The new market tax credit (NMRC) program and other community development model inititaitves

The new market tax credit (NMRC) program and other community development model inititaitves

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The new market tax credit (NMRC) program and other community development model inititaitves
University of South Florida -- Center for Economic Development Research
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Tampa, Fla
Center for Economic Development Research
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1 online resource (57 p.) : ;


Subjects / Keywords:
Tax credits -- Florida -- Hillsborough County ( lcsh )
Community development -- Florida -- Hillsborough County ( lcsh )
Economic conditions -- Hillsborough County (Fla.) ( lcsh )
bibliography ( marcgt )
non-fiction ( marcgt )


Commissioned by the Hillsborough County Economic Development Department (HCEDD), this research project provides general information on Community Development Entities (CDEs), the New Market Tax Credit (NMTC) Program and other community development model initiatives, focusing on information that the (HCEDD) can use to model a CDE that might provide incentives for creating and promoting the Biosciences industry within the USF Enterprise Zone.
Includes bibliographical references (p. 30-31).
General Note:
Title from PDF of title page (viewed Aug. 4, 2009).
General Note:
"September 2006."
Statement of Responsibility:
an analysis performed by Center for Economic Development Research, College of Business Administration, University of South Florida.

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University of South Florida
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002022775 ( ALEPH )
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C63-00096 ( USFLDC DOI )
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The new market tax credit (NMRC) program and other community development model inititaitves
h [electronic resource] /
an analysis performed by Center for Economic Development Research, College of Business Administration, University of South Florida.
Tampa, Fla. :
b Center for Economic Development Research,
1 online resource (57 p.)
Title from PDF of title page (viewed Aug. 4, 2009).
"September 2006."
Includes bibliographical references (p. 30-31).
8 520
Commissioned by the Hillsborough County Economic Development Department (HCEDD), this research project provides general information on Community Development Entities (CDEs), the New Market Tax Credit (NMTC) Program and other community development model initiatives, focusing on information that the (HCEDD) can use to model a CDE that might provide incentives for creating and promoting the Biosciences industry within the USF Enterprise Zone.
Tax credits
z Florida
Hillsborough County.
Community development
Hillsborough County.
Hillsborough County (Fla.)
x Economic conditions
2 710
University of South Florida.
Center for Economic Development Research.
1 773
t Center for Economic Development Research (CEDR) Collection


The New Market Tax Credit (NMTC) Program and Other Community Development Model Initiatives An Analysis Performed by CENTER FOR ECONOMIC DEVELOPMENT RESEARCH College of Business Administration 1101 Channelside Dr., 2nd Floor N., Tampa, Florida 33602 Office: (813) 905-5854 or Fax: (813) 905-5856 September 2006


Preface The Hillsborough County Economic Development Departmen t (HCEDD) commissioned the Center for Economic Development Research (CEDR) to conduct the applied economic research reported herein The research project provides genera l information on Community Development Entities (CDEs), the New Market Tax Credit (NMTC) Program and other community development model initiatives. CEDR, a unit of the University of South Flori das (USF) College of Business Administration (COBA), initiates and conducts innovative resear ch on economic development. The Centers education programs are designed to cultivate excellence in regional development. Our information system serves to enhance economic development efforts at USF, COBA, and throughout the Tampa Bay area and the state of Florida. Robert Forsythe, Dean, COBA, Univ ersity of South Florida (USF) Dennis Colie, Direct or, CEDR, COBA, USF Jim Snyders, CEDR Research Consu ltant and Principal Investigator Dodson Tong, Data Manager, CEDR, COBA, USF i


Table of Contents Preface ............................................................................................................................... ..............i Table of Contents ............................................................................................................................ ii EXECUTIVE SUMMARY ........................................................................................................... iv 1. Introduction. .........................................................................................................................1 2. Inform ation Sources. ............................................................................................................2 3. Scope. ............................................................................................................................... ....3 4. The CDFI Fund. ...................................................................................................................4 5. What is a CDE? ....................................................................................................................6 6. How to for m a Certified CDE. .........................................................................................7 7. How a CDE m ight be used in the USF EZ and beyond to enhance economic activity. ......8 8. What is the New Market Tax Credit (NMTC) Program. ...................................................10 9. Overview on how to apply for the NMTC. ........................................................................13 10. NMTC Applica tion Process. ..............................................................................................15 11. NMTC Compliance and Recapture. ...................................................................................17 12. Other Considerations. ........................................................................................................18 A. Double Bottom Line Investment Funds (DBLIFs) ...........................................................18 B. Community Developm ent Venture Capital Alliance (CDVCA) ......................................18 C. New Markets Venture Capital (NMVC) program............................................................19 D. Bank Enterprise Award Program (BEA) ..........................................................................20 E. Small Business Administration (SBA) .............................................................................20 13. Early Stage Gap Financing. ...............................................................................................22 A. Angel Investors ................................................................................................................. 23 B. Universitie s .......................................................................................................................23 C. Small Business Innovation Research Program (SBIR) .....................................................24 D. Small Business Technology Transfer Program (STTR) ...................................................25 14. Findings. .............................................................................................................................29 ii


References ......................................................................................................................................30 Appendix A Listing of CDEs in Central Florida ...............................................................................................32 Appendix B CDR NMTC Flow Chart .............................................................................................................34 Appendix C Key NMTC application scoring factors and selection process ......................................................36 Appendix D Prior Round CDIF Financial Assistant Awards.............................................................................38 Appendix E Additional NMTC compliance criteria ..........................................................................................39 Appendix F Benefits of NMVC Company ........................................................................................................41 Appendix G Angel Investor Information ............................................................................................................43 Appendix H Examples of Early Stage Bio-Science Financing ..........................................................................56 iii


