Bringing Innovations Bringing Innovations To MarketTo Market

SBIR/STTR as an Important SBIR/STTR as an Important Financing AlternativeFinancing Alternative

Ray FriesenhahnRay FriesenhahnSBIR & Technology Transition ManagerSBIR & Technology Transition Manager

Advanced Technology ScoutAdvanced Technology Scout

TechLinkTechLinkJanuary 19January 19thth, 2012, 2012

TechLink is an Authorized U.S. Department of Defense Partnership Intermediary per Authority 15 U.S.C. 3715

Start With an IdeaStart With an Idea

First, convince yourself it’ll work…First, convince yourself it’ll work…

Conduct some realistic market researchConduct some realistic market research

Begin IP (Intellectual Property) protectionBegin IP (Intellectual Property) protection

Get expert advice (with NDA)Get expert advice (with NDA)

Begin building your team (strategic alliances)Begin building your team (strategic alliances)

$$ Find financing to implement your plan!$$ Find financing to implement your plan!

Develop a business planDevelop a business plan

Options for Financing your Options for Financing your Innovative Technology Start-up Innovative Technology Start-up

• Venture Capital (VC)Venture Capital (VC)

• Angel or Corporate InvestorsAngel or Corporate Investors

• FFFFFF

• Loans & BootstrappingLoans & Bootstrapping

• SBIR/STTR SBIR/STTR

Early-Stage Funding Levels:Early-Stage Funding Levels:

VC:VC:

Angels:Angels:

FFF:FFF:

Loans:Loans:

SBIR/STTR: SBIR/STTR:

Typ. $4M – $50M+ Typ. $4M – $50M+ (~$28B for 2011)(~$28B for 2011)

Avg. seed stage round $4.5M in 2010Avg. seed stage round $4.5M in 2010

$200K - $1M$200K - $1M Avg. seed stage round $300K in 2010Avg. seed stage round $300K in 2010

~$5K - $100K ~$5K - $100K ($50B overall)($50B overall)

$0~$250K $0~$250K (with good collateral)(with good collateral)

$70K - $1M ++ $70K - $1M ++ ($2.2B overall)($2.2B overall)

VC Funding in TexasPricewaterhouseCoopers Money Tree Report

Small Business Innovation ResearchSmall Business Innovation Research(SBIR) (SBIR)

$2.2 $2.2 BillionBillion (FY10) federal set-aside for (FY10) federal set-aside for U.S. Small Businesses U.S. Small Businesses

Small Business Technology TransferSmall Business Technology Transfer(STTR) (STTR)

$250 $250 MillionMillion (FY10) federal set-aside for (FY10) federal set-aside for U.S. Small Businesses U.S. Small Businesses working with Universities or working with Universities or

Not-for-profit Research InstitutionsNot-for-profit Research Institutions

3-Phase Program:3-Phase Program:o Phase I: Feasibility StudyPhase I: Feasibility Study

o ““Typically” 6-month, $80K - $150KTypically” 6-month, $80K - $150K

o Phase II: Proof of Principal/PrototypePhase II: Proof of Principal/Prototypeo ““Typically” 2-year, up to $1M (or more)Typically” 2-year, up to $1M (or more)

o Phase III: Commercialization Phase III: Commercialization (or “Transition” to DoD)(or “Transition” to DoD)

o No contract size limitNo contract size limito No SBIR/STTR fundingNo SBIR/STTR fundingo May be government contract/procurementMay be government contract/procuremento Possible Phase II “Enhancement” to get therePossible Phase II “Enhancement” to get there

SBIR/STTR OverviewSBIR/STTR Overview

o Federally mandated programs (since 1982/1992) for Federally mandated programs (since 1982/1992) for agency funding of small business (<500 empl.) R&D agency funding of small business (<500 empl.) R&D to develop new commercial products or servicesto develop new commercial products or services

o Budgets: Budgets: o SBIR: ~$2.2 Billion SBIR: ~$2.2 Billion

o 2.5% 2.6% of extramural R/R&D for agencies >$100 M 2.5% 2.6% of extramural R/R&D for agencies >$100 M (3.2% by FY16) (3.2% by FY16)

o STTR: ~$250 MillionSTTR: ~$250 Milliono 0.3% 0.35% of extramural R/R&D for agencies >$1 B 0.3% 0.35% of extramural R/R&D for agencies >$1 B (0.45% by FY16) (0.45% by FY16)

o Goal is Goal is commercializationcommercialization of new innovations from of new innovations from U.S. small businessesU.S. small businesses

SBIR/STTR OverviewSBIR/STTR Overview

Company Size Distribution:Company Size Distribution:NASA Phase I SBIR AwardsNASA Phase I SBIR Awards

