INTERNATIONAL ECONOMIC DEVELOPMENT COUNCIL MARCH 24, 2014 ALEXANDRIA, VA WESTIN HOTEL

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1 Office of Investment and Innovation OVERVIEW INTERNATIONAL ECONOMIC DEVELOPMENT COUNCIL MARCH 24, 2014 ALEXANDRIA, VA WESTIN HOTEL

2 Three C s and a D Agency Overview U.S. Program Area Framework Capital 7(a) Loans 504 Loans Investment Companies Innovation Research Technology Transfer Contracting Counseling Contracting Socio-economic programs Size standards SBA Field Network Development Centers Women s Business Centers SCORE Clusters STEP Disaster Economic Injury Disaster Loans Business Physical Disaster Loans Home Physical Disaster Loans WITH THE SMALL BUSINESS ACT OF 1953, CONGRESS CREATED THE AGENCY, WHOSE FUNCTION IS TO "AID, COUNSEL, ASSIST AND PROTECT, INSOFAR AS IS POSSIBLE, THE INTERESTS OF SMALL BUSINESS CONCERNS. 2

3 Elevator Pitch What We 35,000 FT SBA s Office of Investment and Innovation (OII) leads programs that provide the high-growth small business community with access to two things: financial capital and R&D funds to develop commercially viable innovations. Our work is underpinned by public-private partnerships that operate on or along a very dynamic and economically important intersection. Research & Development Technology-Driven Innovation OII High-Growth Entrepreneurship Finance & Capital Investment Company (SBIC) Program delivers access to financial capital $4 billion authorization per year $19.85 billion of assets under management 287 active SBICs Innovation Research (SBIR) and Small Technology Transfer Research (STTR) programs support the R&D + financing of cutting-edge technologies ~$3 billion annual set aside ~145,000 awards granted ~10 patents per day Innovation - Support the American high growth entrepreneurial ecosystem stacks $2.5m Accelerator Program Start-Up America Demo Days Crowdfunding 3

4 Broad Impact Across Our Economy Some Quick Facts What We 35,000 FT SBIC Since inception in 1958 SBICs have deployed over $67B (~64% private capital = $43B) in American small companies SBICs have made over 166,000 investments more than 2,100 funds have been licensed as SBICs SBIR/STTR Since inception in 1982 SBIR/STTR programs have awarded ~145,000 grants totaling $38B to research intensive American small companies 11% of awardees have attracted another ~$65 billion of venture capital 450k engineers and scientists involved are one of the largest STEM talent concentrations in the world 4

5 Office of Investment and Innovation SBIC

6 SBIC in Brief The Public-Private Partnership at Work What We 15,000 FT The SBIC Program leverages the full faith and credit of the U.S. government to increase the pool of investment capital available to small businesses. Private Investors Pensions, Foundations, Banks High-Net Worth Individuals, etc. U.S. Administration (SBA) Investment Company (SBIC) $3 Role of Private Investors: Participate as Limited Partners in the SBIC Negotiate the fund structure and management fees with the SBIC manager Invest the matching funds needed for the fund to access SBAguaranteed leverage Role of SBA: Assesses fund manager qualifications and licenses funds as SBICs Generally provides up to $2 of government-guaranteed debt for every $1 of private capital, up to a maximum of $150 million Regulates and monitors SBICs for compliance and performance Role of SBIC Fund Managers: Manages all aspects of the fund, including LP relations and compliance with SBA regulations Establishes investment strategy Identifies small business investment opportunities Monitors and exits investments 6

7 SBIC in Brief A Diversified Portfolio What We 15,000 FT The SBIC Program is diversified by strategy, location, industry and vintage year. This diversification helps ensure the program continues to operate at zero subsidy. 34 new SBIC licenses issued, a record $2.2 billion in new commitments 1,068 small companies financed $3.5 billion financed, a record 22% of companies < 2 yrs. old 30% of companies are in low-tomoderate income areas or are minority-owned or womenowned businesses $2.3 m avg. investment size Inbound applications remain at peak levels FY 2013 Results 80% of pool comprised of firsttime applicants to the program $ billion in assets $ billion in private capital $ billion in SBA leverage 287 funds in the SBIC portfolio 14% bank-owned or do not use SBA leverage Varied Investment Strategies Senior Lending Mezzanine Leveraged Buyout Growth Capital Turnaround Venture Capital Impact & Early Stage Initiative Portfolio as of 02/28/14 7 Funds w/ ~$445m AUM 5 Year View: FY 09 FY 13 $11.6 billion in SBIC financings of American small businesses 56% debt 32% debt w/equity features 12% equity Industries Capitalized 25% manufacturing 14% professional services 12% information technology 9% transportation 7% health & other care 26% all other Geographic Diversity Investments made in 43 states SBICs located across the U.S. 7

