Session 7-4: Texas Emerging Technology Fund

M. D. Anderson Cancer Center
Date: April 2008
Duration: 0 / 13:46

Bob Prochnow, Director, Gulf Coast RCIC.

Narrator:

Alright.  So, the next speaker, Bob Prochnow, he is the director of the regional center here for this ETF.  We call this RCIC.  He will explain to you a little bit more.  He is a Rice graduate.  He has a lot of experience in energy and IT.  And I didn't know he was named by a computer magazine as one of the top 100 IT people in the US, something like that.  So, congratulations.

Thank you.

Yeah, okay.  Let me just get you up and running here.  Okay.  You're on.

Bob Prochnow:

Thank you.  If you can't hear me, raise your hand.  Okay.  We got enough microphones here.  Now, I got some slides and if you look at the handouts, I have a lot of material, wait a minute, I'm going to put on the screen.  This is a presentation that I can literally talk hours about and actually, we do.  Once in a quarter, we give this as a two-hour workshop.  I'm not gonna go through all the details.  What I'm gonna do is just give you an overview of what it takes to get money from the Texas Emerging Technology Fund.  As it turns out, a lot of things you need to do in order to get money from the state because the state is really the investor are the same things you're gonna have to do if you are gonna go to any angel or venture investor.  The feedback we've gotten from a lot of the companies that go through the ETF program with the Gulf Coast Regional Center, is that the experience they get in putting the materials, the business plan, the presentations, you know, the experience you get in putting those materials together, the feedback they get in giving those presentations and talking to our volunteers.  We've got over 240 volunteers participate as reviewers over the past two and a half years.  We typically have 40 to 60 volunteers review applications, and see presentations from the companies.  The feedback they get from those people that are looking at the presentations and looking at your business plan, looking at your application, it helps them considerably in preparing whether or not you get funding from the state.  It helps them to prepare to talk to other investors and get that money from some source.  So, while I'm going to be talking about the Texas Emerging Technology Fund, a lot of what I'll be talking about applies whether or not it's for the state or for some other source we are trying to get investments.  Now, on the emerging technology fund, we're gonna focus on the lower left hand corner 'cause you know this is the biomedicine/life sciences sector, we do have other sectors which we do fund.  And in the Gulf Coast region, we have 16 companies that announce awardees over in the life science sector.  We have several energy sector companies.  We have a nanotechnology company.  So, it's not just life sciences but because there is university collaboration requirement in the program, the life science sector really is a much better fit for this fund.  Very few IT companies have the time to go to universities to get collaboration because they're moving very quickly.  Energy companies typically are formed as spin offs of existing energy companies.  So, they're not coming out of universities.  So, the life science sector is very well suited to getting money from Texas Emerging Technology Fund, and we funded about 18 million dollars to the 16 companies in the region so far.  As Andy said we've got a very interesting administration of this fund, like one of the unique parts of this fund is this is not a fund that's entirely a government function.  We have a collaboration between eight nonprofits, the regional centers and the Texas Life Science Center, where we have the responsibility for dealing directly with each of the applicant companies.  We helped the companies when they are preparing to apply for the fund.  We do the first level of screening and when the companies get funded we are also responsible for providing them assistance after they get the award.  In our region, all the companies that become ETF awardees are offered 1 year free client services from Houston Technology Center, and we also worked with other partners in the region such as the Research Valley Innovation Center and Houston to provide joint sponsorship and joint assistance to the companies.  So, it's not just to check to getting from the state, we want to make sure you have the help, the assistance, the mentoring, the coaching, accesses to the service providers, the things you need in order to be successful.  So, these are the regional centers, because we're all nonprofits, we all heavily rely on volunteers.  And if you do apply for the fund, remember that almost everybody you talk to, other than myself, other than Andy, Deborah Mansfield is the associate director for the Gulf Coast region.  We are paid to do this.  Everybody else you're gonna deal with is actually doing it as a volunteer.  And it's really an amazing amount of volunteer support of the region and in the state to support this program, and to help the companies going through it.  Andy briefly mentioned the two types of awards that we have.  These are not grants.  The Initial Legislation said they were grants.  It is not free money.  The legislature requires us to get a return on investments for these funds.  So, this is really an equity investment by the state.  You can request up to five million dollars.  