Oregon Angel Investment

The Economic Impact of High-Risk Investment

in Oregon’s Entrepreneurial Enterprises

Authors: Amy Bloom and Marie Tyvoll

April 8, 2015

Technology Association of Oregon

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Table of Contents

EXECUTIVE SUMMARY 1 INTRODUCTION 2 WHAT’S THE DIFFERENCE BETWEEN AN “ANGEL” AND A “VC”? 2 WHAT IS THE ECONOMIC IMPACT OF HIGH-RISK INVESTMENT? 3 STATE TAX INCENTIVE PROGRAMS FOR HIGH-RISK INVESTORS 5 OREGON’S GROWTH INVESTMENT ECOSYSTEM 6 TABLE 1 9 OREGON SUCCESS STORIES 9 CONCLUSION 11 SPONSORS 12 AUTHORS 13 TECHNOLOGY ASSOCIATION OF OREGON 14 CONTRIBUTORS 14 APPENDIX A: STATE TAX INCENTIVE PROGRAMS 15 APPENDIX B: OREGON ACCELERATORS, INCUBATORS, & ANGEL GROUPS 16 WORKS CITED 21 RESOURCES 22

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Executive Summary

Oregon’s startup business ecosystem is a growing source of clean, sustainable jobs and investment in the state. This startup ecosystem relies mainly on three things:

1. Entrepreneurism – People with good ideas who are willing to take a risk 2. Resources – Talented workforce, networking opportunities, and access to mentors 3. Funding – Organizations or individuals willing to make high-risk investments

While Oregon has a long history of entrepreneurism and resources for entrepreneurs, many early-stage companies find it difficult to secure funding within the state. When compared to the rest of the nation, in Q2 2014, only 5.9% of high-risk investment deals (seed, angel, and venture capital) took place in the Pacific Northwest (OR, WA, ID, MT, WY), compared to 19% in California alone. (Halo Report 14)

The majority of U.S states have put in place tax incentive programs to encourage high-risk investment in new companies, including seed, angel and venture capital (VC) funding. Some of these programs provide immediate tax credits for qualifying investments, and others reduce taxation on capital gains if funds are re-invested into qualifying entrepreneurial businesses. These incentives have been shown to double early-stage investments, keep investment money from leaving the state and support creation of thousands of jobs each year. With over half of entrepreneurial companies failing within the first five years, these programs incentivize investors - through mitigation of their risk - to make additional (or larger) investments and to place their investments where state governments have created a welcoming tax environment. Recent studies in Minnesota and Wisconsin, which were conducted in order to evaluate the impact of those states’ tax credit programs, paint an encouraging picture (Evaluation of the Minnesota Angel Tax Credit Program 2-4; Driving Investment to High-Growth Businesses in Wisconsin 3-5):

Minnesota:

• 25% tax credit • $34.2 million in tax credits issued • $138.6 million in qualified investments • Shift in behavior of in-state investors

toward in-state, higher risk investment • Growth of targeted industries

Wisconsin:

• 25% tax credit • $58.8 Million in tax credits issued • $916 Million in qualified investments • Over 1,100 full time jobs created with

average annual salary of $76,581 • Local investors keep investments local

In Oregon, the last decade has seen the birth of an ever-increasing number of startup incubators, accelerators, and organizations offering support services to entrepreneurs. These organizations, as a whole, have made seed and angel stage investments in approximately 100 companies, totaling over $36,000,000. The companies, in turn, have leveraged this high-risk investment in order to grow, providing high-wage jobs for 2,000 Oregonians. In addition, these companies have secured over $260,000,000 in subsequent funding rounds, with a high percentage of the funding coming from out-of- state sources. (Table 1) These successes are due, in large part, to the mentorship opportunities that these angel investment organizations provide to their portfolio companies.

Over half the states in the U.S. have put in place tax incentive programs to

encourage high-risk investment in new

companies

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As Oregon companies grow and succeed through this process, founders are faced with the opportunity to pay their success forward to the next generation of entrepreneurs. While a certain loyalty to Oregon may keep some here, others will inevitably choose to seek out investment opportunities in the many states that provide an immediate benefit through tax credit programs.

Introduction

This report provides an overview of investment in Oregon’s entrepreneurial enterprises, in order to provide context for discussions regarding the economic impact of these early stage investments. There are several categories of investment that we will discuss, including seed, angel, and venture capital. After providing a definition and context for each of these categories, we will discuss the economic benefits of investment in high tech industries and the rise of an innovation economy in the U.S., which is creating new jobs and sustainable growth for the future. We will also look at tax incentive programs offered in states throughout the U.S., and the impacts on innovation and job creation that these programs have produced. We will discuss examples of the organizations within Oregon that support entrepreneurism, and the impact their help has had on Oregon’s growth industry ecosystem. Finally, we will look at concrete examples of how new companies have provided jobs for Oregonians.

What’s the Difference Between an “Angel” and a “VC”?

The terms “angel investment” and “seed funding” are often used interchangeably. Although both are considered to be early stage high-risk investments, there are some subtle differences. While seed investment rounds may include individual angel investors, these funding rounds are more commonly comprised of small investments by friends, family, former business partners, or self-funding teams of entrepreneurs. Seed funding is the initial capital required to start a business, and is usually given in exchange for a higher percentage of equity ownership in the company than the same amount given in a later round. This funding takes place during the initial stage of a company’s lifecycle and may be delivered all at once, or may trickle in as the founding team is able to secure it. Seed funding is used for expenses including early product research and development, initial market research, first equipment purchases, staff expenses, and legal fees associated with company formation.

