Science Investing is Moving Online
At the Aromyx lab, when a bottle of Pepsi opens, opportunity begins. As fizz rushes to the surface, so too do the tiny particles of smell and taste that give the drink its unique flavor profile. With Aromyx’s patented EssenceChips, the complete biochemical breakdown of these specific scents and flavors can be processed in the same way as the human brain.
When Aromyx, a company that digitizes the senses of smell and taste, decided to raise money they had some exciting new avenues to explore — including Propel(x), an online platform that is connecting them with angel investors hungry to support science-based startups.
When we think about companies who fundraise online, images of smartwatches that sing you the time while monitoring your heart rate, or mood-boosting guava juice come to mind. With crowdfunding and online investing sites gaining traction, online angel investing is becoming increasingly popular. But online angel investing has more to offer than just the consumer related products. Angel investors are now funding startups that push the boundaries of science, that are developing the next breakthrough cancer treatments, or figuring out how to feed a growing planet. Companies that strive to bring us the latest in clean technology, and, yes, even take us out to distant galaxies.
We hear about the big names, like Sean Parker committing $250M to immunotherapy or Bill Gates investing to find a clean-tech miracle, but angel investors have been putting money into these types of companies for years. They are the often unacknowledged pioneers that fund the future. And now, more than ever, angel investors are finding and funding startups online.
It was inevitable for science and technology investing to move online, since the barriers that have hindered early-stage investment in science and technology are overcome when angel investing migrates to the web. The hurdles of finding quality deals, evaluating those deals thoroughly, and high minimum investment requirements are eliminated thanks to the democratizing power of the web.
Finding promising deals:
In the “dark ages”, quality deals were hard to find if you weren’t plugged into either a major financing center (think Boston, NYC, and — of course — Silicon Valley) or powerful angel groups. But today, you don’t have to be in the room where it happens. Location is no longer a barrier, and connections with angel investors can be built at the click of a button.
Online investing platforms also have access to a wide variety of startups and cull their deals from a range of sources. For example, at Propel(x) we work with leading incubators, innovation labs, VCs, angel groups, and universities to ensure that the investors who are part of the Propel(x) network have access to promising, cutting-edge science and technology startups.
The rise of online investing platforms is especially valuable for angels who are just starting out. By bringing an ease of accessibility, budding angels will have an as of yet unprecedented opportunity to get a stream of quality investment opportunities right out of the gate.
Understanding the deal:
It’s not unusual to listen to a life science or clean tech pitch and leave a little perplexed about the technology being used! Some of these innovations are so cutting edge it can be hard to find the words to describe them in layman’s terms. To be an effective angel investor, you need to know how to evaluate startups and be able to determine which opportunities are best for you. This is especially the case when considering science and technology startups. The good news is that doing your homework pays off. According to a study by the Kauffman Foundation, angels who spent 20 hours on due diligence experienced five times higher returns than those who didn’t put in the time and reduced their losses by about one-third.
Online investment platforms can provide a streamlined evaluation process that allows you to ask questions and also benefit from the questions your fellow investors are asking. By using the power of a network to help you do your homework, you can evaluate startups much more efficiently and have all of the crucial questions answered as part of an end-to-end evaluation process.
A due diligence process that is driven through a centralized online investment platform and relies on the power of a network will prove to be one of the biggest facilitators of making angel investing in science and technology much more mainstream.
Getting to take part:
Another benefit of science investing moving online is more opportunities to invest in startups at a much lower minimum threshold. The main vehicle used to facilitate lower minimums is a syndicate, a pooled investment vehicle that allows angel investors to invest as little as $3,000 in a deal — rather the usual required minimum of $25,000! Investing through syndicates allows angel investors to start small and spread their money over a broad range of startups and thus create a more diverse investment portfolio.
Being part of a syndicate also makes it easier for investors to participate in future rounds since syndicates often negotiate what is called pro-rata investment rights, which gives an investor in a company the right to take part in subsequent rounds of funding.
At Propel(x) we are big proponents of this approach because it makes angel investing easier and more accessible to investors and gives them the power of larger investors through pooling resources.
Investing for Impact:
Angel Investors are by nature an optimistic bunch and they prioritize one humble task above others — investing to save the world.
Angel investors are interested in supporting noble causes like protecting the environment and solving world hunger. They strive to make the world a better place and they put their money where their mouths (and hearts) are. Such demand for social responsibility has already made the indisputable case for a triple bottom line to enterprises like Google, Tesla, and General Electric. Realizing that such a socially, environmentally, and financially beneficial outcome was simultaneously possible, angel investors of all stripes are now investing in scientific and technological startups online to see an ROI while making a huge impact.
We have a future of infinite possibilities and we need to kick things up a few notches. Of America’s $53 trillion of assets under management, only 0.1% goes toward investing in early stage science-based startups. And all that is changing with science’s reliance on online investing. The best part, of course, is that you can be a part of it. With companies like Aromyx (which is currently fundraising here) getting in the investing game is easier than ever.
Given that the bulk of companies listed on the Dow 30 or S&P 500 Index were founded on scientific breakthroughs, this is an extraordinary time to invest in science startups. It’s good for the world, good for your portfolio. You’re creating a return for yourself and a different kind of return for humanity.
You can help companies tackle bigger issues. You can make a difference. You can invest in the future and have it actually pay off.
Lisheng Wang is the co-founder of Propel(x), an online investment platform that brings together investors, startups, and experts to support and invest in breakthrough technologies.