Development Capital Subgroup Report for PTF 3.1 Incubation

        ‘Development Capital’ includes funding for product dev...
Awards are for periods of up to six (6) months in amounts up to $100,000.
    •   Phase II is to expand on the results of ...
Training Fund is a grant program to train incumbent workers. Training must enhance job skills
that will qualify them for h...
levels under $1M whereas venture groups focus on larger investments due to the internal
resources that are devoted to indi...
The State of Oregon offers a number of grant and loan funds that should be explored. The
Oregon Economic and Community Dev...
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3.1 - Development Capital Subgroup Report


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3.1 - Development Capital Subgroup Report

  1. 1. Development Capital Subgroup Report for PTF 3.1 Incubation ‘Development Capital’ includes funding for product development, operations or facilities in a start-up or emerging organization and includes: angel, venture, loans, grants or other sources of funding. Additionally, ‘Development Capital’ for these purposes includes funding available for the construction and operation of a business accelerator. This Subgroup reports attempt to address two area of development capital related to business acceleration and recommends capital sources (local, regional and national). 1. Source of capital, technology focus areas, investment strategy 2. Types of investment and investment levels Sources of Capital Sources of Capital have been identified at the local, regional and national level. Sources of capital include: Local Regional National Grants   Loans    Angel    Venture    GRANTS & LOANS There are several grants available through regional and national sources. These include: SBIR (Small Business Innovation Research), STTR (Small Business Technology Transfer), WRT (Workforce Response Team) and RIB (Regional Investment Board). There are no local grant sources at this time, however, both WRT and RIB include local control for the vetting of applications and dissemination of funds. National The Small Business Innovation Research (SBIR) Program is a highly competitive three-phase award program of the US government that is coordinated by the Small Business Administration (SBA) which provides qualified small business concerns with opportunities to propose innovative ideas that meet the specific research and development needs of the federal Government. All federal agencies with research budgets are required to devote a portion of the funds they receive to the SBIR program. Departments participating in the SBIR Program include: • Department of Agriculture Services • Department of Commerce • Department of Transportation • Department of Defense • Environmental Protection Agency • Department of Education • National Aeronautics and Space • Department of Energy Administration • Department of Health and Human • National Science Foundation The three phases are: • Phase I is a feasibility study to evaluate the scientific and technical merit of an idea. PTF 3.1 – Development Capital Page 1 of 5 6/10/2010
  2. 2. Awards are for periods of up to six (6) months in amounts up to $100,000. • Phase II is to expand on the results of and further pursue the development of Phase I with the goal of getting to a commercializable prototype. A Phase I award is required to get a Phase II award. Awards are for periods of up to two (2) years in amounts up to $500,000. • Phase III is for the commercialization of the results of Phase II and requires the use of private sector or non-SBIR federal funding. • Small Business Technology Transfer Program (STTR) A similar program, the Small Business Technology Transfer Program (STTR), uses a similar approach to the SBIR program to expand public/private sector partnerships between small businesses and nonprofit U.S. research institutions. STTR funds cooperative research projects involving a small business and a research institution (i.e., college or university, federally- funded research laboratory, or nonprofit research institution). STTR was created as a means of moving technology developed at our nation's research institutions to the market place, where they can benefit consumers, both private and public. It is intended to foster high-tech economic development and to meet the needs of the federal government. The STTR is also a three phase program, with phases set aside for feasibility, R&D and commercialization. The following Federal departments participate in the STTR program. The agencies also have more authority in awarding funds than in the SBIR program.  Department of Defense  Department of Energy  National Aeronautics and Space Administration  Department of Health and Human Services  National Science Foundation Note: A company can participate in the SBIR and STTR programs at the same time provided they not perform the same or essentially similar work under more than one contract or grant. State Industrial Revenue Bonds (IRB) An IRB is a type of municipal revenue bond in which interest and principal payments are secured by the credit of a private firm rather than by the municipality (also called industrial development bond). The Oregon Industrial Revenue Development Bond Program is part of a federal program. This program does not require state funding; rather, it allows qualified applicants to take advantage of an exemption from federal income taxes that is provided under the Internal Revenue Code. The Oregon Economic and Community Development Department (OECDD) is authorized to issue such bonds on a tax-exempt basis for manufacturing and processing facilities in Oregon. The bonds may be used to finance fixed assets only, and the company for whom the bonds are issued is obligated for repayment of the bonds. Eligible companies may borrow up to $10 million under this program, and the minimum bond issued is typically for $1-2 million. Decisions to issue bonds are based a cost- benefit ratio – including the number of jobs that are anticipated as a result of the bond issue. Local approval of the project is also required. Workforce Response Team (WRT) A program of the Workforce Investment Board (WIB), the Workforce Response Team (WRT) PTF 3.1 – Development Capital Page 2 of 5 6/10/2010
