bond, schoeneck
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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
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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
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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
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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
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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%
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Start-up Activity
0
5
10
15
20
25
Num
ber
04 05 06 07 08 09
Year
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Number Start-ups: US Universities - 2007
Source: AUTM 2007
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Start-up Activity (by industry sector)
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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?
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• 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
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Seed Capital hasn’t recovered
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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
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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
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50/50
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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?
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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
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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•
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University Alignment
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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
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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
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Reasons For An Angel Organization
• Quality deal flow• Greater investment clout from combined
dollars• Collective due diligence• Education: formal and informal• Group social benefits
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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
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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.
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Post- Bubble Seed Capital
Source: Venture Source, NASVF
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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
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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!
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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 …..