EXECUTIVE SUMMARY The objective of this research is to provide background inform ation on Comm unity Development Entities (CDEs), the New Market Tax Cred it (NMTC) Program and other community development model initiatives that might prov ide incentives for creating and promoting the Biosciences industry within the U SF Enterprise Zone (EZ) and beyond. A CDE is defined by the US Internal Revenue Service (IRS). Both qualifying CDEs and the NMTCs program are administered through the Community Development Financial Institution (CDFI) Fund within the US Department of Treasury. The CDFI Fund leverages private investment to benefit economically disadvantag ed people and communities. It administers a competitive grant program that provides capital gran ts, loans, equity investments and awards to fund technical assistance to community devel opment financial institutions (CDFIs). A CDE is a domestic corporation or partnership that is an inte rm ediary vehicle for the provision of loans, investments or financial counseling in Low-Income Communities (LICs). CDEs are required to demonstrate that they: (1) have a primary mission of serving, or providing investment capital for, LICs or Low-Income Persons, and (2 ) are accountable to residents of the LICs that they serve. The CDE entity must be certified by the CDFI Fund as a Qualified CDE to be eligible to apply for NMTC program. The main objectives of CDEs, NMTCs and the fi nancing opportunities put fo rth in this paper are to stim ulate economic growth and community deve lopment in low income areas designated as Enterprise Zones (EZs) or sometimes called Empowerment Zones or Low-Income Communities (LICs). A CDE participates in the NMTC program by: (1 ) applying to the CDFI Fund for an allocation of tax credits which, in turn, m ay be offered by th e CDE to its investors in exchange for equity investments in the CDE, and (2) receiving loan s or investments from other CDEs that have successfully competed for allocatio ns of tax credits. Non-profit organizations are not eligible to offer NMTCs to their investors, since NMTCs may only be provided in exchange for an equity investment in a for-profit CDE. A non-profit orga nization may therefore wa nt to establish a forprofit subsidiary entity. There are other financing and organizational structure options for a community Bio-Science project related CDE. Double Bottom Line I nvestm ent Funds (DBLIF) and Early Stage Gap Financing are two important concepts discussed in this paper. DB LIF is a combined effort from the private and public sector fo r the betterment of th e both. These funds have been used to promote and fund what is sometimes called sma rt growth activities. Early Stage Gap funding targets a specific phase in tec hnology development. It targets were there is often a lack of funding in the process between proof of concept and product development. Early Stage Gap Financing is al so important for technology developm ent. There are several kinds of government and univers ity-engaged sources of gap fina ncing, however Angel Investors are a significant source of privat e-sector funding. Angel Invest ors are wealthy persons, who provide risk capital for a piece of the action. In 2004 (latest data available) about 45,000 U.S. iv


companies received angel funding, which on av erage amounted to $469,000. Most companies receiving angel funding were categorized as high-tech. We conclude that there are many ways in which communities employ both private and public resources to attem pt to stimulate and improve th e well being of Low Income sections of their community. Although there are several different concepts and varieties of mix and match of funding sources and organizational involvement, the end results of all combined efforts must be to benefit economically disadvantaged people and communities. The primary mission of serving or providing investment capital for, Low Income Communities or Low-Income Persons, must be of the utmost importance. A Bioscience project in the USF Enterprise Zone and beyond would be well suited for the use of any of the concepts discussed in this paper. Other communities have successfully done such projects. v


1. Introduction. The purpose of this study is to provide bac kground inform ation on the Community Development Financial Institution (CDFI) Fund, Community De velopment Entities (CDEs), the New Market Tax Credit (NMTC) Program and other community development model initiatives. Our report focuses on information that the Hillsborough County Economic Development Department (HCEDD) can use to model a CDE and other Community Development Investment funding model options that might provide incentives for creating and promoting the Biosciences industry within the USF Enterprise Zone (EZ) and beyond. A CDE is defined by the US Internal Revenue Service (IRS). Both qualifying CDEs and NMTCs are adm inistered through the Community Development Financ ial Institution (CDFI) Fund within the US Department of Treasury. A ke y element of this whole process is the CDFI Fund. It was created by Congress in 1994. Its mi ssion is to expand the capacity of financial institutions to provide capital, credit, and financial services in underserved markets. The main objectives of CDEs, NMTCs and the fi nancing opportunities put fo rth in this paper are intended to stim ulate economic growth and co mmunity development in low income areas designated as Enterprise Zones (EZs) or some times called Empowerment Zones or Low-Income Communities (LICs). The financing programs discussed relate to Bioscience projects. The NMTC program was created by the Commu nity Renewal Tax Relief Act of 2000 and enacted by the Consolidated Appropriations Act of 2001 (P ublic Law 106-554, December 12, 2000). General guidance on qualified CDEs was published in the Federal Register on May 1, 2001. There are a number of financing and orga nizational structure op tions for a community Bio-Science project related CDE. Double Bottom Line Investment Funds (DBLIF) and Early Stage Gap Financing are two important concepts discussed in this paper. 1


2. Information Sources. Our primary information sources are The Depa rtm ent of Treasury, Community Development Financial Institutions Fund, and the Small Business Administration web sites. Other sources are: Capital Acc ess and Asset Building NCCED Practitioners Guide, Community Development Financial Institutio ns, Joe Akman, CDFI Coalition, 65806 Federal Register / Vol. 66, No. 245 / Thursday, December 20, 2001 / Notices DEPARTM ENT OF THE TREASURY Community Development Financial Institutions Fund Guidance for Certification of Community Development Entities, New Markets Tax Credit Program, 67 Fed. Re g. 40116 (June 11, 2002). 385846_1.DOC Karen Williams Lewis Horowitz (503) 778-2134 (503) 778-2171 07/15/03 2003 Lane Powell Spears Lubersky LLP 3, Capital Acc ess and Asset Building NCCED Practitioners Guide, New Market: New Market Tax Credit, Carol Wayman, NCCED, Presentation to Tam pa Bay Partnership, by Ji m Carras of Carras Community Investment, Inc. 2/13/2006, CDVCA' s Double Bottom Line, by Anne Moore Odell, September 13, 2002, NEW MARKETS VENTURE CAPITAL (NMV C) PROGRAM Frequently Asked Questions (FAQs), US Small Business Administration, May 16, 2001, Community Com ptroller of the Currency Deve lopments Administrator of National Banks Summer 2002 Community Affairs OnLine News Article s Bank Enterprise Awards and New Markets Tax Credits: Two Tools to Increas e the Flow of Private Capital in Targeted Markets, By Tony T. Brown, Director, CDFI Fund, and NIST GCR 02 Between Invention and I nnovation, An Analysis of Funding for Early-Stage Technology Development. 2


3. Scope. This research provides general information on Community Development Financial Institution (CDFI) Fund, Comm unity Development Community Development Entities (CDEs), the New Market Tax Credit (NMTC) Program and other co mmunity development model initiatives. Our report focuses on information for modeling CDEs and other Community Development Investment funding model options that might provide incentives for creating and promoting the biosciences industry within the USF Enterpri se Zone (EZ) and beyond. It addresses the following topics: The CDFI Fund. What is a CDE? How to for m a Certified CDE. How a CDE m ight be used in the USF EZ and beyond to enhance economic activity. What is the New Market Tax Credit (NMTC) Program Overview on how to apply for the NMTC. NMTC Application. NMTC Compliance and Recapture. Other Considerations. o Double Bottom Line Investment Funds (DBLIFs) o Community Development Venture Capital Alliance (CDVCA). o New Markets Venture C apital (NMVC) program. o Bank Enterp rise Award Program (BEA). o Small Business Administration (SBA). Early Stage Gap Financing. o Angel Investors. o Universitie s. o Small Business Innovation Research Program (SBIR). o Small Business Technology Transfer Program (STTR). o Advanced Technology P rogram (ATP). o Example of Early Stage Bio-Science Financing. Included in this report is a flow chart that summ arizes the models and maps the interrelationships between the CDE and its subsidiary organizations to include structural links, and the flow of tax credits and equity incentives. This chart also shows the spin-off other funding model alternatives. 3


