Technology Commercialization- BA468X

1. Technology Commercialization- BA468X Financing Your Venture

2. Funding your enterprise The big question- should you…. • Grow organically from generated revenues OR • Seek external funding to “jump start” the business (investors or loans) Often it will be both! The timing, amounts, and sources of external funding that you seek is a critical aspect of your business plan

3. Organic growth- “pay as you grow” Positives: • Allows you to retain management control and a greater proportion of financial gains • Can be lower risk- learn the markets as you go Negatives: • Growth rate of company will likely be lower due to constraints on funding for expansion • You may miss the optimal timing of your product into the market

4. External Funding Positives: • Faster market entry when timing is important • Investors can provide knowledge, access to markets and other sources of money • There are many creative options available which you can tailor to your need Negatives: • Loss of control. VC’s will usually want a major voice in management decisions • Dilution of your financial stake in the company • Investors will expect a tangible result from their investment. “Just trust us” doesn’t work…

5. Ongoing Growth “Private Equity” R&D Gov’t, Industry - discovery Formation Angel Institutional Public Markets • The “3 F’s” (friends, family, & fools) • - “just the basics” • Venture Capital funds • - Home run mentality • - Significant investment $$; governance and oversight • - 2003: 915 funds, $18.2 billon invested, 2,700 deals • Angel Investors • - “early and often” • - Individuals, unorganized, limited follow-on • - 2003: $18.1 billion invested, 42,000 deals Don’t overlook non-equity capital - Grants (SBIR, STTR), foundations, other? - Customer NRE - Strategic relationships (access, credibility, risk reduction / loss of freedom, …) Capital Sources for Formation and Growth

6. Sources of Non-equity Capital: SBIR and STTR • The Small Business Innovative Research Grants (SBIR) and Small Business Technology Transfer (STTR) can be good sources of start up funds • SBIR created in 1982 and renewed at least until 2008 • Requires 2.5% of all “extra-mural” research funds must be set aside for small business development ($2B in 2005) • Many government agencies participate: DOD, NIH, NASA, DOE, NSF, DOC, DoAg, EPA, DOE, DOT, HSArpa. Each agency has structured their program differently • There are some differences in SBIR and STTR with respect to required partnerships and percentage of total funds allocated • This a grant, NOT a loan. The small business is not required to repay. Also, the company can allocate up to 7% of the grant to profit.

7. SBIR/STTR Funding • Structured around a 3 phase process • Phase 1- feasibility ($50K-$100K, 6 mo) • Phase 2- prototype ($500K-$750K, 2 yr) • Phase 3- commercialization (not funded by government directly) • Can be either a grant or contract • Grant- no expectation of a product that funding agency will buy • Contract- expectation that in Phase 3 that agency will be a customer

8. SBIR/STTR Funding • Success rates vary among agencies • NIH: Funds 1 out of 3 proposals • NSF: Funds 1 out of 13 proposals • 41% of SBIR awardees are 2-9 employees • 33% of SBIR awardees are new • More information is available at the website: http://www.sbirworld.com, and is also posted on our class website accessible through the syllabus

9. Senate Bill 853 • The State of Oregon passed a bill in 2005 for the purpose of “facilitating the commercialization of university R&D” • This fund is to provide • Capital for university entrepreneurial programs • Opportunities for students to gain experience in applying research to commercial activities • Proof-of-concept funding • Entrepreneurial opportunities for those wishing to convert research into commercial enterprises • It will be funded by credits applied to state income taxes on a voluntary basis- implementation details are still being worked out • OSU, UO, and OHSU have expressed interest in participating