  3. 3. Training Fund is a grant program to train incumbent workers. Training must enhance job skills that will qualify them for higher paying jobs within your organization or within the region. There is a 1:1 match requirement and a $50,000 limit per company per year. Strategic Investment Program (SIP) The Strategic Investment Program (SIP) offers property tax relief for large capital projects. Properties developed under this program are exempt from local property taxes for 15 years on assessed value in excess of $25 million. Local & Regional There are a number of funding programs available to support business incubation and acceleration. The Cascade West Council of Governments (COG) is Benton and Linn counties recognized Economic Development District (EDD) organization with the Economic Development Administration (EDA). The Regional Investment Board (RIB) and other programs are housed and staffed by the COG. Closely affiliated is Cascades West council of Governments, Inc. (CWFSI). CWFSI has 17 different loan programs supporting business development and acceleration, including the SBA 504 program. Local sources of development capital are limited at this time. The consideration of a local revolving loan fund to support business acceleration is an opportunity worth considering. Tax Incentives The State of Oregon has a number of tax incentives that will support the development capital needs of a growing business. In short they include the following:  Standard enterprise zone  Rural Renewable Energy exemptions Development Zones  Long-term rural enterprise zone  Business Energy Tax Credit (BETC) incentives  Biofuels Raw Materials Credit  E-commerce enterprise zones  Research tax credits  Oregon Investment Advantage  Dependent care tax credit  Strategic Investment Program (SIP)  Federal/State worker-based tax  Construction-in-progress credits  Food processor exemption ANGEL & VENTURE Two basic sources have been identified and include private/angel investor groups and venture investor groups. Private investors or angel investors focus on early stage or pre- revenue opportunities and usually have a limited number of technology areas they invest in based on group experience and historic investing results. Venture investors in current markets focus on technologies that are closer to revenue (later stage development) and are often grouped into technology areas of interest. In terms of investment strategies, both angel and venture capital investors request significant ownership positions as part of their investment commitment. This is often in the form of stock ownership in the range of 20-40% depending on the company’s stage of development. Initial investment includes stock, option agreements and preferred shareholder rights as well as board positions. Venture investors often assist in the identification of competent management to reduce risk or provide it on a temporary basis. Multiple investments are made in the company as it achieves its development milestones by both angel and venture investors. Angel investors have flexibility in making investment at PTF 3.1 – Development Capital Page 3 of 5 6/10/2010
  4. 4. levels under $1M whereas venture groups focus on larger investments due to the internal resources that are devoted to individual investment decisions. It is very uncommon for angel or venture investor group to invest alone. Investing is done as part of a consortium of investor groups that work together to share risk. One investor group is often responsible for the diligence and then acts as a lead investor. Many capital sources are anxious to develop networks with new business sources so that they can increase their deal flow and spread investment risk over a broader base of companies. The list provided can be built with the addition of regional investor groups in the Portland, Washington and California areas. The region would benefit by proactively contacting capital sources and presenting new business investment opportunities as the come on line. National A list of national capital sources is provided as Appendix A, covering approximately 100 investor groups. In general, risk capital is available, but is more difficult to access. Investors at all levels of company development are doing more in-depth diligence prior to investing. State & Regional There are a number of angel and venture funds available at the State and regional level. These funds include: OVF (Oregon Venture Fund), OAF (Oregon Angel Fund), OAC (Oregon Angel Conference), Empire Ventures, SmartForest Ventures and OVP (Oregon Venture Partners). Local Local angel and venture funds include: WVIN (Willamette Valley Investor Network), VVG (Valley Venture Group) and WISH (Women Investing in Samaritan Health). The WAC (Willamette Angel Conference) scheduled for May 14, 2009, is also showing great promise in becoming a significant contributor to increased angel activity in the lower Willamette Valley. METHOD FOR FUNDING ACCELERATION/INCUBATION FACILITIES There are a number of ways local incubation facilities could be funded. The PTF 3.1 Development Capital Subgroup recommends creating a mix of funding sources to best achieve stable long-term funding for a regional innovation-based incubation site. National By working collectively (all public and private partners as well as significant individual involvement), the region should consider pressing for a unified effort to raise awareness for the need and support of a regional incubator. A concerted effort to impress this need on Oregon federal delegation will allow them to assist us in identifying an earmark for the construction and operations of a regional incubator. Paying attention to the proposed economic stimulus packages currently under consideration by the President and Congress is also important. Infrastructure and development dollars are likely to come through a variety of departments, including some of those mentioned in the SBIR and STTR sections above and the following:  Federal Aviation Administration  Economic Development Administration  Department of Agriculture  Department of Commerce  Department of Forestry State PTF 3.1 – Development Capital Page 4 of 5 6/10/2010
  5. 5. The State of Oregon offers a number of grant and loan funds that should be explored. The Oregon Economic and Community Development Department (OECDD) has a number of programs available, outlined briefly below. Community Development Block Grant (CDBG) CDBG’s are traditionally thought of as housing funds, however, one of the purposes is to fund infrastructure and community projects. They are subject to less federal oversight and are largely used at the discretion of the state and local governments. There are two ways CDBG can be explored. Corvallis is considered an entitlement community with its own discretion and oversight and Benton County can apply for funds through OECDD. It is likely that similar rules apply for Albany and Linn County. Entrepreneurial Development Loan Fund (EDLF) EDLF would be a stretch opportunity, however, the purpose of this fund is to assist newer businesses in Oregon. Urban Renewal District (URD) The purpose of an URD is to make public improvements that will encourage additional private investment in a specific area. Structurally, URD’s are a way for communities to earmark tax dollars for public and private projects within a specific geographic area. A URD could be used to fund an accelerator. Economic Improvement District (EID) An Economic Improvement District (EID), also called a Business Improvement District (BID) is a public-private partnership in which businesses in a defined area elect to pay an additional tax or special assessment in order to fund improvements. EID’s require legislative authorization by the government in which it resides, in order to be established and can include public services such as street and sidewalk maintenance, capital improvements and various development projects. Local Local fundraising efforts to support incubation/acceleration facilities and operations could include:  Sponsorships  Endowment campaign  Donation solicitation  Grant applications through sources listed in the Oregon Foundation Databook (specifically grants targeted at science, public affairs and employment) and other grant sources  Public/Private partnership PTF 3.1 – Development Capital Page 5 of 5 6/10/2010