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www.InteliSpark.com© 2018 InteliSpark, LLC

Succeeding at Securing Non-dilutive SBIR/STTR Funding for University

Spinoffs and Advanced Technology Startups

Kirk J. MacoliniPresident

InteliSpark, LLCwww.InteliSpark.comKirk@InteliSpark.com

(607) 277-1570

www.InteliSpark.com

THE START: INTRODUCTIONS

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Non-Dilutive Funding Experience~400 proposals (90%+ SBIR/STTR) selected for award

>$190,000,000 in projects selected for award

28 start-up clients funded in 2018

43 start-up clients funded In 2019

Clients have had >$800,000,000 in successful exits

InteliSpark clients are 5% of NSF’s SBIR award cohort from 2018 Phase I proposals.

• InteliSpark clients 13/26 (50%)• Everyone else 257/2072 (12.4%)

www.InteliSpark.comLIONANO

>$190 Million in non-dilutive funding for clients in all technology sectors

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Many with University Roots

LIONANO

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SBIR BASICS: WHAT IS SBIR/STTR FUNDING AND WHY DO YOU NEED/WANT IT

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Why are you interested in SBIR funding?

You are hereVenture capitalists

invested $58.6 billion in 4,520 deals in 2016

U.S. Federal Government spent

$140 billion on Research in 2016

…AND YOU HAVE WARTS!• Too risky• Too early• Unproven Team• Unproven Market• Unproven Technology• Limited or no resources

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SBIR/STTR Funding to Survive the Valley of Death

SBIR/STTRFUNDING

In 2010, the SBIR and STTR programs collectively provided 7,104 awards, compared with just 396 seed-stage deals made by venture capitalists

Venture capitalists invested $58.6 billion in 4,520 deals in 2016

U.S. Federal Government spent

$140 billion on Research in 2016

$2.5 Billion SBIR/STTR

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SBIR/STTR Program Overview

• ~$3.5 Billion in SBIR/STTR funding in FY 2020• SMALL BUSINESS INNOVATION DEVELOPMENT ACT OF 1982

– P.L. 112-81 (extended program through F. Y. 2017)

• SMALL BUSINESS INNOVATION RESEARCH (SBIR) PROGRAM– Set-aside program for small business concerns to engage in Federal

R&D -- with potential for commercialization. – FY 2020 3.2% SMALL BUSINESS TECHNOLOGY TRANSFER (STTR)

PROGRAM– Set-aside program to facilitate cooperative R&D between small

businesses and research institutions -- with potential for commercialization.

– FY 2020 0.45% of extramural funding

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General Eligibility

• Organized for- profit U.S. business • At least 51% owned by U.S. individuals or small businesses

and independently operated (NIH, CDC, ARPA-E (DoE) are exceptions- can be 51% owned by multiple VC firms)

• Small Business located in the U.S. • P.I.’s primary employment with small business during project

(NIH allows STTR PI to come from University) • 500 or fewer employees (including affiliates)• All SBIR-funded work must be done in the U.S.

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SBIR vs. STTR

• SBIR: Permits allows research partners (non-profit or for profit) – no more than 33% during Phase I – no more than 50% during Phase II

• STTR: Requires non-profit research institution partner (e.g., universities)– A minimum of 40% for small business– A minimum of 30% for research institution– Remained 30% can go to either partner or 3rd parties

Despite misconceptions, there is NO Requirement to do Tech Transfer

under an STTR

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SBIR and STTR by Agency• DoD SBIR/STTR• HHS (NIH, CDC, FDA) SBIR/STTR• NSF SBIR/STTR• NASA SBIR/STTR• DOE SBIR/STTR• DHS SBIR• USDA SBIR• DOC (NIST, NOAA) SBIR• EPA SBIR• DOT SBIR• ED SBIR

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SBIR/STTR Phases• Phase I (Crawl)

– Feasibility Study– ≤ $150,000 and ~6 months (SBIR) or ~12 months (STTR)

• Phase II (Walk)– Full R&D– ≤ $1,000,000 and ~24 months

• Phase III (Run) – Continued R&D/Commercialization– Non-SBIR funded

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DOING IT RIGHT: USING SBIR/STTR PROGRAMS PROPERLY (…OR YOU ARE NOT A FROG PRINCE)

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You are a toad with warts, not a frog prince

• Remove risk• Advance technology• Develop applications for

technology • 3rd party validation

+ ≠

• Too risky• Too early• Unproven Team• Unproven Market• Unproven Technology• Limited or no resources

+ =AMERICA’SWART

REMOVALLOTION

FOR START-UPS • Investors

• Partners• Customers• Future Employees

SBIR/STTR can help you remove enough warts so Investors, Partners, & Customers will Shake your hand!

