Best Practices for Launching Tech Ventures and Leveraging the University Mission Funding Strategies

Transcription

1 Best Practices for Launching Tech Ventures and Leveraging the University Mission Funding Strategies 2011 The University of Texas at Austin IC2 Institute 1

2 Overview Forces Impacting Capital Availability Managing Risk the Real Business of Early Stage Commercialization Creative Capital Creative Sources for Capital Creative Use of Capital Conclusions Discussion 2011 The University of Texas at Austin IC2 Institute 2

3 Forces Impacting Capital Availability 2011 The University of Texas at Austin IC2 Institute 3

4 Broad Relevance Specific Example Use Biotech/Pharma as the vehicle to tell story Applicable to: Medical devices Engineering technologies High technology Services Software Amount of capital required and regulatory hurdles may differ Return on investment averages may differ 2011 The University of Texas at Austin IC2 Institute 4

5 Trends in Basic R&D Funding in US (~74% healthcare focused) FY in billions of constant FY 2008 USD Sustaining levels of funding questionable due to growing budget deficits The University of Texas at Austin IC2 Institute 5 Source: AAAS Analyses of R&D in AAAS Reports VIIII

6 Trends in US Venture Capital Investment Important Trends Less $ Available Later Stage Investments Bias Fewer Liquidity Options Venture Capital Investments ($ millions) 2011 The University of Texas at Austin IC2 Institute 6 Source: Bio.org 2009

7 Summary Grant funding is becoming more and more competitive Venture funding is more and more focused on lowerrisk, later stage opportunities Transitions in the pharma/biotech markets invite increasingly innovative strategies Non-US, Non-EU sites playing a larger role in product development and marketing Creative financing strategies are needed 2011 The University of Texas at Austin IC2 Institute 7

8 Creative Sources for Capital 2011 The University of Texas at Austin IC2 Institute 8

9 The Bio-investment Capital Food Chain Sources of Capital Basic Research Discovery Lead Development Preclinical Clinical Development Approval and Marketing NIH Military State funds Philanthropy Angels Venture capital Private equity Hedge funds 2011 The University of Texas at Austin IC2 Institute 9

10 Motivations for Funding Wealth Creation Personal Institutional Legacy Societal Good Heath solutions Regional development Economic Development Job creation Average salary increase Retention of companies Recruitment of companies Institutional/Locality Stature Reputation Education Innovation momentum Teamwork National Readiness Military support Protection of the population 2011 The University of Texas at Austin IC2 Institute 10

11 Primary Funding Source Structures Grants and Contracts Source: Government, institutional, foundations Goal: Progress of science and productivity ROI: Societal good Evergreen (loan-like) Source: Government (various levels) Goal: Progress of science and productivity ROI: Repayment and reinvestment through annual fees and/or royalty share Traditional Equity Source: Angel, Venture Capital or Affinity funds Goal: Generate return for investors through corporate development ROI: Liquidity ROI to investors; raise independent new fund 2011 The University of Texas at Austin IC2 Institute 11

12 The Cheapest Form of Funding Revenue Product sales Ongoing services Licensing revenue Equity/Licensing strategy Source: Customers: individuals or corporations Goal: Generate cash to go beyond cost coverage which can be reinvested in new technology/product development ROI: New commercial opportunities 2011 The University of Texas at Austin IC2 Institute 12

13 Funding Strategy Comparison Funding Source Government grants/ contracts Angel networks Prerequisite Motivation Funding Level Dilution Early discovery Societal good + (variable) None Post-discovery Wealth creation, Societal good Affinity funds Post-discovery Wealth creation, Local stature, Societal good, Evergreen funds Venture Capital fund Post-discovery Product demonstration Societal good, Wealth creation Wealth creation Yes +++ Yes +++ Maybe Revenue Product/Service Wealth creation ++ (variable) None Yes 2011 The University of Texas at Austin IC2 Institute 13

