WRIGHT BROTHERS INSTITUTETHE INNOVATION RUNWAY FOR THE AIR FORCE RESEARCH LABORATORY

The Dayton Metro Plan for Economic Diversity Technology Development-Commercialization Project

BASELINE MARKET-PULL COMMERCIALIZATION MODEL: A COMMERCIALIZATION MODEL TO TRANSFORM THE DAYTON REGION ECONOMY

FEBRUARY 28, 2018

This study was prepared under contract with the Wright State Applied Research Corporation, Ohio, with financial support from the Office of Economic Adjustment, Department of Defense reflects the views of the authors and does not necessarily reflect the views of the Office of Economic Adjustment.

Report presented to Wright State University underDoD Office of Economic Adjustment Grant # DD1452-15-01

CONTENTS

EXECUTIVE SUMMARY 04

INFOGRAPHIC 05

BACKGROUND 06

SYSTEMS AND PROCESSES 07

MARKET PULL VS. TECH PUSH 08

MARKET-PULL COMMERCIALIZATION PROCESS IN DETAIL 09

ECONOMIC IMPACT 14

DIRECT ECONOMIC OUTPUT 15

EXPECTED ECONOMIC OUTPUT 16

IMPACT TO COMMERCIALIZATION INFRASTRUCTURE 17

IMPACT TO CULTURE 20

PROJECT RESULTS 22

SIGNIFICANT CONCEPTS PILOTED 22

KEY FINDINGS 24

LESSONS LEARNED 25

CONCLUSION 26

4 OEA FINAL REPORT

EXECUTIVE SUMMARY

This is a unique time for Dayton, Ohio. The last several decades have seen Dayton’s economy rise and then fall as corporations like General Motors and National Cash Register left the area. While research capabilities at the Air Force Research Laboratory and area universities remained strong, the culture of innovation epitomized by the revolutionary developments of the Wright Brothers and Charles Kettering was largely dormant.

That is changing. The culture of innovation has been awakened. The two year effort to test a “Baseline Market-pull Commercialization Model” under The Dayton Metro Plan for Economic Diversity and funded by a DoD Office of Economic Adjustment Grant is now coming to an end. Under this grant, the Wright Brothers Institute (WBI) partnered with SP Global (SPG) Inc. and Paraclete Consulting Inc. to exercise the commercialization model and associated stage-gate process. Various market concepts were piloted which ultimately yielded a variety of start-up businesses and new product lines within existing businesses that are in various stages of maturity. The grant provided a proof-of-concept for a commercialization model, unique to the State of Ohio. Rather than expecting entrepreneurs to “go it alone”, or mimicking a Silicon Valley approach to commercialization, this model provides a balance between the agile flexibility needed to start a new venture, with the structure that matches Midwestern values and risk tolerance. As the transition from “Rust Belt” to “Innovation District” continues, Dayton no longer has to ask itself if it can leverage the research created from the Air Force Research Laboratory and minimize its dependence on federal dollars. The answer is a resounding, “Yes”.

Ohio never lost its critical assets from the Industrial Age,” says co-founder Mark Kvamme of Columbus-based Drive Capital, who was previously a managing partner at Sequoia

Capital in Palo Alto. “Even in the Digital Age business in America has always been about proximity to customers and managing your supply chain. And if you put a pin in the

center of Ohio you have 60% of U.S. GDP and 150 of America’s Fortune 500 companies within a day’s drive. Ohio never left. People just stopped paying attention.

- Forbes Magazine, “Why Ohio Is The Best State In America To Launch A Start Up”, February 20, 2017.

“”

MARKET OPPORTUNITY

MATURECONCEPT

LEANSTARTUP

MARKETLAUNCH

PROCEED SEED FUNDING SERIES A FUNDING SERIES B FUNDING

Balance between agile flexibility that new ventures need and the structure that matches Midwestern risk tolerance.

MARKETPULL COMMERCIALIZATION PROCESS

THESE BEST PRACTICES INFORMED THE “MARKETPULL COMMERCIALIZATION PROCESS”.

MARKETPULL COMMERCIALIZATION MODEL FOR DAYTON

4 NEW VENTURES CREATED 3 MADE POSSIBLE WITH AFRL TECHNOLOGY

5.5FTE$2.5M $400K

1.6KFTE$35.7M $2.2M

I N V E S T M E N T J O B S C R A D A VA LU E

2 0 2 3 P R O J E C T I O N S

C U R R E N T A N A LY T I C SAGFLYTE

MISTICS

S.A.WYZE

VYRTX

1 EARLY VENTURE BOLSTERED

$1.5M2 2I N V E S T M E N T

L I C E N S E S

PAT E N T S C R A D A VA LU E

$620K

$2M $7.5M

2 0 1 9 P R O J E C T I O N S

I N V E S T M E N T S A L E S

20J O B S

MADE POSSIBLE WITH AFRL TECHNOLOGY

GLOBALFLYTE

TA R G E T I N G

$100MVA LU AT I O NB Y Y E A R F I V E

CULTURAL IMPACT

ECONOMIC IMPACT

PREOEA CULTURERELIANCE ON LARGECORPORATE EMPLOYERS

MYTHS ABOUT COMMERCIALIZATION

NOT COMMERCIALIZINGSBIR PHASE I CONTRACTS

ABSENCE OF PROFITABLE,COOPERATIVE FRAMEWORK

RELIANCE ONFEDERAL FUNDING

SOLUTION LOOKINGFOR A PROBLEM

LACK OF ENTREPRENEURIAL WORKFORCE

RISKINTOLERANCE

I’m willing to collaborate

...my way.

NCR, General Motors

...and risk my retirement?!

They’ll stealmy idea!

I don’t want to be a business owner.

I’ve alreadygot a job.We’re

doing o.k.

“ “

“ “

“

“

“ “

“

“

“

“

“ “

Who’s going to buy that?“

“

RECOGNIZING THE CHALLENGES

80%TECHNOLOGYCOMMERCIALIZATIONSUCCESS RATE

ON TRACK FOR

10%TACKLED THE

<

SURVEYEDAIR FORCE SBIR ECOSYSTEM

S P G LO B A L’ S T R A N S F O R M AT I V E

C O R P O R AT E F O R M AT I O N TC F

M O D E L

W B IB E N C H M A R K

S M A L L B U S I N E S S S T U D Y

S R IM A R K E T P U L L

M O D E L SUCCESS RATE OF TECHNOLOGY COMMERCIALIZATION

LEVERAGING

BEST PRACTICES

2014 2018 2023

RISK TOLERANCE AT TRACTION

RISK REWARD

CONVERTS RISK INTO ATTRACTION

LESS DEPENDANCY ON FEDERAL DOLLARS & INCREASED REPUTATION AS A VIBRANT STARTUP ECOSYSTEM, ATTRACTING INVESTORS & HIGH QUALITY TALENT TO THE DAYTON REGION.

SP GLOBAL RAISED $5M OF

IN FUNDING FOR STARTUP VENTURES IN THE DAYTON

REGION IN MARCH 2018.

$25M

CORPORATE FORMATION OCCURED

50% FA S T E R

CO

MPETITIVE

COLLABORATIVE

GO IT ALONE PARTNER

TECH PUSH

MARKET PULL

willing to explore

increase in trust

move the starting line

BUILDCONFIDENCE

IN MARCH 2017 THE ENTREPRENEUR'S CENTER

RECIEVED IN FUNDING FROM OHIO

THIRD FRONTIER’S ENTREPRENEURIAL SIGNATURE

PROGRAM

$6M

SP GLOBAL IN KIND FUNDING$3MOEA FUNDING $1.3M TOTAL FUNDING FOR PROOF OF MARKETPULL

CONCEPT

$4.3M

M A R C H 2 0 1 8

2014

2015

2016

2018

A profitable, cooperative framework via Collider Events to engage the

business & Technical communities, integrate concepts, create

high-peforming teams & reduce uncertainty

A unique commercialization model that brings together

complex technologies to solve complex problems.

A unique commercialization model that makes investing less risky and positions start-ups to accept funding at every stage.

THE RESULTS OF THE TWOYEAR OFFICE OF ECONOMIC ADJUSTMENT OEA GRANT

BACKGROUND Discovering the Challenge

The Dayton Region is transforming itself into an innovation engine that leads research and development into the next frontier of technology and its application. In our recent history, the Dayton Region was a leader in automotive manufacturing. But from 2000-2010, Dayton lost 75 percent of the jobs in that industry. Yet amid that economic devastation, other community assets surged forward. The Dayton Region is home to the Air Force Research Laboratory (AFRL), where more than $4 billion/per year is invested on research and development. Private companies that support that R&D have also been growing, gaining a large share of the country’s Small Business Innovation Research (SBIR) funding. The area hosts two major university research groups. The University of Dayton is ranked #2 nationally in Materials Science and Wright State University is an emerging center for advancing Human Performance. The Region is ranked #4 nationally in SBIR Companies and has proximity to National Center for Medical Readiness, NASA Glenn Research Center, and the Indiana/Ohio UAS Center & Test Complex. The area is also a powerhouse in manufacturing. The region hosts the #3 aircraft supply chain in the nation and has over 2,400 manufacturers, 100,000 skilled workers and extensive tooling, machining, and materials processing capability. Several years ago the Wright Brothers Institute (WBI), an organization that serves as a partnership intermediary with AFRL, began assessing why so little technology from AFRL and the Region as a whole makes it to the commercial markets. The conclusion… the Region lacks a strong integrated commercialization process. At the same time the Dayton Development Coalition identified Stanford Research Institute (SRI) as having a high-performing technology commercialization model with a high success rate. WBI then teamed with SRI to study their commercialization process.

7OEA FINAL REPORT

Over the past decade, typical technology commercialization, funded primarily by Venture Capitalists, had a success rate of ten percent. In contrast, SRI’s market-pull methodology, that incorporated using future customers in the product development process had a much higher success rate, including startups like Apple’s Siri technology and Da Vinci surgical system. This model, and other similar seminal works, such as Steve Blank’s Customer Development launched the successful Lean Startup movement. With these best practices in mind, WBI explored technology commercialization modeled by SRI International out of Silicon Valley for application to the Dayton region, beginning in 2014.

Wright Brothers Institute’s original commercialization model was based on a classical flow diagram with decision points as the basic stage gates (Figure 1.). This depiction of the model had several suboptimal characteristics. It implied that every step had to be followed in exact order and it did not depict the strong tie between development of a concept and capital funding that is required to move a project forward.

WBI and SP Global, Inc. (SPG) formed a commercialization venture, Tech^Edge Ventures (TEV) in 2015. WBI saw that SPG, which had an office in Northern Virginia at the time, had unique commercialization approaches that complimented SRI’s method. Not long after, SPG opened offices in Dayton Ohio, and later in Annapolis Maryland. SPG’s patent pending Transformative Corporate Formation (TCF) commercialization model applies entrepreneurial systems engineering across market needs, ladder financing and early stage C-suite harmonization. The TEV’s use of TCF showed tremendous promise to shorten time to market, reduce capital investment needed to reach break-even points and achieve commercialization success rates over 80 percent on business that can achieve $100M valuation within five years of launch.

On 8 Jan 2016, WBI submitted the modification of the SRI model for commercialization based on core elements of SPG’s TCF commercialization model, to the OEA team. This revised Market-Pull Commercialization model (Figure 2) was continually streamlined, as pilot projects progressed, and deficiencies were discovered. This new depiction shows four major areas from Market Opportunity through Market Launch. Each stage shows the critical work that must be done to efficiently move forward. These stages are governed by the funding needed to successfully complete the next phase. The new model also provides flexibility. Work can be done in any order within each stage, as long as all the steps are completed. This helps projects avoid inefficiencies or business problems, such as wasted funding, duplicative work, time lost and stalled momentum (e.g. Prototypes are built before a clear understanding of the market viability is established).

Figure 1. Starting Baseline Model

SYSTEMS AND PROCESSES Evolution of the Market-Pull Commercialization Process

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MARKET PULL VS. TECH PUSHIn Federal and publicly funded laboratories, impressive technology is discovered and refined. However, only about 3-4% of these technologies ever make it to the market place as new products or services that would benefit the economy. This is evidence of a “technology first” or “tech push” mindset. Other characteristics of “tech push” include a linear approach to starting a business (idea - first, prototype - second, market - third) and the belief that a single technology will make it to the consumer market.

The Market-Pull Model is different in several ways. First, the model assumes that buyers do not care about technology but do care about what value it can bring to them. This is why Market Need is the first, critical, step in start-up development.

Second, the Market-Pull Model brings that deep understanding of market opportunity and consumer needs first before exploring technologies that can be used to meet those needs. Research such as market analysis and tech mining is completed prior to launching a business. This ensures that start-ups have strong market pull, the right technology and a unique value proposition that allows for rapid capitalization.

Third, the Market-Pull Model understands that constant refinement and iteration are critical components to success. This approach allows for modification of a product or service during the development of the business. Feedback from user groups, technical experts and business professionals can be

incorporated iteratively, getting to market faster, with fewer pitfalls. Figure 3 demonstrates how these iterations can take place at the same time.The Market-Pull Model is also useful for quickly assessing a concept, which may be based purely on the exciting potential surrounding a technology. Using the Market Opportunity and Mature Concepts phases as a litmus test, promising markets, as well as those that should be avoided, quickly become clear. For any start-up (product or company) this is critical information to avoid delays, missing market share and risking funds.

Appendix A contains a list of terms and the subsequent appendixes contain templates and examples of the items described.

Figure 3: Rapid Parallel Iterations

Figure 2: Market Pull Commercialization Model

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MARKET-PULL COMMERCIALIZATION PROCESS IN DETAILIn order to give the consumer the right product, at the right time, a combination of technologies, new science understanding, manufacturing techniques, and market approaches are required. The ideal combination becomes aligned when business start-ups address three essential activities; 1) Market Opportunity, 2) Rapid Innovation/prototyping, and 3) go-to-Market Strategy. As mentioned above, this re-prioritizes the “tech push” mindset, putting Market Opportunity front and center.

Market OpportunityThe Market Opportunity Phase starts with a general market of opportunity. The OEA pilots started with the market areas of Precision Agriculture, Energy, Human Performance Enhancement and Environmental Monitoring/Mitigation.

1. Market DeconstructionThe first step for assessing large markets is to analyze the current State-of-the-Art. Market research firms can vary in scope and cost. There are several cost-conscience firms that provide

market research that can be bought or obtained via web-based seminars or conferences. Additional information can be obtained from user’s/consumer’s perspective, consultants working in the market or an examination of venture capital expenditures (who’s investing and how much). Industry magazines and institutes can provide a wealth of data on the market of interest. An example of a market analysis for E-Water is provided in Appendix B.

Functional Deconstruction: A functional deconstruction examines the essential functions in a specific market and looks for improved ways of getting those functions accomplished. This approach analyzes the pain points and questions “how I

could do this different?” For example, the cost and time associated with hand-picking fruit led that industry to invest in the development of robotic strawberry and grape harvesters. A functional deconstruction of the precision agriculture market highlights what a farmer must control

to obtain maximum profit (see figure 5). Hydration is a key pain point for farmers and can greatly impact profits. Open-air farming combats unpredictable rainfall with drainage tiles and

irrigation systems. However, in an effort to control more of the environment, vertical farming may be the right investment for a start-up business. Functional deconstruction provides holistic examination of the supply chain in the agriculture market, including the farm’s proximity to the consumer. This analysis is especially useful when end users cannot specifically express the pain point; fruit farmers wanted to reduce labor costs and didn’t initially ask for an automated, technical solution. Understanding the true pain points spotlight the areas for improvement and are the basis of business opportunity. This is where the voice of technologist can inform the user of what is possible and create a demand that didn’t exist.

