Discussion w ith UTEN austin technology incubator March 2011 1 - PDF document

Discussion w ith UTEN austin technology incubator March 2011

1 Financial Sustainability of Incubators y

Incubator Financial Sustainability Financial models: Financial models: 1. Subsidized by government, public entities 2. Funded by clients 3 3. For profit models F fit d l 4. Other? 2

Incubator Financial Sustainability – ATI’s $2M cost basis $2M t b i City of Austin $200k – $125k – Biosciences Wireless Incubator Incubator Austin Energy $190k – Clean Energy ~$100k – Clean Energy Incubator Venture Summit Texas State Energy $100k – Clean Energy $100k net – Clean Energy Conservation Office Incubator Incubator (syndication project) University of Texas at U i it f T t ~$500k – Rent forgiveness $500k R t f i $100k (?) $100k (?) - HR, accounting HR ti Austin back office overhead not charged Members Members ~$400k ~$400k - Rent Rent ~$100k ~$100k – Membership fees Membership fees Other ~$100k Event sponsorships $25k - $50k gifts 3

Incubator Financial Sustainability - Subsidized S b idi d • ATI’s approach – approximately 65%+ of financial support ATI s approach approximately 65%+ of financial support is from City of Austin, Austin Energy, University of Texas, State Energy Conservation Office • Strong results have reduced funding risk St lt h d d f di i k • Non-profit status or government affiliation impedes ability to take equity – either through investment or grants • Early stage companies cannot pay enough cash to cover expenses cover expenses • Covers delayed returns from equity positions 4

Incubator Financial Sustainability – Client’s Pay Cli t’ P • Cash for rent direct services membership fees Cash for rent, direct services, membership fees • Cash as “commission” for fund raising success (potential legal issues) • Equity-based returns through exits, however: E it b d t th h it h • 5+ year delay • Low success rate • Unclear ability to take enough equity to matter • Risk is increased by investor funding 5

Incubator Financial Sustainability – For Profit Models P fit M d l • Y-Combinator TechStars etc Y Combinator, TechStars, etc. • Take 5% - 20% of common equity • Provide small investment $10k - $25k • Arrange for free services from “preferred service vendors” A f f i f “ f d i d ” • Direct link with venture capitalists for Series A funding • Ability to make follow on payments (this is key) • Near term cash covered by founders, partner investment firms, service providers, corporate sponsors, etc. • Sustainability based on exits with ability to “protect” equity Sustainability based on exits with ability to protect equity stake 6

Incubator Financial Sustainability – Brainstorm B i t • “Side-car fund” with incubator as LP and/or GP Side car fund with incubator as LP and/or GP • Locally sourced funds or via partnership with existing major investment firm • Dividends on equity position to generate cash until exit Di id d it iti t t h til it event (basically a transfer of cash from investors to incubator) • Partnerships with global, top tier companies (incubator as outsourced R&D) • ???? ???? 7

8 TTOs & Incubators

9 Academic i d A UTA Organization Structure UT - Austin OTC OTC h Research R IC 2 Institute IC Institute g ATI

Interaction of UTA’s TTO and ATI – Case Study 1, ActaCell St d 1 A t C ll • ActaCell ActaCell • ATI met with faculty researcher, identified initial commercial opportunity with faculty • ATI recruited founding CEO ATI it d f di CEO • ATI connected faculty and CEO with lead VC investors • ATI, ActaCell and investors jointly approached TTO with well articulated technology, business plan, and existing startup requesting to license the technology • ATI assisted in receiving State funding ATI assisted in receiving State funding 10

Interaction of UTA’s TTO and ATI – Case St d 2 Wib l Study 2, Wibole • ATI and TTO met student founder via the “hatchery ATI and TTO met student founder via the hatchery class” – resulted in IP disclosure, prototype patent, first pass at commercialization plan • Wibole participated in ATI’s summer SEAL program Wib l ti i t d i ATI’ SEAL • Wibole presented commercialization plan with initial market validation to TTO • TTO agreed to pay for patents and license technology to Wibole (founded by student, co-founder was an ATI intern) intern) • TTO and ATI making investor introductions • ATI assisting in developing investor, technology and channel partner pitch channel partner pitch 11

