FundRx cofounders (from left to right) Gurdane Bhutani, Zeshan Muhammedi and Jainal Bhuiyan want to bring doctors and biotech entrepreneurs together to help get startups funded. (Photo by Khadija Bhuiyan)
Mike Moradi, chief executive of Sensulin, had a novel idea for a glucose-responsive insulin that could lower the number of injections diabetics need to give themselves and help them gain better control over their blood sugars. But funding for biotechnology startups is notoriously difficult as it takes years for any idea to get approval from the Food and Drug Administration, and many ideas fail along the way.
So when he heard about a new investment platform, called FundRx, that relies on the expertise of doctors as both vetters and investors, he was intrigued. After all, Sensulin’s timetable is long: Moradi expects to start clinical trials in two years, which means the product might reach market in 2020 or 2021 if all goes well. And convincing investors they should care about a next-generation insulin hadn’t been easy. “Fundraising is just brutal,” he says. “We are doing something that is very difficult to explain to most angel investors, but, of course, doctors see patients with diabetes every day.”
In the fall, Moradi started fundraising for Sensulin on FundRx, which serves as a platform for biotech startups to raise funds from accredited investors (net worth over $1 million). Its goal is to make early-stage healthcare investment more efficient by creating a network of doctors, angel investors, scientists and others with specialized medical expertise. The amount Sensulin raised on FundRx was tiny, just $65,000, but it helped the company close on total funding of $1.4 million. “I think it is the way of the future,” Moradi says. “Once these platforms mature and people start taking them more seriously, it’s a great way to finance early-stage companies.”
FundRx is the brainchild of Zeshan Muhammedi, a 26-year-old serial entrepreneur who started his first company while still in school at Emory University in Atlanta. His early ventures included WhyNatte, a canned coffee company, and SEA, an eco-clothing firm. He stumbled on the idea for FundRx while launching a product with a friend at investment bank Torreya Partners that could track deal information for life sciences.
“It was pretty cool and a bunch of banks were subscribing to it, and we were chatting with entrepreneurs and they were like, ‘it’s a great product, and it’s tracking all this activity, but it’s for mature companies. We’re looking for a couple million bucks, where do we go?’” Muhammedi says. “There’s always been this valley of death where healthcare and life sciences companies go to die because they didn’t have enough capital. For us, it was pretty intriguing.”
So Muhammedi started tinkering with the idea, and with the help of two friends he brought in as partners – Jainal Bhuiyan, a healthcare banker, and Gurdane Bhutani, a tech consultant – launched FundRx officially last August.
Companies that want to list on FundRx run the gauntlet of a peer-review process (the vast majority don’t make it through) and then can raise funds from the platform’s community of investors. FundRx does not charge companies placement fees to list on the platform, but earns carried interest (that is, a share of the profits) on its investors’ bets.
Since Muhammedi launched the platform, six companies listed there have raised a total of $20 million, though only $1.5 million of that has come directly over the platform. In a sense, the vetting that FundRx does offers a seal of approval to outside backers. “The $20 million is coming from institutional investors who can now see the promise of these companies,” Muhammedi says. “We’re essentially deal flow for them.”
While it’s still a pinprick compared to AngelList, it has the advantage of focus. Another 16 firms are currently raising funds, with a dozen more in the peer-review process. Most companies don’t make it that far, Muhammedi notes – close to 100 have been rejected to date. Still, this is high-risk investing for high-net-worth investors only. “Are investments on FundRx risky?” asks the website’s FAQ, and answers itself: “Yes.”
“There will be more losses than wins,” Muhammedi says. “What’s important, though, is that no one is betting their house on it. We’ll never have non-accredited investors on FundRx. We can’t have some guy in Kansas whose wife is dying from breast cancer betting on a drug,”
Investors who understand the risks and can afford to take them, however, are precisely what startup biotech companies need. And FundRx is betting that no one knows both the risks and the potential payoffs better than doctors. “What is great about them is the social aspect,” says Joaquim Trias, a serial biotech entrepreneur who works as an advisor to FundRx. “Biotech has very specific barriers, and that’s why there’s appeal of building a social network of physicians who know the disease, the markets and the patients. They know the odds of the proposed product being used or not.”
Muhammedi, whose father is a doctor, argues that’s even more the case now as healthcare shifts from fee-for-service to value-based payment structures. “If physicians are using a drug that doesn’t work or a device that a patient hates, they get flagged for it,” he says. “They know the struggles of patients with their treatments.”
The ability to have a say in new treatments is one reason that Dr. Adam Lipson, a Harvard-trained neurosurgeon who practices in New York and New Jersey, signed up with FundRx as both a consultant and an investor last fall. He’d met the FundRx team after investing in Bionik Laboratories, a company that’s developing a lower-body exoskeleton for paraplegics and people confined to wheelchairs, which has raised funds on FundRx. “It was always an idea of mine to do crowdsourcing with physicians,” says Lipson, who has since invested some $350,000 in both Bionik and another company called Microbot Medical, which is developing a self-cleaning shunt.
“I felt it was a way to bring together physicians and empower them,” Lipson continues. “What frequently happens is that I am asked to test a product after it comes to market, and then they say, ‘how does it work, and how doesn’t it work?’ How much better to be able to talk with them earlier, and be able to say, ‘here’s what you need to do to show it will advance patient care.’”
And that level of knowledge is just what Muhammedi and FundRx are betting on.