4. The CDFI Fund. The CDFI Fund leverages private investment to benefit econom ically disadvantaged people and communities. It administers a competitive grant program that provides capital grants, loans, equity investments and awards to fund technical assistance to community development financial institutions (CDFIs). The Fund is: funded as an independent agency in the VA-HUD appropriations bill, unique am ong federal agencies because it takes an entrepreneurial approach to its programs, funding and strengt hening institutions rather than specific projects, includes private sector f inancial intermed iaries whose primary mission is community development, such as: o community developm ent banks, o community developm ent corporations, o community developm ent credit unions, o community developm ent loan funds, o community developm ent venture capital funds, and o micro-enterprise loan funds. (Reference 1) The CDFI Fund plays the most important role re lative to the success of CDEs and NMTCs. It: is the larg est single source of funding for CDFIs, and plays an im portant role in attracting and securing non-federal funds for CDFIs, CDFIs compete for federal support based on: o their business plan, o market analysis, o performance goals, and o ability to provide at least a 1:1 m atch of non-federal funds. (Reference 1) CDFI Funds implement capital-led strategies to fight poverty and to tackle tough econom ic infrastructure issues such as: quality affordable housing, job creation, wealth building (Individual Developm ent Accounts), financial literacy and education and m icroenterprise development, training, and providing basic financial services to the unbanked. (Reference 1) CDFI Fund initiatives incl ude the adm inistration of: CDFI Program : Provides assistance to CDFIs and emerging CDFIs, Native Initiatives: Suppo rts developm ent and growth of Native American (NA) CDFIs, Bank Enterp rise Award (BEA) Program: Pr ovides awards to insured depository institutions for increasing investments in CDFIs and/or activ ities in distressed communities, New Markets Tax Credit (NMTC) Program whic h encourages private sector investments in communities experiencing pers istent poverty. (Reference 13) 4


Certification as a Community Development Fina ncial Institution (CDFI) or CDFI Certification allows organizations to participate in the Financial Assistance (FA) Component Technical Assistance (TA) Com ponent and NAI Component under the CDFI Program and to obtain additional benefits under the BEA Program (Reference 12) A certified Community Developmen t Financ ial Institution (CDFI) is a specialized financial institution that works in market niches that are underserved by traditional financial institutions. CDFIs provide a unique range of financial products and services in economically distressed target markets, such as: mortgage financing for low-incom e and first-time homebuyers and not-for-profit developers, flexible underwriting and risk cap ital for needed community facilities, and technical ass istance, commercial loans and investments to small start-up or expanding businesses in low-income areas. (Reference 12) CDFI certification is conferred by the CDFI F und and is a requ irement for accessing financial and technical award assistance from the CD FI Fund through the CDFI Program and Native American CDFI Assistance (NACA) Programs to support an organization's established community development financing programs. (Reference 12) To apply to become certified as a CDFI an organization m ust submit a CDFI Certification Application to the CDFI Fund for review and must: be a legal en tity at the time of certification application, have a primary m ission of promoting community development, be a financing entity, primarily serve one or more target markets, provide developm ent services in conjunc tion with its financing activities, maintain accountability to its defined target market, and be a non-go vernment entity and not be under control of any government entity (Tribal governments typically excl uded). (Reference 12) Timeline for 2005 was: Regulation s Published: December 13, 2005, Application Available: Decem ber 29, 2005, Application Deadlin e: January 20, 2006. Note: The Fund will expedite processing Certific ation Applications from CDFIs that are 2006 CDFI Program (Financial Assistance) applicants. Certification Applicatio ns from organizations not applying to the 2006 CDFI Program will be reviewed following 2006 CDFI Program award decisions and will take approximately three months to review. (Reference 12) 5


5. What is a CDE? A CDE is a domestic corporation or partnership that is an inte rm ediary vehicle for the provision of loans, investments or financial counseling in Low-Income Communities (LICs). CDEs are required to demonstrate that they: Have a prim ary mission of serving, or pr oviding investment capital for, LICs or Low-Income Persons, and Are accountable to residents of the L ICs that they serve. (Reference 13) Generally, Low-Income Communities are: Census tracts with at least 20% poverty, or Census tracts where the m edian family inco me is at or below 80% of the area median family income. (Reference 13) Any organization seeking CDE designation must a pply to the CDFI Fund. Qualified Comm unity Development Entity or CDE: means, under IRS s ection 45D(c)(1), any existing entity that is treated for federal income tax purposes as a domestic corporation or partnership that: the primary mission of the entity is servi ng, or providing investment capital for, LowIncome Communities (LIC) or Low-Income Persons, the entity m aintains accountab ility to residents of Low-Income Communities through their representation on any governing board of th e entity or on any advisory board to the entity, and the entity is certified by the CDFI Fund as a CDE. SSBICs, as hereinafter defined, and CDFIs will be deem ed to be CDEs. (Reference 2) Note. Applicant CDE can meet the Primary Mission Test by either directly or indirectly serving or providing investment capital for loans to indi viduals or businesses located in a L.I. community or invest in other entities that will in turn provide assistance in L.I. communities. The Accountability Test can be met by having through its advisory board at least 20% of its members representing L.I. Any duly existing entity that is treated for fede ral incom e tax purposes as a domestic corporation or partnership may apply for cer tification as a CDE. For-profi t and non-profit organizations may be certified as CDEs. (Reference 3) Exceptions: Organizations th at have been certified by the CDFI Fund as CDFIs, and organizations that have been designated as Specialized Sm all Business Investment Companies (SSBICs) by the Small Business Administration, automatically qualify as CDEs. (Reference 3) Certification period: In general, a CDE certification designation will last for the life of the organization provided the CDE continues to com ply with and meet the CDIF Funds NMTC Program requirements. Unlike CDE certification, CDFI certification is valid for only a defined time period. (Reference 6) 6


