The Next Big Boost to Private-Equity Crowdfunding

There are two main approaches to building a business.

The first is to sell a wide range of products or services to a wide range of people. Amazon is a great example of this: They sell everything to everyone.

That’s called a “horizontal” approach.

But when I send my girlfriend flowers, I don’t go to Amazon. I go somewhere that specializes in flowers — for example, 1-800-Flowers.com. Companies like this take a “vertical” approach.

Since they focus on one single thing, they become experts in that area. And they can use that expertise to source (and deliver to their customers) the most relevant, high-quality products.

…the next big equity crowdfunding vertical…will revolve around…health care and “life sciences.”

These two approaches — horizontal and vertical — can also be seen in “equity crowdfunding platforms,” the websites that match startups with investors.

Let’s look at examples of each and then predict which direction the wind is blowing in 2014…

AngelList was one of the first equity crowdfunding platforms, and today, it’s still one of the best.

They currently host 30,000-plus companies that are raising money. Given the large quantity of deals — and the fact that their companies range from enterprise software to lingerie brands — it’s fair to say that they’re a “horizontal” business.

CircleUp, on the other hand, specializes strictly in consumer products like foods and beverages — from freeze-dried snacks and natural baby food to organic wines. That’s a definite vertical.

Realty Mogul is in a different vertical. They specialize in real estate deals.

And RealCrowd specializes even further; they focus on commercial real estate deals.

What specialization will come next?

We predict that the next big equity crowdfunding vertical to emerge in 2014 will revolve around the $2.5 trillion market for health care and “life sciences.”

This is a natural sector for specialization. Health care is incredibly complicated and requires an encyclopedic understanding of (among other things):

• Medical research
• The FDA approval process
• Government health care policy.

Two platforms that focus on this sector have been on our radar for some time now.

Let’s take a look at each.

Poliwogg has a penchant for health care — and that’s no surprise given their CEO’s background…

Gregory Simon, Poliwogg’s founder and CEO, has experience as a senior executive at pharmaceutical company Pfizer. He’s also been a health care entrepreneur.

Beyond that, he has extensive experience overseeing health care initiatives as a member of Congress and the White House. In fact, Simon was involved with programs spanning the National Institutes of Health, the National Cancer Institute and the FDA.

In brief, Greg has a broad wealth of knowledge covering everything from health care and health care policy to drug research and development.

With a CEO like Simon, Poliwogg’s deal flow in the health care sector is likely to be strong — and he’s likely to have a good sense for what might be successful.

This benefits you. If Poliwogg brings in strong deals, that means less research and fewer worries for you — and, potentially, better profit opportunities.

Another platform focusing on life sciences is VentureHealth.

The platform’s founder, Mir Imran, has been in medical technology and health care since the late 1970s.

In fact, Imran is one of the world’s leading health care inventors and entrepreneurs. He holds more than 200 patents and has founded more than 20 medical device companies.

Even more impressive: 15 of his companies have gone public or been acquired.

He’s also founded a research lab and a life sciences venture fund, sits on the board of many “med tech” companies and is chairman of a product development company that focuses specifically on medical devices.

As with Poliwogg, the founder’s specialized background adds up to better deals for you.

Poliwogg’s and VentureHealth’s management teams have strong sector knowledge and deep connections to government and industry. This gives them an advantage in identifying and vetting health care startups and in understanding the market potential of a new drug or medical device.

Equally as important, their vertical focus means that — when the time is right — they’ll know where to go to secure a key partnership or additional funding on behalf of the startup, or how to create a merger or sale.

These types of advantages are significant — which is why we’re predicting that other platforms will jump on the verticalization trend too.

 

Here’s to a happy, healthy, profitable 2014!

Best regards,

Matthew Milner
for The Daily Reckoning

Ed. Note: 2014 is likely to be a great year for savvy investors who pay attention to private equity crowdfunding. Matthew Milner is one investor who’s getting in on the ground floor before the rest of the market rushes in. And he’s featured regularly in the free Tomorrow in Review email edition – which provides its readers with regular opportunities to discover real, actionable investment advice. And you better believe that when the rest of the market starts flooding into the equity crowdfunding market, Tomorrow in Review readers will have already had the chance to make their money. So don’t wait. Sign up for the FREE Tomorrow in Review email edition, right here, and stay ahead of the curve.

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