university proof of concept funds (sig)

REPORT FROM SPECIAL INTEREST GROUP

University Leaders Series: !UCSD Von Liebig Proof of Concept Center

Rosibel Ochoa, Executive Director

PROOF OF CONCEPT FUNDS

CONTENTSEVENT SUMMARY

Participant Summary Defining POC Funds

POC SIG FOCUS AREASRaising and Sustaining FundsFund Management and ProcessImpact and Lessons Learned

ADDITIONAL RESOURCES

www.gapfunding.org

POC SIG PARTICIPANT SUMMARY

Name of Organization Name of Fund Vintage YearBinghamton University POC Fund 2015Boston University Ignition Funds 1978Florida State University GAP Fund 2006MIT Deshphande Center Fund 2003Norweigen University of Science and Technology NTNU Fund 2011Princeton University IP Acceleration Fund 2011SUNY SUNY Tech Accelerator Fund 2011Tech Launch Arizona POC Fund 2013University of Geneva INNOGAP 2011University of Illinois, Urbana-Champaign POC Fund 2014University of Virginia Ivy Biomedical Innovation Fund 2008WPI WPI Accelerator Fund 2014

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Participants

The view is broken down by Name of Organization, Name of Fund and Vintage Year.

The POC Special Interest Group (SIG) took place on February 24th, 2015 from 11-12:30 PM EST and was attended by ~55 professionals interested in the role of proof of concept funds at research institutions. This group was composed of current and aspiring fund managers and stakeholders.

Current fund managers were asked to complete a short survey that detailed their fund’s approaches to addressing the topics discussed during the session. The 12 participating funds are listed here:

www.gapfunding.org

DEFINING POC FUNDS

Mind the Gap 2011 Prepared for

31

Introducing Fund Types The “gap” in gap funding refers to a vast shortage in capital and other commercialization support to identify, evaluate, and deliver university technology to the marketplace. Defining this “gap” too broadly (e.g. “Valley of Death” or “between basic research and the market”) oversimplifies the complexities of the situation and clouds the path to resolution; therefore, we propose and will demonstrate a more actionable, segmented system based on real observations.

Gap funding approaches to the larger “gap” can be broken down into a system of four fund types, each with individual characteristics, structures, and commercialization priorities. Adopting this vantage leads to a schematic model (Fig.6) with three main advantages:

• Scalable: Aligns with the existing university technology commercialization process, and other early-stage technology and product development processes

• Customizable: Opens up the opportunity for universities to create an individual approach that is based on the specific needs and capabilities of their own institutions at each stage of the innovation process

• Relatable: Creates a system that is identifiable by the all stakeholders of early-stage innovation (public and private), and allows them an opportunity to identify their role as a partner in the process

Figure 6: Defining the Gap

UNVERSITY GAP FUNDING CONTINUUM

Proof of Concept (POC) funds evaluate commercial potential, demonstrate the value of the technology, and generally de-risk technologies (or perception of risk) to commercial partners or investors. These funds also act as a filters by identifying weakness in the technology for further development, or by saving resources early in the process by deciding to not pursue the technology (a common recommendation in most new product development literature). Finally, by developing the commercial groundwork, including prototypes and application evaluation, these funds aim to identify and secure a route to commercialization (license to existing company or spin-out).

POC funds are often administered centrally through the technology transfer offices, research foundations, or equivalent at the college-level. Externally-partnered state funds, accelerators, and corporate funds may assist at this level and are often run in part through the existing university technology commercialization process. From our research, this is the most widely-utilized university gap fund type.

www.gapfunding.org

RAISING AND SUSTAINING FUNDS

0K

50K

100K

150K

200K

250K

300K

350K

400K

450K

500K

550K

600K

650K

700K

750K

Initi

al S

ize

of F

und

$715K

$500K

$275K

$20K

$250K

$650K

AverageAverage

Initial SizeFund Identifier

1

2

3

4

5

6

8

10

11

12

Fund Identifier1

2

3

4

5

6

8

10

11

12

Sum of Initial Size of Fund. Color shows detailsabout Fund Identifier. Size shows details aboutFund Identifier. The marks are labeled by sum ofInitial Size of Fund. The view is filtered on sum ofInitial Size of Fund, which ranges from 0 to1,000,000.

$416K

$500K Historical AVG

INITIAL SIZE OF FUNDSOURCE OF FUND

Fund Source

Fund SourcesDonation/Endowment (Other)

Operating Budget

Public Initiative

Royalty Stream

Donationa/Endowment (Alumni)

43%

25%

15%

13%

SIG Summary: Source of funds from POC SIG survey group relates well to historical data (next slide) of POC fund support from re-investment of royalties/operating expenses, fund-focused donations/endowments, and partnerships through local/state/federal authorities. Sustainability continues to be the major challenge of POC funds.