Angel investors are wealthy individuals who commonly band together in groups to provide high-risk investment capital to promising early-stage companies. These groups may focus on a specific industry in which the investors have particular expertise, may be regional in nature, or may partner with academic institutions in order to commercialize promising research emerging from a particular university. While angel investors may provide seed funding, an “angel round” commonly takes place in order to support growing companies, and bridge the gap between seed funding and a larger venture capital (VC) round of funding. Angel investments frequently come with mentorship assistance whereby angel investors provide coaching, expertise and support to founding entrepreneurs. This mentorship has been shown to increase the probability that a new company will survive the first few years when so many other startups perish, and grow to achieve the desired return on investment. (Starve Ups)

VC rounds (commonly referred to as “Series A, B, or C”) typically take place after a company has produced a product and can show market interest and/or sales (or “traction”) in order to validate the company’s economic viability. These investments are made by VC firms, which are large investment funds raised from high-net-worth individuals, pension funds, endowments, and foundations. VC firms

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invest in promising entrepreneurial companies, and typically help with management of their portfolio companies by serving as advisors and members of a company’s Board of Directors. The amount of investment made during VC rounds varies dramatically by industry, and according to the typical expenses involved in bringing a product to market within each industry. Examples of industries with higher costs include drug and therapeutics development, and high tech hardware development. Companies in the software, Internet, food, and services industries face much lower initial capital requirements. While less risky than angel and seed investment, VC is still considered a high-risk investment, with an average success rate of only 25% following VC investment. (Gage)

What is the Economic Impact of High-Risk Investment?

A 2011 report produced by the National Venture Capital Association and IHS Global Insight demonstrates the impact that VC-backed companies have had on the U.S. economy throughout the last four decades. (2-12):

• For every dollar of venture capital invested from 1970 to 2010, $6.27 of revenue was generated in 2010 by VC-backed companies

• VC-backed companies outperformed other U.S. private employers during the 2008-2010 recession in both employment growth and revenue growth

• In 2010, VC-backed companies accounted for 11% of U.S. private sector employment, or 11.9 million jobs, and 10% of total U.S. sales (21% of U.S. GDP), or $3.1 trillion in VC-backed revenue

• VC-backed innovations have spawned life-changing technologies and entire industries, including semiconductors, the internet, biotechnology, medical devices, and clean technology

• VC-backed companies account for a disproportionate percentage of jobs in high tech industries: 90% in software, 74% in biotechnology, 72% in semiconductors and electronics, and 54% in computers, totaling more than 2 million U.S. jobs

Venture Capital: Funding used to grow the business (expand staff or manufacturing

capabilities) - occurs after product is in the market and company has proven the concept

through customer acquisition.

Angel: Bridge between seed & VC funding - used to develop working prototypes, gain traction in the

market, hire early employees, and run the business while building a revenue pipeline

Seed: Capital required to start a business - early R&D, market research, initial equipment purchases, legal fees associated

with company formation.

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The goal of all investors, whether seed, angel, or VC, is to see a return of their investments through the company’s eventual acquisition or Initial Public Offering (IPO). Because conventional wisdom dictates that only one in ten companies receiving funding at the VC stage will provide a significant return, companies are often evaluated on the basis of whether or not the investor thinks the company could provide a 10x return on investment to cover the costs of other losses, and

only the most promising companies are chosen. However, the big investment “exits” are well publicized, and are lucrative enough to keep entrepreneurs dreaming that their company will be the next Facebook or Instagram. Those entrepreneurs who find the right combination of innovation, timing and hard work to become successful often return as venture capitalists themselves. They are encouraged to support the next generation of innovation by state tax programs offering a clear financial incentive to reinvest funds into emerging businesses.

A report titled Oregon Capital Scan: A Line is Drawn (Hull et al.) discusses Oregon’s entrepreneurial ecosystem in depth, and provides recommendations regarding tax incentive programs. Hull et al. reported that during the years 2012-2013, over $52 million in angel or seed funding was invested in Oregon companies, and over $329 million in VC investments were made (28, 39). As we will discuss later in this report, angel and seed funding, when leveraged by entrepreneurial companies, has been shown to create lasting, sustainable job growth in a region, and as entrepreneurial companies grow, additional VC funding from sources outside the state frequently follows.

Oregon’s thriving entrepreneurial ecosystem is supported by business accelerators and incubators, as well as support organizations designed to provide education and services for entrepreneurs. Business incubators typically provide a great deal of mentorship to executive teams as they are just starting out on their journey, and may include a small investment, a competitive process for companies who wish to apply, and an educational program of set duration. Business accelerators, on the other hand, often work with companies that are between angel and VC funding stages. Accelerators provide shared resources for a group of companies in order to help them use their angel capital efficiently, and achieve the milestones necessary for VC investment before they run out of funding. Many of these organizations were founded by successful entrepreneurs who recognized the role mentoring played in their own success and had the desire to help others succeed. Other organizations in Oregon that exist to support entrepreneurs include trade associations, networking groups, and those that provide educational resources for early-stage business owners.

Many start-up companies fail because they are unable to secure the funding that will sustain them through the next growth milestone. Because investment in these companies comes with a high degree of risk, the majority of states in the U.S. have implemented various forms of tax incentive programs, which encourage high-risk investment and stimulate economic growth. These programs include both tax credits (in varying amounts) for angel investors, and a reduction of taxes on capital gains, if the funds are reinvested in entrepreneurial businesses. We will discuss two of these programs in the next section, and the resulting gains achieved in the states’ entrepreneurial growth.

For every dollar of venture capital invested from 1970 to 2010, $6.27 of revenue was

generated in 2010 by VC-backed companies.

VC-backed companies

account for a disproportionate

percentage of jobs in high tech industries:

90% in Software 74% in Biotech

72% in Semiconductors & Electronics

54% in Computers, totaling more than 2,000,000 U.S. jobs.

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State Tax Incentive Programs for High-Risk Investors

States throughout the U.S. have implemented programs that provide tax incentives for individual investors (or groups of angel investors) who invest in innovative, early-stage companies. A comprehensive list is provided in Appendix A, but we have selected the programs of Wisconsin and Minnesota to highlight in order to provide additional information on the benefits of tax incentive programs. These benefits include job creation, sales revenue growth, and industry sector growth when incentives are focused on investments within specific industries.