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Founder Dilemma

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Famous SBIR Companies

None received more than $9 million in SBIR/STTR fundingTotal combined funding less than $20 million

Market Cap: $100B Market Cap: $15.64B

Market Cap: $25.44B Market Cap: $1.5B

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Infamous SBIR CompaniesPhysical Optics Corporation [1,219

Phase I, 451 Phase II, $433M]Physical Sciences [821 Phase I, 341

Phase II, $320M]Creare [674 Phase I, 353 Phase II,

$302M] *(353/644 (55%) N.H. Phase IIs)

Intelligent Automation [624 Phase I, 225 Phase II, $225M]

Radiation Monitoring Devices [495 Phase I, 247 Phase II, $230M]

???

1-1055%11-24

17%

25-9919%

100+9%

45% of Phase IIs go to firms >10 Phase II awards

1-10 11-24 25-99 100+

Physical Optics Corporation Awards by Year

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MATCHING: FINDING A TOPIC

Choosing the right topics will create high probability opportunities

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Every Agency is Unique

• R&D Topic Areas• Dollar Amount of Award (Phase I and II)• Receipt Dates / Number and Timing of Solicitations• Proposal Review Process• Proposal Success Rates• Type of Award (Contract or Grant)

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Go Fishing Where the Fish Are

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Narrow vs. Open TopicsNARROW TOPICS OPEN TOPICS

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Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Solicitations

GRANTS

CONTRACTS

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Choosing a Topic

• Call topic author (if appropriate) to learn everything • Does it match the topic?• Is the solution strong? • Is it innovative? (innovation vs. evolution)

• Is the company prepared to invest in this opportunity?

• How much of the work will the company do?

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Selecting Opportunities is Critical

• SBIR/STTR awards aren’t random drawings• Preparing a winning SBIR/STTR proposal is a mountain of

work.• The key is to pick battles that can be won• Choosing the right topic/agency is the most overlooked (and

perhaps most important) ingredient of success

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Technology vs. Capability Approach

$$ Awardproposals

proposalsproposals

proposalsproposals

proposalsproposals

proposals

$$ Award

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$$ Award

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Topics

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TECH

NO

LOGY

CAPA

BILI

TY

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Head-to-Head (Technology vs. Capability)

“Concentrate your energies, your thoughts and your capital.... The wise man puts all his eggs in one basket and watches the basket.”

- Andrew Carnegie

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AN INEFFICIENT MARKET:UNDERSTANDING FEDERAL AGENCIES

You can exploit discontinuities in the funding probabilities

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View SBIR/STTR as a marketplaceInvestigator Driven Perspective

Data Driven Perspective

“Art” of Grant Writing

Data Driven Marketplace

Tends to be Focused on the Seller

Focused on matching the seller to the buyer

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SBIR/STTR is not monolithic

+more

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Go fishing where the fish are, but….Avoid the Crowded Fishing Holes

NIH Challenge Grants

$200 Million for 200 projects

DoD Operational

Medicine BAA$100 Million for

~100 projects

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Case Study: The Crowded Fishing Hole

NIH Challenge Grants

$200 Million for 200 projects

24,000+ applications for ~200 awards= >1% probability

~800 applications for ~100 awards

= 12.5% probability

DoD Operational

Medicine BAA$100 Million for

~100 projects

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Agency Selection

• Seems obvious – but it’s not• Lot’s of overlap in projects funded by various agencies• Each agency takes a different perspective

– EX: DoD, NASA are trying to solve problems– EX: NIH, DoE are trying to promote research in general– EX: NSF is trying to promote research AND stimulate successful

commercialization

• This leads to varying levels of acceptance by different agency• Where to apply can be extra challenging when considering

multiple granting agencies

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NSF is the Most Start-up Friendly

