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New Crowdfunding Sites Boost Health Startups Crowdfunding is catching fire in health care, partly because of the growing collection of sites that offer services to entrepreneurs inventing new products for patients, physicians and other medical providers.

By Arlene Weintraub

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Corrections & Amplifications

When Dave Chase was looking to crowdfund his new company, Avado, last summer, he bypassed well-known sites like Kickstarter and went straight to Medstartr, which caters to health-related startups.

Seattle-based Avado makes technology tools that patients and physicians can use to communicate with each other—a mission that resonated with Medstartr's audience of health-minded individuals. Within two months of posting a video and description of Avado on the site, Chase surpassed the $5,000 fundraising goal he had set and ended up bringing in $7,585.

In addition to the capital, Chase says, he gained valuable experience that he parlayed into a round of angel financing. "The Medstartr experience was critical for crisping up our story," Chase says. "It helped us communicate the heart of what our benefit was to both patients and providers." Chase took what he learned, used it to post a description of his company on AngelList—a site that matches financiers with entrepreneurs—and ended up raising $1 million in January.

Related: Equity Crowdfunding Rules Stalled at SEC

Crowdfunding is catching fire in health care, partly because of the growing collection of sites that offer services to entrepreneurs inventing new products for patients, physicians and other medical providers. Just a few months after Medstartr was unveiled in New York last July, Larkspur, Calif.-based Health Tech Hatch launched its crowdfunding platform.

The first 25 entrepreneurs to try Medstartr raised $122,000, says founder and CEO Alex Fair. And Health Tech Hatch founder and CEO Patricia Salber says 13 campaigns have raised $22,000 on her site. The crowdfunding sites collect a small percentage of the funds raised.

Medstartr and Health Tech Hatch are similar in that they both offer a range of services to help science-minded entrepreneurs market their ideas to lay audiences. "We spend a lot of time helping them craft their campaigns," Salber says. "We want them to be able to come in a virtual way and get all of the tools they need." Health Tech Hatch, for example, offers a service where potential users of a crowdfunded product test it and offer feedback to help improve it.

How can health-care entrepreneurs find crowdfunding success? To start, says Medstartr's Fair, you have to make an unforgettable first impression. To that end, his company will help entrepreneurs who want to improve the way they come across in their introductory videos. "You have to engage people in the first four seconds," Fair says. "Even something as simple as the angle you shoot it at matters."

Related: Crowdfunding for Startup Capital -- And Market Intel

Health crowdfunding sites also encourage entrepreneurs to build their social-media followings and personal networks. Chase says reaching out to his more than 4,500 Twitter followers was crucial for driving investors to his Medstartr video. Entrepreneur Anne Giles Clelland of Blacksburg, Va., on the other hand, says her lack of social-media presence may be to blame for the lackluster response to her app, Cognichoice, which debuted on Health Tech Hatch in January. "I'm not a young person with 1,000 Facebook friends," says Giles, who so far has raised just $3,511 for Cognichoice, which is designed for providers to offer to patients with chronic diseases. "Who knew? I expected there to be a crowd of strangers. We did not think that [social media] piece through."

The potential for health-care entrepreneurs to crowdfund more than modest sums of money may hinge on the outcome of the federal Jobs Act, which includes a provision that would allow companies to sell up to $1 million in securities on crowdfunding sites. Salber, Fair and other proprietors of crowdfunding sites are still waiting for the Securities and Exchange Commission to hammer out the final rules. "If it allows crowdfunders to offer equity, I think you'll see these sites being able to fundraise much larger amounts," Salber says.

Related: JOBS Act Legislation Opens Up Crowdfunding

For now, many entrepreneurs in the health arena are finding that the exposure and connections they make through crowdfunding sites can be more valuable than the money. Pediatric endicrinologist Jennifer Shine Dyer first signed up for Medstartr last year, hoping to raise $25,000 to develop a mobile app for managing diabetes. When she struggled to generate interest from investors, she went back to Medstartr for some mentoring. Fair and his colleagues matched her up with a Silicon Valley startup called Genomera, which is using crowdsourcing to help Dyer recruit patients for a clinical trial of her app. That partnership allowed Dyer to cut her startup budget to $5,000—which she raised easily on Medstartr. The financial terms of the partnership were not disclosed.

Dyer urges other entrepreneurs to be flexible and open-minded if they plan to try crowdfunding. "I had to make some compromises," she says. "But I've now been crowdfunded, and I believe that will strengthen my position in approaching other investors."

Corrections & Amplifications: An earlier version of this story misstated where Avado is based. The correct city is Seattle. The story also misstated Jennifer Shine Dye's occupation. She is an endocrinologist.

Arlene Weintraub has over fifteen years of experience writing about health care, pharmaceuticals and biotechnology and the author of a book on the anti-aging industry, Selling the Fountain of Youth (Basic Books, 2010).She has been published in USA Today, US News & World Report, Technology Review, and other media outlets. She was previously a senior health writer for BusinessWeek.

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