Wisconsin has offered an early stage business tax credit program, “Qualified New Business Venture”, or QNBV, since 2005. The 2012 Annual Reporti detailing the impact of this program describes the results as “overwhelmingly positive”. (Driving Investment to High-Growth Businesses in Wisconsin. 3) Highlights of the QNVB program include:

• Wisconsin’s program allows eligible investors to claim a 25% tax credit on investments made in a QNBV company

• Companies enrolled in QNBV program provide jobs with average wages nearly 3x the average per capita wage in Wisconsin

• The $58.8 million in tax credits have been associated with over $916 million in additional investment capital and grants

• Evidence suggests that the tax credits provided in the QNBV program provide incentive for angel investors in Wisconsin to keep their investments local to the state, rather than investing in other areas

• Over 1,100 full time positions have been created by QNBV companies, with an average annual salary of $76,581

Minnesota’s Angel Tax Credit (ATC) was enacted in April 2010, with a limited duration, for the purpose of encouraging high-risk equity investment in early-stage, technology-based businesses. Minnesota’s ATC program provides a 25% tax credit for qualified angel investments. According to the Evaluation of the Minnesota Angel Tax Credit Program published in 2014, which surveyed and analyzed the investment profiles of ATC investors who had participated in the program, the Minnesota ATC program was responsible for a significant changes in the investment strategies of qualified investors in the state. One of the most significant of these changes was a shift by Minnesota angel investors from out-of-state investment to in-state investment. Prior to the enactment of the state’s ATC program, Minnesota angel investors only made 32% of their high-risk investments in companies founded in their own state. Within two years of the ATC program taking effect, this percentage had risen to 74%. (18)

Between 2010 and 2012, $34.2 million in tax credits were issued under Minnesota’s ATC program, which supported $138.6 million in angel investment. Of the total angel investment in companies that participated in the ATC program, $71.6 million was directly attributable to the ATC program. (22) The logical question associated with these statistics, however, is whether the investment would have been made in the absence of the ATC program. The authors of the evaluation study attempted to answer this question through surveys of ATC investors and an examination of investment patterns in the state. After completing their analysis, the authors reported that approximately 75% of angel investors would have

One of the most significant behavioral shifts was in the investment by Minnesota

angel investors from out-of-state investment to

in-state investment.

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made a lower-risk investment in the absence of the ATC program. (30) Since lower-risk investments included mutual funds, money-market, and publicly traded equities, which do not benefit the state, the authors pointed out that in the evaluation of the state’s investment, job creation, leveraged follow-on investment, advancement of innovative technologies, and the development of industries must also be taken into account. Furthermore, the study of Minnesota’s ATC program reports that after the ATC was implemented, the majority of out-of-state angel investors funding Minnesota startups came from states that did not offer tax incentive programs, (32) supporting the theory that investors often seek out locations with more favorable tax conditions.

A 2013 article in the Small Business Institute Journal discusses the relationship between state-funded angel tax incentive programs and entrepreneurial activity in the state. The authors examine and discuss empirical data provided by the Kauffman Index of Entrepreneurial Activity, as well as the Angel Investment Tax Credit incentive programs that have been attempted in 32 states. The study found that 29 of 32 programs were still in operation, and that entrepreneurial activity increased in 75% of states within the first two years of program implementation, even though over half of the programs were implemented during an economic downturn. (Bell, Wilbanks and Hendon)

The evidence supports the logical conclusion that qualified angel investors will make investments more predominantly in states that provide tax incentives. This behavior helps to mitigate the risk of these investments and results in more young companies being funded. The authors of Oregon Capital Scan: A Line is Drawn came to the same conclusion: “A greater footprint of resident capital should be encouraged by policymakers, nonetheless, as any steps taken to reduce the challenge of fundraising would yield more startups, more growth companies, and greater employment as a result.” (Hull et al. 9-10)

Oregon’s Growth Investment Ecosystem

While Oregon’s investment ecosystem pales in comparison to the funds available in California, there are a growing number of angel networks, which have arisen with the goal of keeping the most talented entrepreneurs and their companies in Oregon. These organizations invest early-stage seed and angel funding into promising startup companies. A complete list with more information on each organization is included in Appendix B, but we have included representative descriptions of several programs, along with information about the impact that they have had on Oregon’s entrepreneurial ecosystem.

Oregon Growth Board

The Oregon Growth Board was created in the 2012 Legislative Session to spur more economic growth in Oregon, with a focus on increasing the state's ability to grow companies from early stage to large, locally headquartered firms. An important focus is placed on leveraging state resources to improve the availability of capital for high-growth companies. Oregon Growth Board investments support entrepreneurial capital that is key to the state's innovation strategy.

32 states have attempted tax incentive programs for

high-risk investment.

Of the 29 still in operation: Entrepreneurial activity

increased in 75% of states within the first 2 years,

even though over half of the programs were

implemented during a recession.

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The Board is responsible to maintain, invest and reinvest monies in the Oregon Growth Fund and Oregon Growth Account. The Board’s objctives include encouraging investment and capital availability through all stages of business life cycle, particularly in the traded sector and rural Oregon.

Oregon Angel Fund

Oregon Angel Fund (OAF) was founded in 2007 to provide local angel investors with access to the most promising startups in Oregon and SW Washington. OAF is under professional management and has grown into one of the most active local organizations for funding startups in the region. With an annual investment fund of $8 million, provided by individual investors, institutional investors, the Oregon Community Foundation, and the Oregon Growth account, OAF has created a consistent pipeline of entrepreneurial talent. OAF has funded 36 companies in Oregon, with investments of more than $27 million. In turn, these companies have grown and currently provide over 1600 Oregon jobs, and have leveraged the early investment by OAF and other organizations into over $230,000,000 in additional funding from VC firms. We profile three of OAF’s earliest investments in the next section to offer a snapshot of where these companies are now and what they have achieved in the years since OAF gave them their start.

Portland Seed Fund

The Portland Seed Fund (PSF) is a professionally managed fund and non-resident accelerator focused on providing emerging companies the capital, mentoring, and connections to propel them to the next level. PSF accomplishes these objectives through a 90-day mentor-led program, in which selected companies participate. PSF also provides a small initial investment in each startup, but reserves 75% of its fund for follow-on investments in their top-performing companies. As of February 2015, Portland Seed Fund has invested $2.9 million in 53 Oregon-based companies. PSF portfolio companies have raised over $53,000,000 in additional funding, with more than 80% of this from top tier out-of-state funding sources, and currently employ over 280 Oregonians. 95 individual investors have invested in one of the PSF funds since 2011, providing more than 60% of investment capital.

