Funding Opportunities/Pathways 2017 VACE Entrepreneurs’ Bootcamp October 19, 2017

The Von Allmen Center for Entrepreneurship Warren Nash (on campus – ASTeCC) Executive Director, Von Allmen Center Mariam Gorjian (on campus – ASTeCC) Assistant Director, Von Allmen Center Eric Hartman (downtown, Commerce Lexington Building) Director, Office of the KY Innovation Network

Von Allmen Center for Entrepreneurship Services Clients Business Planning Assess IP/commercialization potential Conduct market research & competitive analysis Assist in business plan development and financial analysis Connections Provide ongoing management assistance Refer clients to vetted service providers Facilitate access to incubator space Funding Develop funding roadmap Facilitate access to state and private funding resources Guide investor presentation development Faculty, clinicians & staff Students Community entrepreneurs gatton.uky.edu/vace

Startup Company Funding Creation Pre-Revenue Breakeven Growth “Valley of Death” Idea IP Protection Prototype Business Plan Beta Customers Sales/Marketing Paying Customers Growth Plan 1 – 10+ years

Funding Roadmap Creation Pre-Revenue Breakeven Growth Friends/Family/Founders SBIRs/STTRs & State Match State Investment Funds Crowdfunding Angel Investors Banks Strategic Partners Venture Capital Customer Sales “Valley of Death” Tax Credits Idea IP Protection Prototype Business Plan Beta Customers Sales/Marketing Paying Customers Growth Plan

Types of Financing Federal & state agencies Foundations Banks Grants Loans/Debt Investment/Equity Revenue Sources Federal & state agencies Foundations Banks Credit cards Friends & family Angel investors Venture capital State programs Customer Sales Pros No payback Non-dilutive Keep control Shared risk “Smart” money Nothing better Cons Lengthy process Highly competitive Usually technology based Payback with interest Security required Dilutive Give up some control None

Early stage programs / options Launch Programs BGA Launch Grant / Launch Fund; Cherub Fund Pitch Competitions – 5 Across, etc. Incubators / Accelerators UpTech, XLerate Health, Awesome Fellowship

Federal & state grants Funding Opportunities

Federal SBIR/STTR Grants Small Business innovation Research (SBIR) Set-aside program for small business concerns to engage in federal R&D – with potential for commercialization 2.5% of the extramural research budget for all agencies with a budget greater than $100MM per year Small Business Technology Transfer (STTR) Set-aside program to facilitate cooperative R&D between small business concerns and U.S. research institutions – with potential for commercialization 0.3% of the extramural research budget for all agencies with a budget greater than $1B per year www.sbir.gov

SBIR/STTR Three-Phase Program Phase I Feasibility Study, Proof of Concept Awards normally do not exceed $150,000 for 6 months Phase II Full Research and Development Effort Awards normally do not exceed $1,000,000 for 2 years Phase III The SBIR/STTR program does not fund Phase III. Commercialization Stage External Funding [non-SBIR/STTR] In some Federal Agencies Phase III may involve follow-on non-SBIR/STTR funded R&D or production contracts for products, processes or services intended for use by the U.S. Government.

SBIR/STTR Major Differences PI Employment SBIR – PI primary employment (51+%) must be with the small business STTR – PI employment not specified; e.g., could be faculty Research Partners STTR – requires at least 30% work conducted by partnering research institution; e.g., university or federal lab SBIR – university partnership permitted, but not required www.sbir.gov

SBIR/STTR Participating Agencies Department of Agriculture National Institute of Standards and Technology National Oceanic and Atmospheric Administration Department of Defense Department of Education Department of Energy Department of Health and Human Services Department of Homeland Security Department of Transportation Environmental Protection Agency National Aeronautics and Space Administration National Science Foundation Department of Defense Department of Energy Department of Health and Human Services National Aeronautics & Space Administration National Science Foundation

Kentucky SBIR/STTR Assistance Program Phase Zero – $4,000 grant to assist Kentucky-based new and existing small businesses, and Kentucky's college and university faculty with the preparation of high-quality, competitive Phase I proposals for submission to participating federal SBIR and STTR programs. Phase Double Zero – $4,000 grant to assist Kentucky-based new and existing small businesses with the preparation of high-quality, competitive Phase II proposals for submission to participating federal SBIR and STTR programs. The applicant must have previously received a Phase I Federal Grant to be eligible for a Phase Double Zero grant www.kysbir.com

Kentucky SBIR/STTR Matching Program Today Kentucky is the only state to provide matching funds for both Phase I and Phase II federal SBIR/STTR grants. This program is undergoing some major changes. Phase I Match up to 100% but not to exceed $150,000 Phase II Years 1 & 2 – match up to 100% but not to exceed $500,000 Year 2 – requires matching private funds www.kysbir.com

Research and Development Excellence Program The Research and Development Excellence Program (RDE) targets achieving excellence in science and engineering in Kentucky, through innovation and technology development in existing and emerging areas of research, by making proactive investments through a peer-reviewed competitive selection process. Solicitation is usually issued in the Fall.   Awards are up to $50K per year. Note that beginning Fall 2016, the Kentucky Commercialization Fund (COMM) was merged under KSEF's RDE Awards (there is no longer a be separate solicitation). 