2. Technology DisruptersOnce the Market needs and opportunity space is identified, technology and new approaches can be examined to see if they will meet the identified need. There is an enormous amount of unused Intellectual Property (IP) that is available. Federal research labs, such as NASA (https://technology.nasa.gov/), have IP portfolios that are available for licensing, available through their websites. All DoD IP developed from Defense labs (Army Research Lab, Naval Research Lab, Air Force Research Lab, DARPA) can be found on Tech Link https://techlinkcenter.org/. There is technology in many regional and national companies or universities that was developed for a specific purpose but could be used in a different domain for a different product. Often the company will license that for use outside of their core business. This can be obtained via a direct license agreement or with revenue or equity shares in the new venture. These technologies often need to be modified for the new commercial use and states, like Ohio, have funds available for modifying technology for a new market use.

A series of Collider Events provided a platform where individual disrupters were invited to see the OEA team’s market research findings, technical opportunities and potential applications. Appendix C shows the Precision Livestock Market Collider. Following the original presentation, attendees would submit concepts that address needs in this market in the form of “blue papers”. The OEA team would then invite technology developers to gauge interest in a teaming arrangement to exploit new market opportunities. There are many events in the local region that help to connect technologists to new entrepreneurs to assist in finding partners and development resources. A vibrant network of start-ups and support organizations for the Dayton region are located at https://daytontechguide.com/

3. Concept DevelopmentA Concept of Operation (CONOPS) is a high-level document or graphic that depicts how the end user will interact with the product or service. This communicates a holistic view of a product or service’s delivery and provides a clear value proposition. Figure 6 depicts the service offering of an agricultural scouting service (on-demand information and analytics were identified as pain points for the agriculture market). Customers include farmers, consultants, or service providers. The scouting service would receive a request from one of their customers and create a schedule where they would

Figure 4: Precision Ag Companies

Figure 5: Functional Deconstruction of crop growth control

10 OEA FINAL REPORT

regularly fly over fields to provide real time data. Details of that data such as what is being scouted (plant count, disease, growth nutrient requirements) would be available in an on-demand report. The report delivers faster data, for better decision-making.

Although pricing data is not included it is clear how the buyers and providers would interact. This initial overview can be expanded with follow-on detailed information on technology to further explain how key components work. This could be details on what sensors would be used and the value proposition of the data that they provide. This CONOPS help orient user groups to a new capability, informs the company of who is involved in the transaction and begins to identify potential customer groups. Iterations of the concept will help companies determine the best go-to-market strategy (i.e. sell to service provider so they can identify fields that need spraying, or directly to farmers, or to consultants or co-ops). This CONOPs also helps to identify who you might need as suppliers or business partners. In this situation a plane will fly over the field but that could be rented or set up with an arrangement with a flight company. The Value proposition is that wide area data would be available within a short time of the flight to leave time for remediation. Multiple CONOPs could be developed based on the information that could be provided, how the teaming works, how the service is provided.

4. Initial Market ViabilityAt this stage, it should be clear that a concept provides at least a 10x improvement in the current state-of-the-art in one of the top three concerns for the users (improvement in speed, price or performance). An informal market survey, via a user forum (co-op meeting) or a written survey with potential customers is critical to finding out if the concepts are meeting this metric. Further refinement of user inputs and pricing will be completed in the mature concept phase. It is important to clearly differentiate the Total Market, the Total Addressable Market, and the Total Obtainable Market. Appendix D is an example of a detailed market segmentation and addressable market for an energy efficient system concept.

Once the initial market feedback is favorable, the team will define a “Go-Pact”. This is all the information that is necessary to make an informed decision (a “go” or “no-go”) that one or

more of the concepts are viable. It also details the expected relationships between the investing parties. The first item is to create an assumption-based Pro-Forma projection of revenue and profit. This can include conservative and upside projections of obtaining a percentage of the market share identified in the market analysis. All assumptions should be clearly stated. For example a conservative approach may assume that the company will take 2 years to deliver the first product and take 5 years to assume a 5% market share. An upside may show revenue generated from reaching specific targets of market share within a target time frame. This should show all partners inkind contributions and hard cash needed to get to launch. This should specify where this needed funding will come from (Personal cash contributions, Seed funding, etc.). This can include projections to drive the cost of units sold down to bolster the claim of increasing market share. It is important to lay out the first year in detail to determine if you have a positive cash flow to sustain the enterprise through launch and collection of revenue. At this point a Business Canvas should be built to lay out key information, partners, and decisions associated with the business concept. This need not be complete at this stage and will be refined as as the concept is molded by user feedback in the subsequent stages. However the more that can be filled out the more confidence the team with have in the decision to move forward. Example of an assumption based pro-forma, and a Business Canvas is located in Appendix E. The last part of the Go-Pact is to get a signed letter of intent from all the parties involved in the establishment of the new venture. Letters of intent build trust within the founding parties by managing the expectations of terms such as:• Shared revenue

• Percentage of equity received

• Anticipated investor’s equity

• Preferred provider arrangements or sales relationships

• If/when one of the parties opts out of the ventureManaging these expectations will help avoid complications before the entity is formally stood up as a company. Appendix F is an example of the GoPact that contains the Letter of Intent that the Tec Edge Ventures Group signs with prospective companies in order to assist them in the development of their business. With this general consensus, all parties involved will understand what is expected of them and what they will get from this venture.

Mature ConceptThe outcome of this maturing concept phase is to build enough credibility in the concept to attract investment into the company. SP Global’s Transformative Corporate FormationTM (TCF)1 process is particularly helpful in efficiently accelerating an early stage companies ‘market entry. One of the key components of the TCF process model is to assemble a C-suite and team of R&D engineers. Characteristics for these team members include:• All steeped in technical domain knowledge with pre

established norms

1Transfromation Corporate FormationTM is a trademarks process by SP Global Inc.

Figure 6: CONOPS for agricultural scouting services

11OEA FINAL REPORT

• Proven abilities to perform at a high level in assigned roles with one another

• Leverage experience from previous new business launches.

• Think iteratively and not linearly about developing minimal concepts.

Teams are formed with seasoned, executive-level entrepreneurs who’ve experienced at least three successful launches. Key characteristics include entrepreneurs that leverage business templates, have access to capital sources and large market channels. The TCF model uses successful capital planning and management strategies and are MBA and PMP certified. This helps minimize the time looking for funds by successfully lining up Seed, Series A, and Series B funding during the development process. This model also has access to technology networks that can be quickly brought to bear on the target market. This level of experience is invaluable in navigating the company through the next phases of development in minimum time.

5. Proof of ClaimsConcepts must be validated, to ensure the proposed value has an “Overt Benefit” 2 before it can be brought to market. This step requires that hard data is captured to support the desired benefit. Stepping outside of the lab, validation happens in the environment where the concept will be used. Teaming with key partners or market channels can accelerate testing and build interested customer base and investors. This testing often highlights challenges that were not expected and may terminate the concept. Validation should not only ensure that the concept works, but it must connect to the value proposition and provide a “Dramatic Difference”3 that builds trust and enthusiasm for the customer (10x the improvement discussed in Market Opportunity). Independent assessment should also be included during this phase, which adds credibility to the value proposition as well as creating an unbiased look at the results.

6. Build TeamAt this point in the model, it’s clear that a successful team is more than the company that has the idea or key technology. This team includes the business partners that are necessary to build the product or service and the delivery partners that bring the product to the paying customers. It is important to identify one or several Prime Client(s) that your business is targeting and is interested in being one of the early adopters. These clients will help to form the final product by providing feedback on early development and how the product or service is offered. A draft term sheet is needed to clearly state who are the founders, advisors, and board of directors of the company. This will also lay out the final shares that individuals will own. This may differ from the original letter of intent if significant resources are added by one of the partners to get to through the development and testing. This information is needed to finally form the company before the moving on to the next stage. A team may include a Cooperative Research and Development Agreement with an established company,

research institute, or federal laboratory. This can help to lay the groundwork for developing the product to a better market readiness level and establish credibility of independent testing of the product as it is being developed.

7. Business CanvasThe Business Canvas is a one page document that identifies key components of the proposed venture. It clearly states the roles of all team members (Key Partners), what is needed and needs to be accomplished (Key activities, Key resources), what is the clear value proposition for the customer, how the customer will be served (Channels, Customer Relations, Customer Segments), and basic information on projected expenses and income areas (Cost structure, Revenue Streams). Along with this basic canvas that lays out key components of the business structure, the key technology needs to have a strong Intellectual Property (IP) strategy to protect the business during the critical start-up phase. The market segmentation section will help to find the first market that is to be addressed, getting the start-up to market faster and establishing revenue sooner. For example, a new, medical diagnostic tool can enter the livestock market faster because medical diagnostic tools for human use require extensive clinical trials. Entering the livestock market allows the start-up to begin doing business much faster. The final part of the business canvas should also identify barriers to the market. These could be regulatory (i.e. FAA limit on unmanned system flight operations), trustworthiness (i.e. the market will never trust robots to do x) or cultural (i.e. larvae as a new food source). Companies must acknowledge and overcome these hurdles to reach the identified market.

8. Market AssessmentLike the Initial Market Viability phase, user feedback is once again solicited to determine if the now-mature concept is the right concept at the right time. Convening a League of Users is an excellent way to obtain this feedback. At this stage, users need something tactile to determine if the promised benefits will come to fruition. The development of a Minimum Viable Demonstration (MVD) is helpful to bring the user group into understanding the basic concept and what is now possible. Somewhere between a talking paper and a fully functioning prototype, an MVD should be able to clearly demonstrate the value to the user group. Information from the proof of claims should also be presented to show the concept has realistic viability. The purpose of the League of Users is to validate or (modify) the value proposition, get a sense of whether the users would pay for this (and how much), and generate interest and buzz about the tremendous benefit that could be realized. This could be a source of finding reference accounts that would be willing to be the early adopters for the service or product. This could also help to determine if the customer would want it as a service or a product. “I don’t want to own another piece of equipment to maintain. I just want the data from it” was valuable information for one promising agricultural concept.

9. Preparation for Seed FundingAs a concept matures, start-ups need to form a legal company

2 “Jump Start Your Business Brain” Doug Hall, Eureka Institute, 2001 3Ibid

12 OEA FINAL REPORT

in order to receive seed funding. Informal agreements and letters of intent must be put in order, while formal agreements with suppliers should be solidified after the product is developed, to remain flexible in later phases. Papers must be filed with the state that the company will be incorporated in declaring the company’s purpose, board of directors, and stakeholders in the company. There are multiple choices of how this incorporation will take place and this is where experienced entrepreneurs or start-up accelerators can provide valuable guidance. It is advisable at this time if partnerships are formed for the legal business to consider how any of the parties may exit the business for unexpected reasons (i.e. death, divorce, personal health, etc) to allow for the smooth continuation of the business.

An initial investment summary is needed to make the “Pitch” to investors for the seed funding. Investment summaries contain research that showcases market options, proof of claims, feedback from the League of Users, the assumption-based Pro forma, anticipated adjustments and the amount of money required to get to first sales. Investors want to understand what is needed to get to market, the specific goals and timelines, and how evaluations will be tracked. A good pitch with a strong concept should attract investors, regardless of whether outside investment is desired or needed. Otherwise the concept may not be taken seriously, stalling the product’s entry to market.

Lean Start-UpEntering the Lean Start-up phase start-ups should feel confident about success. Things can still go wrong, and often do, when timelines and funding become unmanageable or quality is sacrificed. Once seed money has been obtained it is very hard to go back and get additional funding, so managing finances is critical to success. Most angel investors will have set specific objectives and milestones that they expect to be met. Not meeting these expectations may create a perception of mismanagement, resulting in lowered confidence among other investors. Advice and guidance from seasoned entrepreneurs can help start-ups avoid these pitfalls.

10. Value Creation ForumThe value creation forum is used to finalize specifically what features of the product the users are willing to pay for. The forum should be constructed to create the widest possible spectrum of users that can be brought together. Each feature of the proposed system should be highlighted and the users given a chance to rate its importance in the overall offering to determine if it is a critical element in their understanding of the products use. This helps the team to decide what needs to be built for the Minimum Viable Product.(MVP) Scenario and role playing are often helpful in explaining the new capability and its value to the users. Infographics that explain the offering are often useful for the audience to understand the concepts and how it could be used. Since this is a new product or approach that may be counter to the current state-of-the-art, the infographic is a constant reminder of the value proposition as the elements are being explained. An example of an Infographic and a VCF presentation is in Appendix G.

This is also where the Minimum Viable Demonstration is used to acquaint potential users to novel or unfamiliar parts of the offering. Each part of the offering is presented, and the users are then asked to provide feedback on each section to gauge its relative value. The Value Creation Forum is a chance for candid commentary and could expose nuances that may derail the offering. Initial pricing concepts should be floated to gauge the reaction and seeing if you have the right go-to-market approach. If all goes well this is a great source of finding reference accounts and early adopters. The forum should encourage feedback by asking for criticism of the approach or offering. Ideally, users being asking when they can buy the product. If the audience is lukewarm to this session, the entire concept should be questioned. Without a positive response the target market share may be hard to realize.

11. Rapid PrototypingAfter three (or more) opportunities for user feedback, a Minimum Viable Product is needed. Features should be scaled back or added based on the feedback and ease of incorporation. Best practices include:

• Test in a real setting

• Minimize additions not initially discussed at the Value Creation Forum (require another round of testing with a user group and can slow down the process)

• Build fast, fail fast, learn and modify

• Time is money and any time lost will risk the venture getting off the ground.

• Build relationships with prototyping shops and manufacturing experts that can provide free advice on building the product.

• Think long-term by setting up agreements with the potential manufacturing entities to help build a production pipeline

• Leverage preferred provider agreements

• Assemble select user groups that may be interested in a soft launch and be early adopters to help work out the bugs in an initial system in exchange for allowing them to help shape the product

12. Finalize Go-to-Market PlanEarly adopters that help shape the product during the prototyping phase often become a start-up’s first buyers. These early sales can be beneficial to the next round of investment. Care must be taken to not raise an expectation that any early adopter discounts are available to all. These are just for adopters that are bringing value back to the development of the product. The go-to-market plan should finalize all arrangement for back office support, arrangements with banks for capital if needed for upfront cost for long term sales. Solar city is an example of using this strategy. Homeowners receive a system from Solar City at no upfront cost and build in the cost of financing into the agreement. This creates considerable savings for the homeowner and a revenue stream for the company with built in profit margins. Venues like Kickstarter or “go fund me” offer some products to gauge the market interest by developing a pitch and getting presales at various price points. For some products, this is a great way

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to gauge market interest and find the sweet spot in pricing by offering only a limited number for the first x products, then raising the price for the next number. This also can be used to gauge the interest in various options on the product. These generate early sales that in turn generate interest in your suppliers. One company, Fitbit, had such a large response, over 1000% of expected sales that they quickly shifted from a low rate of initial production (LRIP) to a full-scale manufacturing.

For more traditional efforts, sales and market channels need to be considered. Start-ups should be aware of the security surrounding intellectual property. IP may have been discovered at any phase of development, including the manufacturing process, so it’s important to have IP secured before engaging in sales and market channels. Again, this is where the experienced entrepreneur can help the business. These are organizations or other businesses that already have market reach and are willing to work with the start-up because they are excited about the new offering.

13. Prepare for Series A InvestmentAt this point the company should have great confidence in the product since it has been market tested, use tested in an operational setting with the early adopters. The pro forma prepared for the seed funding can be updated and expanded with confidence based on the user feedback and early presales. Any assumptions should be verified in the investor pitch. A term sheet needs to be prepared to let the investors know what exactly they will be getting for their share of the investment. An investment summary will tell the investors the expected return on investment, how soon it will be realized and the relative risk that they will be sharing for that return. Before an investor deck is presented to potential investors it must meet SEC requirements. All securities being made to investors must either be registered and meet the rules, requirements of a registered securities offering, or file for an exemption from a registered offering available to privately-held companies, provided the meet the specific requirements of the available exemption. This is one area where the seasoned entrepreneur and financial experts are critical to steering the development of the business. A solid business case needs to be made from what was learned in the lean start up. Sales targets should be clearly laid out. Total funding needs to cover production ramp-up, sales cost, and target for profitability should be set. An example of a Series A investor brief is included in Appendix H. A brief discussion of some of the rules and best practices that the TEV team complies with in preparing their investor decks is included in Appendix I.