Portland Incubator Experiment

Portland Incubator Experiment (PIE) offers a small investment and a large opportunity for startups that meet selection criteria. PIE is run by the Portland-based advertising agency Wieden+Kennedy, and offers select startups a $20,000 seed investment, and nine months of free rent, including a 3-month “class” in which entrepreneurs receive guidance and mentorship in the development of their business plans. PIE has invested approximately $425,000 in 25 Oregon-based companies since 2009. These companies have raised approximately $125,000,000 in additional funding, and provide jobs to over 275 Oregonians.

The Indus Entrepreneurs

Founded in 1992, The Indus Entrepreneurs (TiE) is a global network with over 13,000 members throughout 18 countries. TiE’s mission is to foster entrepreneurship through mentoring, networking, education, incubating, and funding. Oregon’s TiE chapter was launched in 2007, and the group TiE Angels Oregon was formed four years later, with a focus on providing a nurturing ecosystem in which young technology companies can thrive. As a group, TiE Angels Oregon have invested $3.8 million in 22 companies over the last four years. In turn, these companies have created over 300 jobs in Oregon and have raised an additional $36,000,000 in subsequent funding rounds.

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Willamette Angel Conference

The Eugene and Corvallis-based Willamette Angel Conference network is a group of current and former executives, entrepreneurs, and venture capitalists investing time and money into outstanding startup companies primarily in Oregon’s Willamette Valley and surrounding regions. The Willamette Angel Conference has invested $870,000 since 2012. These investments have provided companies with the capital required to maintain their growth trajectory, and one company in the portfolio has already exited for a 30% return on investment.

Roseburg Angel Investment Network - RAIN

Started in 2013, RAIN is a group of private investors gathering to invest in early stage companies, for the purpose of strengthening the entrepreneurial climate and larger economy of Douglas County. Total investment to date is $390,000 and seven jobs have been created. Concept stage competitors must be based in Douglas County and launch stage companies must be located in Oregon—or willing to relocate if selected.

Bend Venture Conference

Established in 2006, the Bend Venture Conference is divided into two categories that consist of five launch-stage and five concept stage companies vying for investment, cash prizes, and marketing service awards. The Economic Development for Central Oregon (EDCO) has managed the Bend Venture Conference for the last five years. Founded in 1981, EDCO is a non-profit corporation, supported by private and public members and stakeholders, whose mission is to create middle-class jobs in Central Oregon by recruiting new employers to move to the region, helping entrepreneurs start new, scalable businesses, and working with businesses that are already there to grow their operations. Since its inception, the Bend Venture Conference has invested $1.6 million in Oregon companies.

Oregon Entrepreneurs Network Angel Oregon

Since 2005, 551 companies have applied to compete at Oregon Entrepreneurs Network’s Angel Oregon competition, and 89 were selected to present. $3 million has been directly invested through OEN’s Angel Oregon LLC investment award, and there have been four favorable exits. Additional investment has been made outside of the LLCs and more than 740 jobs have been created. OEN launched the Spring Investment Program in 2005, which culminates in the annual Angel Oregon Showcase. During the Showcase, finalist companies present their pitches to a crowd of over 300 investors, business leaders, and entrepreneurs. One winner is awarded a check, historically ranging from $250,000-300,000. OEN’s Fall Program, launched in 2013, typically culminates in an investment award of $50,000-100,000. These are only nine examples of organizations that work to support Oregon entrepreneurs. Other sizeable groups include: Southern Oregon Angel Investment Network, Cascade Angels, and the Northwest Chapter of the Keiretsu Forum. A more complete list of organizations, with contact information, may be found in Appendix B.

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Table 1

Organization

# Investments

Total $ Amount

Add’l Out of State Funds

Jobs Created

Oregon Angel Fund

36 $27 million

$230 million

1600

Portland Seed Fund

53 $2.9 million

$53 million

280

Portland Incubator Experiment

25

$425,000

$125 million

275

The Indus Entrepreneurs

22 $3.8 million

$36 million

300

OEN Angel Oregon

18 $2.5 million

N/A 740

TOTAL 154 $36,625,000 $444,000,000 3,195

Discounted* TOTAL

93 $36,625,000 $266,400,000 1,917

*Because individual startups (particularly those which are more successful and would receive a greater share of follow-on funding) often receive investment from more than one local angel group, we have calculated an overlap of approximately 40%, and accordingly have discounted the number of companies receiving investment, the out of state funds, and jobs created by 40% to account for overlap in reporting by the funding organizations. Because each organization reported only its own investment, the total investment of $36,625,000 for these five groups is accurate.

Oregon Success Stories

As discussed in the previous section, angel investment in Oregon has produced notable results. Three specific examples of high tech startups have been included from the Oregon Angel Fund’s (OAF) first rounds of investment in 2007 and 2008:

Dr. Stephen Jaffe and Dr. Claudia Jaffe founded Lumencor, Inc., a life sciences biotechnology firm, in 2006. The company relocated from California to Portland, Oregon in 2007, and secured its first round of angel funding, including a $197,000 investment from Oregon Angel Fund. Following OAF’s investment, Lumencor was able to raise additional angel investment from sources throughout the Pacific Northwest, totaling $750,000. In 2008, Lumencor was awarded a Small Business Innovation Research Grant from the National Institutes of Health, and has managed to fund its own expansion.

In the past eight years, Lumencor has grown from a founding team with a prototype to a dominant presence in the bioanalysis market. The company manufactures and sells a line of high intensity, solid-

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state light engines to researchers, scientists, and clinicians all over the world, in fields including Microscopy, Digital Pathology, Immunochemistry, and DNA Sequencing. This global revenue pipeline has enabled the company to maintain steady growth, even during the recent recession and economic recovery. All Lumencor light engines are manufactured in Beaverton, Oregon, with the utmost attention paid to sustainable manufacturing practices, and high quality production capabilities. Because Lumencor’s light engines are a mercury-free alternative to other available lighting solutions, the company has been widely acclaimed as a leader in sustainable solutions for Microscopy.

