Focusing on the Goal: Funding for R&D Leading to Commercialization

Focusing on the Goal: Funding for R&D Leading to Commercialization Current Million Dollar SBIR Opportunities: Just a Pathway towards Your Goal Ray Friesenhahn SBIR & Technology Transition Manager TechLink is an Authorized U.S. Department of Defense Partnership Intermediary per Authority 15 U.S.C. 3715

Small Business Innovation Research (SBIR) $2.25 Billion federal set-aside for U.S. Small Businesses Small Business Technology Transfer (STTR) $290 Million federal set-aside for U.S. Small Businesses working with Universities or Not-for-profit Research Institutions

SBIR/STTR Overview 3-Phase Program: o Phase I: Feasibility Study o Typically 6-month, $80K - $150K o Phase II: Proof of Principal/Prototype o Typically 2-year, up to $1M (or more) o Phase III: Commercialization (or Transition to DoD) o No contract size limit o No SBIR/STTR funding o May be commercial sales or government contract/procurement o Possible Phase II Enhancement to get there

SBIR/STTR Overview o Federally mandated programs (since 1982/1992) for agency funding of small business (<500 empl.) R&D to develop new commercial products or services o Current Budgets: o SBIR: ~$2.25 Billion o 2.6% of extramural R/R&D for agencies >$100 M (FY17: 3.2%) o STTR: ~$290 Million o 0.35% of extramural R/R&D for agencies >$1 B (FY16: 0.45%) o Goal is commercialization of new innovations from U.S. small businesses

SBIR/STTR Highly Competitive Overall about 1 in 6 win Phase I For 1 st -timers, odds ~1:10 40 60 hours to write decent proposal Most companies lose money during Phase I Must prove feasibility and still compete for Phase II

SBIR Importance to the Nation Nation s most successful program in moving cutting-edge technology into the marketplace Many other nations now copying it Largest source of early-stage technology financing Results meet important societal and/or government and Defense mission needs SBIR companies produce over: 20X # patents/$r&d as universities 5X # patents/$r&d as large companies SBIR-backed firms responsible for ~25% of the nation s most crucial innovations over last decade

Companies Started with SBIR/STTR Funding

Started as GEMTech (1988) 1990 NIH Phase I SBIR ($50K) for Sonic Brush 1992 NIH Phase II: $500K 1995 changed name to Optiva Corp. Sonicare Toothbrush 2000: Optiva (Snoqualmie, Washington) had >600 employees, $175 million in annual sales Acquired by Phillips (2000)

irobot (Bedford, MA) 29 DoD SBIR/STTR awards (2001 2008) Total award value $9.2M Packbot (with bomb) Roomba (vacuum cleaner) 2010: 657 employees $400M annual sales $737M market value 34% annual growth

With one of the grants, we developed some of the first chips we did at Qualcomm.. making chips for cellphones is about two-thirds of our revenue today. -Irwin Jacobs Over 21,000 employees $15 billion sales (2011) 2011 1-yr growth: 36% sales, 21% employee Holds > 13,000 U.S. patents Pays more in taxes than SBA s annual budget!

Bridger Photonics, Inc. (Bozeman, MT) Late 2006: MSU Spin-out 1 of 3 founders had to leave MT for job 2011: Inc. 500 (#164) #1 of Top Engineering Companies 17 empl.; 18 SBIR awards ($4.6M) Commercial sales 20% of revenue World s highest resolution, fastest laser radar (LADAR) Helicopter landing, target ID, etc. Remote chemical detection Meth, CO 2 Laser 2012 Tibbetts award Meth chemicals Meth lab detection

Options for Financing an Innovative Technology Start-up Venture Capital (VC) Angel or Corporate Investors FFF Loans & Bootstrapping SBIR/STTR

Early-Stage Funding Levels: VC: Angels: FFF: Loans: SBIR: $4M $50M+ (~$28B for 2011) $200K - $1M (20% - 40% equity) $5K - $100K ($50B overall) $0~$250K (with good collateral) $80K - $1M +++ ($2.2B overall)