8 SBIC in Brief Process From Start To Finish What we 15,000 FT VOTE VOTE START Pre-Screening (Optional) Office of Program Development Initial Application (MAQ) Submitted Analyst Review of Application Analyst Presentation to the Investment Committee Fund Interview with the Investment Committee Green Light Letter Issued VOTE VOTE Applicants are given 18 months to raise the minimum amount of private capital needed to be viable. Once raised, the License Application may be submitted SBIC License Issued Applicant is awarded an SBIC License and its first Leverage Commitment is issued Analyst Presentation to the Agency Committee Analyst Presentation to the Divisional Committee Analyst Review of License Application and Legal Documentation Office of Licensing & Program Standards License Application Submitted SBIC Investment Period (~5 Years) SBIC Harvest Period (~5 Years) Wind Down Once SBA Leverage has been fully repaid, the SBIC will wind-down the fund and return its SBIC License to SBA FINISH Office of Operations & Office of Examinations 8

9 Office of Investment and Innovation SBIR & STTR

10 SBIR & STTR in Brief Overview Innovation Research (SBIR) A set-aside program for small business to engage in Federal R&D with potential for commercialization 2.8% of the extramural research budget (~ $2.5 billion) for all agencies, growing to 3.2% by 2017 with a budget greater than $100MM per year. Technology Transfer (STTR) A set-aside program to facilitate cooperative R&D between small business concerns and U.S. research institutions with potential for commercialization. 0.35% of the extramural research budget (>$250 million) for all agencies with a budget greater than $1B per year. What We 15,000 FT Participating Federal Agencies Centralized Quarterback Milestone-Driven Award Process Phase I Feasibility Study or Prototype $150 thousand maximum and 6 months Phase II Full Research and Development Effort $1 million maximum and 24 months Phase III Commercialization Effort Private funds only 10 10

11 SBIR & STTR in Brief Quick Stats What We 15,000 FT SBIR 5509 Total Awards 54% of $ to 10 States Phase I Awards 64% of Awards 24.2% of Funds Average Size $151,000 Phase II Awards 36% of Awards 75.8% of Funds Average Size $718,000 STTR 23% to women-owned, minority-owned or HUBZone-located small biz 2.5% pre % by 2017 Floor NOT Cap 660 Total Awards 78% DOD and HHS Phase I Awards 75% of Awards 42% of Funds Average Size $144,000 Phase II Awards 25% of Awards 58% of Funds Average Size $582,000 22% to women-owned, minority-owned or HUBZone-located small biz 0.3% pre % by 2017 Floor NOT Cap Typical Application Process Solicitation Topics Proposal Submission Evaluation Phase I Award 11 11

12 SBIR & STTR in Brief Case Studies Two Perspectives What We 15,000 FT FROM A COMPANY PERSPECTIVE FROM A UNIVERSITY PERSPECTIVE IDA-STPI studied NSF's role in 3D Printing (along with leadership from NASA, DOD, etc...) shows that some of most crucial parts of the technology was financed in its earliest stages as the result of various critical funding via the SBIR/STTR program. Z-Corporation which emanated out of Massachusetts Institute of Technology labs and was recently acquired by 3D Systems, was one of the first 3D Printing companies to enter the market in1994 and they too received initial financing from NSF through various research financing opportunities including the SBIR/STTR program. A 2012 Tibbetts Award Winning company emanating from upstate NY, which was founded by two undergraduate students during a Product Design Innovation class at Rensselaer Polytechnic Institute, who came up with the idea to use mushrooms as the binding material for composite fabrication of biodegradable materials which in turn offer a promising solution to potentially eliminate petrol-based composites. They received some of their earliest funding via EPA and NSF SBIR Grants. Alcomed Inc. which derives its technology from University of Kentucky research has a promising antidote solution towards developing intranasal naloxone for opioid overdosing. This approach would markedly reduce the risks of contracting hepatitis or HIV by EMS first responders. Phase 1: $239, & Phase 2: $1,219, both from HHS-NIH The State of Kentucky is doubling down via a public-private partnership model, The Kentucky Science and Technology Corporation. Additionally, the Kentucky SBIR/STTR Matching Funds Program is funded by the Cabinet for Economic Development and provides matching funds of up to $150,000 for Phase I and up to $500,000 for Phase II. These funds are used for new and additional work tasks that are complementary to existing Federal SBIR/STTR Awards

13 Office of Investment and Innovation INNOVATION & OTHER

14 Innovation Programs OII s Innovation Initiatives support high-growth entrepreneurs and ecosystems Accelerators Work with programs that provide mentorship, access to capital, and co-working space to new businesses in several modes (accelerators, incubators, other entrepreneurial ecosystem stacks - pilot capital $2.5m - key activities include: What We 15,000 FT Linking Innovation Industry and Commercialization (LINC) Butler Venture Accelerator Program RampCorp Demo Day Hosting demo day for accelerators, provide funding and enhance the channel Startup U Fostering startup ecosystems for universities Network/ Educate Accelerators train the trainers and increase quality of startups via best practice sharing Crowdfunding Leadership role on crafting proposed SEC regulations (Title III) and their impact to stake holders along with educating the small business community on the new platforms Tax Reform Working on proposed regulation, their impact on high-growth businesses along with educating the small business community on its implementation Infographic Source: crowdfunder.com; prafulla.net/infographics/crowdsourcing-and-crowd-funding-infographic 14 14