6. How to form a Certified CDE. A Certified CDE is established by submitting a CDE Certif ied Application form, issued by the CDIF Fund, to be completed and submitted by an Applicant CDE. The application is submitted by an officer, or other individual, who has actual authority to sign for and make representation on behalf of the Applicant CDE. The Applicant is any legal entity that is applyi ng to the CDFI Fund to be certified as a CDE, either for itself or on behalf of its Subsidiaries A Subsidiary Applicant may also apply for CDE certification with the Applicant CDE. Certification as a Community Development En tity (CDE) or CDE Certif ication allows organizations to participate, di rectly or indirectly, in the NMTC Program (Reference 12) An example of a local CDE is: Neighborhood Le nding Partners (NLP), an entity that is com prised of 38 Banks, located at 2002 N Lois Ave. Tampa FL. A list of CDEs in Central Florida is at Appendix A. Timeline for 2005 was: Application Available: July 11, 2005, Application Deadline: August 22, 2005 Note: The Fund will expedite processing Certificati on Applications from a CDE that is a current NMTC allocatee that submit a Certification Appli cation to add subsidiary entities to its existing Allocation Agreement. The Fund will take approx imately three months to review and finalize CDE applications. (Reference 3) Maintaining CDE Certification involves: Each CDE NMTC Allocation awardee, as well as CDEs that are recipients of Qualified Low-Income Comm unity Investments (QLICIs) from other CDEs, may be required to annually certify to the Fund that it con tinues to meet the requirements of: o Primary Mission and o Accountability The CDFI Fund m ay revoke a CDEs certificatio n if it fails to pr ovide the requested information: o Information indicating that the entity remains accountable to the LIC(s) it is serving, and o A certification statem ent certifying that no material changes have occurred to affect their current status as a CDE. (Reference 3) Qualified Low-Income Community Investm ents (QLICI) are: Any capital or equity investm ent in, or loan to, any Qualified Active Low-Income Community Business (QALICB), Any equity investm ent in, or loan to, any CDE, Purchase of a loan from anothe r CDE if the loan is a QLICI, Financial C ounseling and Othe r Services (FCOS) to busines ses located in, or residents of, LICs. (Reference 13) 7


7. How a CDE might be used in the USF EZ and beyond to enhance economic activity. A CDE may participate in the NMTC program in two different ways: 1. It may apply to the Fund for an allocation of tax credits which, in turn, may be offered by the CDE to its investors in exchange for equi ty investments in the CDE. The CDE must be certified as a CDE in order to benefit from the NMTC Program, or 2. It may receive loans or investments from (and sell qualifying business loans to) other CDEs that have successfully competed for a llocations of tax credits. (Reference 3) The CDFI Fund will permit organizati ons to tran sfer all or a portion of their allocation authority to subsidiary entities (subsidiary allocatee s), provided that each such subsidiary: has been certified as a q u alified community development entity (CDE) by the CDFI Fund, is included as a party to an allocation agreemen t, either at the time of initial execution or through a subsequent amendment, and is controlled (as defined in the allocati on agreement) by the allocatee at all times throughout the term of the allocatio n agreement. (Reference 6) In order to demonstrate a controlling influence ov er the investm ent decisions of a subsidiary allocatee, the allocatee must, at a minimum, have the author ity to propose potential NMTC investments and the authority to approve all proposed transacti ons involving the use of NMTC proceeds. (Reference 6) The entity maintains accountabi lity to residen ts of Low-Income Communities through their residence representation on any governing board of the entity or on any advisory board of the entity. Non-profit organizations are not eligible to o ffer NMTCs to their investo rs, because NMTCs may only be provided in exchange for an equity investment in a for-profit CDE. A non-profit organization may therefore want to establish a for-profit Subsidiary entity as a CDE so that: the for-profit Subsidiary CDE m ay apply directly to the Fund for an allocation of tax credits; or the non-prof it parent may apply to the Fund fo r an allocation of tax credits with the intention of transferring allocations to its for-profit Subsidiary CDE(s). A governmental entity may apply for designation as a CDE, provided the entity is class ified as a corporation or partnership for federal tax purposes and would meet the legal entity requirement (which is subject to legal interpreta tion by the CDFI Fund). (Reference 3) There are several alternative approaches to utilizing NMTCs. For exam ple: sponsors m ay elect to form and qualify a CDE: o propose a single project or undert aking for a cred it allocation, o apply for a NMTC allocation that w ould generate equity investments in support of their community development programs. (Reference 4) 8


A more sophisticated approach is to deve lop a broad community development strategy that utilizes combined sources of fundi ng in order to accomplish a blend of: o small business lending, o marquee projects, o venture capital participation, and o related com munity development activities. (Reference 4) (See other considerations below). 9


8. What is the New Market Tax Credit (NMTC) Program. New Markets Tax Credits are available thr ough a program established by Congress December 12, 2000 as part of the Community Renewal Tax Relie f Act of 2000. It creates a tax credit for equity investments in CDEs. The tax credits have rough similarity to Low-Income Housing Tax Credits, but instead of being a tool for the deve lopment of affordable housing, NMTCs are a tool for accomplishing community and economic development. (Reference 4) Throughout the life of the NMTC Program, the CDFI Fund is authorized to allocate to CDEs the authority to issue to their investo rs up to the aggregate amount of $15 billion in equity as to which NMTCs can be claimed. NMTCs are allo cated annually by the Fund to CDEs under a competitive application process. Applications for FY 2006 were due on September 21, 2005. These CDEs then offer the credits to taxable invest ors in exchange for stock or a capital interest in the CDEs. (Reference 5) The amounts for each of 5 rounds are as follows: 2001-02 $2.5 billion, 2003-04 $3.5 billion, 2005 $2 billion, 2006 $3.5 billion, and 2007 $3.5 billion. TOTAL $15 billion. Unallocated investm ent authority may be car ried over from year to year through 2014. (Reference 13) NMTC Program permits taxpayers to receive a credit against F ederal income taxes for making qualified equity investments in designated CDEs. Substantially all of the qualified equity investment must in turn be used by the CDE to provide investments in low-income communities. The credit provided to the investor totals 39% of the cost of the investm ent, is claimed over a seven-year credit allowance period; o In each of th e first 3 years, the investor re ceives a credit equal to 5% of the total amount paid for the stock or capital in terest at the time of purchase, and o For the final 4 years, the value of the credit is 6% annually, may not redeem their investments in CDEs prior to the conclusion of the seven-year period. (Reference 5) For example, the Fund awards an allocation of $ 1 million to a CDE. The CDE offers the tax credit to investors. Ten invest ors each invest $100,000 in return for tax cred its. Each investors claim as a tax credit is: Years 1-3 T ax Credit at 5% Value $5,000 per year, Years 4-7 T ax Credit at 6% Value $6,000 per year. TOTAL VALUE OVER 7 YEARS..$39,000. (Reference 13) 10