VC Issues: Looking for ROI: >10X 5 years Need Scalability, Exit Strategy Funded ~1/400 business plans (past) Odds of getting VC <1% VCs looking for team experience Performance-driven (ruthless) ~50% of founders forced out in 1 st year VC need to bring value to your Board Earlier stage = more equity to VC 20-Minute Rule

$120 $100 VC Funding in the U.S. PricewaterhouseCoopers MoneyTree Report $80 Billions $60 $40 # of Deals $20 $0

Regional VC & SBIR Funding PricewaterhouseCoopers MoneyTree Report Millions $1,400 $1,200 $1,000 $800 $600 $400 57 56 107 102 92 132 104 Minnesota Wisconsin 66 64 62 58 62 # of VC Deals 80 67 48 48 58 Millions 30 25 20 15 10 South Dakota North Dakota Montana 2 4 5 4 2 3 4 # of VC Deals 7 7 4 2 3 4 $200 5 1 1 1 Millions $- $80 $70 $60 $50 $40 $30 $20 Minnesota Wisconsin 128 116 115 108 112 112 102 # of SBIR/STTR Awards 143 162 153 141 186 157 156 156 157 Millions 0 $14 $12 $10 $8 $6 $4 0 South Dakota North Dakota Montana 40 44 28 24 19 19 16 # of SBIR/STTR Awards 56 50 48 42 41 46 38 40 39 $10 $2 $0 $0

SBIR/STTR Eligibility Requirements o Small by SBA definitions: <500 employees including all affiliates (note VC ownership issues) o For-profit o At least 51% owned & controlled by U.S. individuals (see Program Status re:vc/hf/pefs) o Primary employment of the PI must be with the small business firm at the time of the award and during the conduct of the proposed effort (or with Research Institution for some STTR) o All work must be done in U.S. (except with special approval)

SBIR/STTR Program Status o SBIR & STTR Reauthorized to FY2017 o Increase in SBIR/STTR allocations o SBIR 2.6% in FY12, increasing 0.1% per year to 3.2% in FY17 o STTR went from 0.3% to 0.35% in FY12 & FY13, to 0.45% in FY16 o Increase in SBIR/STTR Award Sizes o Phase I up to $150K o Phase II up to $1M o Some agencies set much smaller award limits o Award limits may be exceeded by up to 50% (more with waiver) o Previously ineligible firms may participate o Small firms majority owned by multiple venture capitalists, hedge funds and private equity funds (VC/HF/PEFs) o Up to 25% of SBIR awards at NIH, DOE, NSF, 15% other agencies

How Small is Small? o 69% of Phase I SBIR award winners were 20 or fewer employees o 41% of Phase I SBIR award winners were 10 or fewer employees

Company Size Distribution: NASA Phase I SBIR Awards NASA SBIR: About 1/3 are 1 st -time awardees Recent NASA SBIR Award Statistics

SBIR/STTR Summary Info: SBIR STTR Total Ann. Amt. ~$2.25 Billion ~$290 Million Agencies 11 5 (DoD, DOE, NIH, NASA, NSF) Phase I (~15% win, much higher for STTR) Typically to $150K Usually 6 months Phase II (~40% win) Typically to $1M 24 months Typically $150K Usually 12 months Up to $1M 24 months (University) Phase I: Subcontracts Phase II: Allows up to 1/3 Allows up to 1/2 Requires 30 60% Requires 30 60%

Participating Agencies Agency Programs Budget Type DoD SBIR/STTR $1.2 B / $135 M Contracts HHS/NIH SBIR/STTR $571 M / $69 M Grants +Contracts DOE SBIR/STTR $128 M / $13 M Grants NASA SBIR/STTR $124 M / $14 M Contracts NSF SBIR/STTR $96 M / $11 M Grants DHS SBIR/ - $18 M Contracts (S&T/DNDO) USDA SBIR $18 M Grants DOC SBIR ~$9 M Contracts (NOAA & NIST) EPA SBIR $7 M Contracts DOT SBIR ~$6 M Contracts DoED SBIR ~$8 M Grants & Contracts

