BEN FRANKLIN TECHNOLOGY PARTNERS

    OF SOUTHEASTERN PENNSYLVANIA




  INFORMATION TECHNOLOGY
2010-2011 INVESTMENT PROPO...
INFORMATION TECHNOLOGY
                       COMPANY INVESTMENTS




   Funding Period:                  Six to twelve mo...
TABLE OF CONTENTS


PROGRAM OVERVIEW.........................................................................................
BEN FRANKLIN TECHNOLOGY PARTNERS
                     OF SOUTHEASTERN PENNSYLVANIA

                    INFORMATION TECHNO...
Use of Funds         Ben Franklin funds may be used for personnel, supplies, materials, travel,
                     direc...
but have strong technical and commercial merits.

             Since this program is primarily targeted for pre-incorporat...
Lien on the Technology: Companies retain ownership of all technology
                      developed before the start of t...
Upcoming Seed Capital Briefing Dates and Locations:

2. Submits an Executive Summary
BFTP requests that those interested i...
7. Approval
                      Upon Board approval, contracts are prepared. Upon execution the company
                ...
(Applicant Company letterhead)
Letter of
Commitment              Ben Franklin Technology Partners of Southeastern Pennsylv...
of the business plan to complete these sections as
                           appropriate.
                          Actu...
Make sure that the question or topic requested is shown in the narrative
immediately preceding the company’s response. A c...
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  1. 1. BEN FRANKLIN TECHNOLOGY PARTNERS OF SOUTHEASTERN PENNSYLVANIA INFORMATION TECHNOLOGY 2010-2011 INVESTMENT PROPOSAL Program Information/Instructions Ben Franklin Technology Partners of Southeastern Pennsylvania
  2. 2. INFORMATION TECHNOLOGY COMPANY INVESTMENTS Funding Period: Six to twelve months Size of Awards: $75,000 to $500,000 Directions for Executive Submit electronically to IG@sep.benfranklin.org Summary Submission: Directions for Submit original and ten copies to: Application Submission: Ben Franklin Technology Partners of Southeastern Pennsylvania Building 100 Innovation Center, Suite 200 4801 S. Broad Street The Navy Yard Philadelphia, PA 19112 And electronically to IG@sep.benfranklin.org or by disk. NOTE: Please see checklist of items needed on page 12. Questions: (215) 972-6700 x3330 Funding under this program is made possible by the Commonwealth of Pennsylvania 2
  3. 3. TABLE OF CONTENTS PROGRAM OVERVIEW.........................................................................................4 PENNSYLVANIA JOB CREATION AND RETENTION.........................................4 Minimum Requirements....................................................................................................................4 Use Funds..........................................................................................................................................5 Multiple Projects................................................................................................................................5 Innovation Company Investment Described.....................................................................................5 Emerging and Emerging Plus Company Investment Described.......................................................5 Technology Commercialization Company Investment Described...................................................5 INVESTMENT TERMS...........................................................................................6 Final Project and Expenditure Reports.............................................................................................7 Portfolio Management.......................................................................................................................7 APPLICATION PROCESS.....................................................................................7 Confidentiality...................................................................................................................................9 Match Requirements..........................................................................................................................9 Required Letters of Commitment......................................................................................................9 Letter of Commitment Template.....................................................................................................10 DIRECTIONS FOR SUBMITTING EXECUTIVE SUMMARY..............................10 DIRECTIONS FOR SUBMISSION AND PROPOSAL CHECKLIST...................10 TIPS FOR WRITING YOUR PROPOSAL............................................................11 3
  4. 4. BEN FRANKLIN TECHNOLOGY PARTNERS OF SOUTHEASTERN PENNSYLVANIA INFORMATION TECHNOLOGY COMPANY INVESTMENTS PROGRAM Ben Franklin investments seek to strengthen the economy in Pennsylvania OVERVIEW through advancing technology and entrepreneurship. Ben Franklin funds are made available through an annual appropriation from the Commonwealth of Pennsylvania. In the five-county southeastern Pennsylvania area, Ben Franklin funds are managed by the Ben Franklin Technology Partners of Southeastern Pennsylvania ("BFTP"). BFTP does not offer grants but rather loans that companies are expected to repay. BFTP expects that its investments will assist in the completion of significant commercial and/or technical milestones necessary to attract outside investors (Angel, Venture Capital, Government Funds), strategic partners, and/or generate revenue. BFTP’s initial investment in a company must support some technical development and/or commercialization activities. Projects may involve development of new technology or the application of technology that is central