The largest award I've seen so far in the pipeline is 3.5 million.  Most of the deals we've seen in this region are in the 1 to 2.5 million dollar range.  And these, the four awards, what we're calling the four awards, these are really intended for companies that are--the early-stage companies but they are far enough down the road.  They have made some progress in commercialization.  They've got a management team in place.  They got a pretty solid business plan in place and they are looking for their second round of funding, getting assistance from the state.  Now, if you're taking technologies out in the universities; that level of funding and that level of maturity is unrealistic.  So, we have another category award, pre-seed award, and this is where we see most of our applications now is from pre-seed stage companies.  The initial request is limited to 250,000 dollars.  However, the state reserves a million dollar for each pre-seed awardee.  You can request 250,000 for that first 6-month project.  When you complete that, then you can make subsequent request, maybe in 250,000-dollar charges to get that get the total of a million dollars.  So, while you are asked for 250, really think about getting the first million dollars of funding into your company.  So, it's really a great program because the stake for the pre-seed awards is going to be first money.  For the larger awards, they are expecting some of their investors risk their monies already and they are following that.  But the pre-seed award is first money.  We do have a slightly different set of criteria for pre-seed companies.  The same criteria for the technology but we expect on the business side, the company is not quite as mature.  So, the business plan is gonna have gaps.  You may not have a complete team, shoot!  You may not be paying anybody to be a management team.  You maybe having volunteers, part-time people, maybe virtual.  That's okay.  And for pre-seed companies, the first half million dollars award could be issued as convertible debt, which provides some additional flexibility for companies that are just starting.  So, now I'm going to go through these slides and this handout I gave is a tool that we used for companies that are interested in applying to the fund.  This is an interactive worksheet.  What you don't see in the hardcopy form is that every one of the lines if you mouse over the long text description, there is actually a bigger bullet box that comes up explaining in greater detail.  This spreadsheet can be downloaded from our website, and I'll give you the URL in just a moment.  It's important that if you are applying for the fund that you are able to get a yes checkmark in every box on this form.  And if you can't, then you need to look at how you can get to the part where you can have a yes.  And also, when you're talking to other investors, especially in the business criteria, they're gonna be looking for exactly the same things the state is looking for.  So, this is a really, this is a good cheat sheet to help to see how far along you are and whether you are ready to start talking to investors.  So, these are the 6 major criteria areas for funding.  You have to commercialize the emerging technology which if you're in the Life Science sector, that's a gimme because it's one of the highlight areas.  A part of the award can be used to help complete your protection of your IP.  So, you do need to have a clear path to licensing the technology, license in the IP, but if you need to get some additional funding from the state, funding that the Federal Grant Program that Deborah is going to talk about in a few minutes, funding those programs as well as cover the state will provide help to do that.  Part of the money can be used to help to create and test prototypes which is gonna vary based on the technology that you are developing, and you have to have a business plan.  And the end goal of this has to be commercialization.  It's not a research program.  You have to be able to make a case and it's up to you as the applicant to make the case why you have breakthrough technology.  You need to have it protected and at least in our region we require companies when they apply, to provide us some independent validation of the technology.  If you have a federal grant, that's validation because you go through a peer review process.  If you have published articles on the technology, something that is peer reviewed, that's acceptable.  And if you don't' have that, try and get somebody who is an independent expert in the technology to give a fair and complete review of the technology because like Andy said, most the people at the state are not technical people, their not experts in this area.  They will take this validation and helps to give them an area of confidence when they are looking at the applications of that technology.  You have to have collaboration with the Texas University and if you're taking technology out of the university you immediately qualify.  So, for life science companies, because you usually involve a medical school or your taking technology spin offs, this is usually gimme.  You have to have a defined strategy for commercializing the technology.  You have to have a business plan.  You have to have a two-page executive summary.  The two-page executive summary is very important, not so much for the initial application but we get through the program.  