austin technology incubator

Discussion with UTEN

March 2011

Financial Sustainability of Incubatorsy

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Incubator Financial Sustainabilityy

Financial models:Financial models:1. Subsidized by government, public entities2. Funded by clients3 F fit d l3. For profit models4. Other?

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Incubator Financial Sustainability – ATI’s $2M t b i$2M cost basis

City of Austin $200k – $125k – Biosciences Wireless Incubator Incubator

Austin Energy $190k – Clean Energy Incubator

~$100k – Clean Energy Venture Summit

Texas State Energy Conservation Office

$100k – Clean Energy Incubator

$100k net – Clean Energy Incubator (syndication project)

U i it f T t $500k R t f i $100k (?) HR tiUniversity of Texas at Austin

~$500k – Rent forgiveness $100k (?) - HR, accounting back office overhead not charged

Members ~$400k Rent ~$100k Membership feesMembers ~$400k - Rent ~$100k – Membership fees

Other ~$100k Event sponsorships $25k - $50k gifts

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Incubator Financial Sustainability -S b idi dSubsidized

• ATI’s approach – approximately 65%+ of financial supportATI s approach approximately 65%+ of financial support is from City of Austin, Austin Energy, University of Texas, State Energy Conservation Office St lt h d d f di i k• Strong results have reduced funding risk• Non-profit status or government affiliation impedes

ability to take equity – either through investment or grants

• Early stage companies cannot pay enough cash to cover expensescover expenses

• Covers delayed returns from equity positions

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Incubator Financial Sustainability –Cli t’ PClient’s Pay

• Cash for rent direct services membership feesCash for rent, direct services, membership fees• Cash as “commission” for fund raising success (potential

legal issues)E it b d t th h it h• Equity-based returns through exits, however:• 5+ year delay• Low success rate• Unclear ability to take enough equity to matter• Risk is increased by investor funding

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Incubator Financial Sustainability – For P fit M d lProfit Models

• Y-Combinator TechStars etcY Combinator, TechStars, etc.• Take 5% - 20% of common equity• Provide small investment $10k - $25k

A f f i f “ f d i d ”• Arrange for free services from “preferred service vendors”• Direct link with venture capitalists for Series A funding• Ability to make follow on payments (this is key)• Near term cash covered by founders, partner investment

firms, service providers, corporate sponsors, etc.• Sustainability based on exits with ability to “protect” equitySustainability based on exits with ability to protect equity

stake

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Incubator Financial Sustainability –B i tBrainstorm

• “Side-car fund” with incubator as LP and/or GPSide car fund with incubator as LP and/or GP• Locally sourced funds or via partnership with existing

major investment firmDi id d it iti t t h til it• Dividends on equity position to generate cash until exit event (basically a transfer of cash from investors to incubator)

• Partnerships with global, top tier companies (incubator as outsourced R&D)

• ????????

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TTOs & Incubators

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UTA Organization Structureg

R h

UT - Austin

A d iResearch

IC2 Institute OTC

Academic

IC Institute OTC

ATI

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Interaction of UTA’s TTO and ATI – Case St d 1 A t C llStudy 1, ActaCell

• ActaCellActaCell• ATI met with faculty researcher, identified initial

commercial opportunity with facultyATI it d f di CEO• ATI recruited founding CEO

• ATI connected faculty and CEO with lead VC investors• ATI, ActaCell and investors jointly approached TTO

with well articulated technology, business plan, and existing startup requesting to license the technology

• ATI assisted in receiving State fundingATI assisted in receiving State funding

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Interaction of UTA’s TTO and ATI – Case St d 2 Wib lStudy 2, Wibole

• ATI and TTO met student founder via the “hatcheryATI and TTO met student founder via the hatchery class” – resulted in IP disclosure, prototype patent, first pass at commercialization planWib l ti i t d i ATI’ SEAL• Wibole participated in ATI’s summer SEAL program

• Wibole presented commercialization plan with initial market validation to TTO

• TTO agreed to pay for patents and license technology to Wibole (founded by student, co-founder was an ATI intern)intern)

• TTO and ATI making investor introductions• ATI assisting in developing investor, technology and

channel partner pitch

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channel partner pitch

Interaction of UTA’s TTO and ATI –P ti I t tiProgramatic Interaction

• WNCG hatchery classWNCG hatchery class• On campus wet lab• Idea to Product competition