Timing of Investments: CDEs must offer NMTCs to investors with in 5 years of receiving an allocation, Substantially all of the investo r proceeds must be invested in QLICIs within 12 months, Years 1-6: S ubstantially All = 85% of amount paid by investor at original issue, Year 7: Substantially All = 75%, At all tim es, 5% of the origin al QEI issue amount may be used for certain reserves by the CDE and counts towards meeting the substantially all test. QEI proceed s must be invested in QLICIs throughout the 7year credit period CDE reinvestment requirement: o Years 1-6: Generally, returns of equit y, capital or principal must be reinvested within 12 m onths, Periodic loan repaym ents may be aggregated for up to 24 months before reinvestment is required, o Reinvestm ent is not required in the final year of th e 7-year credit period. (Reference 13) The Community Development Entity avoids recapt ure by investing substan tially all of its assets into eligible projects and activities, during the sevenyear com pliance period. For these purposes, there is a safe harbor of 85% of gross assets, to meet the "substantially all" test. (Reference 4) (See Compliance and Monitoring section.) Once a CDE secures an a llocation of credits: It sells the tax credit certif icates to private inv estors. In return, investors receive a tax credit certifi cate from the CDE to attach to their Federal income tax forms. has five years to m arket the credits th ey receive from the Treasury Department. Investors ability to claim NMTCs are: NMTCs are offered to investors for Qualified Equity Investments (QEIs) in the CDE, QEI is any purchase of stock or cap ital interest in a for-pro fit corporation or partnership, QEIs must remain invested in the sa me CDE for a 7-year credit period, and Investors generally m ay claim cr edits as of the date a QEI is initially made. (Reference 13) The Corporate Tax Bill (HR 4520) enacted in th e Fall of 2004 included three provisions sought by community developm ent advocates to make it easier to use the program in rural areas. Authorizes the Treasu ry Secretary to designa te "targeted populations" as low-income communities for purposes of the NMTC. Provides th at a census tract with a population of less than 2,000 will be treated as a lowincome community for purposes of the NM TC if the census tract is within an empowerment zone and is contiguous to one or more low-income communities. Provides ad ditional flexibility to rural countie s in meeting the low-income test if they have suffered from a significant population loss. Under the revised statute, if a census tract is located in a high migr ation rural county, low-income is defined by reference to 85 11


percent (rather than 80 percent) of the stat ewide median family income. The provision defines a high migration rural county as any county that, during the last 20-year period ending with the year in which the last cen sus was conducted, has a net out-migration of inhabitants from the county of at least 10 percent of the population of the county. (Reference 8) 12


9. Overview on how to apply for the NMTC. Application is made to the CDFI Fund usually by Septem ber. As Provided by IRS Section 45d(1), the CDIF Fund allocates NMTC Author ity to both for-profit and non-profit through a competitive application process pu rsuit to a Notice of Allocation Availability (NOAA) published in the Federal Register. In order to be eligible to apply fo r NMTC Alloca tions an Applicant must: be legally incorporated or form ed as a domes tic corporation or partnership for Federal tax purposes, have a valid Em ployer Iden tification Number (EIN) at the time of application submission, and be certified as a CDE by the Fund or have a CDE Certification Application pending with the Fund. (Reference 5) Because NMTCs can only be offered to taxable inve sto rs that purchase stock or capital interest in a CDE, only for-profit CDEs may offer NMTCs to their investors. However, a non-profit entity may apply for a NMTC Allocation with the intention of transferring the Allocation to one or more for-profit Subsidiaries. The for-profit Subsid iaries do not have to be formed at the time the non-profit CDE applies for NMTC Allocatio ns. Entities that are Affiliates may only collectively submit one Allocation Application per year under the NMTC Program. In order to transfer any portion of its NMTC Allocati on to a Subsidiary, an Applicant must: exercise Control over the S ubsidiary entity, as such te rm is defined in the NOAA and Glossary of Terms that accompanies the Allocation Application; and indicate in its Allocation Application an intent to make a transfer of Allocations. (Reference 5) The following chart depicts the flow process of the NMTC as discussed to this point. It indicates that the process em anates from the US Treasur y Department and centers on the CDE that has become qualified for NMTC program. The chart s hows Investors receiving Tax Credits in turn for Equity in the CDE. 13


(Reference 14) 14


10. NMTC Application Process. An overview of the application process is: Step 1: Entities apply to the Fund for CDE certification, Step 2: Entities apply competitively to the Fund for a NMTC allocation, Step 3: The CDFI Fund selects CD Es to receive NMTC allocations, Step 4: CDEs use allocations to o ffer NMTCs to investors for cash, and Step 5: CDEs use proceeds to make Qua lified L ow-Income Community Investments (QLICIs). (Reference 13) Appendix B depicts a summary of the CDE relationshi ps and NMTC developm ent process with Tax Credit flow The Application form includes applicant inst ru ctions, requirements for assurances and certifications, general information a nd a glossary. The Application is divided into four parts. Each part has a 25 point value with Part 1.B and 1.D have 5 extra points m aking the total possible score 110 points. The four parts are: I. Business Strategy a. Product, Services and Investm ent Criteria, b. Prior Perform ance, c. Projected Business Activities, d. Investments in Unrelated Activities. II. Community Im pact a. Targeting th e Use of QEI Proceeds within Low-Income Communities, b. Economic Impacts Prior Performance, c. Economic Impacts Projections, d. Investment in Unrelated Entities. III. Managem ent Capacity a. Managem ent Team, b. Experience Deploying Capital or S ervices, c. Experienc e Raising Capital, d. Asset Managem ent and Risk Management Experience, e. Program Compliance. IV. Capitaliza tion Strategy a. Investment Commitments, b. Investor Strategy, Sources of Capital, c. Flow of Allocati on. (Reference 12) Appendix C lists key NMTC application scoring factors and the se lection process. The Review Process Timeline (based on prior round) is: Sept. Allocation application due, Oct. Nov. Peer review, Dec. Feb. Panel/Selecting official review, March Arp Award processing, and May Award announcem ents. (Reference 13) 15


Appendix D provides information on Prior Round CDIF Financial Assistant Awards. 16