to satisfying a significant and unmet market need(s). Technologies including the development of Information Technology or Telecommunications Software or Hardware are eligible for review. Companies that are primarily providing services should possess proprietary products, processes, methods, and/or practices, etc that will create some level of entry barrier. Pennsylvania Job A major goal of Ben Franklin assistance is to promote economic growth, especially job creation and retention, in the Commonwealth of Pennsylvania. Creation and The product development or process improvement activities, including Retention manufacturing, that result from Ben Franklin funding will occur mostly in Pennsylvania during the term of the funding agreement. Moreover, it is expected that the company will maintain its primary place of business and principal operations in Pennsylvania during the term of the funding agreement, and for at least five years following the end of Ben Franklin funding. If a product developed with BFTP funds is subsequently manufactured, a significant portion of the manufacturing or production must take place in Pennsylvania during the first five years of the manufacturing/production process. Violations of this provision without the express prior written approval of the BFTP constitute an event of default under the terms of the funding agreement. Minimum • Company’s primary location must be in Bucks, Chester, Delaware, Requirements Montgomery or Philadelphia Counties though may be incorporated in another State. • Must be a commercial for-profit business. • Funding should be spent in Pennsylvania, if feasible. • Funding may not be used for basic research or for equipment purchases. • Funded projects must have technology development and commercialization components. • Companies should match BFTP/SEP investment with at least $1:$1 in cash. Lower percentage of cash and “in-kind” match will be considered, but less competitive. 4
  5. 5. Use of Funds Ben Franklin funds may be used for personnel, supplies, materials, travel, direct project expenses, field-testing, market research, some overhead costs (e.g. rent) and other efforts directly related to the project. Funds may not be used for the purchase of equipment, although equipment may be leased. All expenditures to be paid from BFTP funds must be incurred during the project period. In addition, 100% of BFTP funds should be spent in Pennsylvania. Any lesser amount of BFTP funds spent in Pennsylvania will make the proposal less competitive. Multiple Projects A total of four investments or a maximum of $750,000 may be made over a period of years, each of which requires a separate evaluation. Companies may not submit multiple investment proposals concurrently. Innovation Company This program provides seed capital to companies engaged in early stage Investment product development activities leading to near-term commercialization. The Described maximum investment under this program is $100,000. Funding may be used to develop a prototype, prove technical feasibility, and perform further market research or other commercialization activities. Typically, companies at this stage are still looking to complete their management team, prototype or product, and/or prove market demand through alpha testing. It is not required for a company to already have revenues to apply under this Fund. For companies seeking later stage investment, please see the Emerging Company Investment program described below. Emerging Company This program provides funding to companies that can demonstrate the technical and commercial viability of their product or process and are Investment engaged in later stage technology development, product or process Described improvement or optimization, and early stage commercialization. Applicants for Emerging Company Investments are expected to have already demonstrated technical and market feasibility. Significant steps toward commercial success should have been undertaken and remaining steps should be well-planned. These steps might include intellectual property protection, beta-testing, third-party investments and/or strategic alliances. Investments under this program range from $101,000 to $500,000. Most Information Technology companies receiving investments under these Funds will already have some revenues. As distinct from Innovation Investments, successful applicants for Emerging Company Investments should have: (1) demonstrated technical and market feasibility, (2) progressed toward bringing a product to market, (3) demonstrated business planning and operations capabilities, (4) substantially progressed towards obtaining additional capitalization to successfully commercialize the venture, and (5) an appropriate management team in place. Within the Information Technology vertical, Emerging Investments are made only in companies in which significant Venture Capital financing is imminent. Technology This is a unique program outside the Innovation and Emerging programs. The purpose of this fund is to provide seed level funding for the Commercialization commercialization of technology discovered and licensed by universities or Company Investment research institutions in order to facilitate the creation, growth or attraction of Described for-profit commercial enterprises located in, or relocating to southeastern Pennsylvania. Typical ventures attracted to seek this funding are pre-incorporated, do not yet posses a licensing agreement with the university or research institution 5