Market LaunchOnce the Series A funding is obtained the company should have confidence that their offering can deliver on the market need. They can begin to hire workers and launch the business.

14. Market LaunchThe market launch will then build the needed products at the level of initial interest and presales. The sales force will finalize any reference accounts that have shown interest and start to bring in revenue, while focusing on new sales. The

office operations will need to be finalized by doing payroll internally or contracted out to an identified service. This is a great option for a start-up since learning payroll rules and various withholding requirements (especially across multiple jurisdictions and states) could distract the team from building the business to the next level.

15. Next ProductsOnce sales and production are online it is important to begin to adding elements of the product that the market identified for continuous product improvement. Since the offering was made with the MVP there will be room for improvements. This could also introduce new twists as the business moves across jurisdictional boundaries new restrictions or requirements could arise. Also secondary markets may require a small adjustment to the initial product. If the original IP was obtained from a Federal Lab, a Cooperative Research and Development Agreement with the agency could provide new capabilities to that product at a reduced cost. At this time new IP could be added to the product to increase value and sales. A product that is stagnant will soon be overcome. The sales that you displaced will soon figure out your value and work to undermine it. Attempts should be made to keep the operation lean and production of the product one step ahead of the competition.

16. Market ExpansionThe plan for expansion should be carefully considered. Many companies have failed because they expanded beyond the market ability to absorb the new offering. If the offering is very novel there may be a huge wait and see reaction where the second wave waits to see how the early adopters respond to the value proposition. This could take a while or the second wave may be waiting for some critical upgrade that is important to them but was not in the MVP. The market expansion should reiterate the lean start-up process in developing the enhanced prototype and testing it to let the market tell you if it is right. Other problems could arise in the expansion such as not being able to find the needed workforce. The supply chain may not be able to keep up with the demand and sales outweigh the delivery, creating bad press. A careful cash flow analysis needs to be taken and stress tested to see how well the company can absorb unforeseen slowdowns or speedups in sales or production.

17. Prepare for Series B InvestmentAs sales and growth continue, the company may need extra investment to create the scale up process. The series B investment is not as risky since the company now has a track record of sales and production. This should lead to more favorable terms for the company. Again having a seasoned entrepreneur on the management team or board is critical to navigating this investment. If the company is very successful it may get bought out instead of obtaining the needed expansion money. The Series B investor will need investment summaries, along with new emphasis on management, leadership, and a clear vision of where the company is going.

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The technology commercialization pilot project explored a commercialization modeled by SRI International out of Silicon Valley. While technology commercialization had a success rate of ten percent, SRI’s market-pull methodology that incorporated using future customers in the product development process had a much higher success rate, including startups like Apple’s Siri technology and Da Vinci surgical system. WBI went beyond SRI’s method by commissioning SP Global, Inc. which now has offices in Northern Virginia, Annapolis Maryland and Dayton Ohio to apply its patent pending Transformative Corporate Formation (TCF) commercialization model which applies entrepreneurial systems engineering across market needs, ladder financing and early stage C-suite harmonization to achieve success rates over 80 percent.

This concept was validated in 2015 when WBI conducted a survey and focus groups from SBIR companies, university researchers, defense contractors, AFRL representatives and others in the region to get a clear picture of the gaps and barriers in the regional ecosystem that prevented or limited the region’s technology commercialization activity. The study found three things that the Dayton ecosystem needed:

While the region’s workforce of researchers had strong technology capability and could develop technology, this offered little value to the region in economic output, as most of this effort was not converted into economic output. “Solutions looking for a problem,” was frequently expressed by technology developers.

WBI’s pilot technology commercialization project explored the concept of a market-pull model that would leverage the region’s strong technology development capabilities, connect that ability to market demand, and form ventures that would attract further investments and ultimate produce sales, revenue, and jobs.

The economic impact of the OEA Technology Commercialization activity has been significant, particularly to the Dayton region. The economic impact is organized and analyzed in four areas:

• Direct economic output

• Expected economic output

• Impact to commercialization infrastructure

• Impact to culture

CONNECTION TO MARKETS

TRUSTED RELATIONSHIPS

SPEED AND EFFICIENCY

Significant capital investment funding is now available to regional start-ups. The first Dayton area Technology Validation and Start-up Fund (TVSF) award came about as a result of this program; there are now six awards from this area. This OEA effort also provided some of the impetus for a $6M award to the Dayton-based Entrepreneurs Center (TEC) from the Entrepreneurial Services

Provider (ESP) Program under the Ohio Third Frontier program. Venture capital and angel investment groups are being attracted to the region. Additionally, SPG has raised $5M of a planned

$25M commercialization fund for A-round investments as part of their financial ladder. The full $25M is anticipated to be secured by late Spring of 2018.

“”

ECONOMIC IMPACT Market Pull Commercialization Pilot

The challenge with the Dayton region’s economy at the beginning of the OEA funding was its reliance on federal government funding. A direct seven percent of the metro area population was employed by the federal government, and an even greater percentage were employed as contractors or received research funding to support Air Force Research Laboratory (AFRL), the defense laboratory with a budget of $5 billion annually. In addition to the AFRL assets, the Dayton metro has one of the highest concentrations of Small Business Innovation Research (SBIR) awards in the country. However, the region has had an inability to turn these R&D assets into economic output, as the Dayton regional economy has remained relatively flat for the past few decades.

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VentureInvestment

from PartnerOutside

InvestmentJobs

CRADA with AFRL

AgFlyte $100,000 - .5 FTE -

MISTiCS $100,000 - .5 FTE -

S.A.Wyze $645,000 $1,505,000 4.5 FTE $400,000

VyrtX $100,000 - - -

TOTAL $945,000 $1,505,000 5.5 FTE $400,000

The technology commercialization pilot project has produced four new ventures that are in various phases of their technology acceleration and commercialization process.

1.) AGFLYTE 2.) MISTICS 3.) S.A.WYZE 4.) VYRTX

The direct economic output quantifies the specific economic activity that has already taken place for these ventures. Economic output includes:

• Additional in-kind investment from project partners

• Outside investment attracted to the projects including venture capital, grants, or other investment

• Number of jobs (FTE of employed or contracted)

• Cooperative Research and Development Agreement (CRADA) funding to AFRL (signifies investment from the startup venture back to AFRL to furth er co-develop the relevant technology)

Due to the staggered timeline of the commercialization projects, the time each project has had to develop, accelerate, and go to market has been very different. While additional investment, growth, and sales are expected for each project, this section focuses strictly on economic output that has already been achieved. The project furthest down the commercialization pathway is S.A.Wyze, which was the first project launched with OEA funding.

DIRECT ECONOMIC OUTPUT

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WBI began using this model in 2014 when it and its partner SP Global launched its first startup, CoreSyte, a sweat sensor using AFRL technology, followed by the 2015 launch of GlobalFlyte, a situational awareness technology for first responders. Though GlobalFlyte was launched using SP Global, Inc. TCF methodology before implementation of the OEA grant, the outcomes of this effort serve as a baseline for expected growth of the four projects that have followed. Also, VryTX’s business plans call for the use of GlobalFlyte’s services in its Ground Segment solution.

EXPECTED ECONOMIC OUTPUT

VentureInvestment

from PartnerOutside

InvestmentJobs

CRADA with AFRL

AgFlyte $500,000 $3,000,000 300 FTE $400,000

MISTiCS $500,000 $10,000,000 500 FTE $400,000

S.A.Wyze $645,000 $3,500,000 300 FTE $400,000

VyrtX $500,000 $17,000,000 500 FTE $1,000,000

TOTAL $2,145,000 $33,500,000 1,600 FTE $2,200,000

After two years of technology development and commercialization, GlobalFlyte has had some impressive results.

JOBS: 5 FTE | 5 additional FTE in contracted support | 2019 projection: 20 FTE

INVESTMENT: Partners: $5.5 million | Outside investment: $1.5 million | 2019 projection: $1.8 million additional outside investment SALES: $110,000 | 2019 projection: $7.5 million | 2022 projection: $49 million annually INTELLECTUAL PROPERTY (IP): 1 AFRL technology licensed | 1 other technology licensed | 2 new patents generated | IP crosses disciplines, creating additional knowledge spillover | IP contributes to market differentiation

COOPERATIVE RESEARCH AND DEVELOPMENT AGREEMENT (CRADA): $620,000 to AFRL

While the four ventures are in various stages of acceleration and commercialization, the expectation is to create companies valued at $100 million by year five. Using similar venture development practices as GlobalFlyte, the following is projected for the four ventures:

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For the Dayton region to successfully convert its R&D assets into economic output, an infrastructure needed to be built. Commercialization pathways require markets, customers, technology acceleration, prototyping, investors, strategic partners, and many other components.

In September 2015, the Entrepreneurs Center (TEC) in collaboration with WBI published a commercialization strategy for the region (Figure 9). The goal of this strategy was to build a “vibrant industrial base,” a dynamic industry sector that provided innovation support to AFRL while creating more jobs and opportunities for the Dayton region community.

Figure 9: Regional Commercialization Strategy

Significant success was demonstrated in the corporate formation timeline with time to start-up cut by roughly 50%. For example, Global Flyte cut the “time to revenue” from the typical 60 months to

just 26 months and S.A.Wyse is on track to do the same in just 18 months. “ ”IMPACT TO COMMERCIALIZATION INFRASTRUCTURE

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1. Strengthen the role of R&D as an economic asset.

a. The WBI technology commercialization pilot leveraged existing AFRL intellectual property (IP) for technology commercialization purposes, developing commercial products with related business models that resulted in additional investment and jobs, while positioning the product for more investment, jobs, and sales.

b. AFRL research was strengthened from the project. While commercial licensing of AFRL technology will eventually return some royalty revenue to AFRL, the CRADAs developed with both GlobalFlyte and S.A.Wyze have more immediate benefit. These two CRADAs brought $1 million in direct investment from the startup companies into research areas connected to each venture. In addition to the additional funding for AFRL researchers co-developing the technology, the scientists and engineers associated with this research also benefitted from the additional innovation that came from the commercial product development. Both the startup ventures and AFRL will benefit from the additional innovation that is a direct result of the collaborative research effort.

c. The pilot project also engaged regional R&D companies and research universities by providing them with the opportunity to participate in the technology consortium. Members of the technology consortium could respond to market problems or specific technology requests, providing “blue papers” to WBI’s project management. This activity made R&D companies and research institutes aware of potential commercial markets and how their research work may be relevant for commercialization. This was the first effort of its kind to intentionally engage a broad network of technology developers into a commercialization initiative.

2. Increase access to capital to entrepreneurs and small businesses.

a. The pilot project increase capital to small businesses that participated in the specific technology commercialization projects, by attracting outside investment into these ventures.

b. At the end of the pilot project, WBI partner SP Global, based in Virginia, raised $5 million of a $25 million fund launchedin Dayton to “provide comprehensive support to small businesses and economic development throughout the region. 4” This fund will support startup ventures that provide solutions to global challenges.

c. The commercialization efforts and increase in venture pipeline have attracted venture capital and angel investment groups to the region. Ikove, a venture capital organization formed in Columbus, Ohio to commercialize Ohio State University technology, opened an office in Dayton, Ohio to assess and commercialize AFRL technology. An Indiana-based angel network called VisionTech Angels has expressed interest in opening a Dayton chapter and is exploring that effort with the Entrepreneurs Center.

4 https://www.bizjournals.com/dayton/news/2017/12/13/technology-firm-creates-10m-business-development.html

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The Market-Pull Commercialization pilot has impacted or influenced the following components of the entrepreneurial infrastructure and the regional commercialization strategy in the following ways:

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3. Expand the region’s commercialization capacity.

a. The pilot project served as the first commercialization project of its kind that focused on the region’s R&D assets, including those with AFRL and participating small businesses. The project provided a framework in which companies could engage with commercialization efforts.

b. WBI’s focus on markets was a significant shift in the region’s commercialization capacity. The League of Users forums brought together users to share specific needs around the technology areas. This not only helped identify market-pull, but it also gave technology developers a way to communicate directly with end users and demonstrate the value of potential customers on innovation. This framework also proved valuable to pilot project management staff, vetting ideas with real users who could express whether or not the projects were valuable. In addition, WBI’s research staff conducted market surveys and IP assessments to determine vet market and technology opportunities. Since the OEA project’s inception, WBI staff has grown in its capacity to assess markets, including a staff member’s certification in Competitive Intelligence.

c. After many years of seeking to engage AFRL in commercialization activities, the State of Ohio learned of the regional effort to commercialization technology and engaged with the Entrepreneurs Center (TEC) in Dayton, inviting them to apply for an Entrepreneurial Services Provider (ESP) program, funded by the Ohio Third Frontier (OTF). In 2017, TEC successfully won a $6 million program to support technology-based entrepreneurs.

d. AFRL has opened up shared space in downtown Dayton with WBI, TEC, a coworking group called Nucleus Coshare, and several startup ventures. This space is used for technology accelerators programs like TEC’s Catalyst Bootcamp, and hackathons, like the Global Legal Hackathon in February 2018, the first hackathon of its kind for legal technology.

e. The State of Ohio launched the Ohio Federal Research Network (OFRN), a statewide initiative that allows research institutions to apply for additional funding to advance and commercialize technology developed in collaboration with federal laboratories in Ohio.

4. Build an entrepreneurial workforce.

a. As AFRL’s partnership intermediary, WBI supports AFRL’s Entrepreneurial Opportunities Program (EOP), an opportunity for AFRL scientists and engineers to take a paid entrepreneurial experience, commercializing a technology, developing a product for market, or another meaningful experience. If the AFRL entrepreneur is successful and separates from their employment, they have up to five years to return at the same level. As part of the technology commercialization pilot project, two (of three) EOP participants engaged in the technology commercialization projects, including one who participated in the AgFlyte technology consortium and venture creation, and one who is serving as a technical advisor for S.A.Wyze.

b. WBI’s partner SP Global also participated in the workforce development effort. A significant part of SP Global’sTransformative Corporate Formation (TCF) method is a process that matches venture formation need with the talent that is required to take the project forward. Through this process, SP Global identifies the value proposition and commercialization strategy of each venture, identifies the skills needed to successfully achieve its commercial goals, and matches this with entrepreneurs and executives who fill these needs. Through this process, new entrepreneurial talent has been brought into these ventures, building and connecting Dayton’s entrepreneurial talent.

c. The ventures created through the pilot project have connected with TEC’s Entrepreneurial Services Provider (ESP) program, funded by the Ohio Third Frontier. Depending on the needs, startups who become clients of the ESP get coaching, mentoring, and other services from Entrepreneurs in Residence or Executive Mentors. Providing these resources builds the entrepreneurial talent and provides them with the services they need for their ventures move to the next level.

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One of the greatest economic impacts of WBI’s technology commercialization pilot project was on the culture of the Dayton region and the need for change. The Dayton region has historically been a defense-contractor community, fueled by Wright-Patterson Air Force Base, Ohio’s largest single-site employer and an entity that has a $4 billion annual economic impact in the region.5

When the regional effort focuses on defense contracts, the economy becomes tied to the federal budget. While some years defense spending may increase, other years it may contract. Even more challenging is that any economic increase can only be incremental, and increases are dictated by congressional spending rather than organic growth. While economic growth is much more likely with a vibrant industrial base that responds to commercial markets, the region’s business community has historically focused on federal contract opportunities than market forces and economic trends.

For the Dayton region’s culture to change, new elements must be introduced. WBI’s technology commercialization pilot project introduced these new elements into the defense contractor community.