Recent NASA SBIR Award Statistics Recent NASA SBIR Award Statistics

NASA SBIR: About 1/3 are 1st-time awardees

o Not a loan – no repayment requiredNot a loan – no repayment required

o No loss of equity ownershipNo loss of equity ownership

o Can be high-risk (high-payoff) innovationCan be high-risk (high-payoff) innovation

o Preferences, including sole source Preferences, including sole source contracts, for follow-on government contracts, for follow-on government funding or procurementfunding or procuremento Not required, no guaranteed follow-onNot required, no guaranteed follow-on

o Overall chances of winning ~1/6Overall chances of winning ~1/6o About 1/10 for first-timersAbout 1/10 for first-timers

SBIR/STTR Advantages:SBIR/STTR Advantages:

o Government contracts and accounting can Government contracts and accounting can be onerousbe onerous

o Slow process (3-5 years through Phase II)Slow process (3-5 years through Phase II)

o Not appropriate for short windows of opportunityNot appropriate for short windows of opportunity

o Requires R&D capability and writing skillsRequires R&D capability and writing skills

o Must propose what agencies ask forMust propose what agencies ask foro Very specific for contracting agencies Very specific for contracting agencies (e.g. NASA, DoD)(e.g. NASA, DoD)

o Much more leeway for granting agencies Much more leeway for granting agencies (e.g. NSF, NIH)(e.g. NSF, NIH)

SBIR/STTR Disadvantages:SBIR/STTR Disadvantages:

Companies Started with Companies Started with

SBIR/STTR SBIR/STTR Funding Funding

Sonicare ToothbrushSonicare Toothbrush

• Started as GEMTech Started as GEMTech (1988)(1988)

•1990 NIH Phase I SBIR 1990 NIH Phase I SBIR ($50K) for “Sonic Brush” ($50K) for “Sonic Brush”

• 1992 NIH Phase II: $500K1992 NIH Phase II: $500K

•1995 changed name to 1995 changed name to Optiva Corp.Optiva Corp.

•2000: Optiva (Snoqualmie, 2000: Optiva (Snoqualmie, Washington) had >600 Washington) had >600 employees, $175 million in employees, $175 million in annual salesannual sales

•Acquired by Phillips (2000)Acquired by Phillips (2000)

Packbot Packbot (with bomb)(with bomb)

iRobotiRobot(Bedford, MA)(Bedford, MA)

•29 DoD SBIR/STTR awards 29 DoD SBIR/STTR awards (2001 – 2008)(2001 – 2008)

• Total award value $9.2MTotal award value $9.2M

•2010: 2010: • 657 employees657 employees• $400M annual sales$400M annual sales• $737M market value$737M market value• 34% annual growth34% annual growthRoomba Roomba (vacuum cleaner)(vacuum cleaner)

““With one of the grants, we developed With one of the grants, we developed some of the first chips we did at some of the first chips we did at Qualcomm.. making chips for Qualcomm.. making chips for cellphones is about two-thirds of our cellphones is about two-thirds of our revenue today.” -Irwin Jacobs revenue today.” -Irwin Jacobs

• Over 21,000 employeesOver 21,000 employees

• $15 billion sales (2011)$15 billion sales (2011)•2011 1-yr growth: 36% sales, 2011 1-yr growth: 36% sales, 21% employee21% employee• Holds > 13,000 U.S. patentsHolds > 13,000 U.S. patents• Pays more in taxes than Pays more in taxes than SBA’s annual budget!SBA’s annual budget!

SBIR/STTR Summary Info:SBIR/STTR Summary Info:SBIRSBIR STTRSTTR

Total Ann. Amt.Total Ann. Amt. ~$2.2 Billion~$2.2 Billion ~$250 Million~$250 Million

AgenciesAgencies 1111 55(DoD, DOE, NIH, NASA, NSF)(DoD, DOE, NIH, NASA, NSF)

Phase I Phase I (~15% win, (~15% win,

much higher for STTR)much higher for STTR)

Typically to $150KTypically to $150KUsually 6 monthsUsually 6 months

Typically $150KTypically $150KUsually 12 monthsUsually 12 months

Phase II Phase II (~40% win)(~40% win) Typically to $1MTypically to $1M24 months24 months

Up to $1MUp to $1M24 months24 months

(University) Phase I:(University) Phase I:

Subcontracts Phase II: Subcontracts Phase II:

Allows up to 1/3Allows up to 1/3

Allows up to 1/2Allows up to 1/2

RequiresRequires 30 – 60% 30 – 60%

RequiresRequires 30 – 60% 30 – 60%