Converting University Innovation into Jobs: Background and Overview of the Governor’s Innovation-to-Jobs (I2J) Initiative & the One NC Small Business Program

Converting University Innovation into Jobs:Background and Overview of the Governor’s Innovation-to-Jobs (I2J) Initiative & the One NC Small Business Program

John Hardin, Ph.D; Executive DirectorNC Board of Science, Technology & Innovation (BSTI)www.nccommerce.com/sti

December 2, 2014

http://www.nccommerce.com/sti

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Part 1:Governor’s I2J Initiative

3SOURCES: U.S. Department of Commerce; Moretti 2013, “The New Geography of Jobs.”

1. Innovation creates new products, services, & practices that yield value

2. Innovation comes from creative application of science & technology

3. Innovation generates between ⅓ to ½ of U.S. economic growth

4. Innovation has a big (5x) multiplier effect (across sectors & skill levels)

5. Innovative/high-tech companies’ biggest impact is to grow labor market

Innovation is the Modern Economy’s Fuel(Five Innovation Facts)

Bottom Line for NC:Best way to create jobs for all is to

start/grow innovative/high-tech companies

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NC is Below Average in High-Tech Companies(NC’s economy is low on fuel)

NC

US

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Yet NC is Above Average in Academic R&D(NC’s economy is strong on a necessary component for fuel)

NC

US

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Governor McCrory’s Response(Increase components in short supply; integrate and accelerate)

1.5/2014 − 10/2014: Convenes Innovation-to-Jobs (I2J) Working Group

• 16 members representing universities, commercialization & investors

• BSTI staff serve as project managers

• I2J Working Group holds 8 meetings:

• Conducts comprehensive assessment of I2J challenges in NC

• Collects survey input from more than 500 well-informed stakeholders

• Drafts package of 6 recommendations for Governor’s consideration

2. 6/2014: – Re-fund One NC Small Business Program (i.e., NC’s SBIR/STTR Matching Grant Program)

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I2J Working Group MembersUniversity/Tech Commercialization Investor/Business

Chris Brown (Co-Chair)Vice President for Research & Graduate Education

UNC General Administration

Clay Thorp (Co-Chair)General Partner

Hatteras Venture PartnersJudith Cone

Special Asst. to Chancellor for Innovation & Entrepreneurship UNC-Chapel Hill

John CambierFounding Managing Partner

IDEA Fund PartnersJoseph DeSimone

Chancellor’s Eminent Professor of Chemistry UNC-Chapel Hill

Igor JablokovEntrepreneur in Residence

Blackstone Entrepreneurs NetworkGalen Hatfield

Vice President, Commercial Programs DivisionRTI International

Karen LeVertCEO and Co-Founder

Southeast TechInventures, Inc.Terri Lomax

Vice Chancellor for Research, Innovation & Econ. Dev.NC State University

Robert LongCo-Founder & Partner

Long Miller & AssociatesLaura A. Schoppe

President Fuentek, LLC

Mitch MummaGeneral Partner

Intersouth PartnersEric Tomlinson

President Wake Forest Innovation Quarter

Steve NelsonCo-Founder EiPi Systems

Eric TooneVice Provost & Director, Innovation & Entrepreneurship

Duke University

Carlos Parajon Co-Founder

Harbor Island Equity Partners

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SURVEY RESPONDENT DEMOGRAPHICS

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Note: The survey respondents are fairly evenly divided among university respondents and non-university respondents.

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Note: While faculty represent 30% of the total respondents, they represent 53% of the university respondents.

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Note: “Skipped” = Non-University respondents

12Note: “Skipped” = University respondents

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SURVEYRESULTS

(A SMALL SAMPLE THEREOF)

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Investment funding

Management for startups

Return on investment (of time, resources, finances, etc.)

Adequate Technology transfer/commercialization staff

Research funding

Faculty entrepreneurs

Supportive culture

Physical resources (e.g., facilities, equipment)

-10% 10% 30% 50% 70% 90% 110% 130% 150% 170%

50%

47%

29%

35%

28%

19%

18%

6%

25%

8%

4%

5%

2%

7%

0%

1%

64%

56%

51%

30%

25%

9%

15%

11%

18%

20%

9%

13%

-7%

-13%

14%

-1%

50%

53%

46%

22%

24%

41%

27%

31%

4%

17%

25%

19%

28%

27%

-1%

12%

NC universities [or My university] lack[s] the following to help create and support startups based on university innovations:

% of University Faculty Respondents Agreeing% of University Admin & Staff Respondents Agreeing% of Other Respondents Agreeing

Level of Respondent Agreement

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Major/Summary I2J Challenges

1. Translation – Insufficient development and/or dissemination of university-based structures and practices for technology commercialization

2. Capitalization – Insufficient funding for technology proof of concept, validation, IP protection, commercialization, early and mid-stage product development/production, and business expansion

3. Operation – Insufficient number and utilization of seasoned, mature, business professionals to run startups and guide companies through growth and expansion

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I2J Working Group Recommendations(Integrated Plan for I2J)

Pre-Commercial Arena Commercial Arena

Sequential Model of Innovation Commercialization Ecosystem

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1. Translation & Operation

2. Translation & Capitalization




Note: Details of the recommendations are currently embargoed. They will be released soon.

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1. Translation & Operation



6. Operation

5. Capitalization

4. Capitalization



Note: Details of the recommendations are currently embargoed. They will be released soon.

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Part 2:One NC Small

Business Program

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SBIR (Small Business Innovation Research) Program Overview

• Federal agencies (11) with R&D budgets exceeding $100 Million annually

• 2.7% set aside of extramural research budget

• $2.5 Billion annually (single largest source of early-stage tech-dev. capital for SBs)

• Since 1983, $26.9 billion awarded via 112,500 awards to SBs nationwide

• 1.45 million people are currently employed with SBIR firms

• 1 in 9 SBIR firms have attracted equity financing

• Current SBIR-funded firms ($3B) have attracted $35B in equity funding

“We in government must work in partnership with small businesses to ensure that technologies and processes are readily transferred to commercial applications.”

~Ronald Reagan, July 22, 1982

• Late 1970’s, concerns about U.S. competitiveness

• Small businesses (SBs) began attracting more attention for ability to innovate & create jobs

• But SBs often lacked resources

• Response: SBIR Program established in 1982

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STTR (Small Business Tech Transfer) Program Overview

• Established in 1992

• Federal agencies (5) with R&D budgets exceeding $1 Billion annually

• 0.3% Set Aside

• Currently = $220 million annually

• Unique feature is the requirement for the small business to formally collaborate with a research institution

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Two Phases (both very competitive)

Phase I• Evaluate viability and feasibility of an idea• Up to $225K for 6-month period (STTR 12 months)• Win Rates: approx. 1/8 (varies widely)

Phase II• Generally prototype completion / field testing / final development• Up to $1.5 M for up to 24 months• Win Rates: approx. 1/2 or 1/3 (varies widely)

• “SBIR program is one of the largest examples of U.S. public-private partnerships• Core finding is that the SBIR program is sound in concept & effective in practice”

~An Assessment of the SBIR Program, National Research Council

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Examples of SBIR-Funded CompaniesQualcomm Symantec

Industry Telecom. Equipment Packaged Software

Sample Product(s) 3G & 4G Wireless Tech. Norton Antivirus Software

# of Employees (2012) 26,600 (globally) 20,500 (globally)

Revenue (2012) $19.12 billion $6.73 billion

Size when received first SBIR 35 employees 5 employees

Year it received first SBIR 1986 1982

Total # of Awards 8 Phase I; 4 Phase II 1 Phase I; 1 Phase II

Total $ of Awards $1.58 million $245,000

# of Funding Agencies 3 1

“Without SBIR’s support for my radical idea, much of our economic growth would not have happened. SBIR was the ‘magic catalyst’ that opened the avenues for a wide range of new possibilities.”

~Gary Hendrix, Symantec founder

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NC’s SBIR Funding in late 1990’s early 2000’s

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SBIR & STTR Funding per $1M GDP, 2008-10

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SBIR & STTR Funding per $1M GDP, 2000-10

Trends:

NC’s SBIR/STTR funding ratio increased faster than U.S. average and all comparison states

Reasons:

1. SBTDC’s SBIR Program Specialist

2. One NC Small Business Program

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One NC Small Business Program – Overview

• 2006 – bipartisan coalition of state lawmakers established One NC Small Business Program (NC General Statute §143B-437.81)

• Broadened and realigned the existing One NC Program to include support for small, high-tech, entrepreneurial growth businesses

• Program has two mechanisms:

• Reimburse NC businesses with a portion of their application expenses to federal SBIR/STTR programs (“Phase 0” support)

• Match Phase I SBIR/STTR grants (up to $100K per grant) to NC businesses

• This presentation discusses only the Match program

• NC has strong competition from at least 15 other states in this arena

• At least three (SC, KY, & VA) modeled their programs directly on NC’s

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One NC Small Business Program – Funding