Company Size: ~ 92% of awardees have 10 or fewer employees

History: ~ 87% of awardees had never had a prior SBIR/STTR Phase II award from any agency

Company Age: ~ 78% of awardee companies were incorporated within the past 5 years

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CASE STUDIES: NIH vs. NSF

proposalproposal

proposalproposal

proposalproposal

Anti-Microbial Polymer forCatheters

Catheter Ablation Device for Atrial Fibrillation

Reporter molecule for DNA screening

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CASE STUDIES: NIH vs. NSF

proposal

Anti-Microbial Polymer forCatheters

Catheter Ablation Device for Atrial Fibrillation

Reporter Molecule for DNA Screening

Award

Award

Award

proposal

proposal

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Navigating NIH SBIR/STTR Budget Allocations

NCI

NIAID

NHLBI

NIGMSNIDDKNINDS

NIMH

NICHD

NIA

NIDA

NEINCATS

NIEHSNIAMS

NHGRINIAAA

NIDCD

NIDCR

NIBIB

NIMHD

ORIPNINR

NCCIH

NLM

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NIH Phase I SBIR/STTR 2018

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

NIH 2018 Phase I - SBIR vs. STTR success rates SBIR STTR

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Understanding NIH scoring• Each sub-agency has own funding policy• Some publish paylines (10-90, 10 is best score (most fall

between 15-55)• You can request assignment to a sub-agency (otherwise NIH

will choose)• Choosing the right sub agency can be the difference between

success and failure

NIH STTR Success Rates and Paylinescan fluctuate wildly

15

20

25

30

35

40

2019 2018 2017 2016 2015 2014 2013 2012 2011

NIAID+NIAMS SBIR vs STTR paylines

NIAMS SBIR NIAMS STTR NIAID SBIR NIAID STTR

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Success rate does not equal probability

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0% SBIR STTR

35 2532 28

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Case Study: Navigating NIH

• Developing an intervention targeted at reducing smoking rates

• National Cancer Institute has largest budget within NIH• National Cancer Institute runs most smoking cessation

research• An obvious choice, but…..

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Case Study: Navigating NIH

• The WRONG choice• Proposal was targeted at National Institute on Drug Abuse

(NIDA), and was funded…based on a score that would not have been funded at NCI

• What?! NIDA has 11th largest budget, ~1/5 of NCIs• Need to do homework on NIH agencies

– Understand overlap between agencies– Look at success rates (data available on NIH SBIR homepage)– Look at competitiveness of funded projects– Look at funding commitments

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Looking at success rates…

NIDCR SBIR Phase I 56 17 30.4% $3,432,933

NIDCR SBIR Phase II 7 4 57.1% $1,864,889

NIEHS SBIR Phase I 72 22 30.6% $3,868,457

NIEHS SBIR Phase II 24 12 50.0% $5,972,947

What matters is the future and how the past shapes it!

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Being smarter than the numbers

NIDCR SBIR Phase I 56 17 30.4% $3,432,933

NIDCR SBIR Phase II 7 4 57.1% $1,864,889

NIEHS SBIR Phase I 72 22 30.6% $3,868,457

NIEHS SBIR Phase II 24 12 50.0% $5,972,947

Published Data is Backward looking…project forward!!!

Expected Phase II applications

NIDCR Last year 7 Next year 17 --funding probabilities will dropNIEHS Last year 24 Next Year 22 -- funding probabilities will be similar

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Looking Forward vs. Backward

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Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Impact of solicitation schedules

15.3% vs. 12.9% = 18.1 % more likely to be funded

18.0% vs. 12.1% = 48.3 % more likely to be funded

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NOW WRITE: WRITING AN SBIR/STTR PROPOSAL

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Understanding Reviewer’s Points of Entry

GRAPHICS

TITLEABSTRACT

FIRST PAGE

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Research Proposal Writing

proposalsproposals

proposalsproposals

proposalsproposals

proposalsText

proposalsproposals

proposalsproposals

proposalsproposals

proposalsIdeas

proposalsproposals

Ideas

proposalsproposals

Text

Effective Research Proposal Writing

How You Are Taught to Write in School Slow build

Punch first

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How Should I Write a Proposal• A proposal is written in a similar style as a peer-reviewed

journal article…• …BUT is NOT an academic exploration – it needs concrete

goals, objectives, and measures of success• Write concisely• Use visuals to convey big ideas

