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austin technology incubator
Discussion with UTEN
March 2011
Financial Sustainability of Incubatorsy
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Incubator Financial Sustainabilityy
Financial models:Financial models:1. Subsidized by government, public entities2. Funded by clients3 F fit d l3. For profit models4. Other?
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Incubator Financial Sustainability – ATI’s $2M t b i$2M cost basis
City of Austin $200k – $125k – Biosciences Wireless Incubator Incubator
Austin Energy $190k – Clean Energy Incubator
~$100k – Clean Energy Venture Summit
Texas State Energy Conservation Office
$100k – Clean Energy Incubator
$100k net – Clean Energy Incubator (syndication project)
U i it f T t $500k R t f i $100k (?) HR tiUniversity of Texas at Austin
~$500k – Rent forgiveness $100k (?) - HR, accounting back office overhead not charged
Members ~$400k Rent ~$100k Membership feesMembers ~$400k - Rent ~$100k – Membership fees
Other ~$100k Event sponsorships $25k - $50k gifts
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Incubator Financial Sustainability -S b idi dSubsidized
• ATI’s approach – approximately 65%+ of financial supportATI s approach approximately 65%+ of financial support is from City of Austin, Austin Energy, University of Texas, State Energy Conservation Office St lt h d d f di i k• Strong results have reduced funding risk• Non-profit status or government affiliation impedes
ability to take equity – either through investment or grants
• Early stage companies cannot pay enough cash to cover expensescover expenses
• Covers delayed returns from equity positions
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Incubator Financial Sustainability –Cli t’ PClient’s Pay
• Cash for rent direct services membership feesCash for rent, direct services, membership fees• Cash as “commission” for fund raising success (potential
legal issues)E it b d t th h it h• Equity-based returns through exits, however:• 5+ year delay• Low success rate• Unclear ability to take enough equity to matter• Risk is increased by investor funding
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Incubator Financial Sustainability – For P fit M d lProfit Models
• Y-Combinator TechStars etcY Combinator, TechStars, etc.• Take 5% - 20% of common equity• Provide small investment $10k - $25k
A f f i f “ f d i d ”• Arrange for free services from “preferred service vendors”• Direct link with venture capitalists for Series A funding• Ability to make follow on payments (this is key)• Near term cash covered by founders, partner investment
firms, service providers, corporate sponsors, etc.• Sustainability based on exits with ability to “protect” equitySustainability based on exits with ability to protect equity
stake
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Incubator Financial Sustainability –B i tBrainstorm
• “Side-car fund” with incubator as LP and/or GPSide car fund with incubator as LP and/or GP• Locally sourced funds or via partnership with existing
major investment firmDi id d it iti t t h til it• Dividends on equity position to generate cash until exit event (basically a transfer of cash from investors to incubator)
• Partnerships with global, top tier companies (incubator as outsourced R&D)
• ????????
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TTOs & Incubators
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UTA Organization Structureg
R h
UT - Austin
A d iResearch
IC2 Institute OTC
Academic
IC Institute OTC
ATI
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Interaction of UTA’s TTO and ATI – Case St d 1 A t C llStudy 1, ActaCell
• ActaCellActaCell• ATI met with faculty researcher, identified initial
commercial opportunity with facultyATI it d f di CEO• ATI recruited founding CEO
• ATI connected faculty and CEO with lead VC investors• ATI, ActaCell and investors jointly approached TTO
with well articulated technology, business plan, and existing startup requesting to license the technology
• ATI assisted in receiving State fundingATI assisted in receiving State funding
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Interaction of UTA’s TTO and ATI – Case St d 2 Wib lStudy 2, Wibole
• ATI and TTO met student founder via the “hatcheryATI and TTO met student founder via the hatchery class” – resulted in IP disclosure, prototype patent, first pass at commercialization planWib l ti i t d i ATI’ SEAL• Wibole participated in ATI’s summer SEAL program
• Wibole presented commercialization plan with initial market validation to TTO
• TTO agreed to pay for patents and license technology to Wibole (founded by student, co-founder was an ATI intern)intern)
• TTO and ATI making investor introductions• ATI assisting in developing investor, technology and
channel partner pitch
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channel partner pitch