11. NMTC Compliance and Recapture. Both the CDFI Fund and the IRS monitor program com pliance. Also, accountability overview can include a review process by Advisory Board(s) For an Advisory Board to be accountable, it must: meet at least annually, solicit feedback sem i-annually at meeting and through surveys, determine how the information is used or wi ll be used to inform the actions of the governing board in developing the organizations policies, an Advisory board representative sits on the governing board, and member of the advisory board presents reports to the governing board, etc. A CDE may demonstrate that it has satisfied th e substantia lly all re quirement in 2 ways: 1. Direct tracin g a CDE is required to trace Qualified Equity Investments QEI proceeds to specified QLICIs, or 2. Safe harbor a CDE m ust dem onstrate that 85% of its aggreg ate gross assets are invested in QLICIs. (Reference 13) 17 NMTCs may be recaptured from investors during the 7-year credit period if: The QEI f ails the substantially all requirement, such as: o Failure to invest 85% as allowed, o Failure of investm ent to meet QALICB requirements, or o Failure to meet one-year investm ent requirement. The CDE ceases to qualify as a CDE. The CDE redeem s the investment. Note. It is not an event of recapture and an investor may continue to claim NMTCs if a CDE files for bankruptcy. (Reference 13) Appendix E include s additional NMTC compliance criteria. 17


12. Other Considerations. A. Double Bottom Line Investment Funds (DBLIFs) DBLIFs represent a combined effort from the pr ivate and public sector for the betterm ent of both. These funds have been used to prom ote and fund smart growth activities. E1 = the equ ity of the private sector, that re presents the upper quartile market returns for investors and E2 = the community equity, that provides m easurable job, shelter and w ealth creation. DBLIFs focus investment in: Mixed-use comm ercial, industrial and housing projects, Affordable and m ixed-income housing, Urban infill and brownfield cleanup, Transit-or iented development, Walkable employm ent centers, Profitable investm ent for de veloper and investors, and Measurable job and wealth for community residents. DBLIFs are capitalized to succeed: Provide equity products higher returns by capitalizing on m arket imperfections, Proven incentive private m anagement, High investor returns are appropriate to risk, $2.5 billion invested by banks, pension f unds, insurance companies, foundations, endowm ents and others, Community sponsors oversee m ost funds, and Close working relationshi p with public sector. DBLIF use private market discipline: Funds mangers chosen in competitive process, Investors and community involved in selection, Fund managers protected by firewall and at risk, Accountability to community stakeholders, and Sponsors participate in econom ic returns. DBLIF investor appreciate returns Banks like CRA credit plus high returns, Insurance industry likes avoi ding CRA plus high returns, Public pension funds like DBL plus high returns, Foundations like high corpus retu rns, not low PRI returns, Faith based investors slow to com e on board, and Corporations and high net wo rth individuals are joining. B. Community Development Venture Capital Alliance (CDVCA) This is a form of DBLI. By investing cap ital in lo w-income communities, Community development venture capital funds create jobs and foster economic development. Community Development Venture Capital (CDVC) funds use th e traditional tools of venture capital in new ways. These funds invest money in and offer bus iness expertise to start-ups in Low-Income 18


Communities (LICs), a market that many other funds ignore. Like traditional venture capitalists, these funds expect quick growth in the businesses in which they invest; however, they are also interested in creating so cial returns for local ne ighborhoods. (Reference 10) Many CDVCs are supported by th e CDVCA, a membership-base d, nonprofit organization that was established in 1995. CDVCA f ills several important roles with in the CDVC community. It: acts as an ed ucational resource, a national voice in W ashington, and channel for funneling m oney to member funds. According to CDVCA, CDVC investments are more broadly distributed than traditional venture capital funds. CDVC funds can be quite differe nt from one another. Some, for example, are structured as regular corporati ons and others are nonprofit tax-ex empt corporations. Even with these differences, they share some common goals. (Reference 10) C. New Markets Venture Capital (NMVC) program The NMVC program is modeled after the Sma ll Business Adm inistrations (SBAs) extremely successful Small Business Investment Company (SBIC) program but has a specific mission of economic development in low-income (LI) areas. Through a combination of equity-type financing and intensive operational assistance to smaller businesses located in LI areas, the program seeks to: assist local entrepreneurs, create quality em ployment oppor tunities for residents, and build wealth within these communities. (Reference 11) A NMVC company is a privately managed, ne wly for med, for-profit investment company formed for the purpose of providing equity-type capital and hands-on operational assistance to smaller businesses located in specific rural a nd urban areas. SBA will select NMVC companies as participants in the NMVC program thr ough a competitive selection process. Successful applicants will enter into participatio n agreements with SBA. (Reference 11) The difference between the purposes of the NMVC program and those of the Specialized Small Business Investm ent Company (SSBIC) program are: NMVC companies targe t entire communities for business investments while SSBICs seek business investments in small businesses ow ned by individuals that are socially or economically disadvantaged. NMVC firms focus on the geographic location rather than on the ownership of small businesses. However, SSBICs are eligible to apply for grant f unds under the NMVC program to provide operational assistance to businesses located in LI areas, if such SSBICs plan to raise additional capital and use it to make de velopmental venture capital investments in such businesses. (Reference 11) Appendix F lists some additional benefits of NMVC companies. 19


D. Bank Enterprise Award Program (BEA) The Bank Enterprise Award (BEA) program is a wellestablished initiative that has enjoyed excellent participation by banks and thrifts, to which the CDFI Fund has awarded millions in recognition of their increased lendi ng in economically distressed ar eas. These institutions, nearly a third of which have earned out standing Community Reinvestment Act ratings, have some of the nations best community development track records. They have done a superior job of leveraging their BEAs into almost 20 times that amount in community reinvestment. (Reference 14) The BEA Program is the principal means by which the CDFI Fund achieves its strategic goal of expanding comm unity development lending and investments by regulated banks and thrifts in low-income areas. The program provides incentives for regulated banks and thrifts to invest in CDFIs and to increase their lending and provi sion of financial services in distressed communities. (Reference 14) The BEA Program recognizes and rewards the key role played by traditional financial institutions in community development lending a nd investing. It provid es cash in centives for banks and thrifts to invest in CDFIs and to increase their financia l services, lending and investments in distressed communities. Activities include: Banks and thrifts m ay receive awards for qualified CDFI Related Activities (Equity Investments, Equity-Like Loans and CDFI Support), Distressed Community Financing and Service Activities. Eligible CDFI Related Activities include inve stments in CDFI partners undertaking new or expanded initiative in hot zones. Loans, deposits and technical assistance given to CDFI partners with limite d assets (under $500 million for CDFI banks and under $25 million for CDFI Credit Unions and non-regulated CDFIs) will also qualify. Distressed Comm unity Financ ing includes affordable housing loans, affordable housing development loans, education loans, commerc ial real estate loan s, home improvement loans, and small business loans. Service Ac tivities consist of financial services, community services, targeted financial services, and targeted retail savings/investment products. Award percentages for eligible activities have been redu ced across the board, and ma ximum award amounts are $0.5 million per applicant. (Reference 1) E. Small Business Administration (SBA) Financing programs provided by the SBA vary acco rding to a borrowers financial need. SBA loans are m ade by private lenders and are guara nteed up to 85%. SBA Loans look for: Good character Managem ent expertise and commitment for success Sufficient funds, including SBA gua ranteed loan, to operate the business on a sound financial basis (for new businesses, this incl udes the resources to meet start up expenses and the initial operating phase.) Feasible business plan Adequate equity or investm ents in the business. 20