5 http://www.wpafb.af.mil/Portals/60/documents/Index/2014-Econimic-Impact.pdf

Defense Contractor Culture Innovation Culture

Technical talent Entrepreneurial/business talent

Top-down needs requirement Market assessment

Compete Collaborate with competitors

Looking for threats Looking for opportunities

Solve an engineering/scientific problem Solve a market problem

Secure environment Open environment

Patent for professional accomplishment Patent for market protection

Stove-pipe solution System integration

Avoid risk Embrace risk

Failure is not an option Fail forward

Scarcity Abundance

IMPACT TO CULTURE

By far, the greatest impact that WBI’s technology commercialization pilot had on the Dayton region was introducing these elements into the culture and beginning to forge the pathway for Dayton’s transformation to a culture based on innovation.

While this impact is more difficult to quantify, OEA project team members were interviewed to get a better understanding of how the culture has shifted. Other ecosystem participants, including university representatives, small businesses, angel investors, economic development professionals, and others were interviewed about the changes they have seen around technology commercialization. The following are some of the examples that were provided.

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From Technology to Markets. One of the greatest culture shifts has been the focus on markets as a driver rather than just the technology. While the area remains a strong region for research, more emphasis is placed on market need. The pilot project demonstrated this, including discontinuing projects when the market need was not great enough or the market space was too crowded to capture a market share. WBI has invested in market research staff, and AFRL has recently been seeking assistance from this team to study in-house research. By understanding the market and technology landscape, AFRL has been able to identify possible strategic partners or discover new approaches to defense challenges. This shift within AFRL not only improves the innovation capability of researchers and their solutions, but it will also increase the number of technology solutions that can reach the marketplace. Beyond Dayton. When WBI first launched the technology

commercialization pilot program, many regional partners were unhappy with the inclusion of SPGlobal and other “outside” partners. The general attitude of universities, small businesses, and other community

stakeholders that “outsiders” would take AFRL-developed technology and use it to set up business opportunities outside the region – “mining the assets,” but then taking the benefits elsewhere. Implementation of the technology commercialization pilot has begun to change that attitude. Small businesses, universities, and others were invited to submit blue papers for potential projects, which provided them the view of what was possible and the role they could play in it. Technology developers also began to see the value of outside strategic partners, such as the Indiana-based manufacturing company that took a prototype into production. Most importantly, the need for investment capital – a gap in the Dayton ecosystem – illustrated the need to connect to a national network to raise capital and changed the attitude of many regional technology developers. The technology commercialization pathway requires significant resource at accelerate the technology and develop a commercial product. The SPGlobal $25 million investment fund aims to help bridge that gap. The State funding for ESP helps as well. A regional effort is currently underway to build a regional angel investor network, which will also bring capital to technology commercialization projects. The Need for Speed. The technology commercialization

pathway from early-stage technology to commercial product takes time and resources, yet speed and

efficiency is critical. With the market-pull model, technology developers not only see the market potential, they also see the competition – different technology solutions and different developers that can easily get to the market first. This not only increases the demand for capital, but it also requires strategic partners – in Dayton and beyond – to get to market first. While the region’s technology developers are used to the slower development pace and longer view of DoD research priorities, that pace is too slow and bureaucratic to compete in the marketplace. The region’s technology developers are seeking new sources of capital, new partnerships, and new opportunities.

Reducing Risk and Vetting Opportunity is Valuable. For the region’s technology developers, leveraging federal research dollars has its place in technology commercialization. Technology developed at

AFRL or through DoD SBIR contracts provides valuable seed funding to explore technology solutions. Building prototypes, getting feedback, and using market research can help technology developers accelerate their concepts. This changes the contractor culture to one that leverages DoD needs for commercial opportunity rather than companies seeking the next contracting opportunity. Collaboration is Better than Competition. The defense contractor culture is built on the concept that the federal budget and its contracts are limited. A competitor for a contract was a threat to be shut down rather than a collaborative partner. However, the technology commercialization process requires capital, speed, and partners. This is changing the culture for SBIR and other researchers to work together to provide solutions for market needs. Technology Commercialization is Possible. Before the OEA grant, many stakeholders were reluctant to get engaged in commercialization activities. Many voiced that it was just a current trend in DoD that would soon fade away. Others were accustomed to the contracting relationship with DoD and did not see commercial opportunity for their contracted research. Working in collaboration with AFRL, investors, small businesses, and other technology developers, the efforts have attracted more partners to be engaged with commercialization efforts. More traditional defense contractors have engaged with SPGlobal, WBI, TEC, and others to find commercial markets for their technology. Researchers have seen the opportunities and engaged in the entrepreneurial community, as well as the need for capital and strategic partners to get technology to market.

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1. Teaming with Technology Commercialization Specialists. Many technology commercialization incubators begin with the technology and the inventor, and then provide support in hopes that a market need can be identified and a product can be produced that meets the user’s requirements at a price that will provide acceptable returns. This program began with a partnership between WBI and commercialization professionals (SP Global Inc. and Paraclete Consulting Inc.) and included an established Market-Pull model tailored to the Dayton Region.

2. The four significant SPGlobal Transformative Corporate Formation (TCF) process elements that are both unique and interdependent. These are:

a. Identifying Market Need – Past commercialization efforts started with a “tech push”, i.e. a new technology looking for a commercial application. This program started with identifying market needs that could offer a 10X improvement in a market of at least $1B total addressable market. Market needs were identified through brainstorming sessions and prioritized to leverage the strengths of the region and potential social benefits. A consumer-based approach was then taken where members of potential user communities were presented with concepts but not solutions. A feedback loop could then be established cycling between market pull and tech push. Initially, ventures were identified using what became known as the “shotgun approach” where broad market need identification resulted in multiple concepts being proposed to address a particular aspect of the market. Later in the program, several “rifle shots” were taken as singular opportunities presented themselves in market areas that met the criteria.

b. Finding and Securing Unique Intellectual Property (IP)/Technology Combinations – In order to reduce time to market, the TCF process focused on providing new capabilities through the integration of existing technologies while securing the IP associated with them, thus allowing the new venture to be “one of one” and ensuring barriers to other competitors.

c. Seeding With Seasoned Entrepreneurs – Ventures were stood up using experienced entrepreneurs in leadership positions thus alleviating the source of most new startup failures, i.e. a dysfunctional front office. Succession plans were established that included bringing in protégés with entrepreneurial aptitudes.

d. Establishing a Financial Ladder – The belief that way too much time is spent by start-ups “chasing the money” was addressed with the establishment of a “financial ladder”; a venture capital fund that provides access to funding at the various stages of the corporate formation process. This includes seed funding through series B funding. Progression up the ladder is performance based and not automatic.

3. The “Stage-Gate Process for Market Pull Commercialization” and the way the various elements were used and integrated into the process.

a. The Market Opportunity stage provided a quick assessment of market viabilityand an early understanding of technology and its concept for use by employing, among other things, Market Lens Analysis, Community and Technology Colliders, Market Surveys and “Go-Pacts”. The Go-Pact is the first step towards formalizing the terms of a venture and proved to be a critical element since they identified, early on, whether the individualities of key team members were such that the teams could solidify or if they would most likely fail. Blue papers resulting from the colliders also proved essential by allowing the integration of multiple concepts to address a single need and to gauge the willingness of a proposer to participant in the larger team and process.

b. The Mature Concept stage focused on an early proof of claims, establishing a League of Users (LoU) and securing IP while concurrently building the acquisition team and developing a viable Business Canvas. The LoUs proved to possibly be the most beneficial aspect of the TCF process.

c. Distinctive aspects of the Lean Start-Up stage include Value Creation Forums and the design and construction of a Minimum Viable Product for further engagement and feedback from select users. Exiting the Lean Start-Up stage requires the obtainment of Series A funding for Market Launch.

SIGNIFICANT CONCEPTS PILOTED

This Technology Development Commercialization Pilot Program focused on taking the baseline commercialization model and stage-gate process detailed in the 8 January 2016 report, exercising it on multiple ventures, and modifying it based upon experiences and findings. While many of the concepts in that model are not necessarily new, the integration, focus, and timing of them were structured in such a way that ultimately led to vastly increased efficiencies and success rates. When asked “What were the most significant concepts tried?” participants typically provided inputs in the following four areas:

PROJECT RESULTS

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It should be noted that all three aspects of the corporate formation process – market pull, tech push, and business venture formation – are occurring in each of the four stages of the commercialization process. In addition, another concept that cut across all stages was the Entrepreneurial Systems Engineering (eSys) process for risk minimization. eSys focused on high-velocity systems engineering that integrated both technology and business aspects in risk reduction decisions.

4. Incorporation of a “Fail Fast” philosophy. From the beginning, the team recognized the need to take some risks, but that meant speed was of the essence. If a venture was not going to pan out, we wanted to recognize that very early in the process. Speed is also a critical aspect of the TCF process to gain a greater share of the available market. Elements of the process that allowed us to do that primarily included the Proof of Claims, Go-Pact and open sharing of findings. In the Proof of Claims, key technology was tested in a realistic user environment to the extent possible in order to validate claims made by the inventor. This step alone eliminated multiple concepts from further consideration and allowed team members to move quickly to other concepts. The Go-Pact, which in part delineates equity shares to be allotted to the various stakeholders, quickly identified those ventures where the participants, for whatever reason, were too individualist and would not be able to operate in a close team environment. This also resulted in several ventures being terminated fairly early in the process. The open sharing of findings, while more of a philosophy than a specific step in the stage-gate process, allowed various concepts to be integrated into a more elegant or simplistic solution that provided for a greatly reduced technology development cycle and minimized technical risk.

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KEY FINDINGS

Commercialization in Dayton IS Possible There is a capacity in the region to commercialize technology coming from the Air Force Research Laboratory (AFRL) and local universities, but what was missing was both the recognition of the need to completely understand the market and readily available capital investment funds. The Market-Pull Commercialization Model allowed S&Es to begin to understand the market needs and integrate those needs into their thinking, thus providing tremendous alignment between the S&Es desire to “tech push” and the “market pull”. The funding gap was largely addressed by SPG bringing their “Capital Ladder” fund to Dayton. Ventures would spend way too much time chasing money with each round requiring a new set of investors. SPG was able to put the entire funding structure under one envelope with investors lined up at each stage with criteria to qualify both the investor and the investment. The vetting process gives investors the confidence to invest and accelerates the funding process tremendously. Currently, the fund stands at $25M (target) and represents a tremendous financial resource for the region.

A disciplined “Stage Gate” process does work. All of the elements are critical, but key among them are the Community Colliders, the League of Users, Go-Pacts and Proof of Claims. Once presented with market opportunities, technologists are typically very open with sharing their ideas through the use of Blue Papers. This brought many good ideas forward and in some cases combined with other ideas for a more simplistic and mature solution. The League of Users were used to a) identify and validate market needs, b) assess initial concepts, c) generate new ideas as to what concepts could potentially morph into and d) identify features needed in the MVP. They are the key to keeping the technology development and market needs aligned. The Go-Pacts also proved invaluable in identifying misaligned expectations amongst the venture participants and reinforcing the good alignments. The Proof of Claims step eliminated, early on, several seemingly brilliant technology concepts that simply did not live up to the claims of the inventor. Relatively little time and effort were wasted pursuing these concepts. It should be noted that the Stage-Gate process was modified during the course of the program to incorporate findings uncovered by exercising the model.

Not every venture needs to result in a start-up. While the going in assumption when addressing a new market area is that one or more start-ups will result, we found success by folding a new venture (e.g. Precision Livestock) into an existing start-up (AgFlyte) under the common umbrella of “Food Security”. This provided synergies that benefitted both ventures by vastly increasing the market potential. In addition, several ventures resulted in a new product line or a spinout for an existing business. This often proved much easier and quicker than starting a company for scratch.

Both the “Shot Gun” and “Rifle Shot” approaches were proven viable. The Rifle Shot approach is useful when adjacent market needs were apparent which saved considerable time on the front end. The best example of this was when the need for a heavy-payload drone for humanitarian response that was identified during the S.A.Wyze field trials. This revelation resulted in VyrtX. The Shot Gun approach is preferred when beginning with a broader market area. The key denominator in both cases is having a strong market pull.

Having an experienced and capable team is critical. While SPG brought high caliber experienced entrepreneurs to the effort, we never were able to marry-up any concepts and ensuing ventures with new entrepreneurs, which we had hoped to do. Thus the small cadre of experienced entrepreneurs, once a few ventures were stood up, quickly thinned out. In addition to entrepreneurial leadership, every element of the model requires talented resources. Fortunately, deep market analysis was available from WBI’s research analytics team. And given the need to integrate interdisciplinary technologies, Paraclete, WBI and SPG system engineers were crucial. Deep business acumen was available through multiple sources within WBI, SPG and Paraclete. When not otherwise available, expertise was brought in through sub-agreements.

Equal royalty sharing among the IP contributors worked well. Generally, AFRL technology was rounded out with other technology sources. A clause in the Go-Pact established a 5% royalty pool that everyone would share equally since there is no good way to measure the importance of any one IP contributor. This was a good approach to avoid conflict and helped identify the members who didn’t necessarily share the same commitment towards collaboration as the other team members.

The necessity for speed requires the involved technology to be mature. The eSys process was used to validate production ready technology that could move quickly to a proof of claims. Clearly the integration of existing technology was favored over the development of new technology.

25OEA FINAL REPORT

Lessons from the TeamInputs were provided by the OEA Team when asked “If we knew then what we know now, what would we have done differently?”

1. Focus more upfront effort on establishing an ecosystem where seed and A-Round funding is readily available with an easy way to apply and reward quickly.

2. Don’t give up too quickly on market areas that don’t pan out immediately. A good example was with the Opioid Addition “Rifle Shot” that was terminated due to the IP holder refusing to participate in the Go-Pact. The market area was huge and could have been opened up to a “Shot Gun” approach where other concepts could have been pursued.

3. Focusing on establishing $100M+ businesses which might have been too limiting; it might have been interesting to look more at lower valued alternatives.

4. Given the value brought by the colliders and League of Users, more of them could have been done. The collider events could have been restructured to get a wider audience relative to the technology. Likewise, “Interest Opportunity Workshops” could be conducted prior to the colliders so that the colliders could then be tailored around specific technology providers to look at a broader swath of opportunities. Additionally, LoUs could have been done at multiple stages of the process for all the concepts explored or possibly broken up into parallel LoUs to focus in more on specific aspects of the opportunity.

5. Don’t give up too quickly in the proof of claims activity. A concept or two may have been terminated that otherwise would have panned out if given more time.

6. Program would have benefitted by having additional entrepreneurs involved. As mentioned earlier in this report, the small cadre of experienced entrepreneurs thinned out quickly once a couple of ventures spun up. Bringing in aspiring entrepreneurs and developing them would have benefitted both the program and the region in the long run.

7. Focus more on recruiting existing companies to match the need with technology already commercially available.

The Importance of a Funding PathwayEarly concepts are a challenge to fund. Because funding was required to advance to the next stage gate, the team collaborated with various entities like the Entrepreneurs Center and the State of Ohio to identify non-burdening sources of funding. This funding enabled the team to establish the proof of claims and excite the angel and seed funding investors. SPGlobal is creating a “Ladder funding” mechanism to address this need. This holistic approach begins with early investment through latter stage investment funds. “Angel” investors can invest earlier, with more confidence, knowing that continued funding is already available. Ladder Funding:

• Protects the early company from selling before reaching full market potential

• Provides continuity with a consistent management team in place throughout the company’s growth

• Allows the company to focus on engaging the market instead of stopping to seek a different funding source

The Key Role of the Venture ChampionIn any venture, there needs to be a person that is committed to move the venture forward. Without this passionate person, the company will have a crisis of leadership. A venture champion should:

• Act as the driving force that pulls the team together

• Know how the venture’s product or service makes a difference in the market and can clearly see the value of the offering

• Be willing to learn and take advice from the end users and his entrepreneur mentors

• Have a good working relationship with the CEO

The CEO (who is NOT the venture champion) is responsible for speaking the language of the market and sharing that with the team.