SIG survey group finding of $416K USD AVG for initial size of fund is on par with the historical amount of $500K.

*Removed two fund outliers ($20M, $10M) for better fit

www.gapfunding.org


42

2

Figure 9: Sources of Funds

13%

17%

28%5%

23%

2%1%

5%

2% 4%

University Alumni Donation/Endowment

University Other Donation/Endowment

University-Royalty

University-Equity

Public-State

Public-Federal

Private-Angel

Private-Venture

Private-Corporate

Other

T

MTG 2011 Participant Funds(n=63)

Public-Local

Unive

rsity

Publ

icPr

ivate


42

2


6%

27%

39%

14%

3%7%

Business GrowthPOC Funds(34)


42

2


13%

17%

28%5%

23%

2%1%

5%

2% 4%

MTG 2011 Participant FundsAll Funds (63)

POC Future Sources

HISTORICAL SOURCE: Mind the Gap Report, innovosource, www.gapfunding.org

RAISING AND SUSTAINING FUNDS (MTG)

www.gapfunding.org

FUND MANAGEMENT AND PROCESS

The POC SIG discussed the following components of the funding process:• Submission Process• Coaching and Concept Development• Scorecards/Evaluation Techniques• Advisory Boards• Support Programs• Post-funding Project Management

Major emphasis was placed on the following tactical areas with outcomes highlighted in the following slides:

• Fund communication and expectation management• Fund eligibility and project evaluation• Use of funds and managing investments• Aligning lifetime of fund with fund sources (historical)• Utilizing external advisory boards in project review and decision-making (historical)

www.gapfunding.org

FUND MANAGEMENT AND PROCESS

USE OF FUNDSPOC SIG survey respondents cited Prototype development (7) and finalizing applied research (6) as the major uses for POC funding. Marketing/BD, business planning, and faculty enrichment (travel, education) were focuses of funds in some cases.

Funds should consider milestone-based, or tranche, investment from funds to encourage progression towards project outcomes. Process and management resources must be put in place to monitor projects and there must be a willingness to “cut” projects that are not progressing (or indicating a realistic timeline to realization of project goals).

COMMUNICATION OF FUNDSMost POC funds prefer a transparent and open approach to communicating funds to faculty/students. The key is balancing active promotion and awareness with managing expectations as to the reality, and limit, of the available funds. Fund managers should consider active targeting of those projects that are already disclosed, and that show promise and alignment with fund objectives.

Managers should also place an emphasis on feedback (as soon as possible) to participants, especially those that are a no-go. Quality feedback on submissions and throughout process will strengthen future submissions and relationships with faculty/students.

FUND ELIGIBILITYPOC SIG survey respondents disclosure to TTO office/group (8), a review by an external board (7), a motivated leader for technology besides the PI (6), and a strong IP position (5) as mandatory for funding consideration.

www.gapfunding.org

FUND MANAGEMENT AND PROCESSTo support a few of the prevalent discussion points, we have pulled a few data points from the Mind the Gap Report to illustrate what POC funds are doing to structure the lifetime of funds and external review boards

Mind the Gap Prepared for Okinawa Institute of S&T

68

Figure 24: Advisory Board Overview

81% of 63 funds surveyed use an advisory board for support indecision-making

Translational Research

Proof of Concept

Business Growth

Business Formation

4 funds

26 funds

13 funds

6 funds

Have an advisory board?Technical/Scientific

Business-Corporate/

Entre

Business-Investor

TTO/Central

Staff

40% 17% 9%34%

Composition: Compensation for Participation:

15% 27% 24%34%

17% 24% 31%28%

4% 37% 47%12%

Rights of First

Refusal

FirstView of

Technologies

2 funds

28 funds

13 funds

4 funds

ManagementOpportunities

77% require a signed NDAof 43 responding funds

3 3 2 2

20 12 20 19

9 7 9 10

2 1 4 65 10 15 20 25 30

7

10

8

9

Number of MembersAlways

Sometimes

Never

Funds with representation




Number of Members:

67%

76%

81%

86%

95

302

153

103

Advisory Board Overview


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Proof of Concept

Business Growth

Business Formation

4 funds

26 funds

13 funds

6 funds


Business-Corporate/

Entre

Business-Investor

TTO/Central

Staff

40% 17% 9%34%


15% 27% 24%34%

17% 24% 31%28%

4% 37% 47%12%

Rights of First

Refusal

FirstView of

Technologies

2 funds

28 funds

13 funds

4 funds



3 3 2 2

20 12 20 19

9 7 9 10

2 1 4 65 10 15 20 25 30

7

10

8

9


Sometimes

Never





Number of Members:

67%

76%

81%

86%

95

302

153

103



68




Proof of Concept

Business Growth

Business Formation

4 funds

26 funds

13 funds

6 funds


Business-Corporate/

Entre

Business-Investor

TTO/Central

Staff

40% 17% 9%34%


15% 27% 24%34%

17% 24% 31%28%

4% 37% 47%12%

Rights of First

Refusal

FirstView of

Technologies

2 funds

28 funds

13 funds

4 funds



3 3 2 2

20 12 20 19

9 7 9 10

2 1 4 65 10 15 20 25 30

7

10

8

9


Sometimes

Never





Number of Members:

67%

76%

81%

86%

95

302

153

103



68




Proof of Concept

Business Growth

Business Formation

4 funds

26 funds

13 funds

6 funds


Business-Corporate/

Entre

Business-Investor

TTO/Central

Staff

40% 17% 9%34%


15% 27% 24%34%

17% 24% 31%28%

4% 37% 47%12%

Rights of First

Refusal

FirstView of

Technologies

2 funds

28 funds

13 funds

4 funds



3 3 2 2

20 12 20 19

9 7 9 10

2 1 4 65 10 15 20 25 30

7

10

8

9


Sometimes

Never





Number of Members:

67%

76%

81%

86%

95

302

153

103


HISTORICAL SOURCE: Mind the Gap Report, innovosource, www.gapfunding.org

EXTERNAL REVIEW BOARDS


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Proof of Concept

Business Growth

Business Formation

4 funds

26 funds

13 funds

6 funds


Business-Corporate/

Entre

Business-Investor

TTO/Central

Staff

40% 17% 9%34%


15% 27% 24%34%

17% 24% 31%28%

4% 37% 47%12%

Rights of First

Refusal

FirstView of

Technologies

2 funds

28 funds

13 funds

4 funds



3 3 2 2

20 12 20 19

9 7 9 10

2 1 4 65 10 15 20 25 30

7

10

8

9


Sometimes

Never





Number of Members:

67%

76%

81%

86%

95

302

153

103



68




Proof of Concept

Business Growth

Business Formation

4 funds

26 funds

13 funds

6 funds


Business-Corporate/

Entre

Business-Investor

TTO/Central

Staff

40% 17% 9%34%


15% 27% 24%34%

17% 24% 31%28%

4% 37% 47%12%

Rights of First

Refusal

FirstView of

Technologies

2 funds

28 funds

13 funds

4 funds



3 3 2 2

20 12 20 19

9 7 9 10

2 1 4 65 10 15 20 25 30

7

10

8

9


Sometimes

Never





Number of Members:

67%

76%

81%

86%

95

302

153

103



45

Mind the Gap, 2005 where this observation was swapped. This may signal an interest by many gap fund managers to structure a longer-term fund, and build in some sort of ongoing replenishment, whether that be through downstream returns (royalties, equity) or a guaranteed repayment. Royalty dependent funds are major portion of the earlier stages of technological development.

We also found that the chosen lifetime of the fund was relatable to the major sources of the fund (Fig. 12). When taking into account the 52 funds (83% of total) that were supported 50% or more by the major three sources of gap funding (licensing royalties, donations/endowments, and state support), we found that 53% of funds supported by licensing royalties were royalty dependent/annually renewable funds and that evergreen funds were more prevalent in funds supported by donation/endowments and state funding.

Source Evergreen Royalty-Dependent/AR Capped University-Licensing Royalties 35% 53% 12% University-Donation/ Endowment 74% 26% 0 Public-State Support 56% 19% 25%

Figure 12: Lifetime of Fund compared to Source of Fund

Initial Size of Fund

Overview

The initial size of fund is the amount that the organization initially invests into the gap fund prior to the first funded project. This section should provide the basis for structuring the “ask” of leadership or stakeholders.

Findings and Insights

Participants were asked to share the initial size of funds:

• Figure 13 illustrates the range and median initial fund sizes. It also boxes the upper and lower 25% quantiles. As noted, a few outlying fund sizes have been removed, and the external venture capital involvement in the Business Growth type funds were separated

LIFETIME OF FUND (By Source)


68




Proof of Concept

Business Growth

Business Formation

4 funds

26 funds

13 funds

6 funds


Business-Corporate/

Entre

Business-Investor

TTO/Central

Staff

40% 17% 9%34%


15% 27% 24%34%

17% 24% 31%28%

4% 37% 47%12%

Rights of First

Refusal

FirstView of

Technologies

2 funds

28 funds

13 funds

4 funds



3 3 2 2

20 12 20 19

9 7 9 10

2 1 4 65 10 15 20 25 30

7

10

8

9


Sometimes

Never





Number of Members:

67%

76%

81%

86%

95

302

153

103


External review boards composed of business and technical minds supports the fund evaluation process, shares/shields decision-making, and can lead to future support of funded projects

The structured lifetime of the fund by general source of funds such as evergreen (fund lives off of returns), royalty-dependent/AR (fund is replenished annually), capped (traditional fund structure with set life)

www.gapfunding.org

IMPACT MEASURES


77

Impact The final section in this analysis will suggest a structure for measuring gap funding impact, both financial and programmatic. These measures align gap funding practices with the mission of the research university, and other public and private sources of early stage capital, while demonstrating how the practice supports innovation and commercialization on a larger scale.