Sufficient collateral Ability to re pay the loan on time from the projected operating cash flow. Three principal players are involved in the SBA Guaranteed Loan Process, the Small Business Borrower, the Private Lender, and the SBA. The Private Lender determines whether a borrowers application is acceptable. If it is, the Lender forwards the Application and its credit anal ysis to the SBA. If the guaranty request is approved by the SBA, the lender disburses th e funds to the borrow er. The eligibility requirem ents and credit criteria of the program are very broad and the lender must certify that it could not provide funding on reasonable terms except with the SBA guaranty. The maximum guarantee is one million dollars. SBA General Loan Information: Business nam e, names of principals, social security numbers for each, Purpose of the loan, Amount required, Business descrip tion (history and nature of business), Managem ent profile, Marketing infor mation, and Financial Information (statements, balance sh eets and income statements for past three years). If a start up, provide a projected ba lance sheet and income statement for three years. Also, Personal financial statem ent on all principal owners of the business, and Collateral to be pledged the loan security. Though there are various SBA Loan Program s, the SBA program 504 would be for this entity. The 504 Program is for Certified Development Companies (CDC), for profit only and comes under the 504 program. Key factors include: SBA guarantees 100% of the 504 Loan portion instead of the usual 85%, the total projected cost ca nnot exceed one million dollars, Fixed Loan Rates are for 20 years, serve communities by financing business expansion needs, rates are u sually below market rate, collateral is typically assets-financed (allow ing other assets to be free of liens and available to secure othe r needed financing), and banks and other lenders are encouraged to m ake loans in first position on reasonable terms (helps them retain growing customer s and provide Community Redevelopment Act credit). 21


13. Early Stage Gap Financing. This type of funding targets a specific phase in technology developm ent. Where there is often a lack of funding in the process. It strives to fill this gap and provide the catalyst to complete and launch new technology products and services. Technology developm ent and Funding model, Angel Investors, Universitie s, SBIR, STTR, and ATP. The best way to explain this type of financing is to start with an ex am ination of the technology development and funding model. Sequential Model of development and funding The region corresponding to early-s tage technology developm ent is shaded in gray. The boxes at top indicate milestones in the de velopment of a science-based i nnovation. The arrows across the top of, and in between, the five stages represen ted in this sequential model are intended to suggest the many complex ways in which the st ages interrelate. Multiple exit options are available to technology entrepreneur s at different stages in this branching sequence of events. (Reference 15) Venture economics defines the stages of project developm ent as follows: Seed financing usually involves a sm all amount of capital provided to an inventor or entrepreneur to prove a concept. It may s upport product development, but rarely is used for production or marketing. Startup financing prov ides funds to companie s for use in product development and initial marketing. This type of financ ing usually is provided to co mpanies that are just getting 22


organized or to those that have been in business just a shor t time, but have not yet sold their products in the marketpl ace. Generally, such firms have already assembled key management, prepared a business plan, and made market studies. First-stage financing provides funds to com pan ies that have exhauste d their ini tial capital and need funds to initiate commercial manufacturing and sales. (Reference 15) A. Angel Investors Angel Investors are identified in the developm ent and funding model above. They are a unique source of funds. The term angel investor comes from the theater, where wealthy individuals took very high risks in funding the production of Broadway shows. By analogy, angels in hightech investing are traditionally individuals with a successful re cord of commercial innovation, who use their wealth and their e xperience to invest very early in new, high-tech businesses. (Reference 15) The provision of risk capital by wealthy indivi duals for support of technology developm ent goes back as far as seventeenth and eighteenth cen tury systems of patronage. Organized venture capital, in contrast, is a recent phenomenon, dating back only as far as the immediate post-World War II era. Angel investing has, in past years, undergone a surge related to the dramatic growth of venture capital disbursements. (Reference 15) These investors are looking for an attachment and a return, so [the firm is ] getting a little bit more than just money, but it is a financial deal. Th ey have to be close to that deal, face to face. They want to be close to home both to enjoy that and to bring value to the company. These angels are value-added investors. They want to bring more to the party. Angel investors need to sit on the board. They call themselves mentors for money. What they want to do is be involved with the excitement, but they dont want the sleepless nights si tting there on Thursday night wondering if youre going to meet cash flow on Friday for payroll. They want to help this company out, but its not just for benevolent r easons, which is why some angels do not like the term angel. It is for hard-nosed financial reas ons. They feel like they can help this company, put it in a better positi on to both grow and to be ready for the next round of financing. (Reference 15) Appendix G conta ins additional information on Angel Investors. This information includes: What is an Angel Investor? Angel Investor Networks and Groups Summary of Angel Investor References Examples of Angel Networks and Their Activities B. Universities Research universities in the United States have a long history of res earch and consulting by faculty in support of Amer ican industry. At the Palo Alto workshop John Shoch of Alloy Ventures identified four prim ary mechanisms by which universities become engaged in supporting technology development. He used Stanford University as an example. 23


First, to maximize returns on their endowments, universities invest heavily in venture capital firms. In recent years, the high returns on these investments have helped university endowments. Second, in s ome cases Stanford will participate as an investor in a startup. In these cases, friends of the university who are members of the venture capital community assist the Stanford fund-raising effort by providing a gi ft to Stanford, which they invest on the universitys behalf in selected deals. Third, Stanf ord has recently started taking equity in firms in return for exclusive licenses. Shoch reports that, in the past, the university hesitated to take equity positions because it was thought to be more pure to take the royalty payment rather than the equity payment. This was a source of tremendous co nsternation, because the equity is more valuable [to the university] than the royalty pa yment, as many firms, particularly in the biotech field, go public and gain commercial va lue long before they are able to generate a revenue stream. Finally, as docum ented by Lerner (1999), a number of universit ies have started their own venture capital funds, specifi cally designed to help push projects beyond the research stage to comm ercial viability. Thus, if they believe they will be successful in their investments in their own faculty inventions (a bout which Lerner is quite skeptical), they have substantial assets that could be brought into play. (Reference 15) C. Small Business Innovation Research Program (SBIR) SBIR is a highly competitive program that en co urages small business to explore their technological potential and provi des the incentive to profit from its commercialization. By including qualified small businesses in the na tion's Research and Development (R&D) arena, high-tech innovation is stimulated and the United States gains en trepreneurial spirit as it meets its specific research and development needs. SBIR creates competitive opportunity for Small Bu siness. S BIR targets the entrepreneurial sector because that is where most innovation and innovators thrive. However, the risk and expense of conducting serious R&D efforts are often beyond the means of many small businesses. By reserving a speci fic percentage of federal R&D funds for small business, SBIR protects the small business and enables it to compete on the same level as larger businesses. SBIR funds the critical startup and development stages and it encourages the commercialization of the technology, product, or service, which, in turn, stimulates the U.S. economy. (Reference 16) Since its enactment in 1982, as part of the Sm all Business Innovation Developm ent Act, SBIR has helped thousands of small businesses to compete for federal research and development awards. Their contributions have enhanced the nation's defense, protected our environment, advanced health care, and improved our ability to manage information and manipulate data. (Reference 16) SBIR Qualifications require Small Businesses to meet certain eligibility crit eria to participate in the SBIR program. American-owned and independently operated, 24