Interaction of UTA’s TTO and ATI – Programatic Interaction P ti I t ti • WNCG hatchery class WNCG hatchery class • On campus wet lab • Idea to Product competition • 3 Day Startup (in progress) 3 D St t (i ) • Entrepreneurship events (CEVS, TWS, WSSF, Entrepreneur Lounge, Ready to Commercialize) Most interaction is case driven and person-to-person 12

13 ATI Selection Process

Identifying Potential ATI Candidates ATI engages with potential candidate companies through several channels: several channels: • Part of a prior ATI company (sometimes as CEO) • Referred by member of prior ATI company • Referred by local investor advisor or other • Referred by local investor, advisor, or other entrepreneurial institution • Initial meeting via ATI hosted event • Cold call, email or application via website • UT via supported classes, entrepreneurial competitions, 3 Day Startup, referred by interns, referred by faculty Day Startup, referred by interns, referred by faculty

High Level Admission Criteria The due diligence efforts increase ATI ’ s effectiveness in serving the needs of the companies that can most benefit from our capabilities and our efficiency in managing resources. The ATI admission ’ s process has 2 primary tests: Venture risk: ATI impact: Do we think this Can ATI add Can ATI add company has a distinctive value ATI good chance to to this company? Admissions succeed? (Team, (ATI capabilities, technology technology, management fit, t fit market equity price test) evaluation) The due diligence efforts highlight companies that � Have strong potential to generate new jobs and create wealth for Central Texas � Directly leverage ATI ’ s capabilities and knowledge � Provide educational opportunities for University faculty and students

ATI ’ s sw eet spot ATI s sw eet spot ~75% success rate in getting Cash flow ATI companies f funded d d Our key value add – a we surround a we surround these companies Time with talent that they “ A ” round otherwise could not funding and/or funding and/or afford to access Seed market funding traction

Due Diligence Process The due diligence process consists of 4 decision gates and 3 research stages Admission Admission 2 weeks 4 weeks 4 weeks Lead Pitch Deep Dive Initial Initial Internal Internal Rec to Rec to Prepare for Prepare for Success Success Due Screen Review SC? SC Committee Diligence Basic Due Diligence Decline Decline Decline Decline Deep Dive Meeting with No thank you Basic Due No thank you Director call Due Director and note and Diligence note and and Diligence Diligence select select feedback Results feedback discussion Results Advisors Pass Rate 50% 50% 40% 75% Cumulative Cumulative 50% 25% 10% 7.5% Time Req 20 hrs 15-30+ hrs 10-15 hrs

18 Grow ing the Austin Technology Incubator gy g

Requirements of Success of International St Start ups in the US t i th US It can be extremely challenging for foreign startups to enter It can be extremely challenging for foreign startups to enter the US market • Setting up a bank account with new legal entity • Hiring local talent, mixing with original team • Reference-able customers • IP ownership for public funding p p g • Immigration & work visas MUST have US presence to pursue US market and talent- base and perhaps for fund raising base, and perhaps for fund raising 19

Keeping ATI Relevant to Austin p g “Market Making” Sector-Specific Acceleration Startup Support Support 1989 2001+ 2007+ 20

Keeping ATI Relevant to Austin p g • “Board role” • Industry advisors “Market Making” • Industry events • Investor events • Facilities • Customer / Sector-Specific • Advisor partner network Acceleration • Entr events • Deep dives p Startup Support Support 1989 2001+ 2007+ 21

Keeping ATI Relevant to Austin p g $2M “Market Making” $450k � $1.2M Sector-Specific Acceleration ~$200k $ Startup Support Support 1989 2001+ 2007+ 22

Keeping ATI Relevant to Austin p g Startup Sector-Specific “Market Making” Support Support Acceleration Acceleration •Pecan Street Project •CEVS, TWS, WSSF •Wholesale •Wholesale •Semantic Web Austin S ti W b A ti entrepreneurship •MobileMonday training •symBIOsis •Networking N t ki •CleanTX Foundation •Austin wet lab •UT web lab UT web lab 1989 2001+ 2007+ 23