  6. 6. but have strong technical and commercial merits. Since this program is primarily targeted for pre-incorporated entities, the venture will be required to form the corporation and finalize the licensing agreements with the university or research institution early in the review process. Funds may be used for technical research and development to move toward proof of principle, prototype and/or initial trial. To this end, costs for: personnel; materials and supplies; certain direct R&D expenses; field-testing; basic business formation costs; payments associated with licensing and sponsored research agreements with the academic institution from which the technology comes or is under development; business plan development; and business consulting, are all examples of appropriate budget items for this stage and type of investment. Initial investments under this program range from $100,000 to $350,000, and follow evaluation guidelines similar to Innovation and Emerging Company Investments. INVESTMENT BFTP’s funding for Information Technology companies is an investment in the form of convertible debt with a detachable warrant. Other terms TERMS and conditions also accompany the investment. Listed below is a summary of these investment terms. Interest • Rate is 8%. Begins accruing upon cash disbursements. • Payment begins first quarter following the end of the project period. Payments to BFTP on interest only. • Company makes interest payments at the lesser of 3% of company revenues or the interest due at that quarter. If the company does not make its quarterly interest payment, interest rolls over to the next quarter (non-compounding). • Principal and unpaid interest is due as a balloon at end of 5 years. Warrant • Usually 25 - 70 % coverage on the loan amount. • 10-year penny warrants. • The warrant is priced (to determine the number of shares) at the next equity financing by an accredited angel group and/or reputable institutional investor. Conversion: BFTP may, at its sole discretion, convert the principal and accrued but unpaid interest at an issuance of company’s equity securities to an accredited or institutional investor or the occurrence of a “significant transaction (merger or sale of company)” into the class of stock of the financing round under the following terms: •The debt would be converted, without a discount, at the price of the previous or next rounds, depending on the timing of those rounds. •BFTP has the option to require payment of unpaid and accrued interest at the time of the conversion of the principal. Company may prepay interest and principal at any time. Board Observation Rights: BFTP will have rights to a non-voting Board Observation Seat during the life time of its debt investment. 6
  7. 7. Lien on the Technology: Companies retain ownership of all technology developed before the start of the project as well as any new technology developed during the Ben Franklin project. However, BFTP will take a security interest in the technology associated with or developed during the project. This interest may be subordinated to a bank or other commercial lending facility to secure loans, lines of credit, or other financing. Employees of or consultants to Ben Franklin funded companies are required to assign their rights to the technology to the company as a condition for receiving funding. BFTP Compliance: The company will be obligated to provide the following reporting: •Unaudited (audited upon request) financial statements within 30 days of each calendar quarter. •Brief written quarterly update report and/or Board Minutes. •Final Report upon completion of funded project. •Economic Impact Survey to capture the number of jobs created, the number of commercialized products, and the amount of private dollars raised, as well as other related information. Companies are required to keep accurate and verifiable records that must be submitted annually for 5 years. Drawing Down of BFTP Funding: Upon receipt of the Contract Closing Fee, recipients may submit an invoice for the greater of; 1) forty (40) percent of the BFTP funding as an advance, or 2) an amount to pay for activities already undertaken per the project budget and milestones. Additional amounts can be invoiced upon completion of milestones, with 10% held back pending submission of the final report. Final Project and Investment recipients are required to submit a final project report and final Expenditure Reports budget report at the conclusion of the project period. The final project report is a narrative description of the project accomplishments and future project plans. The final budget report requires an accounting for the expenditures of the company, BFTP, and participating organizations during the project. It is used to confirm the proper use of BFTP funds and the provision of the required matching funds committed by the company and its participating organizations. Portfolio BFTP actively monitors its investments during the funding period and until Management repayment is completed. BFTP management, employees and/or consultants conduct site visits on a regular basis and maintain frequent phone contact. BFTP representatives are available for advice and consultation, and companies are encouraged to contact their managers or the staff of BFTP throughout the year. Companies are required to submit quarterly financial statements and to make quarterly royalty payments once the repayment criteria have been met. Application Process While applications may be submitted at any time, suggested due dates are available that may minimize the length of the evaluation process. Applicants typically follow the process described below: 1. Attends a Seed Capital Briefing The BFTP funding process is highly competitive. Thus, seed capital briefings are held several times each year throughout the region to explain the application process in detail, including helpful instructions and hints for its completion. Applicants are strongly encouraged to attend a briefing before applying for BFTP/SEP funding. 7