Lumencor has grown steadily throughout the last eight years and currently provides dozens of jobs in Oregon, including skilled manufacturing positions.

Revelation was founded by Steve August, who moved to Portland in 2007 from San Francisco. The company created its revolutionary qualitative research software for web and mobile platforms, which allows researchers to capture users’ experiences as they unfold via mobile diaries, bulletin boards, and innovative exercises.

The software was an immediate success, generating $200,000 in revenue during the first year of operation. Revelation quickly formed a strong market presence in Portland, with a dedicated following of “Revers” evangelizing the company’s benefits over other qualitative research options on the market. The angel investment community in Portland took notice; Revelation won Angel Oregon’s Tech category in 2008, and was Oregon Angel Fund’s first investment in spring of 2008. In total, Revelation raised $1.5 million in early stage funding, and the company funded its own growth from there, employing 23 Oregonians before it was acquired in 2014 by FocusVision Worldwide. Eleven of Revelation’s employees have remained with the acquiring company, and the Revelation technology and brand have been integrated into FocusVision’s core product suite.

Sam Blackman and two other veterans from Pixelworks founded Elemental Technologies in 2006. Their vision evolved, as the founding team identified programmable graphics processing units as a platform on which to build software that could achieve the high speed video processing that would propel the company to its present day success. The company secured a portion of its initial $1.55 million seed and angel funding rounds from local sources, including OEN Angel Fund and Bend Venture Conference. It went on to leverage these investments, raising an additional $42,500,000 from investors located in other states, as well as investment groups based in Australia and the United Kingdom.

Today, Elemental claims some of the most recognizable media and entertainment brands in the world as loyal customers, including the BBC, Comcast, Ericsson, Foxtel, Google, Pac-12 Networks, HBO, Sky, Telefonica, Viacom and Warner Bros. Elemental also powers the video streaming behind some of the most popular applications available for web and mobile platforms, including the BBC iPlayer, HBO GO, Comcast Xfinity and CNNGo. Over the past 18 months, Elemental has established itself as a leader in

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the delivery of 4K video, which was demonstrated in partnership with multiple technology companies in 2014 and which received broad coverage in both industry trade publications as well as general media.

Elemental Technologies employs approximately 230 people, with 170 jobs located in its Portland, Oregon headquarters. The company is dedicated to clearly articulated core values, which include innovation, integrity, and customer-centrism. Company management prides itself in having established an excellent, supportive company culture that has placed the company on the rolls of Oregon Business Magazine’s “100 Best Companies to Work for in Oregon” each year for the last four years running. With philanthropy high on the founders’ list of priorities, the company has established several programs encouraging employees to volunteer and give back to the community.

Conclusion

The growth of support systems for startup companies demonstrates that entrepreneurism is thriving in Oregon, and the level of commitment to entrepreneurism on the part of investors in Oregon is significant. These organizations have laid the groundwork for a thriving entrepreneurial ecosystem, and industries including bioscience, software, food, wearable technology, and digital healthcare are seeing explosive growth. It is clear that the talent and mentorship networks are already in place to support early stage companies as they grow and thrive.

However, many promising technologies wither on the vine due to a shortage of angel funding. Other early stage companies leave the state in search of funding. Even with the success that Oregon companies have seen in the last two decades, the region still lags significantly behind other areas of the country in terms of actual dollars invested, as well as the number of high-risk investment deals that are made.

Under the assumption that Oregon’s results would be similar to the results seen in other states around the country, the start-up ecosystem in Oregon will be strengthened by the increase in high-risk investment that would likely follow enactment of a tax incentive program.

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Sponsors

Portland Seed Fund 503.419.3007 805 SW Broadway Suite 2440 info@portlandseedfund.com Portland, OR 97205 www.portlandseedfund.com

The Portland Seed Fund is a privately managed fund and non-resident accelerator focused on providing emerging companies the capital, mentoring, and connections to propel them to the next level. The proven 90-day mentor-led program has provided 53 early-stage companies in Oregon and Washington with resources, knowledge, and in some cases follow-on funding. Portland Seed Fund has invested $2.9 million since 2011 via convertible notes, allowing founders flexibility in the way they distribute equity. For their top-performing companies (approximately 1/3), Portland Seed Fund is able to provide follow-on funding when appropriate, ensuring that its most successful portfolio companies have the opportunity to spend their time growing the business, rather than searching for funding.

The Indus Entrepreneurs, Oregon P.O. Box 91042 Portland, OR 97291 971.303.9063 http://oregon.tie.org

TiE is a non-profit, global community welcoming entrepreneurs from all over the world. They believe in the power of ideas to change the face of entrepreneurship and growing business through the five pillars of their global mission: mentoring, networking, education, incubating, and funding. TiE was founded in 1992 by a group of successful entrepreneurs and is currently the world’s largest entrepreneurial organization. The Oregon chapter was launched in 2007, and the group TiE Angels Oregon was formed four years later, with a focus on providing a nurturing ecosystem in which young technology companies can thrive. As a group, TiE Angels Oregon have invested $3.8 million in 22 companies over the last four years. In turn, these companies have created over 300 jobs in Oregon and have raised an additional $36,000,000 in subsequent funding rounds.

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Authors

Amy Bloom

Amy is an experienced business consultant with a passion for high tech entrepreneurial enterprises. She began her career fifteen years ago in small software startups in the electronic design automation industry. After the second startup was acquired, she returned to school to pursue a graduate degree, and then launched her own consulting practice.

For the past eight years, she has been working as an Independent Business Consultant, bringing her creative problem solving skills, business instinct, and

analytical acumen to startups in the Portland area. Her areas of expertise include early-stage business planning, market research and strategy development, and helping management teams prepare pitches, slide decks, and other presentation materials for meetings with potential investors. Her clients have included software firms, bioscience and biotech companies, service providers, and mobile application developers. As a veteran of the Portland startup ecosystem, she is able to facilitate introductions for her clients with other entrepreneurs and advisors, and connect them with the financial resources and educational opportunities that they need to launch and grow their businesses.

