Bond, Schoeneck

1Bond, Schoeneck & King, PLLC

Bill Greener

Patent Attorney—Bond, Schoeneck & King, PLLC

Member—Seed Capital Fund of Central New York

I. Tech-Transfer Challenges and Opportunities

II. Current state of Funding in New York

III. Snapshot of the Univ. of Utah Model


Bridging the Technology Commercialization Gap

R&D Institutions Mission Commercial Sector

Basic Research Applied R&D BusinessDevelopment

Full-ScaleCommercialization

• Early-Stage Capital• Market Insight• Human Capital


Opportunity & Challenge• US research Universities are an economic engine

• conduct >2/3 of all basic research• are primary source of technology• produce >400 start-ups per yr

• Universities vary dramatically in their ability to convert research into results.

• Majority of Tech Offices can’t hit break even

• Pressure to produce results linked to Federal and State sponsored economic development

• Companies and VC’s still find it difficult to engage Universities in innovation development


WHAT’S REALLY HAPPENING?

• 2006--$32.5B in State Funds spent on building technology ecosystems from US Universities with broken infrastructure

• $116 million in annual patent costs

• 70% of patents will go unlicensed

• 60% of TTO’s aren’t even at breakeven

• Avg revenue of ~$460,000 per office

• Avg of 2.8 start-ups per year

• 80% of venture funding targeted to 12 metro areas

Source: University Inc. 2006


The Case for University Spin-Outs

1. More likely to have large outcomes• Go public at 114x the rate of other startups

2. Less likely to fail

Rate of Going Public Failure Rate

Source: National Council Of Entrepreneurial Tech Transfer

.07%


Start-up Activity

0

5

10

15

20

25

Num

ber

04 05 06 07 08 09

Year


Number Start-ups: US Universities - 2007

Source: AUTM 2007


Start-up Activity (by industry sector)


CRITICAL QUESTIONS

• Can Universities drive economic development?

• Can they effectively serve their communities?

• Can you build a model that can be replicated?

• Can you stimulate continued innovation?

• Can you build business in the confines of a non-profit?

• Can you generate a long term equity structure?


• Access to CEOs/executive management talent

• Access to seed or venture funding

• Access to entrepreneurs.

• Access to start-up resources

• Ability to create university start-ups – in their environment

Most Challenging aspects for TCO’s


Seed Capital hasn’t recovered


Traditional Funding Continuum

SEED/START-UPFUNDING

DEVELOPMENTFUNDING

EXPANSIONFUNDING

OPPORTUNITYDEVELOPMENT

CONTINUEDGROWTH

ANGELS, FOUNDERS & SEED FUNDS

VENTURE CAPITAL – GROWTH EQUITY

PE - PUBLIC MARKETS

VALUATIONS INCREASE

BUSINESS RISKS DECREASE

MENTORING NEEDS DECREASE

$5M-20M$500K-5M$50K-500K >$20MSweat


Strong need for a new model

Stage Pre-Seed Seed/Start-Up

Funding Gap between $100,000 and

$2,000,000

Early Later

Source Founders, Friends

and Family

Individual

Angels

Venture Funds

Investment

$25,000 to $100,000

$50,000 to $150,000

$2,000,000/$5,000,000 and up

OpportunityFor

Alignment









50/50




TAKE HOME POINTS

• NYS is not the “hub” of venture activity that some might think

• NY City VCs have not invested ‘much’ in their own state

• The ‘problem’ for seed-stage start-ups is growing

Questions for thought:

*Are the companies in NYS not worth investing in?

*Are seed stage investments in NYS so low that we cannot feed the pipeline for later stage investments?

*Do we have a ‘brain-drain’ problem?


Where do Tech Transfer Offices Start?