Investment / equity Funding Opportunities

What is Investment Funding? Dilutive Capital Sell Equity for Cash Investors Friends and Family High net worth individuals, SEC Accredited Investors Expectations Return on Investment (Exit) Influence / Mentor Relationship

Friends, Family, Fools Founders 57% of startups are funded by personal loans and credit 38% percent receive funding from family and friends SOURCE: https://www.entrepreneur.com/article/230011 - “Where Startup Funding Really Comes From”

“Accredited” Investors SEC restricts investments in private firms to the following: a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 a bank, insurance company, registered investment company, business development company, or small business investment company a business in which all the equity owners are accredited investors a trust with assets in excess of $5 million

Private Investors ** Angel groups have in common… VC Stage Seed / Early-stage Early-revenue & growth Investment (per deal) $25K - $100K ** $2-5 million Source of funds Personal Institutional & wealthy individuals Investment decision Individual Professional managers Investment type Equity Control Limited Active ** Angel groups have in common… Larger investments as a group ($100K - $500K) Shared due diligence Diverse backgrounds of members Sidecar funds mitigate risks

Angel Expectations Scalable business opportunity Team that has the ability to execute Differentiated product/service with… Strong IP position and business model and/or Proven market traction – working prototype, early customers/revenue, sustainable business model Potential for a 3x-10x return to investors within 2-7 year period

Valuation The process of determining the current worth of an asset or company For a public company…market capitalization; i.e., # of outstanding shares X share price For a startup company…what the entrepreneur negotiates with investors Pre-money: the value before investment Post-money: value after investment (pre-money + investment) Investor equity: investment ÷ post-money

Example Pre-money Valuation Investment Post-money Valuation Investor Equity Founders Equity $1,000,000 $250,000 $1,250,000 20% 80% Company gets: Funding needed to start/grow business Advice/mentoring from experienced investors Investors get: Opportunity to profit from company success Company and investors share in success/risk of new business opportunity

Valuation Drivers - Value Creation is directly proportional to Risk Reduction Non-Dilutive Funding Revenue Experienced Team Intellectual Property Global Market Opportunity drive valuation up Regulatory Process Crowded Market Time to Market Sales Cycle drive valuation down

Established in 2004 50+ accredited investors Provides early stage equity capital to start-up and/or expanding companies Helps commercialize research conducted at Kentucky universities Promotes and enhances entrepreneurship in the Kentucky business community Helps create economic growth and jobs in the Bluegrass Provides members with an attractive financial return

State Co-Investment Programs Kentucky has two state investment funds that co-invest with private investors in early-stage companies based in the Commonwealth. These funds typically follow the terms negotiated with private investors. Kentucky Enterprise Fund (KEF) is a state-sponsored, venture capital-like fund that invests in Kentucky-based seed and early stage technology companies. Initial investment many times is in the form of convertible debt. Commonwealth Seed Capital, LLC, (CSC) is an independent fund that makes debt or equity investments in early-stage Kentucky business entities to facilitate the commercialization of innovative ideas and technologies. www.thinkkentucky.com/Entrepreneurship/funding.aspx

Regional Angel Groups & VCs Angel Groups & Early-Stage Investors Bluegrass Angels & Funds, Lexington Commonwealth Seed Capital Kentucky Enterprise Fund Kentucky Angel Investor Network Connetic Fund, Northern Kentucky Enterprise Angels & Fund, Louisville Lincoln Trail Venture Group, Elizabethtown Marshall Fund, Owensboro Sequel Fund, Southern Indiana/Louisville Tri-State Angels, Ashland Queen City Angels, Cincinnati Yearling Fund, Louisville M25 Ventures, Chicago Venture Capital Funds Allos Ventures, Indianapolis/Cincinnati Blue Chip Ventures, Cincinnati Chrysalis Ventures, Louisville Kentucky Highlands Investment, London River Cities Capital Funds, Cincinnati Triathlon Medical Ventures, Cincinnati Lewis & Clark Ventures, St. Louis

Kentucky Angel Investors’ Network The Kentucky Angel Investors’ Network (KYAN), funded by KCED, is a virtual network currently comprised of 93 accredited angel investors from across the Commonwealth and the region. KYAN meets the last Tuesday of every month via the Go To Meeting online platform to hear company presentations. To date 36 company presentations from across the state since January 2014. Three companies have presented two different rounds of funding. All of these companies have received follow-up interest from Network investors, with approximately 33% of these companies have received additional investment of close to approximately $1M. 17 company referrals were made to the KYIN Offices/SBDC/KCED. One regional angel fund M25 Group (based in Chicago) presented to the Network in May In October SPARK/KYAN Investors and Entrepreneurs Summit was organized and held in Lexington with 113 attendees. Presentations featuring KYAN were made in Lewis County and Mayfield, Kentucky. KYAN was prominently featured in both the March and June issues of the Lane Report - Article titled - A Value Proposition for Venture Capital Article about KYIN client Hippo Software Manger titled – Entrepreneurship: Kentucky’s Venture Capital Trail

crowdfunding Funding Opportunities

Crowdfunding – Donation Based Donation-based crowdfunding gives people and creative projects the opportunity to raise money via online donations or pre-purchasing of products or experiences Kickstarter Projects must fit within certain categories - personal interests & charities are not allowed All-or-nothing funding policy Kickstarter takes 5% fee for successfully funded projects Indiegogo Looser guidelines – almost any type of project Flexible funding allows creators to keep the funds they have raised Indiegogo takes 4% fee for successfully funded projects

Funding Roadmap Creation Pre-Revenue Breakeven Growth Friends/Family/Founders SBIRs/STTRs & State Match State Investment Funds Crowdfunding Angel Investors Banks Strategic Partners Venture Capital Customer Sales “Valley of Death” Tax Credits Idea IP Protection Prototype Business Plan Beta Customers Sales/Marketing Paying Customers Growth Plan