Importance of the Proof of claimsIf any new venture is going to have an overt benefit there is something that is not out in the market now. Even if the technology has been proven in one field it must be demonstrated in the new market to determine if it can deliver the stated value.

LESSONS LEARNED

While this project would clearly be recognized as a tremendous success, there were lessons learned along the way. Those are presented here along with some thoughts on how the overall process could be improved.

CONCLUSIONThis commercialization model is giving Dayton the confidence it needs to attract investors and embolden entrepreneurs. While many have tried to replicate commercialization models from other large cities, mid-size Midwestern communities like Dayton have had minimal success in adopting those cultural principles.

There are still areas that need improvement. Cultivating a pool of experienced entrepreneurs will help integrate Air Force technologies into commercial products, faster. More access to capital, especially early pre-seed and seed capital, will enable start-ups to focus on tech development and delivering high-quality products, rather than fundraising. Evangelizing “market pull” over “tech push”, through words and actions, is needed to make this the norm.

Product of Wright Brothers Institutewww.wbi-innovates.com

Appendix A – Definitions.

Total Market: An estimate of the total value of that could be reached if the whole market is capitalized

Total Addressable Market: An estimate of the segment of the total market that could be captured with the proposed company offering.

Total Obtainable Market: a projection of the percentage by year of the addressable market that could realistically be reached with the current business operations.

Collider: An event that invites interested parties to come together to discuss a particular subject

Go Pact: A Package that has enough decision on the proposed concept to make a decision (go-no go) for the interested parties to want to further explore the concept. This also lays out the preliminary agreements for the parties to proceed with the exploration

Letter of Intent: A signed agreement between the founders of a company and others as to their rights and responsibilities for equity and revenue share in the future company. This is not a legal binding agreement but a way to make sure everyone is on board with the intent prior to committing resources.

Pro-Forma: an estimation of the expected capital expenses and income for the proposed business. This also lays out any assumptions as a basis of the cost estimates.

Value Creation Forum: a demonstration to a league of users of the basics of the proposed business concept. This is an exploratory meeting to gauge that the offering is exciting to the proposed user group and lay out the interest in purchasing the product or service.

Minimal Viable Demonstration (MVD): a mocked-up simulation that can be presented to a league of users to explore the viability of the proposed business concept

Minimal Viable Product (MVP): The minimum product or service that will be the basis of the first market entry. This product or service should address top needs of the target market with any enhancements deferred to version upgrades.

Appendix B – ELECTROLYZED WATER – MARKET ANALYSIS Electrolyzed Water (electrolyzed water, electrolyzed oxidizing water (EOW), electro-activated water or electro-chemically activated water solution (ECA), eWater)

Description: Electrolyzed water (EW) is produced through a process of electrolysis in a cell containing inert positively charged and negatively charged electrodes, and through which diluted salt water is passed. By subjecting the electrodes to a DC voltage of about 8 to 10 Volts, two types of water possessing different characteristics are generated: An electrolyzed basic aqueous solution has a reducing potential, which leads to a reduction of free radicals in biological systems. This type of solution is characterized as having a high pH (10-11.5) and a low ORP (-800 to -900 mV). Known as sodium hydroxide, is an excellent cleaner-degreaser-detergent. An electrolyzed strong acidic solution, which has a high oxidation-reduction potential (ORP) and presence of hypochlorous acid (the sanitizer), has been found to have bactericidal effect. This type of solution generally has a low pH (2.3 – 2.7) and a high oxidation – reduction potential (ORP) (> 1000 mV) - the key to effective sanitation is to have a high proportion of hypochlorous acid present, but it is produced at a level that keeps it safe for users as it is non-irritating to skin and emits no harmful VOCs. The resulting water is a known cleanser, sanitizer and/or disinfectant. Various factors in addition to the physiochemical properties of EW govern its efficacy such as water temperature, ACC, ORP, pH, type of electrolyte, flow rates of water and electrolyte, storage conditions, and concentration of salts, which need to be monitored during its production and applications. The bactericidal activity of EW is also influenced by the presence of organic matter, water hardness, and pollutants in the product. Categories of EW: Acidic Electrolyzed Water (AEW), less than or equal to 3-2 pH Slightly acidic electrolyzed water (SAEW), pH 5.0-6.5 A 2016 published study, Application of slightly acidic electrolyzed water for decontamination of stainless steel surfaces in animal transport vehicles concludes that the bactericidal efficiency of SAEW for decontamination of stainless steel surfaces in animal transport vehicles was higher than or equivalent to that of composite phenol (commonly used chemical in decontamination) and SAEW may be used as an effective alternative for reducing microbial contamination of animal transport vehicles. Strong acidic electrolyzed water (SAcEW): ~2.5 pH Neutral Electrolyzed Water (NEW), neutral 7-8 pH. The primary component of NEW is hypochlorous acid, the most effective element of chlorine

*Disinfecting or Sanitizing?

The difference between a “disinfectant” and a “sanitizer” is one of specific application. Whereas the health care industry is mainly interested in “disinfectant” data, the food service related industries guided by the Public Health Services are primarily concerned with “sanitizer” claims. The actual difference between the two terms is, to some extent, a matter of legal definition. In current American regulatory parlance, a disinfectant is a product that completely destroys all specific test organisms in 10 minutes under conditions of the AOAC Use Dilution Test, a method of testing the efficacy of disinfectants. This method is specified by the EPA as the required method for disinfectant claim substantiation. A sanitizer is a product which destroys 99.999% (or a five-log reduction) of specified test bacteria in 30 seconds under conditions of the Official Detergent Sanitizer Test, sometimes called Weber & Black Test. The two tests deal with different aspects of the same problem: killing bacteria - Activated and Electrolyzed Water: A Brief Review of a New Generation of Cleaners and Sanitizing Agents; Food Safety Magazine, Robert W. Powitz, Ph.D., MPH, August/September 2010

Alkaline electrolyzed water (AlEW), greater than or equal to 10-13 pH Strongly alkaline electrolyzed water (SAlEW), 8-10pH Application of EW at different pH values. pH ranges from 0-14, with 7 being neutral, less than 7 are acidic while pHs greater than 7 are alkaline.

Source: Comprehensive Reviews in Food Science and Safety, 2016

Other eWater technologies Activated Water The sanitizing characteristics are different than classic electrolyzation. Applying a small amount of electricity to water breaks down the water’s molecules, lowering its natural surface tension and creating positively and negatively charged water ions. When applied to a surface in this electrolyzed form, water can spread to contact dirt, just as it does when mixed with chemicals. The charged ions in the water attach to the dirt and help lift it from the surface. Stabilized aqueous ozone eWater Aqueous ozone, or ozone eWater, is water that has been infused with ozone gas. Aqueous ozone is a safe and an effective cleaner, deodorizer and sanitizer. One weakness is that it remains effective for only a short period of time, which is why it is most useful in moving water applications. Stabilized aqueous ozone eWater, on the other hand, is produced by first treating the water, much like a softener does, to make it more receptive to the ozone and keep it in useful form longer. The special stabilized form of aqueous ozone can last for a day as a sanitizer and upward of a week as a cleaner. Market Electrolyzed water is an in situ technology that has been used as an effective cleaner and broad-spectrum sanitizer for decades in Russia and Japan, and is finally winning acceptance in the U.S. and Canada. In the US, electrolyzed water is just beginning to be acknowledged, understood and applied, mainly in the food service and property management/housekeeping industries. Food Industry: When used judiciously and with validation, activated water can replace chemical sanitizers in many applications in the retail food industry. Electrolyzed water exhibits antimicrobial activity against a variety of microorganisms and eliminates most common types of viruses, bacteria, fungi, and spores in a relatively short amount of time (usually within 5 to 20 s) in food products, food processing surfaces, and nonfood surfaces (Ding and others 2015; Hao and others 2015; Hricova and others 2008; Huang and others 2008).

Hospitality/Housekeeping industry: institutions in which the flu finds an ideal l transmission environment, such as schools, hospitality, recreational and correctional facilities. High-risk settings such as in hospitals and other healthcare facilities: Ability to kill fungi, bacteria and viruses without harming human tissue, it is also used in medical procedures Agriculture, including facilities cleaning, antimicrobial agent for reducing microbial presence in layer houses, swine barns, slaughter house, and animal breeding houses. Transport Surfaces for Livestock: Application of slightly acidic electrolyzed water for decontamination of stainless steel surfaces in animal transport vehicle, Li Ni, et al, Journal of Veterinary Medicine, September 2016 Commercial environments, potential for use in educational building, offices, and entertainment venues Opportunities: Cost effectiveness: Although the initial cost for equipment is somewhat high, it can often be amortized fairly quickly by replacing conventional cleaners in mop buckets, sprayers and anywhere harsher and more toxic cleaning chemicals are currently used or needed Ease of application: making it ideal for use in industries such as house/business cleaning and food production Efficient, on-the-spot production Relatively safe for human beings and animals (depending on pH and chlorine production levels) and the environment Test results showed that for a dwell time between 7.5 to 10 minutes, electrolyzed water was as effective in removing organic matter as conventional treatments, making this technology ideal for general use in retail food establishments. EW is active against a broad spectrum of bacteria and possesses nonselective antimicrobial properties. Therefore, it is hypothesized that EW does not promote the growth of bacterial resistance (Hricova and others 2008). Limitations: There are some disadvantages associated with EW that limit their more widespread application: Relatively high initial cost of equipment Corrosion to equipment Although EW with very low pH (2.7) is corrosive in nature and affects the organoleptic properties of some foods, which limit its use, the development of newer types of EW such as SAEW and SAlEW, has mitigated some of these issues. Tendency to lose its antimicrobial potential quickly if it is not continuously supplied with Cl2, H+, and HOCl by electrolysis Reduction in the concentration of chlorine over time, which reduces the bactericidal activity of EW Discomfort to the operator caused by the pungent chlorine gas generated by some EW generators when operated at pH < 5 Phytotoxicity, irritation of hands, and corrosion caused by the free chlorine content or high ORP during the use of AEW Reduction in antimicrobial activity by inappropriate storage and the presence of organic matter in EW Lack of data on ACC after electrolysis, although chlorine is now considered to be the active agent in EW Detrimental effects on the quality of treated food products, environment, and human health have been reported for EW (Rahman and others, 2010). Physiochemical characteristics of EW have also been shown to greatly influence its antimicrobial activity (Hsu 2005; Rahman and others 2012; Forghani and others 2015)

Due to the presence of sodium chloride (from the added salt) in the water after the electrolytic process a slight film can appear on certain surfaces, making this product best suited to more industrial applications. Could also add to corrosion The sanitizing applications of EW have been limited, owing to the evaporation of Cl2 over time and the ensuing HOCl breakdown, particularly in open conditions (Len and others 2002; Al-Haq and others 2005; Hricova and others 2008). Companies Although the field of electro-chemical activation (ECA) technology has existed for more than 40 years, companies producing solutions in the US have only recently approached the EPA seeking registration. A number of companies that manufacture electrolytic devices have sought and received EPA registration as a disinfectant. Japan is the leading manufacturer of EW machines, with over 20 manufacturing companies. Most of the EW machines can be divided into 2 types: those that contain diaphragms and produce AEW and BEW (machines with 2-cell chambers) and others that do not contain a diaphragm and produce NEW (Neutralized Electric Water) and SAEW (single-cell chambers) The following is a sample of the companies claiming to produce 100% pure, eco-friendly, nontoxic, and less expensive EW for domestic and industrial use.

Company HQ Industry Focus eWater Advantage NC, USA Hospitality/Cleaning Viking pureTM GA, USA Food, Ag, Healthcare, Hospitality Hoshizaki America, Inc. FL, USA EAU Technologies, Inc GA, USA Ag, Healthcare, Hospitality,

Pharmaceutical, Consumer Miox Corp. (NM, USA)

Ag, Clean in Place/Hospitality, Food/Beverage

Amano Eco Technology Corp. Japan Hospitality/Cleaning Purester by Morinaga

Japan Food

Radical Waters

South Africa Beverage/Food, Milling and Starching and Hospitality

Existing IP (not an exhaustive search) Patents exist for EW specifically used for cleansing and/or disinfecting, even with some "farm" or ag use mentioned

A U.S company, EAU Technologies Inc., completed a trial by using EW with a leading international beverage bottling company in September, 2009, which paved the way for approval of the use of EW technology as a sanitation process for CIP (Clean-in-Place) applications. EW produced by EAU Technologies is marketed under the brand-name Empowered WaterTM and is an environmentally friendly and highly effective solution for CIP applications for industrial use. In particular, CIP applications are used to clean stationary food equipment.

Novel materials and corrosion arenas scored much less patent activity International patent activity - Russia, China, Taiwan, Germany, US, etc. Once we know specifically the chemical, the principle, or what stability issues they are solving, and we decide on the pathogens focus - the chemistry can be proposed and we can start looking for partners to design more robust electrolytic cells. US Regulations Used for drinking, cleaning, and sanitizing purposes. Recently, the USDA approved the application of EW in organic products (USDA 2015) On September 11, 2015 the USDA National Organic Program released a Policy Memo updating the status of electrolyzed water under the USDA NOP regulations. The memo clarifies that hypochlorous acid generated by electrolyzed water systems is a type of chlorine material, and is now allowed to directly contact organic products in wash water, when followed by a fresh water rinse. Electrolyzed water is recognized as a disinfectant by the U.S. Environmental Protection Agency and Centers for Disease Control and listed for use in food processing by the Federal Drug Administration Investment An initial quick look into venture investing activity revealed scant results in the US. However, a further dive into water or green tech focused funds could reveal some trends, or lack thereof, in private investment in the field. Sources "Cleaning Without Chemicals." EWater Advantage. N.p., n.d. Web. Ni, Li, Weichao Zheng, Qiang Zhang, Wei Cao, and Baoming Li. "Application of slightly acidic electrolyzed water for decontamination of stainless steel surfaces in animal transport vehicles." Preventive Veterinary Medicine 133 (2016): 42-51. Web Powitz, Robert W. Ph.D., MPH. “Activated and Electrolyzed Water: A Brief Review of a New Generation of Cleaners and Sanitizing Agents.” Food Safety Magazine, August/September 2010 Rahman, Sme, Imran Khan, and Deog-Hwan Oh. "Electrolyzed Water as a Novel Sanitizer in the Food Industry: Current Trends and Future Perspectives." Comprehensive Reviews in Food Science and Food Safety 15.3 (2016): 471-90. Web.

Appendix C – Precision Livestock Farming Collider

Precision Livestock Farming (PLF) MarketCommunity Collider Event03.28.2017

Contacts: Max Maksimoski (max.maksimoski@wbi.com )Richard Hahn (richard.hahn@SPGlobalInc.com )

What Do We Want From YOU?• Share your innovative concepts – NO MATTER

HOW INCOMPLETE

• Be willing to collaborate with others

• Dialog with WBI about ways to integrate your concepts with other concepts

• Be prepared to be part of something DISRUPTIVE

Why is Commercialization Hard? What Makes Us Different?Introduction

Traditional

Tech Push, Inventor Oriented

1st Time Entrepreneur

Waterfall Lifecycle w Valley of Death

Multiple Asks for Each Round

WBI Team

Market Pull via User League

Entrepreneurs with 3+ Launches and Relations

eSys Rapid Iterative Development

Ladders 1 Stop Shop for Funding

Success = Professionally Funded Venture in a Go-To-Market Phase

Market 4Precision Livestock Farming

PrecisionLivestockFarming (PLF)Model

IDEA

Lab

THE STATED PLF NEED: BIOSECURITYMAIN NEED:

To holistically monitor farm environment

Livestock: animals, birds

Physical (man- made) assets:

FIELDS/ SOIL

Non-physical assets

FARM:

transportation

FEED (or non- physical?)