• Know what you do best-do “IT”

• Involve Everyone

• Restructure Organization

• Add Value in Every Transaction

• Support all Phases of Start-Up Development

• Streamline Processes

• Identify High Value Collaborative Research


The Initial Want List

• Build a community based fund• Engage the local VC’s• Venture vs Angel• Have the follow-in funders at the table• Clog the pipeline• Closed vs Open•


University Alignment


New Company Formation

Source of Equity Funds – Typical Year

0 100,000 200,000 300,000 400,000 500,000

500 Classic VCs

1000-2000 Seed Funds

>50,000 Angels

>200,000 Friends & Family

500,000 Startup Companies


Angel Organizations:

Investment Statistics: 70% of angel groups leave investment decisions up to the

individual members 23% of the angel groups invest by majority group decision

Of those that invest by majority decision, 90% are structured as LLCs, supporting previous discussions that the LLC legal structure appears to be the preferred group investment vehicle

7% of angel groups invest through investment committee decision No responding angel group required unanimous decision for

investment

Source: Center for Venture Research, University of New Hampshire 2005 Angel Organization Survey


Reasons For An Angel Organization

• Quality deal flow• Greater investment clout from combined

dollars• Collective due diligence• Education: formal and informal• Group social benefits


Strategic Choices• Due diligence: venture capital-

style due diligence pays off

• Experience: engaging individual with direct industry experience

• Participation: High participation is interacting with the company 1 or 2 times per month, Low is 1-2 times per year

1HIgh due diligence was defined as > 20 hours spent

Source: Kauffman Study: Returns to Angel Investors in Groups, 2007

Average Return Impact

High1 due diligence: 5.9X

Low due diligence: 1.1X

High experience vs. low experience nearly 2X

improvement:

High participation: 3.7X

Low participation: 1.3X


Strategies for secondary cities:

• Strengthen Clusters and Networks – Use local groups and virtual organizations to bring together investors, entrepreneurs, researchers and other parties to establish formal and informal relationships.

• Encourage a Continuum of Capital – Support local angel capital investors who can nurture early-stage companies

• Investment Creativity – Seek out alternative models of investment

• Enhance Accessibility – Create policies and programs to support entrepreneurship

Source: www.icic.org - 2007Source: www.icic.org - 2007

The 10 highest-performing secondary cities in the U.S. (ranked by number of private The 10 highest-performing secondary cities in the U.S. (ranked by number of private equity deals per city) are (1) Boulder, Colo., (2) Salt Lake City, (3) Westborough, Mass., equity deals per city) are (1) Boulder, Colo., (2) Salt Lake City, (3) Westborough, Mass., (4) Ann Arbor, Mich., (5) Norwalk, Conn., (6) Providence, R.I., (7) Southborough, Mass., (8) (4) Ann Arbor, Mich., (5) Norwalk, Conn., (6) Providence, R.I., (7) Southborough, Mass., (8) Stamford, Conn., (9) Melbourne, Fla., and (10) New Haven, Conn.Stamford, Conn., (9) Melbourne, Fla., and (10) New Haven, Conn.


Post- Bubble Seed Capital

Source: Venture Source, NASVF


Why a Venture - Seed model is criticalA great investment committee can:

1. See around the corner

2. Has the follow-on funding available

3. Works full time – fund manager

4. Help sober up an entrepreneur – art to saying “no”

5. Provide necessary Board and mentor roles

6. Provide some unrestricted capital

7. Encourage entrepreneurship


Lessons Learned

• Can’t please everyone • No good deed goes left unpunished

• Pick a lead• Business diversity – the market knows• Don’t focus on the Univ. needs-community

needs also important• Full time commitment• Consider the economics—it must work!


SCF/CNY invests in and helps guide early stage companies in Upstate New

York. Our goal is to create wealth for investors and assist with the region’s

transition to a successful, high-tech, high-growth economy.

www.scfcny.com

EXCELL PARTNERS RAN UVANY BFLO ANGELS CVF BINGHAMTON

OTT KAUFMANN FOUNDATION SIMON SCHOOL …..

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