David Norris, co-founder and chief executive of medical-search technology company MD Insider, previously launched five other startups, raising hundreds of millions of dollars over the years from venture firms, private equity shops and angel investors.
His last endeavor, for example, consumer-engagement platform maker BlueCava Inc., has raised more than $35 million, with $4 million of that coming from Mark Cuban, he said.
But this time around, as Mr. Norris hit the fundraising trail for his latest startup, MD Insider, he went another route. After knocking on doors and raising $2 million from angel investors, Mr. Norris took his company to equity crowdfunding platform AngelList, where MD Insider raised $1.5 million in “pre-Series A funding” from hundreds of investors within a matter of minutes.
AngelList says MD Insider’s recent funding round is the largest ever raised in a single round via the online platform.
Mr. Norris says syndicate crowdfunding, where an entrepreneur can connect with a high-profile individual investor backed by a powerful syndicate of angels, is “the wave of the future.” He told Venture Capital Dispatch the story of MD Insider and its fundraising efforts.
Q: First off, what is MD Insider?
We use big data to evaluate the performance of physicians. We aggregate volumes of data, and find the highest-performing and most cost-effective doctors. We sell [a search tool] to employers that helps them lower their health-care costs. We are really able to narrow down our search results. It’s all based on codes that are included in claims data. We have been around for two years, and have a good set of customers.
Q: Why did you decide to go off the traditional fundraising path and take your pitch to AngelList?
I’ve always been interested in crowdfunding, but there had to be a change in SECregulations. Now there have been regulatory changes that enable crowdfunding, so this time around I wanted to make it a piece of our overall fundraising strategy.
It’s from a syndicate of investors, Tim Ferriss’ syndicate. He is an author and was an early investor in Facebook and Twitter and other companies, and his AngelList syndicate is something like 788 investors with $4.2 million in investment potential. The whole process working with AngelList took about two-and-a-half weeks. The fundraising part took two minutes.
Q: What advantages are there in getting a syndicate behind your company, as opposed to one or two investors?
Syndicates are great. They allow individual investors who might not have time for all the due diligence to invest. Tim Ferris did all the due diligence, and his whole syndicate gets the benefit of that. This makes investing easy and profitable.
Q: Compared to the standard fundraising, what kinds of equity stakes do you give up to investors when a giant syndicate invests in your company?
It’s on par. Our pre-Series A round is still convertible notes, and has not converted to equity yet. So it hasn’t been priced yet. We are out to raise $5 million to $10 million, and we will probably wind up closer to $10 million. Right now, we are deciding whether to go back to [traditional fundraising methods]. We have actually been approached to do our whole Series A on AngelList. People are saying, ‘Come back. Raise your price.’ We’re still deciding. It’s an intriguing idea.
Posted from : http://blogs.wsj.com/venturecapital/2014/11/04/md-insider-ceo-says-syndicate-crowdfunding-is-wave-of-the-future/