WEATHER

WATER

" Ability to track and effectively monitor each

animal and detect potential issues earlier

" Animal condition (temperature, feeding, waste) monitoring without continuous

farm personnel presence

FARMER

OTHER PP: VET, CONTRACTORS

HUMAN ASSETS:

" Tools to predict disease

outbreaks

" Source analysis for anomalies which can lead

to disease outbreaks

" Airborne, water, feed, waste and transport system control mechanisms that are

inexpensive and rapid

AIR

" Data objectivity and ease

of use

FARM BUILDINGS

Disease needs to rapid detection and early containment

" Transportation controls and damage

minimization

" Need to not use methods that would decrease consumer

acceptance

“TO KEEP THE DISEASE OUT OF PRODUCTION”

ANIMAL AND FARM ARE TWO SIDES OF THE SAME COIN

IDEA

Lab

BIOSECURITY BREACHESA I R

TO TRADE, OTHER FARM BRINGING IN NEW ANIMALS

A I R

IDEA

Lab

BIOSECURITY: FUNCTIONAL VIEWThe main function of Biosecurity as of today: TO PREVENT AND CONTAIN AN OUTBREAK

CURRENT BIOSECURITY MEASURES:-Vaccination (and medical treatment) -Isolation/quarantine-Cleaning/disinfecting

BIOSECURITY IS TO HAVE MORE CONTROL AND BE BETTER TARGETED

“TARGETED INDIVIDUAL”“TO ALL”

IDEA

LabTarget:

Needed Functions:ANIMAL FARM

ENVIRONMENTISSUES

PREVENT:Disease:

Transmission:VaccinationMinimize contact Disinfection

(standards)

OPP SPACE:Drug-resistant organisms; time consuming practices

DETECT/INFORM Some data-point sensorsSome monitoring sensors

None OPP SPACE: real-time,precision and scale

IDENTIFY Emerging tech Emerging tech OPP SPACE

DIAGNOSE Vet; lab OPP SPACE: need Targeted Biosecurity; real-time tech;

ISOLATE/CONTAIN (to prevent transmission)

Manual None Injuries: animals AND humans; time-consuming practices

TREAT Medications Disinfection (standards)

See Prevent

MOVE (TO TRADE) Manual None See Isolate

FUNCTION-BASED OPPORTUNITY SPACE

INADEQUATE=OPP SPACE

SOMEWHAT ADDRESSED=OPP SPACE ADEQUATELY ADDRESSED

IDEA

LabTarget:

Needed Functions:ANIMAL FARM ENVIRONMENT Parameters

PREVENT:Disease:

Transmission:

Vaccination: Drug-resistant organismsMinimizing contact

Need Disinfection of surfaces, equipment, transport: time consuming practices; no indicators to assess cleanliness/contamination

EfficiencyEffectivenessReal timeAutomatedAutonomous

DETECT/INFORM(DETECT AND DIFFERENTIATESIGNALS)

Smart systems: Integration of vital signs for monitoring well-being of animals real-time, continuously, autonomously

Need Smart systems to monitor pathogens in the environment real-time, continuously, autonomously

IntegrationReal timeAutonomous

IDENTIFY Smart Systems to identify and track an individual animal

Smart systems to identify and track contaminants in the farm, between farms

SpecificityReal timeAutomated (w/o human)

DIAGNOSE(INTERPRET SIGNALS)

Need Targeted Biosecurity: real-time animal health diagnostics

Need Real-time diagnostics of contaminants

SpecificityReal timeAutomated (w/o human)

MARKET DRIVEN TECH LANDSCAPE

IDEA

Lab

ANIMAL BIOSECURITY MARKET FOLLOWS THE HUMAN HEALTHCARE/WELL-BEING MARKET EVOLUTION : EASILY OBSERVED TRENDS: Data --Analytics – Automated Insights and

implications – Knowledge management Systems – interoperable platforms – Autonomy – Personalized Care – Business models disruption - ….

So, the anticipation is to see: ADAPTATION OF HUMAN health diagnostic/well-being monitoring

technologies to animals: On the market already: FitBit is used to monitor vital signs Next? GoBe BY HEALBE: automatic calorie and weight-measuring; energy

balance , hydration Etc..

TODAY: Data to be sensed by “wearable” sensors and processed for: safety, vital signs of health, well-being, clinical signs of diseases; “fitness”, communication, business operations FUTURE: Big data-driven analytics on interoperable platforms offering

new levels of health and business insights; driving an enterprise-wide decisions; disruptive business models

MARKET AND TECHNOLOGY TRENDS

IDEA

Lab

THE NEED: ANIMAL HEALTH DIAGNOSTICS* (ANIMAL “CARFAX”): TECHNOLOGIES (Continuous, autonomous and individual): ID of diseases: Sensors: invasive: tags, implants, ….. remote/non-invasive, Data-driven analytics: interpreted clinical signs

Management of data-enabled networks: health data, history and analysis Farm level to reduce production loses: farm operations of the entire life

cycle of the animal(s) Regional/state/nation… level to avert outbreaks: farms, slaughterhouses,

authorities, trade, etc

THE NEED: ANIMAL DIAGNOSTICS (Targeted individual in a crowd) TECHNOLOGIES (Continuous, autonomous): Biometrics to ID an animal: patterns of life/behavior (one in a crowd),

stress factor, bio-thermal, shape/form, etc features Tagging and tracking a “moving target”

HIGHEST IMPACT MARKET OPPORTUNITIES

*DIAGNOSTICS= MONITORING + DATA ANALYSIS= interpreted signalMONITORING = CONTINUOUS DETECTION=signal detection

IDEA

Lab

THE NEED: CONTROLLED FARM ENVIRONMENT: TECHNOLOGIES: CLEANING AND DISINFECTING: People Equipment Air Surfaces Water Forage/feed

MODELS OF SITUATIONAL AWARENESS ON A FARM; MODELS OF AN EARLY WARNING SYSTEM FOR A NETWORK OF FARMS (especially for those in a close proximity): physical, non-physical and human assets

MINIMIZE TRANSMISSION BY MINIMIZING CONTACT: Between animals: Facility (re)design: plug-n-play Between animals and humans: automated OR better yet autonomous

stockmanship

HIGHEST IMPACT MARKET OPPORTUNITIES

IDEA

Lab

INVESTMENT ATTRACTIVE MARKET OPPORTUNITIES

ELITE INDIVIDUAL ANIMALS:

HIGH-VALUE INDIVIDUAL ANIMALS:

HIGH-VALUE VOLUME

ANIMALS: SMALL FARM

LARGE FARM

NOTES

i.e. race horses, purebreds i.e. cattle i.e. poultry,

hogs

NEEDS/FUNCTIONS: ANIMAL HEALTH DIAGNOSTICS; ANIMAL DIAGNOSTICS CONTROLLED ENVIRONMENT

CRITICALITY OF NEEDS 5 5 5 5 5 5-the highest; 1-the lowest

MARKET SIZE 3 (2-region) 5 (3-region) 5 2 5 Farm Size and Market Values$

STATE OF RESEARCH 4 4 2 3 3

TECHNOLOGY MATURITY: COMMERCIAL AVAILABILITY

2 2 1 2 33 for large farm -

equipment innovative tech

VALUE OF IP 2 3 1 3 4 From adjacent industries

LEVEL OF INVESTMENT: $$ 2 2 1 1 3

unclear timing for ROI if a disruptive tech; sensing

and "digitizing" are clearer value propositions

Lens of analysis

CUSTOMER

IDEA

Lab

CONTROLLED FARM ENVIRONMENT (these technologies address needs across multiple markets): Effective and efficient cleaning and disinfection of: People Equipment Air

ANIMAL HEALTH DIAGNOSTICS AND ANIMAL DIAGNOSTICS (the ELITE and/or HIGH VALUE INDIVIDUAL animal markets should be easier to penetrate): Automated and/or real-time ID of diseases Biometrics of the high-value animals: race/show horses, cattle Automated and/or real-time ID of signs of high-value needs: heat,

birthing, etc Management of data-enabled networks: data, history and analysis

RECOMMENDATIONS IN THE OEA CONTEXT: TIER 1

IDEA

Lab

CONTROLLED FARM ENVIRONMENT: Effective and efficient disinfection of: Surfaces Water

Models of situational awareness in a farm; models of an early warning system for a network of farms

MINIMIZE TRANSMISSION BY MINIMIZING CONTACT (Open Innovation Challenge?): Between animals: Facility (re)design: plug-n-play Between animals and humans: automated OR better yet autonomous

stockmanship

RECOMMENDATIONS IN THE OEA CONTEXT: TIER 2

Again, What Do We Want From YOU?

• Share your innovative concepts – NO MATTER HOW INCOMPLETE

• Be willing to collaborate with others

• Dialog with WBI about ways to integrate your concepts with other concepts

• Be prepared to be part of something DISRUPTIVE

Blue Paper Here

What To Do Now?

• Breakout into small groups to discuss your interests and expertise

• Identify opportunities for collaboration to round out business idea

• Develop an initial business concept of operation that synthesizes idea

• Identify the holes and needs that are needed

PLFModel

Breakout Groups

• Health Diagnostics: essential for identifying illness in animals early and effectively so that these can be quarantined to minimize spreading the illness– Facilitated by Rob Spokane

• Physical Monitoring: related to the previous sub-area but is focused more on non-illness related needs– Facilitated by Larissa Dmitrienko

• Controlled Environment: analysis of the inputs to the animal’s environment (air, water, feed, location) that can cause adverse reactions– Facilitated by Heidi Longaberger

Business TemplateTitleDescription

Provide only 2-3 sentences high level project description

Market OpportunityWhat is the problem and how big is it in terms of dollars, should be only 5-6 sentences

Prelim Concept of OperationShould describe how product/service gets to users, describe other players involved, describe each use case, and enter time linear use case, should be under 12 bullets

Enabling TechList key IP and who owns, and how obtained if applicable, enter TBD as needed

Finances • Invest Needs - Yr 1, Yr 2, Yr 3, Yr • Revenue - Yr 1, Yr 2, Yr 3, Yr 4• COGS Y1, Yr2, Yr 3, Yr 4• Assumptions

Provide early invest strategy, amounts, revenue goals (not yet projection fidelity), rough guess at COGS (none committal), and assumptions including unknowns

ValueEnter a dollar quantified savings, can compare to the cost of the product/service, goal is for a 10x, but a 5x and 100x are bothsuitable

Participants • Board -• Exec Staff -• Key:

As a min, enter board and execs by name, include partner companies, with names of company POCs if possible

Analysis provided by WBI’s Competitive Integrated Intelligence Team. Credit to Larisa Dmitrienko and Heidi Longaberger.

Contacts: Max Maksimoski (max.maksimoski@wbi.com )Richard Hahn (richard.hahn@SPGlobalInc.com

)

THANK YOU

Appendix D – MiSTICS Addressable Market Analysis

M I S Ti C S M a r k e t S i z e a n d S e g m e n t a t i o nC I 2June 15, 2017

Data from the most recent EIA Commercial Building Energy Consumption Survey (CBECS) reveals potential target markets in the Office, Warehouse and Storage, Mercantile and Education sectors. Packaged Air Conditioning Units and Central Chillers are the most common A/C equipment and could also represent a market focus. A geographic target could be the South, with the commercial building square footage using cooling, and the highest electricity usage.

Buildings in the Office, Warehouse and Storage, Mercantile and Education sectors dominate in floor space utilizing cooling across the U.S.

Cooling Equipment Targets: The most prevalent types of commercial A/C equipment, measured by floor space and in order of greatest use are Packaged Air Conditioning Units, Central Chillers, Residential Type Central Air Conditioners, and Heat Pumps (see definitions slide).

Industry Sector Targets: Packaged Air Conditioning Units are most used in the Office, Warehouse, Mercantile and Education sectors (also the sectors with the most commercial floor space), followed by Chillers in the Office and Education sectors

Geographically, the South dominates in the use of Packaged Air, Chillers, Heat Pumps and Residential Type Central Air, followed by the Midwest and the West.

Data on cooling equipment replacement since 1990 shows that the Mercantile and Education sectors may be the most apt to replace their equipment based on cooling floor space available and percentage of cooling equipment replaced. (However, 1990 – 2012 is a large span of time so not sure how useful)

S u m m a r y o f M a r k e t S e g m e n t a t i o n F i n d i n g s

B u i l d i n g s i n t h e O f f i c e , Wa r e h o u s e a n d S t o r a g e , M e r c a n t i l e a n d E d u c a t i o n s e c t o r s d o m i n a t e i n f l o o r s p a c e u t i l i z i n g c o o l i n g

87,093

15,952

13,077

4,630

11,330

4,557

12,239

5,559

1,819

1,252

5,826

2,374

1,781

1,440

79,294

15,882

10,120

3,773

11,121

4,271

11,811

5,235

1,712

1,190

5,700

2,374

1,774

1,384

A L LB U I L D I N G S

O F F I C E

W A R E H O U S EA N D …

S E R V I C E

M E R C A N T I L E

R E L I G I O U S W O R S H I P

E D U C A T I O N

P U B L I C A S S E M B L Y

F O O DS E R V I C E

F O O D S A L E S

L O D G I N G

I N -P A T I E N T

O U T -P A T I E N T

P U B L I C O R D E R A N D S A F E T Y

MILLION SQ FT FLOOR SPACE

BUILD

ING

END

USE

BUILDINGS BY END USE AND FLOOR SPACEAll buildings Buildings with cooling

P a c k a g e d A C u n i t s d o m i n a t e i n t o t a l u s e b y f t 2 , p a r t i c u l a r l y i n t h e O f f i c e , Wa r e h o u s e , M e r c a n t i l e a n d E d u c a t i o n s e c t o r s . C e n t r a l c h i l l e r s a r e a l s o i n h i g h u s e p e r f t 2 i n t h e O f f i c e a n d E d u c a t i o n s e c t o r s .

Office OfficeOffice OfficeWarehouse

WarehouseMercantile

Mercantile

Education

EducationEducation

Education

Lodging

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

Residential-typecentral air

conditioners

Heat pumps Individual airconditioners

District chilled water Central chillers Packaged airconditioning units

Swamp coolers

Milli

ons S

q Ft

Cooling Equipment by Floor Space and Building Use

Office Warehouseandstorage

Service Mercantile Religious worship

Education Public assembly Foodservice

Foodsales

Lodging

In-patient

Out-patient

Public Order and Safety

S h o w n a d i f f e r e n t w a y, P a c k a g e d A C f o l l o w e d b y C h i l l e r s , R e s i d e n t i a l Ty p e C e n t r a l A i r a n d H e a t P u m p s d o m i n a t e b y f t 2 .

Heat Pumps

Chillers Chillers

Packaged AC

Packaged ACPackaged AC

Packaged ACResidential AC

Residential AC

0

2,500

5,000

7,500

10,000

12,500

15,000

17,500

20,000

22,500

Office Warehouseand

storage

Service Mercantile Religiousworship

Education Publicassembly

Foodservice

Foodsales

Lodging In-patient

Out-patient

Public Orderand Safety

Milli

ons S

q Ft

Building Use Floor Space and Cooling EquipmentResidential-type central airconditioners

Swamp coolers

Packaged air conditioning units

Central chillers

District chilled water

Individual air conditioners

Heat pumps

R e g i o n a l l y, t h e S o u t h d o m i n a t e s i n b u i l d i n g f l o o r s p a c e a n d e l e c t r i c i t y c o n s u m p t i o n , f o l l o w e d b y t h e M i d w e s t a n d t h e W e s t .

