Copyrighted 2000-2008All Rights Reserved
… into the Valley of Death:
examining the ‘Business of
SBIR Phase III’ Ann Eskesen, President
Innovation Development InstituteVoice: (781) 595-2920
Federal Laboratory ConsortiumMid-Atlantic Regional MeetingSeptember 15-17Cumberland, MD
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SBIR-STTR: at a
crossroads
…because the world is a fundamentally different place
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…that the current SBIR political challenge (and economic need) is that of bringing the program
into the 21st century…. to maintain SBIR relevance
in the world in which all of those involved must now do
business
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Organizing premise and take-home message of presentation:
…that the recent political furor surrounding the issue of SBIR-STTR eligibility by VC-funded firms is actually not about eligibility - or really perhaps about VC per se at all. …that it is more about the potentially crippling Valley of Death issue - how to fund the demonstration (Phase III) work that comes post R&D and before full use-condition
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Organizing premise and take-home message of presentation cont:
… that if we can effectively address how to get quality SBIR projects from Phase II into Phase III, that we can truly realize the value of what SBIR has created.
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…realizing the value of SBIR
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re·al·ize (rē'ə-līz') v. To comprehend completely or correctly. --Reviewing the full record of the program across all the
agencies, he finally realized the range and extent of the SBIR impact on the economy.
--We realized that among this wide array of projects are many directly relevant to our current concerns.
To obtain or achieve, as gain or profit: --She realized a substantial return on the investment
made in that SBIR-involved firm. --Licensing by fields-of-use not core to their own needs,
enabled the Awardee to realize far more of the value of their developed technology(ies). Cash straight to the bottom line
Copyrighted 2000-2008All Rights Reserved
Synopsis of presentation Overview of the Innovation Process as a full cycle
of endeavorExamination of how that is currently playing out
in the SBIR-STTR context with consideration ofo what are probably the real factors driving the
current VC-SBIR eligibility issue ando implications for program management and
public policy matters If there is time, a brief look at what the next
generation of SBIR needs to look like - and why I think it might actually happen
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SBIR-STTR as a mirror for prevailing conditions:
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What this presentation is NOT about is--how-to cross the Valley --or how to help others do that -
with or without the requisite bottle of water
Instead the approach is look at some of the issues involved such that those of us in the Tech Transfer/Tech Development community can get our arms around what this is about .. and perhaps be able to do something about it.
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Probably more questions than answers
…. but hopefully thought-provoking
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SBIR is NOT a closed systemx
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Proposal I: practical near-term objective
Not to be achieved by increase in SBIR percentage. DOA proposal
A different need requires a different type and pool of funding explicitly designated as ‘transition’ dollars
Not ‘new’ money - not in this economy and with these deficits
An SBIR-like percentage against existing ‘technology deployment’ funding. DHS
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Proposal II: more blue-sky but longer-term, much more importantThat the next administration and the 111th Congress need to initiate a serious discussion on how this country supports, encourages and manages technology innovationEquivalent to the 1980 White House Conference on Small Business?? -- the type of approach to important policy decisions which directly engages those affected by those decisions - in this case, technology innovation stakeholders.
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SBIR: a mature program:
An impressive track record economic impact and technological innovation
Some examples:
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SBIR Community members:Across range of technology and industry space, some currently high name-recognition and/or important product developing firms having (had) various levels of SBIR involvement.
Millennium Pharma
Qualcomm.
Amgen
Genzyme
Titan
ABIOMED
Geron
Chiron Corporation
Affymatrix
iRobot Corporation
Aerovironment
Neocrine Bioscience
Stem Cells IncAmorworks Inc
Symantec
AMTI
American Biophysics - Mosquito Magnet
IPEX CorporationJarvick Heart, IncA123 Systems
JDS UniphaseNanosys, Inc
Biogen (Idec)
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A knowledge-based economy
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SBIR signed into lawJuly 21,1982
DJIA 832
September 11, 2008DJIA 11,433
Tracking the Dow-Jones Industrial Average 1960-present
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Setting SBIR Patent Issuance in Context:
0
500
1000
1500
2000
2500
1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
0
1000
2000
3000
4000
5000
Total SBIR-STTR Awardees
Awardees New to Program
SBIR-STTR Awardee Patents
Patents issued to US Universities
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SBIR-STTR patent portfolio To date SBIR involved firms have
issued almost 70,000 US domestic patents.