Contracting Agencies Grants vs. Contracts: o Highly focused topics o Agency establishes plans, protocols, requirements o More fiscal requirements o Subject to FARs, DFARs o Restricted communications o Agency may be buyer procurement mechanism for DoD, NASA o Usually line-reviewed Granting Agencies o Less-specific topics o Investigator initiates approach o Assistance mechanism o More flexibility o More open communication o Usually peer-reviewed

Line Review Line Review vs. Peer Review: o Contracting agencies (DoD, NASA, DHS) use SBIR to develop new technologies they need, want to eventually buy o Dual-use is important o Program Manager and knowledgeable cohorts review proposals o Personal knowledge, insider perspective useful Peer Review o Markets and approach defined by submitter, meeting societal need of interest to agency o Technical reviews by outside experts, usually university faculty o Some use separate business review panel o Agency PM makes final decision

General Agency Differences: DoD 12 participating DoD Components o o Each with its own culture, needs, requirements, and SBIR solicitation (6 with STTR) Organizations within Services may vary as well FY10 SBIR (STTR) $ Topics Ph I proposals Ph I awards Award Rates Ph II awards Navy $343M ($41M) 232 (50) 4,098 (804) 666 (151) 16.3% (18.8%) 310 (46) Air Force $331M ($40M) 181 (37) 2,494 (309) 501 (125) 20.1% (40.5%) 282 (59) Army $244M ($29M) 176 (29) 3,240 (446) 434 (64) 13.4% (14.3%) 202 (22) MDA $90M ($11M) 35 (4) 553 (33) 126 (25) 22.8% (75.8%) 77 (12) OSD $86M ($6M) 64 (6) 915 (54) 143 (9) 15.6% (16.7%) 41 (3) DARPA $67M ($8M) 27 (0) 833 (0) 107 (9) 12.8% (N/A) 127 (16) CBD $15M 10 127 21 16.5% 19 SOCOM $10M 8 142 23 16.2% 6 DTRA $8M 17 307 21 6.8% 5 DLA $2.4M 1 55 6 10.9% 2 DMEA $2.2M 2 35 4 11.4% 0 NGA N/A 0 0 0 N/A 0

General Agency Differences: DoD General DoD Descriptions o o o o o o Primary focus is on the warfighter o Additional service requirements also Topics may cover nearly any technology area o Many medical topics in Army/DHP solicitations DARPA seeks most advanced technologies o o o Moving back to longer-range insertion Applicants should show strong connections to Service users DARPA PMs typically serve 4 years, often adopt other Phase II proposals SOCOM wants quick deployment of practical technology Other Services in-between in level of technology Navy has had most successful Phase III program o Other Services modifying programs to improve transition

Current DoD SBIR (2012.2): Blackout Date: May 24 th (Thursday) Proposals Due: June 27 th (6 am EDT) Participating Components: Department of the Army (Army) 29 topics Department of the Navy (Navy) 45 topics Chemical and Biological Defense Program (CBD) 8 topics Defense Advanced Research Projects Agency (DARPA) 10 topics Defense Health Program (DHP) 16 topics Defense Logistics Agency (DLA) 2 topics Defense Microelectronics Activity (DMEA) 1 topic Defense Threat Reduction Agency (DTRA) 20 topics Missile Defense Agency (MDA) 27 topics Topic Search at www.dodsbir.net/topics/ or www.zyn.com/sbir

Current DoD SBIR (2012.2):

Current DoD SBIR (2012.2): General Approach: Read the Preface (General DoD Instructions) Read the Component Instructions Component instructions supersede general instructions Get an understanding of Component and Organization: e.g. Army Participating Organizations: Aviation Missile RD&E Center (AMRDEC A) Aviation Missile RD&E Center (AMRDEC M) Army Test & Evaluation Command (ATEC) Engineer Research & Development Ctr (ERDC) Natick Soldier RD&E Center PEO Aviation PEO Command, Control and Communications Tactical (C3T) PEO Missiles and Space PEO Soldier Research topic, then talk to the TPOC before Blackout!