14 Creative Funding Examples 1 Federal grant programs Typical NIH, NSF, CONACYTE programs and innovative programs e.g. Therapeutics for Rare and Neglected Diseases/NIH Grant support 2011 The University of Texas at Austin IC2 Institute 14 Collaborative resources: IND enabling studies, regulatory, etc. Proof of Concept funds e.g. Qatar Science and Technology Park Proof of Concept Fund; Harvard s Technology Accelerator Fund Tier 1: $10,000-25,000/award Tier 2: ~$100,000/award

15 Creative Funding Examples 2 Local grant programs e.g. Cancer Prevention and Research Institute of Texas R21 and R01 style grants for cancer research Company commercialization grants (Loan-type) Equity programs e.g. Fondo Nuevo León para la Innovación (FONLIN) Texas Emerging Technology Fund (Equity-based) $250,000 X 4 for early stage deals $1-4 million for later stage deals Sales tax programs Abilene and Temple, TX (Repayable loans) 2011 The University of Texas at Austin IC2 Institute 15

16 Networks and Industry Engagement Industry Manufacturing Development Research 2011 The University of Texas at Austin IC2 Institute 16 Network Universities Research Education Companies Eco Dev/Community

17 Creative Uses of Capital 2011 The University of Texas at Austin IC2 Institute 17

18 Important Trends in Use of Capital Lower overhead strategies Company versus projects (equity sharing networks) Single management versus broad management Graduation of projects to companies 2011 The University of Texas at Austin IC2 Institute 18

19 Company Approach Company 1 Management - $ Operations - $ Research -$ Development - $ Marketing -$ Company 2 Management - $ Operations - $ Research -$ Development - $ Marketing -$ Company 3 Management - $ Operations - $ Research -$ Development - $ Marketing -$ $+$+$+$+$=$ $+$+$+$+$=$ $+$+$+$+$=$ 2011 The University of Texas at Austin IC2 Institute 19 $+$+$=$

20 Project/Network Approach Management, Operations, Marketing $ Project 1 Research -$ Development - $ Project 2 Research -$ Development - $ Project 3 Research -$ Development - $ $+$+1/3$=$ $+$+1/3$=$ $+$+1/3$=$ 2011 The University of Texas at Austin IC2 Institute 20 $+$+$=$ (Graduate successful projects to full company structure)

21 Comparison: Companies and Projects Strategy Companies Project/Network Investment structure Investors and founders Distributed among stakeholders Capital required Higher Lower Focus of management Higher Lower % of $ to Development Lower Higher Infrastructure costs Higher Lower Speed of development 2011 The University of Texas at Austin IC2 Institute 21 Possibly slower due to need for greater capital Flexibility Lower Higher Faster due to ready resources Return to investors Liquidity events Flow through dividends; liquidity Frequency observed Higher Lower

22 Graduating Projects to Companies Map important factors: Technical progress Market traction Time to revenue Technical milestone required for larger deal Recruit team Drive funding Location and operations 2011 The University of Texas at Austin IC2 Institute 22

23 Conclusions Creative sources of funding are needed now more than ever Successful management of risk is the key to obtaining funding in the necessary time frame required Different capital sources match different stages in company development Multiple strategies exist for driving commercialization: Traditional corporate Managed projects through collaborative networks Graduate projects to companies Effective execution of technical, intellectual property and business strategy providing investor return remains crucial The University of Texas at Austin IC2 Institute 23

24 Questions for Consideration How does the market drive the development of innovation in your organization? How do you currently reach out to the marketplace? What are the key development hurdles that must be derisked for commercialization of your innovation? What differentiating expertise does your organization offer? What local capabilities (corporate and academic) can be networked to facilitate development of technologies? How are you creatively accessing capital resources? 2011 The University of Texas at Austin IC2 Institute 24

25 Gregory P. Pogue, Ph.D. University of Texas at Austin, IC 2 Institute 2815 San Gabriel Austin, TX office gpogue@ic2.utexas.com