When you're getting reviewed by the Governor, Lieutenant Governor and Speaker of the House, that's probably the only thing they're going to read about your application.  It is going to be the executive summary.  It's also a very important tool when talking to investors.  They're not gonna read a large business plan.  They will read a two-page executive summary.  So, that's something that, if you're going to create a company, you need to spend time to work on it and it needs to look nice and professional.  And, please, you know, spell check.  Believe it or not, we get these documents and they have been run through spell check and it doesn't look very good when we get the applications.  If you can't spell right, why should we give them a check for a million dollars?  You need to have a clear path to generate revenue.  You need to talk about who your competitors are, what the market is.  So, you need to get somebody that has some business experience to help you write the business plan and do that work for you.  And pre-seed companies can be a little bit earlier stage.  You have to have an economic impact in Texas, where you want to create the jobs here in Texas.  So, most of the time, this means it's creation of jobs.  The intent is not to help give you some money so you can then turn around and put the company in California.  We want to see that you have the manage team here.  We want to see that you have the growth in the company if you are successful here in Texas.  And if you get an award, you have to make a commitment with the commercialization and/or manufacturing as we have done here.  This is not a program intended to write you a check that takes you all the way to the finish line.  This is a program intended to help you get to that, get over that gap to the point where you're going to attract other capital.  So, there's a requirement.  If you take a check from the state, they're gonna require that within a reasonable timeframe, you get another investor to come up to the table.  If you get one of those large awards, get 2 million in state.  You have 18 months to raise at least a half million dollars from other source.  If you get a pre-seed award because your earlier stage, they're gonna give 30 months to raise, usually, up to a half million dollars from other sources.  Now, how do we evaluate the applications?  We look at it like any investors gonna look at it, we do a business assessment, we do a technical assessment, and we also look at unique criteria for the ETF program.  And, we have talked and we have about 250 applications sent to the Gulf Coast Region.  We've only funded 16.  Why did those other 234 not get funded?  Most of the reason is because they don't meet the ETF criteria.  They don't have the university collaboration.  They don't have breakthrough technology.  So, many very promising companies have come and not been successful and because that we've really stepped up our education program to help identify the criteria that was needed and this spreadsheet was one of the tools, because we want companies to apply only if they really have a good chance to get funded.  And recently, our success rate is much higher than what we have in the early rounds.  So, this is the application process and I'll go though this very quickly.  If you're an applicant, you come to the local center or the Texas Life Science Center and you ask for help.  We had deadlines.  We receive applications on a quarterly basis.  You come to us, we do the reviews.  We send the companies, we endorsed back to the advisory committee at the state level.  They'll look at the applications.  They'll decide which ones are going to endorse and send to the leadership, and you have to get unanimous approval by the top three elected officials of the state.  You get a nice certificate with their signatures at the bottom.  And then you start negotiating contract with the Governor's Office and then you come back and get assistance with the money from the state from the local RCIC and the Texas Life Science Center.  That old process takes seven to nine months.  However, from the point where you submit your application, you will get through step 3 in about two months.  And if you are out trying to raise other capital, getting through step 3 provides a lot of credibility when you are talking to other investors.  This is the schedule for the next round.  We are doing workshop.  We'll do it in the 22nd.  We meet with every company that is gonna apply on our region following week.  Our deadline is May 20th and then we will do it three months later.  The Texas Life Science Center will review life science applications in parallel with the Gulf Coast Center for life science companies in the region.  The two primary information sources for companies on our region are the Gulf Coast RCIC website and the Texas Emerging Technology Fund website.  The Texas Life Science Centers in the process of upgrading the website so I didn't post it 'cause the information there is a little bit out of date.  So, this is really a great opportunity.  If you have an idea, use funding like TIF, pursue federal grants like what Deborah is looking at, and come to the ETF because it's really a chance to get that first million dollars and a half of investment funding.  And, if you do have any questions, please contact me, contact Deborah or contact Andy, we're here to help you and help encourage getting the technologies out in the marketplace.  Thank you.
[ Applause ]