Current DoD SBIR (2012.2): General Approach (cont.): Online Cover Sheet Counts as Pages 1 & 2 Can be updated until deadline Technical Abstract (200 words max) is a critical part Anticipated Benefits (no word limit) emphasize benefits to specific military Component, include civilian market value Online Cost Proposal Does NOT count against page limits Review descriptions, include Explanatory Material for you and any subcontractors or consultants

Current DoD SBIR (2012.2): General Approach (cont.): Online Company Commercialization Report (CCR) NOT the same as Central Contractor Registration (CCR) Does NOT count against page limits Only basic info required for those w/o prior Phase II s Optional Add a Brief Narrative allows up to 5 pages of useful information related to your experience or history relevant to your ability to successfully commercialize the results of this SBIR. CCR does not close at submission deadline May not be downloaded for reviewers until several days after submission deadline.

Current NSF SBIR: Proposals Due: June 19 (5 pm local) Topics: Biological and Chemical Technologies (BC) Education Applications (EA) Electronics, Information and Communication Technologies (EI) Nanotechnology, Advanced Materials, and Manufacturing (NM) Phase I $150K, Phase II $500K (may increase?) Submit via FastLane (get familiar with it soon) Approx 100 Phase I awards (for 69 broad topics) Strong Science & Commercialization Focus Letters of Support Strongly Encouraged! Limit 2 Proposals/Company, 1/PI

NSF: Bio., Biomed., Enviro. & Chem. Techs BT1 - Biosensors BT2 - Life Sciences Research Tools BT3 - Bioinstrumentation BT4 - Synthetic Biology and Metabolic Engineering BT5 - Fermentation and Cell Culture Technologies BT6 - Computational Biology and Bioinformatics BM1 - Materials for Biomedical Applications BM2 - Diagnostic Assays and Platforms BM3 - Drug Delivery BM4 - Tissue Engineering and Repair BM5 - Biomedical Engineering BM6 - Medical Imaging Technologies ET1 - Environmental Pollution Mitigation and Waste Treatment ET2 - Bioenergy ET3 - Renewable Fuels and Energy CT1 - Energy Storage, Management and Use CT2 - Bio-Based Chemicals and Renewable Chemical Process Technology CT3 - Separation Technologies CT4 - Polymeric Materials CT5 - Novel Catalytic Process Technology

Planning Ahead for SBIR Success: o Phase I is Required Step, Not Objective o Most companies actually lose money in Phase I o Phase I required before Phase II o Phase II Much More $$ - Still Just a Step o Strong Commercialization Plan is one key to winning o Need to show intent and ability to develop the product or service and get it to the customer (market). o Commercialization is Goal o Commercial or other sales o Follow-on gov t contracts for DoD, NASA, others Phase III

Key Requirements for SBIR Success: o Innovation o New Product or Technology o New Application of Existing Technology o Research o Research of the Feasibility of the Project o Not Market Research o Not Strictly Product Development o Commercial Applications o Societal Need and Commercial Potential o Specific Agency Need and Dual Use

Additional Needs for Winning SBIR: o Proposal Writing Skills o Blending of Business & Technical/Scientific Proposal o Tip: Start with the Commercialization Plan o Hiring a Proposal Writer Usually Not a Good Choice o Having a reviewer and/or technical editor is very helpful o Know Your Customer! o Significant Agency Differences in Proposal Requirements, Technical Focus, Evaluation Process o For Line Review Agencies (e.g. DoD, NASA, DHS) Personal Knowledge, Interaction, & Relationships are Much More Important

Partnering for SBIR (& Business) Success o Few small businesses have all the skills and resources required to convince reviewers of their ability to innovate, develop viable new technology, and successfully commercialize it: o Research experience, lab facilities o Marketing skills o Manufacturing capabilities o Government accounting experience o Access to new, relevant markets (and servicing them) o The most successful firms are best at partnering!