These suggested impact measures for gap funding can be separated into four groupings:

• Process Indicators • Building a Community of Innovation • Business Formation and Job Creation • Returns to the Funding Organization and Capital Attraction

A major insight is that a majority of the suggested impacts do not involve direct financial return to the university, but instead focus on impacting the innovation landscape itself. In fact, most of their immediate and near term returns are focused solely on catalyzing commercialization through innovation community-building, business formation and job creation, and attraction of capital and commercialization partners. Figure 28 generalized the reported impacts from a subsection of funds with their vintage year as a way to visualize when these impacts are realized.

Immediate Nearterm Midterm Longterm

Creating Culture of Innovation

Process Indicators

Building a Community of Innovation

Capital Attraction

Driving New Businesses and Job Creation

Returning Capital to the Gap Fund

BENEFIT

Managing and Forecasting

Incentivizing Other Investment

Business Formation and Job Creation

Returns (Repayment, Royalties)

Returns (Equity Sale)

1-3 Years 3-5 Years 5 +Years

Time from Intial Investment (Based on Vintage Year of Funds)

General Expectation Timeline for Impact

Figure 29. General Expectation Timeline for Impact 18 Funds | $60M Invested | $66M Returned | $1.26B Attracted (1:20)HISTORICAL SOURCE: Mind the Gap Report, innovosource, www.gapfunding.org

SIG Summary: Group and survey respondents noted the importance of POC funds in achieving all of the above impact areas, with an emphasis on capital attraction, start-up formation (and associated job creation), and process indicators such as moving a technology to license.

It is vital to set these goals at the fund inception in order to manage expectations from leadership and stakeholders who may associate POC funding with traditional investment. Financial ROI should be a staged as a long-term or even irrelevant goal for POC funding.

www.gapfunding.org

Increase awareness of the capital gap for early-stage, university/lab technology and advocate for solutions, including gap funding

Expand knowledge and create access to best-practices for current/aspiring gap fund managers and stakeholders

Connect university/lab proof of concept technologies and start-ups to sources of early-stage capital (venture, angel, crowdfunding), talent, and other peer support

inform.

advocate.

connect.

Objectives

the resource for those

interested in university-affiliated

translational research, proof of concept,

and pre/seed gap funds

Research Universities Laboratories and Hospitals

Early-stage Investors High-tech Companies Government Agencies

www.gapfunding.org!www.gapfunding.org

inform.

advocate.

connect.

Objectives Current Initiatives New Initiatives

• Partnerships with professional organizations and think tanks • Staff and Stakeholder Development • Panels at Professional Events

• Mind the Gap report • Gapfunding.org open site • Leaders Series Events

• Gap Fund Managers LinkedIn Group

• Strategic Partnerships with Policy Advocates • Proactive Press Engagement • Community-driven Content

• Quarterly Gap Funding Activity Report • Benchmarking and Reporting • Gap Fund i-workshops • Mind the Gap Regional Events

• Investor/ Company University Showcases • CrowdtheGap

Pre/"Seed

Current Resources Coming Resources

• Free weekly gap funding digest• Fund Manager webinars• Reports: Mind the Gap Report,

Crowd the Gap Report, Student Venture Fund Report

• Quarterly Gap Funding Activity Reports

• Report Updates• Mind the Gap Regional Events

• Partnerships with professional organizations and think tanks

• Panels and SIG groups at conferences

• Benchmarking reports, stakeholder development, and other fund services

• Active work with state and federal policy, engage press

• Gap Fund Managers LinkedIn Group (Mind the Gap) to share and discuss

• University showcases to investors and companies for co-matching

• Quarterly fund manager virtual roundtables

www.gapfunding.org

an awareness firm that works with research universities and their key innovation partners (high-tech companies, early stage investors, and government agencies) to"

| inform | advocate | connect

Early Stage Investors!

High-tech Companies!

Government Agencies!

Research Universities!

Conversation-building initiatives!www.gapfunding.org!

an awareness firm that works with research universities and their key innovation partners (high-tech companies, early stage investors, and government agencies) to"

| inform | advocate | connect

Early Stage Investors!

High-tech Companies!

Government Agencies!

Research Universities!

Conversation-building initiatives!www.gapfunding.org!

Contact me directly anytime:

Thank you for your partnership and leadership!

Jacob JohnsonFounder, innovosource

E: [email protected]

www.innovosource.com

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