Amy holds a Bachelor’s of Science degree in Administration of Justice, and an MBA with a specialization in Technology, Entrepreneurship, and Law from Portland State University.

Marie Tyvoll

Marie is a business development and marketing professional who brings more than 25 years of experience in technology, biotech and economic development industries to her work with early-stage companies. Her expertise includes proactively creating strategic alliances, launching high profile initiatives and mobilizing people resources to achieve desired outcomes in highly entrepreneurial settings. She is currently working in Portland with multiple technology startups to help co-founders navigate the critical transition from product prototype to proof of concept.

Previously, she spent six years with Accenture’s worldwide ecommerce training program where she developed B2B and B2C curricula for Accenture partners designed to increase sales. Prior to Accenture, she provided strategic marketing guidance for several client engagements including the launch of Mobil Oil’s first Selling & Sharing Services group and PTT Telecom Netherlands first U.S. business unit. Marketing programs created for these and other clients included the development of brand and positioning strategy, direct mail and marketing collateral, trade show participation and media launch.

She holds a bachelor’s degree from University of Oregon and a Masters in Business Administration from Columbia University. She is an active community volunteer with the Digital Health Community Steering Committee for the Technology Association of Oregon. In her free time she drives her son to year-round soccer practice.

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Technology Association of Oregon

TAO’s vision is to create a world-class and inclusive innovation economy in Oregon and SW Washington. They do this by helping the region’s technology and tech-enabled industries to grow through programs and initiatives that focus on industry promotion, advocacy, professional networks, and talent development.

TAO is a leader in the technology industry and broader business community. With an expanding network that extends beyond Oregon, TAO connects its members to thought leaders, executives, public officials, entrepreneurs, service providers and investors in the Pacific Northwest and beyond. TAO supports economic development programs, accelerating business growth and advocacy efforts that seek to improve the region’s competitiveness in STEM education and the investment environment.

TAO organizes over 90 events per year, including Leadership Exchanges, Forums, Signature Events, and Partner Events. With exclusive, “closed door” events for executives and a growing number of Forums on Software Development, Quality Assurance, IT Leadership, Enterprise Architecture, Services, Marketing, Finance, HR, Legal & IP, and Digital Health, TAO offers opportunities for professional and business development for employees throughout its member organizations.

Contributors

Steve August, Founder, Revelation Global, Chief Innovation Officer, FocusVision, Inc.

Sam Blackman, CEO and Co-Founder, Elemental Technologies, Inc.

Beth Cooke, Executive Director, Oregon Growth Board

John Hull, Executive Director, Business Innovation Institute, Asst. Dean at Lundquist of Business, University of Oregon

Jim Huston, Managing Director, Portland Seed Fund

Dr. Claudia Jaffe, Vice President, Business Development, Lumencor

Dennis McNannay, Executive Director, Oregon Bioscience Association

Scott Sandler, Fund Manager, Oregon Angel Fund

Vera Sell, Program Manager, TiE Angels

Kerala Taylor, Director of Marketing & Communications, Oregon Entrepreneurs Network

Rick Turoczy, General Manager, PIE

Linda Weston, President & Executive Director, Oregon Entrepreneurs Network

Robert Wiltbank, CEO, Galois, Inc

Special thanks: Chris Tobias, Lead Services Integrator, GE Healthcare and Chair, TAO Digital Health Community

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Appendix A: State Tax Incentive Programs

State Status Maximum Credit (%) Alabama Proposed for 2015 Session 30% Alaska No program n/a Arizona Established June 2006 35% Arkansas Established 2007 33.3% California No program n/a Colorado 2010 pilot program 15% Connecticut Established 2010 25% Delaware No program n/a Florida No program n/a Georgia Established 2011 n/a Hawaii Established 19999 100% Idaho No program n/a Illinois Established 2010 25% Indiana Established 2003 20% Iowa Established 2002 20% Kansas Established 2005 50% Kentucky Established 1998 40% Louisiana Established 2005 35% Maine Established 1988 60% Maryland Established 2005 50% Massachusetts No program n/a Michigan Established 2011 25% Minnesota Established 2008 45%/25% Mississippi No program n/a Missouri Voted down in 2009 n/a Montana No program n/a Nebraska No program n/a Nevada No program n/a New Hampshire No program n/a New Jersey Established 2009 10% New Mexico Established 2007 25% New York Established 1999 20% North Carolina Established 1999 25% North Dakota Established 1989 45% Ohio Established 1996 30% Oklahoma Established 2001 30% Oregon Proposed for 2015 Session n/a Pennsylvania No program n/a Rhode Island Established 2006 50% South Carolina No program n/a South Dakota No program n/a Tennessee No program n/a Texas No program n/a Utah No program n/a Vermont 2006-2008 n/a Virginia Established 1999 50% Washington No program n/a West Virginia No program n/a Wisconsin Established 2005 25% Wyoming No program n/a Source: John R. Hendon, Joseph R. Bell, Brittany Blair, Don K. Martin, (2012), “State-funded angel investor tax credits: Implementation and perceived effectiveness in a sample of states within the United States”, Journal of Entrepreneurship and Public Policy, Vol. 1 Iss: 1 pp.50-62 http://dx.doi.org/10.1108/20452101211208353

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Appendix B: Oregon Accelerators, Incubators, & Angel Groups

Organization Description Location

Amplify United

http://amplifyunited.com

Amplify United works with technology startups and inventors to bring emerging technologies to market. We provide the startup team needed to kick start a new company via funding and services, in exchange for equity, service fees, or a combination of both.

Portland

Bend Venture Conference http://www.bendvc.com

For over a decade, Bend Venture Conference has been a dominant presence in Oregon. Entrepreneurs have an opportunity once per year to compete for investment, against other startups of the same stage, and connect with over 400 of the Pacific NW’s top entrepreneurs, investors, and business leaders.

Bend

BESThq

http://besthq.net/#&panel1-3

BESThq works to sustainably grow small businesses through strategic planning, risk management, and profitability while being recognized as a model for Oregon Benefit Companies.