100,000 related international patents About 20,000 more in the applications
pipeline An estimated 25,000-34,000 more that
are in-licensed
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Data as of August 2008Whole SBIR-
STTR ProgramFirms with
PatentsFirms Without
Patents
Number of SBIR-STTR Awardees 17,558 5,848 11,710Percentage of All Awardees 33.31% 66.69%Number SBIR-STTR Awards 77,667 47,158 30,509Percentage of All Awards 60.72% 39.28%Average Number of Awards per Awardee 4.42 8.06 2.61
Comparing the extent of SBIR-STTR Activity among Patenting Awardees versus those holding No Patents.
8.06 vs 2.61SBIR-STTR Awards
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Data as of
August 2008.
All current SBIR-STTR awardees
with patents
Firms with Venture Capital
Firms with no External
InvestmentNumber of patenting firms among currently SBIR-STTR-active
2,353 525 1,828Percentage of those currently SBIR-STTR involved issuing patents
22.31% 77.69%Number of Issued Patents 25,695 12,695 13,000Percentage of All Issued Patents 49.41% 50.59%Average Patents per Awardee 10.92 24.18 7.11
Comparison of Extent of Issued Patents among Currently Active SBIR-STTR Awardees: VC Funded SBIR Awardees
versus those with no external investment
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SBIR enabling legislation:Originally enacted in 1982, legislation requires all federal agencies with an annual extramural R&D budget in excess of $100 Million to allocate a legislated percentage of that budget into a program for which only small firms are eligible to compete.
Since 1992, that SBIR percentage sometimes referenced as the SBIR ‘tax’-
has been at 2.5%
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Show me the money….
… now $2.2+ Billionannually of bottom-line money
no debt to service no outside ownership
no downstream royalties to pay
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Year Span Total SBIR-STTR Dollars % of all SBIR-STTR Dollars
1983-1987 $1,586,697,642 6.30%1988-1992 $2,797,635,102 11.11%1993-1997 $5,180,414,479 20.57%
1998-2002 $7,493,715,518 29.75%
2003-2008 $8,128,611,484 32.27%
Dollar Totals
Percentage all SBIR-STTR program $$$ 100.00%
SBIR-STTR Dollar Allocations in Five-Year Increments
$25,187,074,225
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Primary objective of SBIR program
Conversion of Research & Development into
technological innovation and in-use condition.
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Definition of Innovation:The process of taking an idea for a new product or new process through all the stages of:
Research DevelopmentDemonstration
… into use-condition… into use-condition
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Taking the long-term view...
What will it take to get from here to there?
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Science versus technology
Invention versusInnovation
Eureka - I found it!Epolesa - I sold it!
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Invention versusInnovation
What is the “it” that an SBIR-
involved firms is
now assumed to be selling?
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Important Differences between Federal Agencies re. their R&D funding objectives and the Pertaining Phase III Issues
Type of Agency Objective Agencies
Mission Primary focus is on meeting the agencies OWN technology needs. Agency is a (the) primary customer for what is being solicited
DOD; NASA and DHS … plus parts of DOE, EPA and DOT
Contractual obligation
R&D Supporting
These sources are explicitly charged to funding scientific endeavor to push out the boundaries of knowledge. Rarely, if ever, will they buy the results of the work they fund. In fact, in-house R&D may be a major focus of their R&D efforts.
NIH and NSF … plus most other smaller
agenciesGrant funding mechanism
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Being SBIR-Involved has always fundamentally been about Raising the Money
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What type of money? And how much?The answer to these two will also drive the critical third question
From whom?
Idea
Technological risk
Marketpenetration
ProductdevelopmentPrototype Development
development
Proof of concept
SBIR
Phase IPhase II
The Innovation Process
Capital Requirements
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Rule of SevenAn accepted industry rule–of-thumb used to make preliminary assessment of the likely cost of a high-risk project::Research function: Phase I….…$1Development stage: Phase II ….$7
Though it matches the SBIR-STTR model, this formula actually came out of industry.
Typically such projects require 7X7 i.e. multiples of $49 to support the other "D" in the technology development cycle - Demonstration.
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SBIR Program Structure
IMPORTANT: Successful completion of Phase I is a basic prerequisite for Phase II consideration
Phase I
Phase II
Phase III
• Scientific and technical feasibility proposal (25 pgs) in response to agency-defined research needs described in solicitation
• Evaluation includes scientific/technical review AND preliminary assessment of commercialization (end-use) plans and objectives.
