Greg Simon has a very straight-forward answer to the question of what problem his new company, Poliwogg, is solving: “Underinvestment in healthcare.
“And we’re solving it by letting more people have the opportunity to invest in individual companies,” he adds.
New York-based financial firm Poliwogg is leveraging provisions of the JOBS Act and the rise of crowdfunding to offer a new portfolio of healthcare investing options to accredited investors and the public.
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So much of the investing power today lies in the hands of elite venture capital and private equity firms, which by the way have progressively shied away from life science investments over recent years. Poliwogg is hoping to fill that funding void by making it easier for angel investors and the public to get in on deals with promising emerging companies through three platforms, each with a unique risk-reward proposition.
The first and most simple is crowd equity. Like CircleUp and WeFunder, Poliwogg is a digital portal where accredited investors can browse a set of startups that the firm’s team, through its own vetting process, has deemed investable. Simon said most of these companies will be looking to raise $2 million to $10 million — enough to carry them to their next major milestone, but too much to raise from friends and family.
Partners like the Epilepsy Foundation and Alpha 1 Foundation will also help select startups, since they’re experts in their respective disease areas and already look closely at companies they could potentially fund with grants or venture philanthropy dollars. And, Poliwogg hopes those partners will lure donors from their own networks to continue funding projects they support with donations through follow-on equity investments — a process made easier by the online portal.
“Part of the idea here is that people want to invest in the things they care about, but they haven’t always had the opportunity to invest in them,” said Simon, who previously was president of FasterCures, a nonprofit that works to improve medial research. “We’re giving people the opportunity to put their money where their passion is.”
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For now, donors who want to invest through Poliwogg’s crowd equity platform still need to be accredited. But eventually, when Title III of the JOBS Act kicks in, non-accredited investors would be able to participate, too.
What the public can participate in now is what Simon called Polliwog’s “indexes of the future.” They’re similar to S&P or the NASDAQ Biotechnology Index, except they’re made up of smaller, publicly traded firms within a vertical that have promising late-stage drug candidates or emerging technologies.
“When you buy (other indexes), you’re basically buying the past, not the future, because indexes give more weight to the largest companies out there,” Simon said. “That is horizontal investing.”
Qualified institutions will license the indexes the firm puts together and use them as the basis of investment products, Simon said. One Index comprising 20 companies the firm thinks are poised to benefit from implementation of the Affordable Care Act is already available (TICKER: CARE).
The third investment vehicle combines the first two in an effort to “democratize venture funds,” as Simon said. While LPs usually need to put up at least $1 million to get into a traditional venture fund, Poliwogg would create venture funds that would be listed on NASDAQ or the New York Stock Exchange, with a $5,000 minimum investment for public investors.
The funds would operate as so-called business development companies and could use the funds raised to invest in small public or private companies.
“Investing in a venture fund is a high risk but not as high as investing in just one company, because you can diversify your portfolio,” Simon said. “Investing in a fund based on an index is the lowest risk, because that’s tradeable every minute of the day.”
Poliwogg would function as a broker-dealer for crowd equity transactions and would get a commission for raising money for companies. It would also get a commission and a small percentage of the fund management fee for the venture funds, as well as licensing fees from institutions that license the indexes.
Building a business based on nontraditional investing methods is itself a pretty big risk. But Simon, whose background is in drug development, policy and patient advocacy, is surrounded by a team of who’s who in finance and healthcare. Founder Jeff Feldman was a Wall Street entrepreneur for more than 40 years. Chief Investment Officer Sam Wertheimer had five successful exits over 10 years as an equity partner at OrbiMed Advisors. Chief technology officer is Shahid Shah, a long-time enterprise software analyst who’s also known on the web as “The Healthcare IT Guy.” Managing directors include former Wall Street investment bankers and a doctor. Tommy Thompson, former governor of Wisconsin and secretary of Health and Human Services under President George W. Bush, is chairman of the board.
Poliwogg launched its website at the JP Morgan Healthcare Conference this month and has a dozen companies raising money on it right now. Still, Simon acknowledged that his team, and the investors it’s looking for, are wading into untested waters, and it’s not going to be easy.
“Most people don’t even know that these options exist, so there’s definitely going to be a phase-in period of people becoming aware of them,” Simon said. “This is a new asset class. It will take a little while for people to get it, but once they get it, they’ll really get it.”
[Image credit: Flickr user sneakerdog]