Beaverton

Cambia Health Solutions www.cambiahealth.com

Cambia's portfolio of companies spans health care information technology and software development; retail health care; health insurance plans that carry the Blue Cross and Blue Shield brands; pharmacy benefit management; life, disability, dental, vision and other lines of protection; alternative solutions to health care access; and free-standing health and wellness solutions

Portland

Center of Excellence www.coeglobal.com

The COE's full suite of services address every aspect of the product engine development process, from concept design to development engineering and productions. The material toolkit provides resource access to facilitate commercialization, and is complemented by extensive business network services.

Portland

Eugene Mindworks www.eugenemindworks.com

Eugene Mindworks Coworking and Business Incubator is an opportunity, a place for entrepreneurs, startups and the self-employed to collaborate, innovate, and grow.

Eugene

FertiLab www.fertilabthinkubator.com

FertiLab offers the greater Eugene/Springfield community a welcoming hub for business startup incubation by connecting entrepreneurs with vital resources, including mentors, educational classes, and co-working biotech research labs and prototyping shop space.

Eugene

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Organization Description Location

Forge

http://www.forgeportland.org/forge/index.php

Forge Portland is a community-based accelerator and co-working space for social enterprises and freelancers trying to do good in the world. Forge members have access to a suite of free services designed to help them run more efficiently, including free accounting template, legal referral, business development, mentorship, and intern placement.

Portland

FoundersPad www.founderspad.com

FoundersPad's Technology Accelerator Program supports entrepreneurs with top-quality programs based on evidence-based entrepreneurship and Lean Startup principles. Their programs are designed to help entrepreneurs understand and engage with their customers, adapt and learn how to develop a scalable business model, and accelerate growth in the marketplace.

Bend

Gorge Innoventure www.gorgeinnoventure.com

Gorge Innoventure helps grow businesses by providing collaboration and meeting space, education, and networking activities, and access to expertise and capital.

Hood River

Mercy Corps Northwest www.mercycorps.org

Mercy Corps Northwest works to assist low-income and beginning entrepreneurs to start or grow their small business. Based in Portland, their services include loans, grants to purchase business assets, a business planning 101 course and weekly seminars on a range of topics.

Portland

Microenterprise Inventors Program of Oregon (MIPO)

www.mipooregon.org

MIPO is a program created through East County One-stop of Portland, Oregon. MIPO's mission is to provide business services and resources for the micro-enterprise independent inventors. MIPO provides business consultant for inventors, classes with expert instructors, webinars through partner programs, computer lab access, Oregon's Inventors Web site, quarterly e-newsletters, networking events, and the Inventor's Trade Show.

Portland

Oregon Angel Fund

www.oregonangelfund.com

OAF is a community supported, professionally managed, investor driven angel fund. OAF launches a new $8 million fund each calendar year. Employing a rigorous and disciplined due diligence process, each annual fund aims to make 5-7 investments over a 12-month period, followed by another 9 years of fund life to grow and exit each portfolio.

Portland

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Organization Description Location

Oregon Entrepreneur’s Network http://www.oen.org

OEN launched Angel Oregon in the late ’90s and the Spring Investment Program in 2005, which culminates in the annual Angel Oregon Showcase. During the Showcase, finalist companies present their pitches to a crowd of over 300 investors, business leaders, and entrepreneurs. One winner is awarded a check, historically ranging from $250,000-300,000.

Portland

Oregon Technology Business Center (OTBC) www.otbc.org

OTBC is a tech startup incubator that provides coaching, networking events, entrepreneurship programs and shared office space to help tech, biotech, cleantech, and opentech start-up ventures succeed.

Beaverton

OTRADI Bioscience Incubator (OBI)

www.otradi.org/incubator/

The OBI provides scientists and young companies with the resources and expertise needed to take their research from the lab to the market. OBI is outfitted with lab and office space & advanced scientific equipment, allowing companies to focus on commercializing their research and growing their business rather than investing in build-out and technology.

Portland

Portland Incubator Experiment (PIE) www.piepdx.com

PIE provides $20,000 and office space to spend up to nine months (3 months of the program plus a potential 6 more months rent-free). Companies learn from startups-in-residence, successful alumni, and Wieden+Kenedy and its network.

Portland

Portland Seed Fund

www.portlandseedfund.com

The Portland Seed Fund is a privately managed fund and non-resident accelerator focused on providing emerging companies the capital, mentoring and connections to help them grow. Financing is provided via convertible notes and allows follow-on financing. The flexible, 90-day curriculum includes deliverables, training sessions and mentor guidance.

Portland

Portland State Business Accelerator

http://www.pdx.edu/accelerator/

The Portland State Business Accelerator speeds the success of these high-growth companies by providing resources, connections, expertise, University support, and control of high-impact costs, all within a growth-focused entrepreneurial community.

Portland

Portland State Social Innovation Incubator

http://www.pdx.edu/impactentrepreneurs/incubator

The Portland State Social Innovation Incubator provides social venture startups with the "4Cs" - Capacity gained through training in business best practices; Community of peers; Connections to advisors, funders, volunteers and customers; and credibility from participation and exposure.

Portland

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Organization Description Location

Regional Accelerator & Innovation Network (RAIN)

www.oregonrain.org

Oregon RAIN serves entrepreneurs in Oregon's South Willamette Valley by connecting them to resources and partners that can help them turn ideas into thriving, local traded-sector companies. RAIN has a presence in Corvallis (OSU Advantage Accelerator) and Eugene (RAIN Eugene).

Eugene

Roseburg Angel Investor Network

http://rainangel.org

Started in 2013, Roseburg Area Angel Investor Network (RAIN), is a group of private investors gathering to invest in early stage companies, for the purpose of strengthening the entrepreneurial climate and larger economy of Douglas County.

Roseburg

SCORE www.score.org

SCORE is a resource partner with the U.S. Small Business Administration (SBA) and provides support to business owners by offering 24/7 online mentoring advice, in-person meetings, low-cost workshops, "how to" articles, business templates, online workshops, and online training.

Portland, Salem, Central Oregon

Southern Oregon Angel Investment Network

http://www.southernoregonangelinvestors.com

SOAIN focuses on investments between $50K - $300K for companies in between seed and VC stage. Investors look for companies poised for scalable growth, and provide funding opportunities for companies located in Southern Oregon.