• Special consideration of 15 awards/5 year firms• Award dollars up to $100,000 (NIH commonly larger) • Duration of project - SIX months
• Primary effort of project - usually assume to protoype stage • Scientific and technical evaluation. Also major consideration
of proposed commercialization plans with assessment of success of firm’s previous commercialization efforts.
• About 40% Phase I to Phase II conversion (though of those which
actually apply for Phase II consideration, approxiamtely 70% are funded)
• Award dollars up to $750,000 (NIH commonly larger) • Duration of project - TWO-THREE years
• commercial market development using appropriate private sector resources• government application under some form of non-SBIR federal procurement
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An implicit and fundamental assumption of those who crafted SBIR was always that monies other than SBIR would support that post R&D effort The funding pool was R&D The size of that pool was judged never
likely to be enough to support that very expensive Phase III demonstration effort
Making those type of commercial application, business decisions was not an appropriate federal role
Idea
Not SBIR dollars
Technological risk
Marketpenetration
ProductdevelopmentPrototype Development
development
Proof of concept
SBIR
Phase IPhase II
The Innovation Process
Capital Requirements
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SBIR Program Structure
IMPORTANT: Successful completion of Phase I is a basic prerequisite for Phase II consideration
Phase I
Phase II
Phase III
• Scientific and technical feasibility proposal (25 pgs) in response to agency-defined research needs described in solicitation
• Evaluation includes scientific/technical review AND preliminary assessment of commercialization (end-use) plans and objectives.
• Special consideration of 15 awards/5 year firms• Award dollars up to $100,000 (NIH commonly larger) • Duration of project - SIX months
• Primary effort of project - usually assume to protoype stage • Scientific and technical evaluation. Also major consideration
of proposed commercialization plans with assessment of success of firm’s previous commercialization efforts.
• About 40% Phase I to Phase II conversion (though of those which
actually apply for Phase II consideration, approxiamtely 70% are funded)
• Award dollars up to $750,000 (NIH commonly larger) • Duration of project - TWO-THREE years
• commercial market development using appropriate private sector resources• government application under some form of non-SBIR federal procurement
Phase I already requiring evidence of pre-submission work done
Phase II - major indication of commercialization plan
More and more of the work which was previously assumed to happen in Phase II now isn’t viewed that way
To an important extent, Phase II has become Phase III
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Turning innovation into dollars: only seven options
Outright sale of technologyVarious forms of out-licensingJoint venture and/or collaborationsStrategic alliances
New products/processes for firmSpin-off technology to new
business entity
Donation of the technology
Raise external capital
Generates income to the firm
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Raise external capital
Awards to VC
Funded Firms
Total Awards
% SBIR dollars to VC funded firms
Awards to VC Funded Firms
Total Awards
% SBIR dollars to VC funded firms
Awards to VC
Funded Firms
Total Awards
% SBIR dollars to VC funded
firms
Awards to VC
Funded Firms
Total Awards
% SBIR dollars to VC funded
firms
Awards to VC
Funded Firms
Total Awards
% SBIR dollars to VC funded
firms
Awards to VC
Funded Firms
Total Awards
% SBIR dollars to VC funded firms
1983 14 288 4.86% 15 144 10.42% 9 105 8.57% 6 106 5.66% 9 103 8.74% 1 52 1.92%
1984 29 372 7.80% 23 232 9.91% 9 125 7.20% 9 102 8.82% 8 107 7.48% 4 74 5.41%
1985 43 555 7.75% 80 433 18.48% 12 150 8.00% 12 109 11.01% 14 125 11.20% 3 103 2.91%
1986 70 1022 6.85% 75 425 17.65% 15 168 8.93% 9 101 8.91% 16 152 10.53% 4 117 3.42%
1987 113 1265 8.93% 58 365 15.89% 19 207 9.18% 12 113 10.62% 24 156 15.38% 5 125 4.00%
