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

austin technology incubator

Discussion w ith UTEN

March 2011

Financial Sustainability of Incubators y

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Incubator Financial Sustainability

Financial models: Financial models:

• 1. Subsidized by government, public entities
• 2. Funded by clients

3 F fit d l

• 3. For profit models
• 4. Other?

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Incubator Financial Sustainability – ATI’s $2M t b i $2M cost basis

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

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Incubator Financial Sustainability - S b idi d Subsidized

• 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 St lt h d d f di i k

• Strong results have reduced funding risk
• 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

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Incubator Financial Sustainability – Cli t’ P Client’s Pay

• Cash for rent direct services membership fees

Cash for rent, direct services, membership fees

• Cash as “commission” for fund raising success (potential

legal issues) E it b d t th h it h

• Equity-based returns through exits, however:
• 5+ year delay
• Low success rate
• Unclear ability to take enough equity to matter
• Risk is increased by investor funding

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Incubator Financial Sustainability – For P fit M d l Profit Models

• Y-Combinator TechStars etc

Y Combinator, TechStars, etc.

• Take 5% - 20% of common equity
• Provide small investment $10k - $25k

A f f i f “ f d i d ”

• Arrange for free services from “preferred service vendors”
• 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

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Incubator Financial Sustainability – B i t Brainstorm

• “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 Di id d it iti t t h til it

• Dividends on equity position to generate cash until exit

event (basically a transfer of cash from investors to incubator)

• Partnerships with global, top tier companies (incubator as
• utsourced R&D)
• ????

????

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TTOs & Incubators

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UTA Organization Structure g

R h UT - Austin A d i Research IC2 Institute OTC Academic IC Institute OTC ATI

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Interaction of UTA’s TTO and ATI – Case St d 1 A t C ll Study 1, ActaCell

• ActaCell

ActaCell

• ATI met with faculty researcher, identified initial

commercial opportunity with faculty ATI it d f di CEO

• ATI recruited founding 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

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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 Wib l ti i t d i ATI’ SEAL

• Wibole participated in ATI’s summer SEAL program
• 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

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channel partner pitch

Interaction of UTA’s TTO and ATI – P ti I t ti Programatic Interaction

• WNCG hatchery class

WNCG hatchery class

• On campus wet lab
• Idea to Product competition

3 D St t (i )

• 3 Day Startup (in progress)
• Entrepreneurship events (CEVS, TWS, WSSF,

Entrepreneur Lounge, Ready to Commercialize) Most interaction is case driven and person-to-person

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ATI Selection Process

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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: Do we think this ATI impact: Can ATI add company has a good chance to succeed? (Team, technology Can ATI add distinctive value to this company? (ATI capabilities, t fit ATI Admissions technology, market evaluation) management fit, equity price test) 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

Cash flow ~75% success rate in getting ATI companies f d d Our key value add – a we surround funded Time “A” round funding and/or a we surround these companies with talent that they

• therwise could not

Seed funding funding and/or market traction afford to access

Due Diligence Process

The due diligence process consists of 4 decision gates and 3 research stages

Admission Initial Internal Rec to Success Deep Dive Prepare for 2 weeks 4 weeks 4 weeks Admission Pitch

Lead

Initial Screen Internal Review Rec to SC? Success Committee Basic Due Diligence Due Diligence Prepare for SC Decline Decline Decline Decline No thank you note and No thank you note and Basic Due Diligence Deep Dive Due Diligence Director call and Meeting with Director and select feedback feedback Results Diligence Results

Pass Rate 50% 50% 40% 75% Cumulative

discussion select Advisors

Cumulative 50% 25% 10% 7.5% Time Req 20 hrs 15-30+ hrs 10-15 hrs

Grow ing the Austin Technology Incubator g gy

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Requirements of Success of International St t i th US Start ups in the 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

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base, and perhaps for fund raising

Keeping ATI Relevant to Austin p g

“Market Making” Sector-Specific Acceleration Startup Support Support 1989 2001+ 2007+

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Keeping ATI Relevant to Austin p g

• “Board role”

“Market Making”

• Industry advisors
• Industry events
• Investor events

Sector-Specific Acceleration

• Facilities
• Advisor
• Entr events
• Customer /

partner network

• Deep dives

Startup Support p Support 1989 2001+ 2007+

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Keeping ATI Relevant to Austin p g

$2M “Market Making” $450k $1.2M Sector-Specific Acceleration ~$200k Startup Support $ Support 1989 2001+ 2007+

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Keeping ATI Relevant to Austin p g

Startup Support Sector-Specific Acceleration “Market Making” Support Acceleration

• Wholesale
• Pecan Street Project
• CEVS, TWS, WSSF

S ti W b A ti

• Wholesale

entrepreneurship training N t ki

• Semantic Web Austin
• MobileMonday
• symBIOsis
• Networking
• CleanTX Foundation
• Austin wet lab
• UT web lab

1989 2001+ 2007+ UT web lab

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ATI 2.0 Full Stride

FY2008 FY2009 FY2010 Total FY2008 FY2009 FY2010 Total # of Companies 24 29 32 48 Jobs Created 152 110 50 312 Funds Raised $28M $10M $29M $67M Revenues $1.1M $1.5M $2.6M $5.2M Economic Impact $38M $20M $35M $93M Economic Impact $38M $20M $35M $93M # of Events 36 30 50 116 # of Touch Points 6,510 5,966 6,230 18,706

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