M o s t i n d u s t r y s e c t o r s a r e i n t h e 3 0 - 4 0 % r a n g e f o r c o o l i n g e q u i p r e p l a c e m e n t s i n c e 1 9 9 0 . F o o d S a l e s ( g r o c e r y ) h a v e e x p e r i e n c e d t h e l o w e s t p e r c e n t a g e o f r e p l a c e m e n t , b u t a l s o h a v e t h e s m a l l e s t a m o u n t o f f l o o r s p a c e . M e r c a n t i l e a n d E d u c a t i o n h a v i n g m o r e t o t a l f l o o r s p a c e a n d o n l y 3 8 % c o o l i n g r e p l a c e m e n t .

42%

38%39% 38%

40%

33%

49%

27%

45%

38%

32% 31%

0%

10%

20%

30%

40%

50%

60%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Office Service Mercantile Religiousworship

Education Publicassembly

Foodservice

Foodsales

Lodging In-patient

Out-patient

PublicOrder and

Safety

Milli

ons S

quar

e Ft F

loor S

pace

Main cooling equipment replaced since 1990

Buildings with cooling Cooling Replaced % with Cooling Replaced

M a r k e t S i z i n g : TA M , S A M , S O M

Total Addressable Market (TAM): $79BThe A/C equipment market represents a 100 million-unit per year global market, including commercial and residential

Serviceable Available Market (SAM): $23.6B>5 ton A/C equipment for the commercial building market in the U.S.

Serviceable Obtainable Market (SOM): TBDPortion of the SAM that you can realistically capture. (Target Markets)

TAM$79B

G l o b a l A / C M a r k e t S i z i n g b y E q u i p m e n t

Residential CoolingDuty

Market $B

Commercial Cooling Duty Market $B Uses

Room & Portable

0.5 to 2 tons $3.4 Packaged Terminal

0.5 to 1.25 tons $0.2 Hotels, Office, High-Rise Residential

Ducted Split &Single Package

1.5 to 5.0 tons $3.3 Packaged Rooftop Unit

Light: 5 to 25 tonsHeavy: 75 to 150 tons

$4.6 SmallBuildings

Ductless Split 0.5 to 3.4 tons $48.5 Ductless (VRF/VRV)

3 to 11 tons $10.7 Small Buildings

Total $55.2B Chillers –Scroll, Screw, Centrifugal

Small: 14 to 213 tonsLarge: 213 to 2,843 tons

$8.3 Larger buildings, district cooling

Total $23.8B

Sources: The Future of Air Conditioning for Buildings, DoE Building Technologies Office, Oak Ridge Lab and Navigant Consulting, July 2016; Building Services Research & Information Association (BSRIA)

U . S . C o m m e r c i a l M a r k e t S i z i n g

Commercial Cooling Duty Current Market $B

Forecast $B (2020-’21)

Uses

Packaged Rooftop Unit (Unitary)

Light: 5 to 25 tonsHeavy: 75 to 150 tons

$2.8 Small Buildings

Ductless (VRF/VRV)

3 to 11 tons $3.9 $9 Small Buildings

Chillers – Scroll, Screw, Centrifugal

Small: 14 to 213 tonsLarge: 213 to 2,843 tons

$1.1 $1.3 Larger buildings, district cooling

Total $7.8

Source: BSRIA, Navigant Consulting, MarketsandMarkets

• The DOE estimated in 2014 that packaged rooftop units were used in approximately 46% of all commercial buildings in the U.S, sometimes supplemented with other A/C equipment, and especially in colder regions.

• The US is the second largest chiller market (China is largest) but depends heavily on new construction, which has not fully recovered. The replacement market makes up 85% of HVAC.

M a r k e t S e c t o r D e f i n i t i o n s

Market Sectors:

Lodging: hotel, motel, retirement home, dorm, nursing home, shelterMercantile: retail, liquor, dealership, studio/gallery, enclosed or strip mallOffice: professional, admin, mixed use, non-profit, bank, sales, contractorEducation: pre-school, K-12, University, Vocational, Adult EdFood Sales: Grocery, Convenience Store, Gas StationFood Service: Restaurant, Bar, Fast Food, Coffee Shop, Ice-Cream, etc.Health Care – Inpatient: HospitalHealth Care – Outpatient: medical office, clinic, veterinarianPublic Assembly: entertainment, library, recreation, transport terminal, funeral homePublic Order/Safety: Police, fire, jail, courthouseWarehouse/Storage: refrigerated, non-refrigerated, distributionService: vehicle, dry cleaner, post office, copy center, beauty parlor, repair

Source: EIA CBECS

Equipment:• Residential Type Central Air System : (1) a "split system" where the condensing unit is

located outside and the other components are inside, and (2) a packaged-terminal air-encased in one unit and is usually found in a "utility closet.“

• Packaged air conditioning units: Usually mounted on the roof or on a slab beside the building. (These are known as self-contained units, or Direct Expansion (DX). They contain air conditioning equipment as well as fans, and may or may not include heating equipment.) Also known as Packaged Terminal Air Conditioners (PTAC). These packaged units are often constructed as a single unit for heating and for cooling.

• Central chiller: Any centrally located air conditioning system that produces chilled water in order to cool air. The chilled water or cold air is then distributed throughout the building, using pipes or air ducts or both. These systems are also commonly known as "chillers," "centrifugal chillers," "reciprocating chillers," or "absorption chillers." Chillers are generally located in or just outside the building they serve. Buildings receiving district chilled water are served by chillers located at central physical plants.

Source: EIA CBECS

E q u i p m e n t D e f i n i t i o n s

Appendix E – Example Assumption Based Pro-Forma

Assumptions:

Seed funding will be obtained within 3 months of project start Target price of $3/acre will be reduced to $1/acre over 4 years. Sales will be made with a strategic sales partner Sales will be made for a 2 year period with approximate size of farms being 450 acres Engineering cost to build the sensors and system will cost $90K per year.

Phs1 Phs2 Full Launch Conservative

REVENUE ($K) Mo1 Mo2 Mo3 Mo4 Mo5 Mo6 Mo7 Mo8 Mo9 Mo10 Mo11 Mo12 2016 2017 2018 2019 2020 2020Market

(K units) 2020Approx Farms (450 Acre Ave x 2/yr) 61 133 278 556 1667Target Unit Price ($) 3 2 2 2 1 260000Founders Investment (K) 20 20 40 2% Market 8% MarketSeed Investment (K) 20 20 20 20 20 100 Acres (K) 1 2 5 8 10 13 16 55 120 250 500 1,500 5200 20800Adv Sales Strat Partners (K) 3 6 15 24 30 39 48 165 Sales Strat Partners (K) 0 168 250 300 0 0 0Sales Other (K) 0 101 250 420 1,500 5,200 20,800

GROSS REV (GR) 20 20 20 20 20 23 26 15 24 30 39 48 165 269 500 720 1,500 5200 20800COGS ($K) CEO Inkind 5 5 5 5 5 5 5 5 5 5 5 5 60 0 0 0 0CTO Inkind 5 5 5 0 0 0 0 0 0 0 0 0 15 0 0 0 0CFO Inkind 5 5 5 0 0 0 0 0 0 0 0 0 15 0 0 0 0COO Inkind 5 5 5 0 0 0 0 0 0 0 0 0 15 0 0 0 0SPG Inkind 5 5 5 0 0 0 0 0 0 0 0 0 15 0 0 0 03DA Inkind 5 5 5 0 0 0 0 0 0 0 0 0 15 0 0 0 0SEN Inkind 5 5 5 0 0 0 0 0 0 0 0 0 15 0 0 0 0AGP Inkind 5 5 5 0 0 0 0 0 0 0 0 0 15 0 0 0 0Royalties (5% GR) 0 0 0 0 0 0 0 0 0 0 0 0 0 13 25 36 75 0.05 260 1,040Marketing 0 0 0 0 0 0 0 0 0 0 0 0 0 19 35 50 105 0.07 520 2,080Eng 0 0 0 10 10 10 10 10 10 10 10 10 90 100 100 100 100 0.07 200 200Ops 0 0 0 0 0 1 1 3 5 6 8 10 33 72 150 300 450 0.30 1,560 6,240Management 0 0 0 15 15 15 15 15 15 15 15 15 135 13 25 36 75 0.05 260 624Space/computer/phone 0 0 0 0 0 0 0 0 0 1 1 1 3 10 25 50 50 0.03 200 200Insurance 0 0 0 0 0 0 0 0 15 15 15 15 0.01 15 15

TOTAL COGS 40 40 40 30 30 31 31 33 35 37 39 41 426 243 375 587 870 0.58 3,015 10,399Inkind Contributions 40 40 40 5 5 5 5 5 5 5 5 5 165 0 0 0 0 UNIT 0 0

Net Direct 20 20 20 -5 -5 -3 0 -13 -6 -2 5 12 44 26 125 133 630 2,185 10,401Cash on Hand 20 40 60 55 50 47 47 34 28 26 32 44 44 70 195 328 958 2,185 10,401

EBIT 26 125 133 630 2,185 10,401EBIT/Revenue 10% 25% 18% 42% 42% 50%

Upside TargetsExample Pro Forma Financial Model in $K

Appendix F – TEV Go Pact

TEV GO Pact Template

Title Company Name

Description Wearable tech for athletes/fitness using sweat sensing technology from AFRL/RH for an athletic/fitness early warning system. Partnered with Gatorade and Under Armour.

Provide only 2-3 sentences high level project description

State of Incorp OH

Enter intended state if articles are not yet filed

Op Locations OH, IN

Identify any other potential state where work will be competed

Website Website.com

A website is not required, enter only if one has been set up.

Market Opportunity Hydration including Na and K concentrations in blood are critical human performance factors. Currently, athletes do not know they are in trouble until symptoms appear, which is too late to mitigate. Results in debilitating conditions and even death. Athletes at all levels need an early warning system. Total market is $75B+, with $10B for elite professional, collegiate, and Olympic level athletes.

What is the problem and how big is it in terms of dollars, should be only 5-6 sentences

Prelim CONOPs • Sensors are purchased in bulk by team trainers • Athletes use for practice and competitions • Sensors transmit every 3 minutes to a BR receiver (UA) • Sensors transmit NFC to Smartphone • Both smartphone and BR receiver populates cloud • Cloud transmits to Custom Hydration System (Gatorade) • Cloud also sends alerts to coaches/trainers via smartphone or

tablet or BR receiver device

Should describe how product/service gets to users, describe other players involved, describe each use case, and enter time linear use case, should be under 12 bullets

Enabling Tech • Sweat sensing concepts from AFRL/University Team – Licensed • Ratio-metric sensors developed by Company staff – Assigned by

inventors

List key IP and who owns, and how obtained if applicable, enter TBD as needed

Finances • Invest Needs - Yr 1, Yr 2, Yr 3, Yr • Revenue - Yr 1, Yr 2, Yr 3, Yr 4 • COGS Y1, Yr2, Yr 3, Yr 4 • Assumptions

Provide early invest strategy, amounts, revenue goals (not yet projection fidelity), rough

guess at COGS (none committal), and assumptions including unknowns Value Avoids cramps, soft tissue damage, and longer term injury/recovery

problems. Cost of problems can range from a partial game $1M (LJ payoffs) to a loss of an entire season $30M for an elite athlete (Kobe achilles).

Enter a dollar quantified savings, can compare to the cost of the product/service, goal is for a 10x, but a 5x and 100x are both suitable

Participants • Board – Proposed board members by name • Exec Staff - Scott Leader • Systems Engineering - Chiochetti, Pont, Patil, Wimmer • Key: Sensor Dev/Mfg - Long, Brooks, Schnobrich • Software Design - Nyberg, Gutsjo • R&D – R&D team

As a min, enter board and execs by name, include partner companies, with names of company POCs if possible

Terms • Board: 8% • Execs: 42% (founders) • Conv Debt: 10% • A Round: 20% • SPG: 5% (via TEV) • 15% (Strat Partners, Employees, etc.)

At a min, show the percentages, board approved shares are better but not required, show designated founders, also list term sheet items that justify allocations, state conditions if any for shares, the percentages are set to make room for investment capital

INTENT - Please note that this data is not contract contractually/legally binding, it simply represents current thinking among potential team members, and by definition is considered an early concept subject to many iterations and changes over time. Signatures simply convey a common understanding with a desire/intent to further pursue together as a team over the next 2-3 months, with no other obligations. Please see attachment A

NDA – An mutual multi-party NDA is desired to protect the proprietary and confidential information from each of the potential participating organizations. Please see attachment B.

Letter of Intent

This document constitutes a non-binding letter of intent (“LOI”) that outlines the terms and conditions under which Tec^Edge Ventures, Inc. (“TEV”) would enter into a definitive written agreement (the “Agreement”) pursuant to which TEV would provide commercialization services (the “Product”) targeting a designated market (“Market”).

1. Market. The parties agree to negotiate in good faith for the TEV to evaluate the suitability and opportunity of the Tech to reach the Market by the Company, and to provide TEV’s Product designed to commercialize the Tech, while complying with all requirements of the Agreement to protect Company Intellectual Property (IP) including any patents, copyrights, trademarks, trade names and other intellectual property associated with the Product.

2. Due Diligence. Until the date 120 days following the execution of this LOI, Company hereby grants to TEV, and its representatives, reasonable access to all existing research, technical, sales and marketing data, or any additional material requested, that may be necessary for TEV’s evaluation of the Tech, including any existing prototypes, demonstrations, user feedback or case studies and Company’s evaluation of the results of these activities. Passing the Due Diligence stage of this LOI will result in the commencement of good faith negotiations for Company to engage with TEV in TEV’s commercialization Product. Agreement for the Market within the parameters of Attachment A. For the purposes of this LOI, the Tech will have been deemed to have passed the Due Diligence stage of this LOI if the criteria in Attachment B has been verified by TEV.

3. Commercialization Product. In the event that all parties ae interested in a joint product or service, the parties intend to enter into good faith negotiations for the Product within mutually agreed upon timeframes.

4. Exclusive Dealing. From the date of TEV’s and Company’s execution hereof and until the execution of the Agreement or 120 days from the execution of this LOI, whichever first occurs, Company will not take, directly or indirectly, any action to initiate, continue, assist, solicit, receive, negotiate, encourage or accept any offer or inquiry from any person or corporation (a) to commercialize the Tech within the Market, (b) to reach any agreement or understanding (whether or not such agreement or understanding is absolute, revocable, contingent or conditional) to commercialize the Tech within the Market or (c) to furnish or cause to be furnished any information with respect to Tech to any person or corporation (other than as contemplated in this letter) who Company (or its agents or representatives) knows or has reason to believe is in the process of considering commercializing the Tech within the Market.

5. Legal and Brokerage Fees. Each party shall pay and be responsible for its legal fees, accounting fees and related expenses, and for any finders or brokers fees, incurred by it in

connection with the transaction prior to closing, whether or not consummated as contemplated by this LOI.

6. Confidentiality; Publicity. Neither party may disclose or make any announcement (including without limitation press releases) or communications to the media, trade publications or others about the transaction contemplated by this LOI. Both parties shall also be bound by the terms and conditions of a Confidentiality Agreement Attachment B, incorporated herein by reference.

7. Letter of Intent. This LOI is intended to be, and shall be construed only as, a Letter of Intent and is not and shall not be a binding agreement, and the respective rights and obligations of TEV and Company remain to be defined in the Agreement contemplated by Paragraph 3; provided that: (a) the obligations of Company under Paragraphs 1, 2, 4, 5, and 6 of this LOI shall be binding upon Company when this LOI has been executed by the parties; and (b) the obligations of TEV under Paragraphs 1, 5, and 6 of this LOI shall be binding upon TEV when this LOI has been executed by the parties.

8. No Other Agreements. There are no oral or written representations, agreements or understandings concerning the subject matter of this LOI or the transactions contemplated herein.

9. Acceptance. This LOI will expire for all purposes if it has not been executed by both parties on or before the close of business on 26 Nov 2016.

10. Counterparts. This LOI may be executed by facsimile or manual signatures. It may be executed in several counterparts, each of which shall be deemed an original, but such counterparts shall together constitute one agreement.