1988 111 1086 10.22% 55 338 16.27% 27 228 11.84% 10 134 7.46% 29 183 15.85% 4 113 3.54%
1989 122 1078 11.32% 83 445 18.65% 29 257 11.28% 17 157 10.83% 30 168 17.86% 4 116 3.45%
1990 125 1365 9.16% 96 459 20.92% 26 290 8.97% 12 169 7.10% 30 195 15.38% 8 134 5.97%
1991 138 1347 10.24% 109 516 21.12% 37 302 12.25% 16 172 9.30% 30 215 13.95% 3 150 2.00%
1992 126 1101 11.44% 108 578 18.69% 45 349 12.89% 13 198 6.57% 34 263 12.93% 11 174 6.32%
1993 142 1283 11.07% 112 644 17.39% 34 378 8.99% 17 168 10.12% 45 318 14.15% 9 183 4.92%
1994 164 1397 11.74% 142 660 21.52% 40 438 9.13% 29 269 10.78% 35 301 11.63% 9 197 4.57%
1995 158 1390 11.37% 170 725 23.45% 40 333 12.01% 25 221 11.31% 51 300 17.00% 12 249 4.82%
1996 136 1364 9.97% 150 651 23.04% 32 388 8.25% 23 192 11.98% 30 267 11.24% 8 175 4.57%
1997 173 1495 11.57% 194 868 22.35% 34 385 8.83% 30 216 13.89% 28 231 12.12% 15 251 5.98%
1998 133 1487 8.94% 163 829 19.66% 26 344 7.56% 18 217 8.29% 31 249 12.45% 20 206 9.71%
1999 132 1449 9.11% 199 952 20.90% 18 308 5.84% 25 222 11.26% 26 264 9.85% 21 227 9.25%
2000 108 1365 7.91% 267 1129 23.65% 18 300 6.00% 14 221 6.33% 12 131 9.16% 23 249 9.24%
2001 110 1619 6.79% 177 988 17.91% 24 328 7.32% 18 235 7.66% 26 220 11.82% 13 212 6.13%
2002 165 2274 7.26% 203 1029 19.73% 21 296 7.09% 18 247 7.29% 38 328 11.59% 12 245 4.90%
2003 174 2049 8.49% 265 1157 22.90% 26 354 7.34% 17 236 7.20% 52 414 12.56% 11 169 6.51%
2004 182 2569 7.08% 244 1286 18.97% 14 327 4.28% 13 309 4.21% 16 165 9.70% 28 230 12.17%
Totals 2668 29220 9.13% 2988 14853 20.12% 555 6360 8.73% 363 4114 8.82% 614 4855 12.65% 228 3751 6.08%
Percentage of SBIR-STTR Awards to VC Funded Firms SBIR-STTR Awarby Agency and Year 1983-2004
Smaller to include DHSDOD NSFDOENASANIH
Copyrighted: Innovation Development Institute,
Swampscott, MA 2008 All Rights Reserved
Venture Capital interest in SBIR is not a new
phenomenon
Extent of SBIR-Involvement by VC-Funded firms: Break-
out by Agency 1983-2007
Copyright Innovation Development Institute 2005-2008. All Rights Reserved
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
Aggregate NIH
NSF DOD
NASA DOE
Smaller
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SBIR-STTR AgencyTotal Number
of Awardees
Number VC
Funded
Awardees
Percentage of All
Awardees that
are VC-Funded
Number of
Awardees
Currently SBIR-
Active
Number VC-
Funded,
Currently
SBIR-Active
Percentage of
Current Awardees
that are VC-Funded
% of all current
VC Funded, SBIR-
STTR active firms
with agency
involvement
Department of Air Force 3379 265 7.84% 1330 113 8.50% 13.80%
Department of Navy 3146 242 7.69% 1158 84 7.25% 10.26%
Department of Army 2779 252 9.07% 1120 121 10.80% 14.77%
Missile Defense Agency 1582 165 10.43% 591 64 10.83% 7.81%
Defense Advanced Research Projects Agency 1528 180 11.78% 386 53 13.73% 6.47%
Office of Secretary of Defence 711 70 9.85% 407 44 10.81% 5.37%
Defense Threat Reduction Agency 228 16 7.02% 65 5 7.69% 0.61%
Special Operations Command 226 21 9.29% 119 13 10.92% 1.59%
Chemical & Biological Defense 140 21 15.00% 82 16 19.51% 1.95%
National Geospatial-Intelligence Agency 24 3 12.50% 11 2 18.18% 0.24%
All Department of Defense 7780 578 7.43% 3114 286 9.18% 34.92%
National Institutes of Health 6066 1033 17.03% 2515 482 19.17% 58.85%
National Aeronautics & Space Administration 2345 171 7.29% 696 55 7.90% 6.72%
Department of Energy 1693 166 9.81% 572 55 9.62% 6.72%
National Science Foundation 2662 287 10.78% 838 98 11.69% 11.97%
USDA 1027 74 7.21% 351 31 8.83% 3.79%
Department of Commerce 468 45 9.62% 73 7 9.59% 0.85%
Environmental Protection Agency 437 34 7.78% 127 14 11.02% 1.71%
Department of Education 487 18 3.70% 117 6 5.13% 0.73%
Department of Transportation* 406 23 5.67% 40 0 0.00% 0.00%
Department of Homeland Security 198 26 13.13% 198 26 13.13% 3.17%
Setting these data in context:
Copyrighted 2005-2007. Innovation Development Institute, Swampscott, MA 01907. All Rights Reserved
* Not able to access DOT current data. These numbers therefore are incomplete and do not reflect extent of VC activity in DOT involved firms at this point.
