The Relevance of SEC Changes to Crowdfunding Rules

Crowdfunding of scientific research is a matter of great interest to our community. We want to see more rapid funding of the foundation technologies needed for rejuvenation therapies, treatments capable of repairing the causes of degenerative aging, a field in which most of the early stage nuts and bolts are clearly envisaged but still have to be built. Here at Fight Aging!, we're raising funds for SENS rejuvenation research programs right now, in fact, matching charitable donations until the end of the year.

This sort of comparatively cheap, early stage, high risk science is normally funded by some combination of philanthropy and outright creative accounting when it comes to tracking grant expenditures. Donors are pitched on a regular basis, and a little kept back from every grant to fund unrelated explorations. For the most part what the average fellow in the street would call scientific funding, of the sort provided by large companies and government agencies, is in fact development funding. The real scientific discovery and the greatest risk of failure happens prior to the arrival of funds granted by these institutional sources: they have little interest in underwriting that initial stage of the process, and want to see proven mechanisms, complete understanding, and a clear plan on how to proceed before becoming involved. So it isn't unfair to suggest that the pace of progress in our modern society is actually governed by how much philanthropic support there is for true early stage research.

Back to crowdfunding. That is how people like you and I, who have woken up and realized that rejuvenation therapies are a near-future possibility provided that the necessary early stage work is supported, can collaborate to raise the profile and speed the progress of this work. We lead the pack, we hold up a lantern, we start things moving, and all of this effort is a way to draw in much larger dononations from a few institutions or individuals who ultimately donate a majority of the funding. Behind every successful scientific project there is a power law distribution of funds, but those high net worth individuals who can donate large sums of money to charitable causes such as research are typically highly conservative and risk averse. They are only willing to reinforce success, they only step in when they see strong and growing grassroots support, and the larger the donation the more this is the case.

There are other ways in which this process of growing a crowd to draw in large-scale funding can play out, and we've seen the makings of some of them in for-profit Kickstarter-style crowdfunding. Here crowdfunding can act somewhat like a voting and preorder infrastructure, and when conducted well it allows startup companies to quickly show proof of viability, making it much easier obtain venture funding and move ahead on that basis. These transactions from the crowd are not investments, however: they are still just purchases. The shape of this situation is changing right now, however. The SEC, the US body that claims regulatory jurisdiction over investment in startups, is moving to allow crowdfunding of investment in young companies. This is probably a thing that you were not aware was forbidden to you, not being a member of that modestly privileged set of people having both the money and the interest in becoming an angel investor. Shortly, however, there will be an ecosystem in which tens of thousands of people buy tiny slices of young companies, most of which will evaporate, in the same way as they presently vote with their dollars at Kickstarter.

A majority of the resulting fun and games will be irrelevant to the goals of this community vis a vis funding scientific research and clinical applications of that research. Certainly there will be all sorts of adverse selection effects and gnashing of teeth on the part of the venture community interested in keeping more of a hold over funding opportunities. It does, however, open some doors for us, creating a few new possibilities for collaborative fundraising. As you'll know if you've been following Fight Aging! for a while, the Methuselah Foundation has used charitable donations to seed fund startups here and there for some years; one of them was Organovo, and another, Oisin Biotech, is presently working on senescent cell clearance, one of the most likely SENS therapies to come to fruition in the near future. Good opportunities for seed stage investment in clinical development of first generation rejuvenation therapies, to my eyes meaning SENS technologies and some cancer and regenerative medicine projects, are still pretty thin on the ground at this point. You have to know a lot of the right people and know the field very well to even know that these opportunities exist. That will change in the next few years.

It is important to note that early stage research in the laboratory, of the sort we're funding with charitable donations today, overlaps with early stage clinical development of the sort carried out by Oisin Biotech. There is no clear dividing line between the two, and in many cases whether the work takes place in a non-profit or for-profit environment is simple happenstance, a matter of the inclinations and connections of those involved. So were there an opportunity to crowdfund work that takes place in a startup company, where participants were treated as seed investors, I'd support that goal if the science and development looked like an opportunity to move closer to rejuvenation therapies. I see little practical difference between this and charitable funding: one has a small shot at a profit some years ahead, the other has a present tax deduction. But in both cases, these are ways for people of modest means to collaborate and speak out in large numbers, to make the case to wealthier investors or donors to participate, to vote the opinion that a cause or a company or a line of research is viable and worthy of support. At the moment we are only talking to the donors, the philanthropists interested in funding research. The much larger community of wealthy investors are focused elsewhere, but gaining their attention as described above seems a very viable project.

In the years ahead, this will happen, I think. We'll see the arrangement of crowdfunded investment as a way to raise the profile of specific startups, and to pull in seed funding for their initial scientific development. We will support such ventures when we think they can carry out important steps forward in the finalization and clinical translation of research if all goes well. The need for networking and transparency and connections and insider advisers who can tell good from bad will never go away, but the door is opening for greater community participation and coordination in more of the development process. We will be able to reach out to and persuade new sources of for-profit funding, which are generally much larger than those provided by the non-profit philanthropic community. But ultimately the crowdfunding of rejuvenation research startups will not look all that different from the crowdfunding of rejuvenation research laboratory programs when it comes to the basics of persuasion, fundraising, and the end goals of getting things done. I am looking forward to seeing how it all shakes out.


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