With VentureHealth, InCube Ventures thinks crowdfunding can blend with traditional VCs

Some investors, particularly angel investors, may see equity crowdfunding as a threat to traditional venture capital. But not InCube Ventures.

Over the past few years, the San Jose, Calif.-based life sciences venture capital firm has co-invested with accredited individual investors on a handful of deals.  On Friday, the firm went one big step further with the launch of VentureHealth, an equity crowdfunding site for biomedical technology companies.

As report after report has shown, venture capital funding for life sciences companies has been on the decline. This week, for example, PricewaterhouseCoopers LLP (PwC) and the National Venture Capital Association (NVCA) revealed that venture funding in the life sciences sector dropped 14 percent in the first quarter of this year.

VentureHealth wants to give health startups — both early, but particularly later stage — a new option for raising funding, while embracing a model that enables doctors, health care professionals and others with sufficient means to support companies addressing issues they care about.

“The life sciences venture industry has been shrinking – there’s less capital available for really exciting companies,” said InCube managing director and VentureHealth co-founder Andrew Farquharson. “To the extent that we can mobilize capital into companies that need it, we’re meeting our mission.”

VentureHealth isn’t the first attempt at bringing crowdfunding to health care. MedStartr and Health Tech Hatch offer entrepreneurs a platform for raising relatively small amounts of seed capital without giving up equity. And last week HeathFundr launched an equity crowdfunding site targeting medical device and other health entrepreneurs looking for Series A-range funding.

But unlike HealthFundr, CircleUp and other equity crowdfunding sites that have recently emerged, VentureHealth doesn’t offer securities through a registered broker dealer. Instead of taking a commission on each transaction, it’s compensated through a combination of fees and carried interest, which is a percentage of the profits earned by investors when a company is sold or experiences another kind of liquidity event. While the amount can vary, the company said it will tend to be about 20 percent.

That’s a decent-sized payout, but Farquharson said its model means that VentureHealth only wins when its investors win so it’s extra incentivized to find the best deals.

Over the past decade or so, Farquharson and his co-founder Mir Imran, a medical inventor who holds more than 200 patents, have invested in a range of companies, from BodyMedia, a wearable technology company recently sold to Jawbone to epilepsy treatment company Neurolink. Given their track record and experience, he believes VentureHealth could give interested investors a well-curated selection of deals and entrepreneurs the extra support they may need.

For now, Farquharson said, they interact with every accredited investor on the site but, when it’s implemented, the JOBS Act will enable VentureHealth to reach a broader pool of investors and expand its options.

The site currently has no active deals listed, but Farquharson estimates that it could offer five or six deals over the next 10 months. Once VentureHealth scales sufficiently, InCube plans so spin it off as a standalone company.