Total number of SBIR Awardees over life of program to date is now 16.953 firms .
1645 SBIR Awardees to date have been in receipt of VC Funding at some level. Though these data do include a fair amount of Angel funding, given the lack of any
systematic way to track Angel investment in all its iterations, it can be assumed that this fo
814 VC-Funded firms are currently active in the SBIR-STTR program
1796 VC Entities have SBIR-STTR involved firms in their porfolios. About 250 of these funding sources have been/are seriously SBIR firm involved I.e. an important
percentage of their portfolios are these firms.
Distribution of VC Funded Awardees
among SBIR-STTR Participating Agencies1983-present Currently Active
Since these data are across all agencies and many firms are involved in several agencies, totals exceed 100%.
DOD 34.92%
NIH: 58.85%
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Total VC funding in SBIR-STTR firms is now in region of
$35-38 Billion
Wealth creation:
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Total VC Funding Source: PriceWaterhouseCoopers; Thomson Venture Economics & NVCA MoneyTree Survey SBIR Funding source: Innovation Development Institute Comprehensive 4D tracking system
SBIR VC Dollars (in Billons)
All VC Funding (in Billons)
SBIR VC Investment as Percentage of all US VC
Funding
2000 $2.80 $104.70 2.67%2001 $3.00 $40.62 7.39%2002 $3.16 $22.03 14.34%2003 $2.72 $19.74 13.78%2004 $2.99 $22.46 13.31%2005 $3.02 $23.00 13.13%2006 $3.13 $26.55 11.79%2007 $3.28 $29.41 11.15%
SBIR VC Funding as Percentage of all VC Funding in US 2000-2007
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Between 2002-2007 approximately ONE in every
SEVEN Dollars of VC Investment in the US has involved an SBIR firm
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Of these awardees, 1,724 have received Venture Funding
Total Number of SBIR-STTR awardees to date: 17,590
Doing some of the SBIR-VC numbers (September 2008)
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Doing some of the SBIR-VC numbers cont (September 2008)
Over the life of SBIR
9.8%of all SBIR Awardees
are VC-Funded at some levelInterestingly, however,
VC-funded firms have taken • over 13% of all awards
• but 15.72% of all dollars
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Why are VCs so SBIR interested?
Why are they putting their money where their mouth is?
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6234 Awardees are currently SBIR-funded
Among current awardees 709 are VC-funded
Doing some of the SBIR-VC numbers: current guys
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Doing some of the SBIR-VC numbers: current guys
Factoring ONLY to current awards on which theyare working- not all the awards they have
received - that percentage of current SBIR Awards going to VC-backed firms is
Among firms currently SBIR-involved
11.37%are VC-Funded
12.20%
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Doing some of the SBIR-VC numbers: current guys
Is this a problem?
Only 12.20%?
Probably not!