– Mock-up interfaces to software

• Cite your peers (especially if they might be reviewers)– Show you understand the field

• Avoid sloppy mistakes

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Even smart people are bad with numbers

A telling example of innumeracy levels in society involves a study of clinicians (who represent a sample with education levels representative of reviewers) who were asked to consider the release of a psychiatric patient. When told that that 20 of 100 similar patients could be expected to commit an act of violence if released, 41% refused to discharge the patient. However, when instead told that 20% of similar patients could be expected to commit an act of violence if released, only 21% refused to discharge the patient.

Slovic, P., J. Monahan, and D.G. MacGregor, Violence risk assessment and riskcommunication: the effects of using actual cases, providing instruction, andemploying probability versus frequency formats. Law Hum Behav, 2000. 24(3): p.271-96.

20/100 or 20% or 0.2 or 1/5

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Charts need to tell a story

0%

20%

40%

60%

80%

100%

120%

1 2 3 4 5 6 7 8 9 10 11

Functional Ability

Control Treatment

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Control the narrative

50% reduction in recovery time

0%

20%

40%

60%

80%

100%

120%

1 2 3 4 5 6 7 8 9 10 11

Functional Ability

Control Treatment

0%

20%

40%

60%

80%

100%

120%

1 2 3 4 5 6 7 8 9 10 11

Functional Ability

Control Treatment

20X improvement in functional

recovery

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STRATEGY: Understand the Competition

• Remember: a small business is 500 employees or less– Are a 5 person company and a 500 person company really in the same

league?

• Many seasoned SBIR firms:– Physical Optics Corporation [1,219 Phase I, 451 Phase II, $433M]– Physical Sciences [821 Phase I, 341 Phase II, $320M]– Creare [674 Phase I, 353 Phase II, $302M]– Intelligent Automation [624 Phase I, 225 Phase II, $225M]– Radiation Monitoring Devices [495 Phase I, 247 Phase II, $230M]

• Previous SBIR/STTR awards place a firm at an advantage– Preliminary data, familiarity with program manager

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Partner, Partner, Partner!

• Improve the caliber of personnel with consultants– Universities are great sources of talent

• Improve capabilities with subawards– Large and Small Businesses, Universities

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STRATEGY: Invest in a Proposal

• Winners view proposals as an investment, not a binary event• Less Proposals for More Awards

– This is a quality game not a quantity game

• A proposal is a product that has been invested in – the key is capitalize on that investment

• A rejected proposal may be– Submitted to another agency– Resubmitted to the same agency

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Importance of CommercializationMINIMAL VERY

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Commercialization Plans: Better Technology is not a Commercialization Plan

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Keys to Successful Phase II• Starts with a good Phase I• Have a Phase I designed to change the narrative and produce

interesting data (which may change the order in which you do things

• Everything you do in Phase I is about Winning Phase II!!!– Adjust plans as required– Create data that supports Phase II proposal– Understand tradeoff between submission

time and success rate

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Successful company common theme

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Raise money from position of strengthPRE

PHASE I

PHASE IAWARD

PHASE II PROPOSALREJECTED

END OF POSITIVE PHASE II

PHASE IIAWARD

END OF NEGATIVE PHASE II

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Understand the step functionsRARE TYPICAL

Infection points

You need to understand the inflection points that change the perspective of investors, customers, and partners…and build

your SBIR/STTR around them

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YIKES: SO, YOU WON AN AWARD…NOW WHAT?

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Other Issues

• Government Data Rights• Government Accounting Rules• Reporting Requirements• Cashflow Issues (most awards work on

reimbursement basis)• SBIR/STTR funding is sloooooooooow!!!• Relying Solely on Government Grants is a Bad

Strategy

Phase Prep (3

months)

Awaiting Award

(6 months)

Phase I Award

(6 Months)

Phase II Prep

(3 Month

s)

Awaiting Award (6 Months) Phase II Award (24 Months)

3.5-4 Year Process

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Questions?

Kirk J. MacoliniPresident, InteliSparkwww.InteliSpark.comKirk@InteliSpark.com

(607) 277-1570