Southern Oregon

Starve Ups www.starveups.com

Starve Ups' mission is to share insights, resources and networks amongst membership companies to support and sustain successful businesses. Starve Ups membership companies treat one another's business as their own and move forward with the success of the whole as the goal.

Portland

Sustainable Valley Technology Group

http://sustainablevalley.technology

The mission of Sustainable Valley Technology Group (SVTG) is to inspire, attract and mentor innovative companies toward successful entrepreneurship of sustainable technologies. SVTG can connect young companies with investors, facilities and mentors.

Medford

TenX www.tenx.org

TenX.org is an open source-style accelerator, that provides content, events, conferences & learning programs to generate growth for high potential organizations & individuals. TenX's Sprint and Marathon programs support founders and leaders in tackling developmental milestones starting from $0-$100K, and accelerating to $100K-$1MM+

Portland

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Organization Description Location

TiE Pearl www.tiepearl.com

TiE Pearl is an incubator at ISITE and is a space for digital startups to connect, collaborate, and create. There are shared space, dedicated internet access and two conference rooms, access to mentors including leading local entrepreneurs, investors and ISITE that can help with design and developmental elements.

Portland

Umpqua Business Center

www.umpquabusiness.com

Umpqua Business Center's mission is to nurture aspiring entrepreneurs and start-up businesses by providing collaborative advisory, mentoring, and technical assistance in a professional environment fostering economic vitality through job creation.

Roseburg

Willamette Angel Conference http://www.willametteconference.c

om

The Willamette Angel Conference is a structured, investor-driven angel fund comprised of accredited investors. Conference leadership encourages veteran and new angel investors to learn by doing, therefore increasing the number of active local angel investors and funded Oregon startup companies for a strong regional economy

Corvallis

Information included in this table was collected from several websites and online publications including: Each specific organization’s website

Business Oregon: Incubators & Accelerators: http://www.oregon4biz.com/Innovate-&-Create/R&D-Business/Incubators/

Oregon Capital Scan: A Line is Drawn: http://www.oregoncf.org/Templates/media/files/jobs_and_economy/or-capital-scan-2014.pdf

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Works Cited

Bell, Wilbanks and Hendon. “Examining the Effectiveness of State Funded Angel Investor Tax Credits: Initial Empirical Analysis”. Small Business Institute Journal. 2013. Vol. 9, No. 2, 23-28. http://www.sbij.ecu.edu/index.php/SBIJ/article/viewFile/178/125 "Driving Investment to High-Growth Businesses in Wisconsin". InWisconsin. Wisconsin Economic Development Corporation, 30 July 2013. Web. 28 Feb. 2015. http://www.inwisconsin.com/2012qnbv.

“Evaluation of the Minnesota Angel Tax Credit Program: 2010-2012”. Minnesota Department of Revenue. Economic Development Research Group, Inc., 31 January 2013. Web. 9 Mar. 2015. http://www.revenue.state.mn.us/research_stats/research_reports/2014/evaluation_of_the_mn_angel_tax_credit_program.pdf. “Halo Report”. Angel Resource Institute. Q2 2014: 14. Web. 16 Mar. 2015. http://www.angelresourceinstitute.org/en/Research/Halo-Report/Halo-Report.aspx. Hendon, Bell, Blair, and Martin. “State-funded angel investor tax credits: Implementation and perceived effectiveness in a sample of states within the United States”. 2012. Journal of Entrepreneurship and Public Policy, Vol. 1 Iss: 1. 50-62. http://dx.doi.org/10.1108/20452101211208353 Hull, John, et al. “Oregon Capital Scan: A Line is Drawn” Oregon Community Foundation. June 2014. Web. 9 Mar. 2015. http://www.oregoncf.org/Templates/media/files/jobs_and_economy/or-capital-scan-2014.pdf. National Venture Capital Association and IHS Global. “Venture Impact: The Economic Importance of Venture Capital-Backed Companies to the U.S. Economy”. 2011. 2-12. http://www.jumpstartinc.org/companies/dl/~/media/JumpStartInc/Images/Results-Page/2011-NVCA-VentureImpactReport.ashx. Starve Ups. Web. 27 Feb. 2015. http://www.starveups.com/about/.

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Resources

Angel Capital Association. Web. 4 Mar. 2015. http://www.angelcapitalassociation.org.

Angel Resource Institute. Web. 21 Feb. 2015 http://www.angelresourceinstitute.org.

Business Oregon: Innovate & Create. Web. 22 Mar. 2015. http://www.oregon4biz.com/Innovate-&-Create/.

Chau, Lisa. “A Startup Powerhouse: Portland has made a strong comeback in entrepreneurship since the recession”. 23 Dec. 2014. U.S. News & World Report: Economic Intelligence. Web. 24 Mar. 2015. http://www.usnews.com/opinion/economic-intelligence/2014/12/23/portland-oregon-is-a-hub-for-entrepreneurship-and-startups.

Ewing Marion Kauffman Foundation: Entrepreneurial Finance. Web. 18 Mar. 2015. http://www.kauffman.org/key-issues/entrepreneurial-finance.

Gage, Deborah. “The Venture Capital Secret: 3 Out of 4 Startups Fail.” Wall Street Journal 12 Sept. 2012. Web. 3 Mar. 2015 http://www.wsj.com/articles/SB10000872396390443720204578004980476429190.

Hudson, Marianne. “2015: The Year For Angel Innovation, Growth And Returns?”. 8 Jan. 2015. Forbes. Web. 24 Feb. 2015. http://www.forbes.com/sites/mariannehudson/2015/01/08/2015-the-year-for-angel-innovation-growth-and-returns/.

National Venture Capital Association. Web. 27 Mar. 2015. http://nvca.org.

Williams, Jeffrey. “Tax Credits and Government Incentives for Angel Investing in Various States”. Angel Capital Education Foundation. July 2008. Web. 2 Mar. 2015. http://www.angelcapitalassociation.org/data/Documents/Public%20Policy/State/Tax%20Credits%20-%20Jeffrey%20Williams.pdf.