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Doing some of the SBIR-VC numbers: current guys in all agencies by dollars
Currently SBIR-involved Awardees with NO other
external funding
Currently involved SBIR Awardees with
VC-backing
Percentage of SBIR Dollars to VC-backed firms
Phase I $1,881,276,352 $268,476,352 14.27%Phase II $5,437,687,175 $748,064,712 13.76%
Total $7,318,963,527 $1,016,541,064 13.89%
Distribution of current SBIR project dollars 2004-2008
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Doing the SBIR-VC numbers with a focus to the
National Institutes of Health: Over the life of the program 1983 to
present Current program activity - 2005
Phase I and 2004 Phase II
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Data as of July 2008Whole SBIR-
STTR ProgramFirms With NO
external InvestmentFirms with Venture
CapitalNumber SBIR-STTR Awardees 6,228 5,155 1,073Percentage of All Awardees 82.77% 17.23%Number SBIR-STTR Awards 18,385 14,242 4,143Percentage of All Awards 77.47% 22.53%Dollar value of Awards (in billions) $7.25 $5.18 $2.07Percentage of All Dollars 71.45% 28.55%
Analyzing the Extent of SBIR Activity Specific to NIH Involving VC and Non-VC backed Awardees: 1983-present
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SBIR Awardees
with NO VC currently funded in
NIH 81.70%
VC-Backed SBIR
Awardees with
currently funded in
NIH 18.30%
Total NIH Awards taken
by current SBIR
Awardees with NO VC
backing82.07%
Total NIH Awards taken
by VC-Backed
current SBIR Awardees17.93%
Distribution of Current Awardees and Awards by VC-status in the National Institutes of Health
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Distribution of Current Awardees and Awards by VC-status in the National Institutes of Health Continued
Considering just the number of awards being made by NIH to VC-funded firms presents nothing startling.
The percentages are entirely proportional - roughly 18% of the VC-backed companies receiving approximately 18% of the awards.
BUT let’s look at the DOLLARS represented by those awards
Copyrighted 2000-2008All Rights Reserved
Doing some of the SBIR-VC numbers: current guys NIH-involved, by dollar
Currently SBIR-involved Awardees with NO other
external funding
Currently involved SBIR Awardees with
VC-backing
Percentage of SBIR Dollars to VC-backed firms
Phase I $575,071,329 $154,308,084 21.16%Phase II $1,241,963,359 $891,544,572 41.79%
Total $1,817,034,688 $1,045,852,656 36.53%
NIH SBIR Program: Distribution of current dollars 2004-2008
Copyrighted 2000-2008All Rights Reserved
Much larger NIH awards (especially at Phase II) to better established,
more experienced firms
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Critical point:What are these larger, better funded projects?
Answer: Valley of Death DemonstrationDOD variation on this theme:
Double- occasionally even Triple Phase II awards
Idea
Technological risk
Marketpenetration
ProductdevelopmentPrototype Development
development
Proof of concept
SBIR
Phase IPhase II
The Innovation Process
Capital Requirements
SBIR
Copyrighted 2000-2008All Rights Reserved
Analysis:How did this happen?Why did this happen?What sort of consequences?Why should we care?
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$500-S600M:
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0
500
1000
1500
2000
2500
1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
Total Number of Awardees
Newcomers to SBIR-STTR
Percentage of New Firms
Doing the SBIR-STTR numbers: newcomers-oldcomers by year (September 2008)
What’s going on here?
Over 40% drop new firms in NIH!
Copyrighted 2000-2008All Rights Reserved
Why am I (sort-of) hopeful that this problem
can be fixed?
Copyrighted 2000-2008All Rights Reserved
Just about every major corporation has some level of in-place working relationship with at least one - and often several - SBIR firms
Effective SBIR participation is about Collaborations:
An increasing number of mid-sized firms - $2-10 billion revenue - are finding SBIR collaborations are hugely useful ways to complement and supplement internal capabilities
Copyrighted 2000-2008All Rights Reserved
Fill in gaps in-house capabilities Facilitate new market entry.
Factors driving external collaborations: Shortened product life cycles Globalization of competition Increased specialization of skills and
capabilities, particularly in knowledge and research based endeavor
Copyrighted 2000-2008All Rights Reserved
Why this external focus by the business community?“No company can afford to maintain permanently the complete and ever-changing set of core capabilities required for success in an industry driven by innovation”
Brian Morgan, formerly director and VP of Strategic Licensing, SmithKline Beecham:
Copyrighted 2000-2008All Rights Reserved
A major percentage of R&D activity in larger firms is now focused on external relationships
Balance is spent primarily on addressing near-term product needs
Copyrighted 2000-2008All Rights Reserved
It is substantial evidence of considerable interest (perceived
value-added) by Major Corporations and others in the ready, early-stage
access to the leading-edge, technology-development capabilities and intellectual assets of this large,
pre-qualified population of technology-competent small firms -
SBIR awardees
Copyrighted 2000-2008All Rights Reserved
SBIR sub-contract
Forms of business relationship:
Joint Venture
Research contract
Minority equity position
In-Licensing Out-Licensing
OEM supplier Co-Marketing
Service agreement
Project collaboration
Strategic alliance Product purchase
Supply agreement Acquisition
Copyrighted 2000-2008All Rights Reserved
The “new” economyTWO fundamental realities define the New EconomyMarket capitalization has
become a critical measure of success
Entrepreneurial ventures have become the primary source of economic growth
Copyrighted 2000-2008All Rights Reserved
“….. real share-holder wealth will be created by companies whose corporate strategies include well-developed venture strategies”
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The Corporate Dilemma:
meet their quarterly numbers BUT
To satisfy Wall Street they must
also offer compelling evidence for top-end growth
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The Corporate Dilemma:
…. Perhaps even more of a challenge that it may even first appear since
“virtually no Fortune 50 company has ever achieved annual growth in excess of 5 percent”
Lew Platt, former Chair and ceo of Hewlett Packard
Copyrighted 2000-2008All Rights Reserved
The Corporate Dilemma cont:
The limits are not to size … but to the growth of the type demanded2-3% organic growthAn aggressive program
of acquisitions
Copyrighted 2000-2008All Rights Reserved
A different type of acquisition:
o of the firm o of its skill-sets and capabilitieso and/or the intellectual assets
Relationships to high value-added small firms
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Who has been acquiring SBIR
Awardees?
