of San Francisco is hard at work trying to reinvent the way early stage healthcare companies get funded without having to make the drive into San Francisco or Silicon Valley looking for capital. Instead, they want the next generation of healthcare innovation to be funded by all Americans, not just a handful of VCs. And I think they just might have the chops to do it.
The founding team is stacked with Co-Founder Jerry Harrison who might be a familiar name to you if you are a fan of the rock and roll hall of fame band, The Talking Heads. And what you might not know about him is that he has actually been around the startup scene for years now including involvement with Garage Band back in its early days. In many ways he has led a charmed life, but that doesn’t mean that he thinks access to capital should be limited to just a handful of the super elite, which is why he is looking to democratize innovation capital at RedCrow.
Co-Founder Brian Smith, the man with the vision for RedCrow believes that there are tons of early stage healthcare companies not getting the respect they deserve from VCs because they don’t hit certain traditional metrics. He is on a mission to ensure all of the best startups get access to the capital they need to fuel their innovations.
Over the past year the team has made significant progress towards achieving their organizational goals. Four companies have already raised around $1M each from the platform, and one company has already raised twice, once at $900K and the other at $1.4M. When I was speaking with the team Brian said one of the best things that has come out of this year is that, “We’ve been able to establish credibility in one vertical with a growing community of investors.” The team’s vision from day one has been to take a focused view on equity crowdfunding. Instead of investing in a wide breadth of innovation like other platforms, RedCrow is all in on healthcare. Jerry Harrison says this has helped the team to, “form strong relationships with organizations like The Cleveland Clinic and a partnership with The Innovation Institute, and to pick companies that resonate with a burgeoning audience.”
With each passing month thanks to this vertical alignment the team is finding that they, “are getting companies from better and better sources that are well vetted and extremely strong investment candidates,” says Jerry.
Part of that strength in deals coming to the platform is thanks to the affiliation Brian mentioned with The Cleveland Clinic by way of their partnership with the Innovation Institute. Unsurprisingly the team has found, “The Cleveland Clinic to be an incredibly intelligent group of people that bring a high pedigree of innovative startups to the RedCrow platform.”
In working with the clinics innovation arm, they have found that despite them being a savvy group of investors, “they are also quite disenfranchised by the VC model.” What RedCrow is providing to the clinic is smart money, that doesn’t come with the traditional walls and pitfalls of VCs. Many at the clinic find, “RedCrow to be a fresh approach to capital raising, and they are quite excited by the potential.”
With access to so many deals thanks to these relationships, Jerry and Brian have had to come up with an innovative solution to vet whether companies will be attractive to the crowd. They’ve accomplished this by creating the Discover Supernova program, which allows individuals to indicate interest in a potential future investment or not so the team can gauge how much an idea resonates with the crowd. The idea for this actually, “grew out of Garage Band, where we were crowdsourcing from the audience whether or not something resonated with them or not,” says Jerry. This has proved beneficial in getting around the issue of leaning on, “the expert opinion of 1 or 2 experts,” which is a less data driven and comprehensive way of deciding what ideas to back.
Another reason Brian is committed to building an equity crowdfunding portal for the healthcare world is because the stakes for funding the right companies in the healthcare are higher than in most sectors. Take Theranos as an example of what happens when the diligence and review of deals is left to a few hands rather than many.
“A question we ask ourselves here all the time is, would the fraud at Theranos have been caught by the equity crowdfunding model?,” says Brian. “People reviewing Theranos through the crowdfunding model, may have been better positioned to catch the fraud before it got out of hand. The Secretary of Defense that was on their board never even cared to verify that the military was not in fact utilizing Theranos technology, despite the company saying it did. A dispersed network may have had the potential for more feedback that could have addressed these concerns sooner.”
Though Theranos is an extreme case, it is to say that making intelligent investment decisions in healthcare is more important than most because it can impact the welfare of people, and thus an extra layer of rigor is needed in vetting companies, which crowds can provide.
And their investors are motivated not only by strong returns, but also by, “the level of social impact they believe they can have investing in the healthcare space. Outside of traditional family offices and highly wealthy individuals, they have also seen many mass affluent who likely can’t afford to invest $100K in any one deal but can afford to invest $1K to $10K in any one deal.
With a growing investor base and more deals flowing in by the month, the RedCrow team is quickly making a name for itself in the healthcare startup world as a serious role player in the capital raising process. Eight companies are currently going through the diligence process tackling a diverse set of problems from, “germ and bacteria management in hospitals, to MRSA, and new surgical screws for enhancing bone healing,” says Brian.
It will be interesting to see how the team develops as more people catch on to the investment opportunities the company is offering straight out of some of the most innovative healthcare centers in the world. And with a $2M seed round raise currently underway, the team is positioning itself for continued investor growth, deal growth and tech innovation to make the capital raising process even more intelligent and efficient.
If interested be sure to check them out here.
About: Chris Lustrino
A Boston College Eagle for life, on a mission to democratize startup investing for all people at KingsCrowd, with a passion for Fintech, investing, social impact, doing well and doing good, and an avid runner, cyclist and writer.