By Tim Kofol, S2N Health

If you don’t prowl the crowdfunding site Kickstarter as often as I do (I admit I’ve funded ten projects to date), you might not know that a medical device company recently reached its stretch goal of raising more than one million dollars. The Kickstarter donors to Scanadu, a Star Trek inspired “medical tricorder”, essentially bought their own participation in a quasi clinical trial, sweetening their cash with a little crowd-sourced data. Kickstarter and similar sites provide a platform for startups to raise money in exchange for early-bird perks such as first access to products, dinner with the founders, or even a bit part in a movie (a speaking role in the Veronica Mars movie went for $10,000). The relevance of Kickstarter-type crowdfunding for medical devices has yet to shake out, and a hot debate on the topic is emerging.

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Some skeptics of Kickstarter for medtech believe that this pre-selling / fundraising route is only for “toy” medical projects, not for serious FDA-regulated devices. A review of the numbers, though, may cause these naysayers to take a second look. Projects on Kickstarter have raised $670M over the last three years; according to PWC MoneyTree, start-up and seed investment in medical devices totaled $492M during that same period. Kickstarter will never replace the role for traditional angel, venture and strategic investors, especially for medical technologies requiring tens of millions of dollars in investment (a.k.a. most of them), but it could provide yet another hopeful bridge over the valley of death for earlier stage medical technology companies. And Scanadu is proving it can work for some devices.

To help emerging medtech companies decide whether to defy the skeptics and launch a Kickstarter campaign, I have created a simple three-point checklist. Answer yes to all three of the below questions and crowdfunding might be just the thing to get your gizmo out of the garage.

1. Will people care about my device?

The typical Kickstarter “donation” is in the $100-$200 range, so you will need a lot of crowdfunders to achieve a meaningful sum of money. For people to engage and open their wallets, they must:

• a) Think your product is super cool; and/or,
• b) Want to help you solve a problem (a plus b is best)

Scanadu, with its relatable value proposition and Trekkie cache, attracted more than 5,000 donors averaging ~$195 per donation. I can’t imagine that a hemorrhoid therapy would have the same broad appeal, but then again typical Kickstarter trollers may spend a disproportionate amount of time sitting in front of their computers.

2. Can I offer appropriate perks?

This is where many medical device companies will struggle. Early access to a life-saving medical technology is not exactly something a company can offer for unapproved technologies, and a company can’t guarantee participation in a clinical trial given the normal litany of inclusion criteria (not to mention you may end up in the control arm). Being an OTC device certainly made Scanadu’s life easier, but even so, Kickstarter donors will get a research version of the device to help develop algorithms for later testing in clinical trials. In general, the more consumer-oriented the medical device, the more likely it will be appropriate for Kickstarter-type crowdfunding, but creative entrepreneurs may be able to come up with some compelling perk (product naming rights?). Definitely have legal counsel review any offer before you put it out there.

3. Can I get enough to make it strategically worthwhile?

Most medical device companies need double digit millions to reach cash flow positive. $5.5 million is the largest raise on Kickstarter to date (though Ubuntu Edge is looking to smash that record and raise $32M), so Kickstarter alone won’t get you there. If $1 million or less can propel you to an important milestone, such as functional prototype or proof of concept, and if the Kickstarter platform gives you something else of value in addition to cash, such as user feedback and consumer awareness, then Kickstarter could be a good move.

Currently, only a small subset of medical technologies might make worthy Kickstarter projects, but crowdfunding for medtech is here to stay. Equity-based healthcare crowdfunding is next to emerge, though the rules are just starting to take shape and currently only accredited investors are able to invest through these platforms (see HealthFundr, Return on Change, and VentureHealth). For those of us in the emerging medtech space (and every other space for that matter), a little revolution on the funding side seems in order.