3 D St t (i )• 3 Day Startup (in progress)• Entrepreneurship events (CEVS, TWS, WSSF,

Entrepreneur Lounge, Ready to Commercialize)

Most interaction is case driven and person-to-person

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ATI Selection Process

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Identifying Potential ATI Candidates

ATI engages with potential candidate companies through several channels:several channels:• Part of a prior ATI company (sometimes as CEO)• Referred by member of prior ATI company• Referred by local investor advisor or other• Referred by local investor, advisor, or other

entrepreneurial institution• Initial meeting via ATI hosted event• Cold call, email or application via website• UT via supported classes, entrepreneurial competitions, 3

Day Startup, referred by interns, referred by facultyDay Startup, referred by interns, referred by faculty

High Level Admission CriteriaThe due diligence efforts increase ATI’s effectiveness in serving the needs of the companies that can most benefit from our capabilities and our efficiency in managing resources. The ATI admission’s process has 2 primary tests:

Venture risk:

Do we think this ATI impact:

Can ATI addcompany has a good chance to succeed? (Team, technology

Can ATI add distinctive value to this company? (ATI capabilities,

t fit

ATI Admissions

technology, market evaluation)

management fit, equity price test)

The due diligence efforts highlight companies thatHave strong potential to generate new jobs and create wealth for Central TexasDirectly leverage ATI’s capabilities and knowledgeProvide educational opportunities for University faculty and students

ATI’s sweet spotATI s sweet spot

Cash flow

~75% success rate in getting ATI companies

f d d

Our key value add – a we surround

funded

Time“A” round funding and/or

a we surround these companies with talent that they otherwise could not

Seed funding

funding and/or market traction

afford to access

Due Diligence ProcessThe due diligence process consists of 4 decision gates and 3 research stages

Admission

Initial Internal Rec to SuccessDeep Dive Prepare for

2 weeks 4 weeks 4 weeksAdmission

PitchLead

Initial Screen

Internal Review

Rec to SC?

Success Committee

Basic Due Diligence

Due Diligence

Prepare for SC

DeclineDecline Decline Decline

No thank you note and

No thank you note and

Basic Due Diligence

Deep Dive Due Diligence

Director call and

Meeting with Director and selectfeedbackfeedback Results

Diligence Results

Pass Rate 50% 50% 40% 75%

Cumulative

discussion select Advisors

Cumulative 50% 25% 10% 7.5%

Time Req 20 hrs 15-30+ hrs 10-15 hrs

Growing the Austin Technology Incubatorg gy

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Requirements of Success of International St t i th USStart ups in the US

It can be extremely challenging for foreign startups to enterIt can be extremely challenging for foreign startups to enter the US market• Setting up a bank account with new legal entity• Hiring local talent, mixing with original team• Reference-able customers• IP ownership for public fundingp p g• Immigration & work visas

MUST have US presence to pursue US market and talent-base and perhaps for fund raising

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base, and perhaps for fund raising

Keeping ATI Relevant to Austinp g

“Market Making”

Sector-Specific Acceleration

Startup SupportSupport

1989 2001+ 2007+

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Keeping ATI Relevant to Austinp g

• “Board role”“Market Making”• Industry advisors

• Industry events • Investor events

Sector-Specific Acceleration

• Facilities• Advisor• Entr events

• Customer / partner network

• Deep dives

Startup Support

p

Support

1989 2001+ 2007+

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Keeping ATI Relevant to Austinp g

$2M“Market Making”

$450k $1.2M

Sector-Specific Acceleration~$200k

Startup Support

$

Support

1989 2001+ 2007+

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Keeping ATI Relevant to Austinp g

Startup Support

Sector-Specific Acceleration

“Market Making”Support Acceleration

•Wholesale

•Pecan Street Project•CEVS, TWS, WSSFS ti W b A ti•Wholesale

entrepreneurship trainingN t ki

•Semantic Web Austin•MobileMonday•symBIOsis

•Networking •CleanTX Foundation•Austin wet lab•UT web lab

1989 2001+ 2007+

UT web lab

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ATI 2.0 Full Stride

FY2008 FY2009 FY2010 TotalFY2008 FY2009 FY2010 Total# of Companies 24 29 32 48Jobs Created 152 110 50 312Funds Raised $28M $10M $29M $67MRevenues $1.1M $1.5M $2.6M $5.2MEconomic Impact $38M $20M $35M $93MEconomic Impact $38M $20M $35M $93M# of Events 36 30 50 116# of Touch Points 6,510 5,966 6,230 18,706

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