  8. 8. Upcoming Seed Capital Briefing Dates and Locations: 2. Submits an Executive Summary BFTP requests that those interested in applying for funding first email an executive summary for initial staff review. The purpose of this review is to initiate a dialogue to determine eligibility and to identify critical technical and/or investment issues. Please note that this is the identical information and format that will later be required in completing an application 3. Submits an Application While executive summaries and business plans may be submitted at any time for feedback, applications are due at scheduled times throughout the year. It is preferable for companies to submit an application only after its executive summary has first been reviewed by BFTP/SEP. The application must be submitted along with ten hard copies and a $500 application fee. The application is available online or can be mailed to you. Proposals that do not conform to the appropriate proposal format, or are considered to be inappropriate or incomplete, may be turned down without advisory committee review. The complete evaluation process takes approximately eleven weeks from the application due date to a final decision. 4. Participates in Technical Advisory Committee Meeting (TAC) BFTP/SEP staff then reviews the proposal to determine if a company is competitive for funding. Those that pass this screen are invited to answer questions before the Technical Advisory Committee, a group of industry experts charged with determining if the proposed project: • Can be completed on time and on budget with the resources indicated in the proposal; • Is a technical advance over what is currently available in the marketplace; • Has the ability to satisfy a significant and unmet market need; and is able to maintain a technical competitive advantage. Please note that the committee may also ask the company to address some key commercialization issues. 5. Participates in Due Diligence Process If the company is recommended for further review, an outside consultant will be assigned to complete a thorough Due Diligence review. The result of this process is a comprehensive written report based on market research data, analysis of the financial projections and conversations with investors, company management and staff, industry experts, legal and accounting professionals, etc. Whether funded by BFTP/SEP or not, most applicants find this independent analysis extremely valuable in their ongoing strategic planning and fundraising efforts. BFTP/SEP staff then reviews the completed Due Diligence report and determines if the applicant still appears to be competitive for funding. 6. Participates in Investment Advisory Committee Meeting (IAC) Companies will be asked to make a 10-minute presentation, followed by an in-depth Q&A discussion, to the Investment Advisory Committee, a group of volunteers consisting of Venture Capitalists, angel investors, successful entrepreneurs, and business advisors. The feedback of this committee will determine which companies, if any, will be recommended for funding to the BFTP/SEP Board of Directors. 8
  9. 9. 7. Approval Upon Board approval, contracts are prepared. Upon execution the company will be responsible for a Closing Fee of 1% of the investment to cover any costs associated with the closing of the BFTP investment (e.g. legal costs, filing fees, etc.) Funds are then disbursed against the company’s project milestones. It should be noted that often initial funding is approved conditional upon one or more technical, commercialization or fundraising milestones being achieved. Confidentiality Ben Franklin maintains the confidentiality of proposals with the exception of Section I entitled “Non-Confidential Executive Summary”. On an annual basis, BFTP staff and reviewers sign non-disclosure and conflict of interest agreements with Ben Franklin. Proposals should include enough detailed data, and technical and commercial information for reviewers to make informed decisions on the merits of the proposed work. All proprietary information should be clearly marked. Match Requirements BFTP projects are funded through multiple sources. This practice is designed to encourage applicants to seek collaborators who can provide additional resources, capital, and expertise that will increase the likelihood of technical and commercial success. Requests for investments require companies should match BFTP/SEP investment with at least $1:$1 in cash. Lower cash and “in-kind” match are considered, but less competitive. To qualify as match, all support must be provided during the project period. The budget must be reasonable and specific. Cash match can include third-party equity investments or loans (not lines of credit), funding from federal grants, foundations or universities, cash commitments from distributors to support marketing, sales, promotion, and/or customer service, net revenues investments by the company’s principals, or payments to outside vendors, consultants, or subcontractors for work performed related to the project. Additional matching support beyond a 1:1 cash match in the form of additional cash and/or "in-kind" support can make a company’s application more competitive. “In-kind” match can include the salary cost of the research and management teams, use of company equipment, materials, and other resources devoted to the project by the company, its consultants, subcontractors, or vendors, or other participating partners. Required Letters of A letter of commitment from the company, as well as from other committed sources of support, including third party sources, must be submitted with the Commitment proposal. A separate letter from each source of matching support is required. If the company has not secured sufficient matching commitment at the time of application, the company should include the amount yet to be raised in its own commitment letter. It is acceptable that match commitment be made contingent upon award of the Ben Franklin funding. Commitment letters should follow the format and address the same points as the following sample letter. 9