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Extent of M&A Transaction involving SBIR-STTR firms (to September 2008):
To date, we have record of 1204 M&A transactions involving SBIR-STTR firms 17,590 SBIR-STTR involved firms 1204 M&A transactions
6.84%
890 acquiring firms
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Extent of M&A Transaction involving SBIR-STTR firms: keeping it in the family (to September 2008):
SBIR firms are themselves actively engaging in M&A activity with other SBIR firms
Of the 1204 SBIR acquisitions so far logged, 269 involved another SBIR firm
22.34%
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L3:35
L3:35
L3 Communications 19
Titan Corporation 16
General Electric 11
BAE Systems. EDO Corporation,
Invitrogen Corp & JDS Uniphase
8
Agilent Technologies, General Dynamics
& SAIC
7
Becton Dickinson, Corning, Genzyme,
Johnson & Johnson, Northup Grumman &
Pfizer
6
Amgen, Raytheon & Tyco International 5
Firms which have acquired
Multiple SBIR companies
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A total of 78 firms have acquired 2 SBIR awardees
749 firms have so far acquired just 1 SBIR awardee
SBIR M&A Transactions continued
4
3
Alliant TechSystems Inc., Beckman Coulter, BF Goodrich, CACI
International, Charles River Labs, GalxSmithKline PLC, Integra
Lifesciences, Intermagnetic General, Inversness Medical
Innovation, Lockheed Martin, Mantech International Coroporation,
Millennium Pharmaceuticals, MSC Software, QIAGEN NV, Royal
Phillips Siemens, Teledyne Technologies & Thermo Electron
Alion Science and Technology , Argon ST, Bio-Rad Laboratories
Inc. Chiron Corporation, Coherent Inc, Corixa Corporation, Elan
Pharmaceuticals, Flir Systems, Foster Miller Inc, Gilead Sciences
Inc, Honeywell International, Icx Technologies, Microsoft, Nanogen
Inc, OrthoLogic Corporation, OSI Systems Inc, Photon Dynamics,
Inc., Schering-Plough, Serologicals Corporation, Sigma Aldrich
Corporation, SM&A Corporation, SRA International Inc, Sterking
Software Inc & Veeco Instruments
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Prices paid?
Less now than the “monopoly money” of late nineties – but
still very healthy.
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Prices paid?
Mean valuation: $42M
Range: $520K to $42 Billion
For those transactions where we have the details of the deal ….
Earlier mean valuation: $65-70M
Average price: c. $383M$224M
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There is considerable evidence to suggest that
prices being paid for SBIR-involved firms is
somewhat better than for comparable, but non-SBIR-involved firms
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Breakout of M&A Transactions by VC Status of Firm
38%62%
Transactions involvingVC Funded firms
M&Deals involvingfirms with NO VCfunding
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Distribution of M&A Transactions involving SBIR-STTR Awardees by size of deal and by VC status of firm
0
10
20
30
40
50
60
70
Less than$1M
$1-$2.4M $2.5M-$4.99M
$5M-$9.99M $10M-$24.9M
$25m-49.99M
$50M-$74.99M
$75M-$99.99M
$100M-$249.99M
Over $250M
Non VC Funded
VC Funded
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Interesting recent phenomenon:
Buy-back – in whole or in part by some/all of original SBIR
management.. but for a lot less than the selling price