• Governor recommended funding for program in FY 2012, 2013 & 2014 budgets

• Legislature did not appropriate funding for program in budget again until FY 2015 (current budget: $2,500,000)

FY Appropriated $ Awarded # Match Cap Awarded $ 2006 $1,000,000 25* 50% of Phase I, up to $50K $1,111,816*** 2007 $5,000,000 51 100% of Phase I, up to $100K $4,553,917 2008 $4,830,000 49 100% of Phase I, up to $100K $4,675,962 2009 $3,500,000 54 100% of Phase I, up to $75K $3,968,588*** 2010 $700,000 22** 50% of Phase I, up to $50K $1,006,439*** 2011 $1,500,000 44 50% of Phase I, up to $30K $1,311,513

Total $16,530,000 245 $16,628,228 *The 2006 Solicitation ran only for 6 months, not a full year.

**The 2010 Solicitation used a lottery process, in which only half the applicants could receive Matching Grants.

*** In FY 2006, $111,816 was funded from the 2007 appropriation. In FY 2009 and 2010, awarded $ included de-obligated funds “recycled” and carried forward from previous years when some grantees did not meet requirements for receiving their Stage 2 payments.

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One NC Small Business Program – Businesses

Grantee's Main Business Activity

#

%

Biotechnology 74 30% Advanced Materials 30 12% Medical 25 10% Computer Software 24 10% Defense 22 9% Other 21 9% Education 13 5% Pharmaceuticals 7 3% Subassemblies/Components 6 2% Environmental 4 2% Photonics 4 2% Test & Measurement 4 2% Chemicals 3 1% Energy 3 1% Manufacturing Equipment 3 1% Telecommunications/Internet 2 1%

Total Grantees 245 100%

This grant program is an effective and efficient funding mechanism for the state because it leverages other invested money and takes advantage of collective vetting.

~Semprius, Durham & Henderson

I cannot overemphasize the value of this grant to our company, our research, and our success. To receive this kind of funding so early in our research gave us an enormous advantage over other companies.

~ManningRF, LLC, Chapel Hill

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One NC Small Business Program – Uses*

Type Matching $ % of Total

Wages and salaries $8,862,142 53% Equipment $1,984,994 12% Other $1,843,635 11% Supplies $1,637,191 10% Facility rental $1,000,130 6% Consultant fees $941,646 6% Computer software $370,991 2%

Total $16,640,729 100%

“In March of 2012, my company will celebrate its 6th full year of business. The future of my company is now brighter than ever. This is in no small way due directly to the Matching Funds program. I will always be thankful for the funds from the program and I hope that it is continued to help other small businesses like mine that just need that little bit of help to be successful.

~ GTCAllison, LLC, Mocksville

*Results from 1/2012 survey of all grantees

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One NC Small Business Program – Awards (245)

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One NC Small Business Program – Jobs*

Job Category Created Retained Professional/Scientific 120 144 Management 17 30 Technical/Technician 58 42 Skilled labor 19 15 Unskilled labor 19 7 Other 8 9 Total 241 246


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One NC Small Business Program – Leverage*

Additional Funding Count Dollars

Colleges/Universities 83 $600,000

Foreign investment 76 $125,000

Non-Profit 62 $435,000 Non-SBIR/STTR federal 103 $21,326,825

Other domestic company 116 $10,948,403

Other private equity 97 $11,613,000 Personal funds of company 97 $905,084

SBIR/STTR federal funding 95 $28,608,219

State or local governments 88 $1,807,250 U.S. venture capital 87 $6,700,000

Your own company 102 $2,237,500

Total 1,006 $85,306,281

9-to-1 return on the state dollar

Increased Phase II funding rate from 49% to 56% – six points above U.S rate of 50%

+Phase II SBIR/STTR Awards $73,313,803


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One NC Small Business Program – Sales*(from technology developed during project)

Total

Total sales of product(s), process(es), or services(s) expected during calendar year 2012

$37,826,500

Other sales (e.g., rights to technology, sale of spin-off company) expected during calendar year 2012

$19,488,000

Total $57,314,500


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One NC Small Business Program – Feedback*


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Strongly Disagree

Strongly Agree

Strongly Agree

One NC Small Business Program – Feedback*


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Part 3:Questions & Answers

Documents

Converting University Innovation into Jobs: Background and Overview of the Governor’s Innovation-to-Jobs (I2J) Initiative & the One NC Small Business Program