  10. 10. (Applicant Company letterhead) Letter of Commitment Ben Franklin Technology Partners of Southeastern Pennsylvania Template Building 100 Innovation Center, Suite 200 4801 S. 13th Street The Navy Yard Philadelphia, PA 19112 Dear Total Project Support This letter represents a commitment by (Applicant Company) to provide $ in matching support for the project entitled " ." Company Support & Of this support, $ is a cash payment to carry out work on this project and In-kind Contribution $ is in-kind, including the salary cost of personnel, use of company equipment, materials, and other services devoted to this project. All funding is provided for the Ben Franklin program year beginning July 1, 2010 and ending June 30, 2011. Sincerely, Signature Title DIRECTIONS FOR While a preliminary review before applying is not necessary, it is strongly SUBMITTING encouraged. This will provide you the opportunity to incorporate BFTP staff EXECUTIVE recommendations, if any, into your completed application. SUMMARY Please email or submit on disk your Executive Summary along with the Budget and Milestones for review at least 10 days before submitting a complete Application to: IG@sep.benfranklin.org. DIRECTIONS FOR One (1) signed original and ten (10) copies of the application must be SUBMISSION AND submitted. Please bind proposals with a staple or similar fastener in the PROPOSAL upper left corner. Do not use spiral binders, velo-bind, or oversized CHECKLIST covers. Material provided as part of the proposal submission will not be returned. Deliver proposal packages to: Ben Franklin Technology Partners of Southeastern Pennsylvania Building 100 Innovation Center, Suite 200 4801 S. Broad Street The Navy Yard Philadelphia, PA 19112 These proposal packages should include:  Completed application including the proposal cover page, table of contents, applicant company information page, and narrative sections I through III. A company business plan may be substituted for section III only. Sections I and II must be completed in full though we encourage you to lift portions 10
  11. 11. of the business plan to complete these sections as appropriate.  Actual financial statements and three years of financial projections (section VI)  Milestones (section VII)*  Project budget (section VIII)*  Data (this should be included in section II – Scientific and Technological Aspects of the Project)  Software copies (if submitting a proposal for a software development project, please include at least 4 copies of demonstration versions of the software [fully functional or disabled] if available)  Pictures or diagrams, if appropriate (this should be included in section II – Scientific and Technological Aspects of the Project)  Letters of commitment equal to those totals shown on the project budget (a separate letter from each source of matching support is required)  Resumes and curriculum vitae (for all key personnel [both technical and business], senior management, owners, principal investigators, and any consultant/subcontractor who is contributing any significant technical know-how/time)  Market research summary (optional) TIPS FOR Read and follow the directions carefully. WRITING YOUR PROPOSAL The proposal should stand alone as a complete description of the project and company. Many promising proposals receive low scores because of incomplete presentations. Be certain to provide enough information for the reviewers to make an informed judgment. The narrative of the Scientific and Technological Aspects of the Project (Section II of white pages) should be written for a technically qualified peer reviewer. This section should include information regarding: (1) what the product or process does, (2) how it operates, (3) pertinent scientific data, (4) why key technical decisions were made, (5) what unique features or characteristics differentiate it from the competition, (6) what specific technical tasks will be undertaken during the project period, (7) who will be responsible for performing the technical tasks, and (8) where they will be performed. Information on development already completed, schematics or diagrams, and supporting documentation can strengthen a proposal. Although reviewers are expert in the broad technology focus area, you should avoid the assumption that reviewers are already familiar with specific aspects of the proposed work. The proposal should be clearly written, complete, and concise. Applicants may contact the Ben Franklin Technology Partners in advance of the due date to review whether their projects meet Ben Franklin guidelines. Draft proposals may be submitted for preview up to 10 business days prior to the application date. While preliminary review is not necessary, it is strongly encouraged. Important: If comments concerning your project have been provided by BFTP, be sure they are addressed in the final proposal. Following this general instruction section is an outline covering the information requested by the BFTP for proposal evaluation. Please prepare a narrative proposal that responds to each of the items in the outline. 11
  12. 12. Make sure that the question or topic requested is shown in the narrative immediately preceding the company’s response. A company business plan may be substituted for section III (Commercialization) only. Sections I and II must be completed in full. However, a business plan is not a prerequisite for applying for, or receiving funding. 12

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