Consider a First Strategic Partnership: The single greatest factor for SBIR (Phase I) success is partnering with a research institution (such as a university). - Observation noted by top SBIR experts and Program Managers

Transition: Critical Focus for DoD SBIR Goal is to convince the customer (DoD reviewers) that you have a clearly defined pathway to their end-product: Credible R&D Capability Strategic Partnerships Alliances with appropriate Primes Thorough familiarity with customer s need and product use Primes $ Partnerships $ Transition: Bridging the Gap from R&D to Systems Applications $

Key Phase III Contracting Advantage DoD Perspective: If a Program Manager can get a needed technology faster, and with less paperwork Note: Phase III contracting advantages can be novated to a company acquiring the SBIR firm. Per SBIR Program Policy Directive: For Phase III, Congress intends that agencies give preference, including sole source awards, to the [SBIR] awardee that developed the technology. SBA will report such instances [contracts to other than SBIR awardee] to Congress. Per FAR Part 5 (5.202), Exceptions [to publicizing federal contracts]: (7) The proposed contract action results from acceptance of a proposal under the Small Business Innovation Development Act of 1982 (Pub. L. 97-219)

Additional Key to DoD SBIR Success Build long-term relationships with appropriate DoD labs and organizations o Plan to be in for the long haul o Seek, build mutually beneficial relationships o CRADAs, Licenses, other Partnerships o Emphasize Service, Value to DoD and the Warfighter o Other funding opportunities may arise o Potential slice of the pie, vs. SBIR seed money o Plan for Dual-Use Success!

SBIR Timeline & Client Example

Timeline: SBIR to Commercialization Perfect Match SBIR topic posted Phase I Award Phase II Award Ideal Case: Phase II Enhancement Year 1 Year 2 Year 3 Year 4 Company: Experienced, Competent, Capable, Focused, Aggressive Prime Contractor / Commercial Partner: Relevant Contract, Technical Need, Eager to Partner, Willing to work with small business Initial Product Introduction (Software)

Client Example: Visual Learning Systems, Inc. Transition Success: Feature Analyst TM Software Technology: Software for automated feature extraction in hyperspectral or panchromatic images. Learning algorithms are orders of magnitude faster than manual digitizing, also easy to train. Developed under multiple SBIRs: 3 NASA SBIR awards, 3 NSF Army TEC Ph. I & II, NAVAIR Ph. I & II CRADAs & Partnerships with Gov t: Army TEC & NUWC CRADAs NASA TCA NIMA & NRO partnerships Partnered with Primes: ESRI, Leica, BAE, Intergraph Chosen by NGA for deployment across all NGA s Integrated Exploitation Capability (IEC) workstations Now Dual-Use (Commercial & Military) Success!

Timeline: Feature Analyst Transition TCA with NASA JPL 1998 NASA Stennis Phase I NASA Stennis Phase II NIMA Big Ideas NASA JPL Phase I NRO Fastmax NUWC CRADA NIMA BAA Army TEC Phase I award NRL contract Army TEC CRADA Army TEC Phase II award NSF Phase II NAVAIR Phase I award Army TEC Phase I award 1999 2000 2001 2002 2003 2004 2005 NAVAIR Phase II award Army TEC Phase II award Overwatch Textron Acquisition New Company: Visual Learning Systems Company: Integrated Geosciences USFS Testing ESRI partnership Feature Analyst for ArcGIS BAE Systems partnership FA for SOCET SET Leica Geosystems partnership FA for ERDAS $325M NGA Product Adoption (Integrated Exploitation Capability)

o Sign up for PNNL s free SBIR Alert: o Getting Started in SBIR/STTR http://www.pnl.gov/edo/opportunities/sbir.stm o Attend SBIR conferences and workshops as able o Network at relevant industry & technology conferences o For Defense, check out NDIA o Other relevant SBIR resources: o SBIR Gateway: www.zyn.com/sbir o Insider news, agency links, calendar, and best historical topic database to search - can help determine relevant agency interests, find DoD contacts. o SBIR.gov Official central government SBIR website o Greenwood Consulting Group, proposal writing tips: o http://www.g-jgreenwood.com/sbir_proposal_writing_articles.htm

Contacts: Becky Aistrup SBIR/STTR Program Director Minnesota Science & Technology Authority (651) 259-7634 becky.aistrup@state.mn.us www.mnscienceandtechnologyauthority.org Ray Friesenhahn SBIR & Technology Transition Manager TechLink (406) 994-7726 rayf@montana.edu For other state contacts: http://sbir.gov/state-contacts