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

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 http://www.sbirworld.com

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