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
Local Regional National
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.
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
• 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.
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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
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.
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)
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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.
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
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
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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.
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
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.
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
Federal Aviation Administration
Economic Development Administration
Department of Agriculture
Department of Commerce
Department of Forestry
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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
Local fundraising efforts to support incubation/acceleration facilities and operations could
Grant applications through sources listed in the Oregon Foundation Databook
(specifically grants targeted at science, public affairs and employment) and other
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