Mutual Non-Disclosure Agreement

It is understood and agreed to that the parties to this Agreement would each like to provide the other with certain proprietary or sensitive information, that may be considered confidential, at a series of meetings. To ensure the protection of such information and in consideration of the agreement to exchange said information, the parties agree as follows:

1. The confidential information to be disclosed under this Agreement (“Confidential Information”) can be described as and includes:

Technical and business information relating to proprietary ideas, patentable ideas and/or trade secrets, existing and/or contemplated products and services, research and development, production, costs, profit and margin information, finances and financial projections, customers, clients, marketing, and current or future business plans and models. In addition to the above, Confidential Information shall also include, and the parties shall have a duty to protect, other confidential and/or sensitive information which is (a) disclosed as such in writing and marked as confidential (or with other similar designation) at the time of disclosure; and/or (b) disclosed by in any other manner and identified as confidential at the time of disclosure or is summarized and designated as confidential in a written memorandum delivered within thirty (30) days of the disclosure.

2. The parties shall use the Confidential Information only for the purpose of evaluating potential business, joint commercialization, employment and/or investment relationships.

3. The parties shall limit disclosure of Confidential Information within its own organization to its directors, officers, partners, members, contractors and/or employees having a need to know and shall not disclose Confidential Information to any other third party (whether an individual, corporation, or other entity) without prior written consent. The parties shall satisfy its obligations under this paragraph if it takes affirmative measures to ensure compliance with these confidentiality obligations by its employees, agents, consultants and others who are permitted access to or use of the Confidential Information.

4. This Agreement imposes no obligation upon the parties with respect to any Confidential Information (a) that was possessed before receipt; (b) is or becomes a matter of public knowledge through no fault of receiving party; (c) is rightfully received from a third party not owing a duty of confidentiality; (d) is disclosed without a duty of confidentiality to a third party by, or with the authorization of the disclosing party; or (e) is independently developed.

5. The parties warrant that they have the right to make the disclosures under this Agreement.

6. This Agreement shall not be construed as creating, conveying, transferring, granting or conferring upon either party any rights, license or authority in or to the information exchanged, except the limited right to use Confidential Information specified in paragraph 2. Furthermore

and specifically, no license or conveyance of any intellectual property rights is granted or implied by this Agreement.

7. Neither party has an obligation under this Agreement to purchase any service, goods, or intangibles from the other party. Furthermore, both parties acknowledge and agree that the exchange of information under this Agreement shall not commit or bind either party to any present or future contractual relationship (except as specifically stated herein), nor shall the exchange of information be construed as an inducement to act or not to act in any given manner.

8. Neither party shall be liable to the other in any manner whatsoever for any decisions, obligations, costs or expenses incurred, changes in business practices, plans, organization, products, services, or otherwise, based on either party’s decision to use or rely on any information exchanged under this Agreement.

9. If there is a breach or threatened breach of any provision of this Agreement, it is agreed and understood that the non-breaching party shall have no adequate remedy in money or other damages and accordingly shall be entitled to injunctive relief; provided however, no specification in this Agreement of any particular remedy shall be construed as a waiver or prohibition of any other remedies in the event of a breach or threatened breach of this Agreement.

10. This Agreement states the entire agreement between the parties concerning the disclosure of Confidential Information and supersedes any prior agreements, understandings, or representations with respect thereto. Any addition or modification to this Agreement must be made in writing and signed by authorized representatives of both parties. This Agreement is made under and shall be construed according to the laws of the State of Ohio, U.S.A. In the event that this agreement, is breached, any and all disputes must be settled in a court of competent jurisdiction in the State of Ohio, U.S.A.

11. If any of the provisions of this Agreement are found to be unenforceable, the remainder shall be enforced as fully as possible and the unenforceable provision(s) shall be deemed modified to the limited extent required to permit enforcement of the Agreement as a whole.

Prior to engagement in a phase zero project by Company with TEV utilizing TEV’s Product, Company agrees to the following criteria:

1. A willingness to team with other companies providing complementary technologies to address the Market

2. A willingness to be led by TEV through the commercialization process represented in the Product 3. A willingness to negotiate in good faith for an Agreement which will minimally contain a grant from

Company to TEV of 5% share of future gross revenue from all Company sales containing Tech. 4. A willingness to share their initial product concept(s) and market contacts with the TEV under the

constraints of the TEV NDA.

The following criteria must be verifiable by TEV during its phase zero research in order for Tech to have been deemed to have passed due diligence.

1. A potential of at least $100 million dollars annual revenue within 7 years of Company first sale. 2. A minimum viable product containing Tech ready for sales to Market by Company within 24 months

of the execution of this LOI. 3. A viable market channel to allow significant entry into the targeted Market. 4. An overt benefit for the final end user that approximates an order-of-magnitude improvement 5. A reason to believe that the end product can deliver what is promised to the Market 6. A dramatic difference that will allow the end user to differentiate from the competitors

SIGNATURES –

Party 1 (Lead): ___________________________________________________ _____________

Name / Signature Date

Party 2 (Org): ____________________________________________________ _____________

Name / Signature Date

Party 3 (Org): ____________________________________________________ _____________

Name / Signature Date

Party 4 (Org): ___________________________________________________ _____________

Name / Signature Date

Party 5 (TEV): ____________________________________________________ _____________

Name / Signature Date

End of Go Pact

Appendix G – GlobalFlyte Value Creation Forum

Figure 9: Infographic for Globalflyte offering

Appendix H – SAWyze Series A Investment Presentation

the world’s first biosignature platform providing real-time, non-invasive health monitoring and alerts to save lives, decrease suffering, and reduce run away costs

WYZESITUATIONAL | AWARENESS

Copyright ©2017 s.a.Wyze, Inc. All rights reserved, confidential, not for distribution

BIOSIGNATURE PLATFORMthe future of global healthcare

built on Air Force Research Laboratory (AFRL) R&D(Exclusive Licenses & CRADA)

Integrated Sensor Array (ISA)Wrist Band

Cross-Modality (X-Mod) AnalyticsMany Comms Options

Copyright ©2017 s.a.Wyze, Inc. All rights reserved, confidential, not for distribution

More Than a Fitbit under $10each Patent Pending X-Mod Analytics for Alerts

“every hour we were sending aid workers into an Ebola Treatment Unit (ETU) to monitor change in vitals, we weren’t

prepared for outbreak and one ETU was costing us $1.5M a month”

65 MILLION REFUGEES & INTERNALLY DISPLACED PERSONS

Half of these are children

“one doctor for every 50,000 patients, pregnant women are dying from preventable undetected

illnesses and disease, prioritizing patients becomes impossible”

HEALTH MONITORING

“proper care is unaffordable, non-intuitive, and impractical”

COSTSEMERGENCY PREPAREDNESS

6 million babies die annually due to complications from pregnancy

$31B/year and growing June 2017 Field Trials Indicate Wyze Can Reduce Mission Costs by 20%

300 thousand pregnant women die preventable deaths per year

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MultipleCommunication

Options

Blood Oxygen

Rapid Motion Detection (Falls, Spins, Pulls)

Heart RateTemperature

| NOVEL |(Please See Roadmap for Timing)

· Bacterial/Viral Detection ·· Sympathetic Nervous System ·

· pH ·· Electrolytes ·

· Glucose ·· Pain Mgt ·

· Wound Mgt ·· Fetal Move/Pulse·· Mother Pre-Term ·

WEARABLE BAND

Integrated Sensor Array (ISA) is a Breakthrough in Human Sensing (PATENT PENDING)

More Than A Fitbit

More sensing capabilities with cross modality (X-Mod) analytics, multiple comms capabilities (NFC, BLE, WiFi, Zigbee)

Alert LEDs

Exclusive Licensing

Air Force Research Lab, Purdue, U of Indiana, BYU, Ohio State

ARM

At a Much Lower Price

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Early Notional Design, Subject to Change

Insert Actual Company Proforma here.

MANUFACTURING Global leader in roll to roll manufacturing of flexible wearable electronics enables Wyze to reach target cost of $1/unit for a target price of $10/unit

Rapid Prototyping

1 month turn on new iterations Design, Build, Embed Firmware/Software, Human Test

Roll to RollFully Automated …Material Spool, Print, SMT PlaceBiofilm/Chem Placement, CureInline Test/Stretch/BendMachine Optical InspectionSlice, Package, Ship

Partnership with PurdueThe Global Bio Nano Mfg Leader

Purdue assisted the design of nano centers at MIT, Princeton, Stanford, UC Berkeley, Gatech, Penn State, Argonne as well as international centers in Mexico, Colombia, India, Kuwait and Qatar

Operating Roll-to-Roll Line at Purdue’s Birck Bio Nano Center in West Lafayette, IN1st Industry Production Line at Key Electronics (Wyze Venture Founder) in Jeffersonville, IN

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EXPANDING TO OTHERMARKETS

Traction

Emerging

Emerging

Total Upside Over $250M / Year

*Not Included in Pro Forma

Traction

• Civil Air (Flight Crews), All Pilots and Attendants, Every Flight -$100M Market

• Field Care (Integ into Military and Commercial Systems) - $100M Market

• Personalized Medicine - $2.5B Market

• Elderly/Remote Healthcare -Situational Awareness - $7T Market

Traction

Copyright ©2017 s.a.Wyze, Inc. All rights reserved, confidential, not for distribution

• Dr. Georges Bwelle - A visceral surgeon at the Regional Hospital in Yaounde the capital city of Cameroon. Recognized by CNN as a Top Ten Hero in 2013.

• Dr. Bimal Gandhi – Physician with over 10 years experience with expertise in innovative practices and advance human pain management.

• Dr. Alice Grabowski – Physician with over 10 years experience in advanced medical interventions for large massive human event health services .

• Dr. Mike Lenczyk – Physician with over 30 years experience in operating environments from urban emergency to field disaster response scenarios.

• MajGen Eric Vollmecke – Special advisor to the President, over 30 years experience in R&D development, with mission expertise in humanitarian (reserve/national guard

affairs) disaster operations. Successful commercial medical device product development and transition into practice experience.

• Mr. Keram Nazari – International business executive, serial entrepreneur, specializing in logistics and global distribution networks.

• Mr. Terry Foley – Professional soccer player England Div 1, professional certified elite soccer coach, physical thermodynamics and biomarker , serial entrepreneur.

• Mr. Rabih Torbay – Relief and development executive, with experience working with international agencies in practice, strategy, program implementation, accountability,

and organizational and fiscal integrity. Represented humanitarian organizations before Congress and is a lecturer at several civilian and military institutions. Holds a BS in

engineering and is a graduate of the humanitarian leadership program at Harvard.

ADVISORY BOARD

Mr. Keram Nazari

Copyright ©2017 s.a.Wyze, Inc. All rights reserved, confidential, not for distribution

5200 Springfield St., Suite 300Dayton, OH 45431

14800 Conference Center Drive, Suite 300Chantilly, VA 20151

Administrative Email: james.mainord@sawyze.comExecutive Email: dalton.pont@spglobalinc.com

Phone: 703-357-7635

Address

Contact Info

Telephone

SPG Chantilly, VA Office SPG Dayton, OH Office

Key Electronics Plant Jeffersonville, INPurdue Birck Bio Nano Center, West Lafayette, IN

Thank You

www.saWyze.com

Copyright ©2017 s.a.Wyze, Inc. All rights reserved, confidential, not for distribution

Legal Disclosure

This presentation is for informational purposes only and is not intended to recommend any investment discussed in this presentation. This presentation is not an offer to sell or the solicitation of an offer to purchase an interest in s.a.Wyze, Inc (Wyze). All information with respect to Wyze and industry data have been obtained from sources believed to be reliable and current, but accuracy cannot be guaranteed. Statements in this presentation are made as of the date specified herein and Wyze has no obligation to update the information in this presentation.

The projections contained in this presentation are only estimates of future results that are based on assumptions made at the time such projections were developed. There can be no assurance that the results set forth in the projections will be attained, and actual results may be significantly different from the projections. Also, general economic factors, which are not predictable, can have a material impact on the reliability of projections.

Any investment in a startup company like Wyze is subject to various risks. In considering any performance information contained in this presentation, you should bear in mind that past performance is no guarantee of future results, and there can be no assurance that future investments will achieve satisfactory results.

Confidentiality ProvisionThis presentation is intended for authorized recipients only and must be held strictly confidential. This presentation includes confidential proprietary and trade secret information of Wyze and its affiliates. By accepting this information, each recipient agrees that (I) no portion of this presentation may be reproduced or distributed in any format without the prior express written consent of Wyze, (II) It will not copy, reproduce, or distribute this presentation, in whole or in part, to any person or party, and (III) It will keep permanently confidential all information contained herein that is not already public.

Copyright ©2017 s.a.Wyze, Inc. All rights reserved, confidential, not for distribution

Appendix I – General Guidance on SEC requirements for securities offerings

The SEC requirements are quite broad in scope and detailed in their specific rules and regulations. The overarching guidance that summarizes the SEC position is “obey the existing securities laws when making an offering of a security.”

Council from an experienced securities attorney should be followed before offering a corporate security to an investor.

The specific offering terms and nature of the offering on a deal by deal basis will determine the specific disclosures and offering documents.

All securities being made to investors must either be registered with the SEC under the rules of a public offering or be exempt from registration based on specific exemtions available to corporate issuers under Regulation D of the Securities Act.

In using an exemption from registration for our offerings, issuers are exempt from the burden of registration with the SEC and some public offering rules by virtue of Section 506(b) and 506(c) of Regulation D of the Securities Act. The 506(b) is the more traditional private placement to friends and family (people the issuer already knows). The 506(c) is the new equity crowd funding rule, that allows issuers to generally solicit investors they do not know (much like a public offering). There are other exemptions that may be available dependent on the specific facts and circumstances of an offering.

There has been some “relaxing” of certain disclosure requirements in private offerings from a few years ago. However, most attorneys take the view that providing full disclosure of risks and offering terms in a formal, private placement offering memorandum, while perhaps not an absolute requirement under certain SEC rules, should still be carried out as best practice, to meet other laws and for risk management issures, related to potential litigation by a disgruntled investor down the road.

This concept is extended even further when a company uses a FINRA broker dealer to help market their deals. FINRA regulated firms have a enhanced set of rules and share the risk management issues as well. There are different opinions from different sources on what is the minimum versus appropriate level of disclosure for a private offering. Much of the time it is case specific. Issuers should incorporate experienced advisors into the process of determining the appropriate offering documents to be presented to potential investors.

In general, for all the TEV venture purposes they have adopted a conservative approach, recommended by legal and investment banking counsel that includes the following:

1. Don’t commit fraud or misrepresentation or material omissions in any offering materials. This supersedes securities laws.

2. Provide an investor all of the relevant information one would expect, to allow an investor to

understand the risks of the investment and the terms of the offering.

3. Make sure the offering fairly represents the opportunity and discloses material risks that could negatively impact the expectations of management and results of the company.

4. Conflicts of interest, contingent liabilities and reasonable forecasts should be clear and

disclosed.

5. Investors should be clearly informed of the risks in all early stage companies, as well as the specific risk of the particular company and the possibility they could lose a part, or all of their investment.

6. Uses of capital should be clearly disclosed.

7. Only accept funds from investors who are Accredited Investors as defined by the SEC. In 506(b)

they self-attest to their accredited standing. In 506(c) we must verify their accredited standing through their accountant or financial advisor.

8. Investors should be “suitable” in addition to being accredited. They should understand the risks

and be experienced enough to weigh those risks for suitability, relative to their overall investment goals and objectives. Accredited Status does not necessarily equal suitability. This is a developing area with the SEC, particularly for broker dealers and financial advisors.

9. When engaging a broker- dealer as a placement agent for the offering, a higher level of scrutiny

can be expected with regards to potential hyperbolic statements and claims. Material declarative statements of market potential and product performance that are derived from outside sources should be cited or footnoted.