Interaction of UTA’s TTO and ATI –P ti I t tiProgramatic Interaction
• WNCG hatchery classWNCG hatchery class• On campus wet lab• Idea to Product competition
3 D St t (i )• 3 Day Startup (in progress)• Entrepreneurship events (CEVS, TWS, WSSF,
Entrepreneur Lounge, Ready to Commercialize)
Most interaction is case driven and person-to-person
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ATI Selection Process
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Identifying Potential ATI Candidates
ATI engages with potential candidate companies through several channels:several channels:• Part of a prior ATI company (sometimes as CEO)• Referred by member of prior ATI company• Referred by local investor advisor or other• Referred by local investor, advisor, or other
entrepreneurial institution• Initial meeting via ATI hosted event• Cold call, email or application via website• UT via supported classes, entrepreneurial competitions, 3
Day Startup, referred by interns, referred by facultyDay Startup, referred by interns, referred by faculty
High Level Admission CriteriaThe due diligence efforts increase ATI’s effectiveness in serving the needs of the companies that can most benefit from our capabilities and our efficiency in managing resources. The ATI admission’s process has 2 primary tests:
Venture risk:
Do we think this ATI impact:
Can ATI addcompany has a good chance to succeed? (Team, technology
Can ATI add distinctive value to this company? (ATI capabilities,
t fit
ATI Admissions
technology, market evaluation)
management fit, equity price test)
The due diligence efforts highlight companies thatHave strong potential to generate new jobs and create wealth for Central TexasDirectly leverage ATI’s capabilities and knowledgeProvide educational opportunities for University faculty and students
ATI’s sweet spotATI s sweet spot
Cash flow
~75% success rate in getting ATI companies
f d d
Our key value add – a we surround
funded
Time“A” round funding and/or
a we surround these companies with talent that they otherwise could not
Seed funding
funding and/or market traction
afford to access
Due Diligence ProcessThe due diligence process consists of 4 decision gates and 3 research stages
Admission
Initial Internal Rec to SuccessDeep Dive Prepare for
2 weeks 4 weeks 4 weeksAdmission
PitchLead
Initial Screen
Internal Review
Rec to SC?
Success Committee
Basic Due Diligence
Due Diligence
Prepare for SC
DeclineDecline Decline Decline
No thank you note and
No thank you note and
Basic Due Diligence
Deep Dive Due Diligence
Director call and
Meeting with Director and selectfeedbackfeedback Results
Diligence Results
Pass Rate 50% 50% 40% 75%
Cumulative
discussion select Advisors
Cumulative 50% 25% 10% 7.5%
Time Req 20 hrs 15-30+ hrs 10-15 hrs
Growing the Austin Technology Incubatorg gy
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Requirements of Success of International St t i th USStart ups in the US
It can be extremely challenging for foreign startups to enterIt can be extremely challenging for foreign startups to enter the US market• Setting up a bank account with new legal entity• Hiring local talent, mixing with original team• Reference-able customers• IP ownership for public fundingp p g• Immigration & work visas
MUST have US presence to pursue US market and talent-base and perhaps for fund raising
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base, and perhaps for fund raising
Keeping ATI Relevant to Austinp g
“Market Making”
Sector-Specific Acceleration
Startup SupportSupport
1989 2001+ 2007+
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Keeping ATI Relevant to Austinp g
• “Board role”“Market Making”• Industry advisors
• Industry events • Investor events
Sector-Specific Acceleration
• Facilities• Advisor• Entr events
• Customer / partner network
• Deep dives
Startup Support
p
Support
1989 2001+ 2007+
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Keeping ATI Relevant to Austinp g
$2M“Market Making”
$450k $1.2M
Sector-Specific Acceleration~$200k
Startup Support
$
Support
1989 2001+ 2007+
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Keeping ATI Relevant to Austinp g
Startup Support
Sector-Specific Acceleration
“Market Making”Support Acceleration
•Wholesale
•Pecan Street Project•CEVS, TWS, WSSFS ti W b A ti•Wholesale
entrepreneurship trainingN t ki
•Semantic Web Austin•MobileMonday•symBIOsis
•Networking •CleanTX Foundation•Austin wet lab•UT web lab
1989 2001+ 2007+
UT web lab
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ATI 2.0 Full Stride
FY2008 FY2009 FY2010 TotalFY2008 FY2009 FY2010 Total# of Companies 24 29 32 48Jobs Created 152 110 50 312Funds Raised $28M $10M $29M $67MRevenues $1.1M $1.5M $2.6M $5.2MEconomic Impact $38M $20M $35M $93MEconomic Impact $38M $20M $35M $93M# of Events 36 30 50 116# of Touch Points 6,510 5,966 6,230 18,706
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