For-profit, Principal researcher em ployed by business, and Company size limited to 500 employees. (Reference 16) The SBIR System requires that each year, ten federal departments and agencies reserve a portion of their R&D funds for award to small business. The total departm ents are: Department of Agriculture Department of Commerce Department of Defense Department of Education Department of Energy Department of Health and Human Services Department of Transportation Environm ental Protection Agency National Aeronautics an d Space Administration National Science Foundation (Reference 16) These agencies designate R&D topics and accept proposals. Following subm ission of proposals, agencies make SBIR awards based on: small business qualification, degree of innovation, technical m erit, and future market potential. Small businesses that receive awards or gr ants then begin a three-phase program Phase I is the startup phase. Awards of up to $100,000 for approxim ately 6 months support exploration of the technical merit or feasibility of an idea or technology. Phase II awards of up to $750,000, for as m any as 2 years, expand Phase I results. During this time, the R&D work is performed and the developer evaluates commercialization potential. Only Phase I award winners are considered for Phase II. Phase III is the period during which P hase II innovation moves from the laboratory into the marketplace. No SBIR funds support this phase. The small business must find funding in the private sector or other non-SB IR federal agency funding. (Reference 16) The US Small Business Administration plays an important role as the coordinating agency for the SBIR program It directs the 11 agencies' im plementation of SBIR, re views their progress, and reports annually to Congress on its operation. SBA is also the information link to SBIR. SBA collects solicitation information from all par ticipating agencies and publishes it quarterly in a Pre-Solicitation Announcement (PSA). The PSA is a single source for the topics and anticipated release and closing dates for each agency's solicitations. (Reference 16) D. Small Business Technology Transfer Program (STTR) STTR is an important new small business program that expands f unding opportunities in the federal innovation research and developm ent arena. Central to the program is expansion of the 25


public/private sector partnership to include the joint venture o pportunities for small business and the nation's premier nonprofit research institutions. STTR's most impor tant role is to foster the innovation necessary to meet the nation's scient ific and technological challenges in the 21st century. (Reference 16) STTR is a highly competitive program that reserves a specific percentage of federal R&D funding for award to small bus iness and nonprofit research institution partners. Small business has long been where innovation and innovators th rive. But the risk a nd expense of conducting serious R&D efforts can be beyond the means of many small businesses. (Reference 16) Conversely, nonprofit research laborat ories are instrum ental in developing high-tech innovations. But frequently, innovation is conf ined to the theoretical, not th e practical. STTR combines the strengths of both entities by intr oducing entrepreneurial skills to high-tech research efforts. The technologies and products are transferred from the laboratory to the marketplace. The small business profits from the commercialization, wh ich, in turn, stimulates the U.S. economy. (Reference 16) Small businesses must meet certain eligibility cr iteria to pa rticipate in the STTR Program: American-owned and independently operated, For-profit, Principal researcher need not be employed by small business, and Company size limited to 500 employees (No size limit for nonprofit research institution) (Reference 16) The nonprofit research institution must also m eet certain eligibility criteria: Located in the US, Meet one of three definitions, Nonprofit college or university, Domestic nonprofit research organization, and Federally funded R&D center (FFRDC). (Reference 16) Each year, five federal departments and agencies are required by STTR to reserve a portion of their R&D funds for award to sm all business/nonpr ofit research institution partnerships. They are: Department of Defense Department of Energy Department of Health and Human Services National Aeronautics an d Space Administration National Science Foundation (Reference 16) Following submission of proposals, agencies m ake STTR awards based on small business/nonprofit research institution qualificat ion, degree of innovation, and future market potential. Small businesses that receive awards or grants then begin a three-phase program. Phase I is the startup phase. Awards of up to $100,000 for approximately one year fund the exploration of the scientific, technical, and commercial feasibility of an idea or technology. 26


Phase II awards of up to $750,000, for as long as two years, expand Phase I results. During this period, the R&D work is performe d and the developer begins to consider commercial potential. Only Phase I award winners are considered for Phase II. Phase III is the period during which P hase II innovation moves from the laboratory into the marketplace. No STTR funds support this phase. The small business must find funding in the private sector or other non-S TTR federal agency funding. (Reference 16) The US Small Business Administration plays an important role as the coordinating agency for the STTR program It helps the five agencies implement STTR, review s their progress, and reports annually to Congress on its operation. SBA is also the information link to STTR. SBA collects solicitation information from all the partic ipating agencies and publishes it electronically in a Pre-Solicitati on. (Reference 16) E. Advanced Technology Program (ATP) The Advanced Technology Program (ATP) bridges the gap between the research lab and the m arket place, stimulating prosperity through innovation Through partnerships with the private sector, ATP' s early stage invest ment is accelerating the develo pment of innovative technologies that promise significant commercia l payoffs and widespread benef its for the nation. As part of the highly regarded National Institute of Standards and Technology the ATP is changing the way industry approaches R&D, providing a m echanism for industry to extend its technological reach and push out the envelope of what can be attempted. (Reference 18) The ATP views R&D projects from a broader persp ective its bottom line is how the project can benefit the nation. In sharing the relatively high development risks of technologies that potentially make feasible a broad range of new commercial opportunities, the ATP fosters projects with a high payoff for the nation as a w hole in addition to a direct return to the innovators. The ATP has several critical features that set it apart from other government R&D programs: ATP projects focus on the technology need s of Am erican industry, not those of government. Research priorities for the ATP are set by industry, based on their understanding of the marketplace and resear ch opportunities. For-profit companies conceive, propose, co-fund, and execute ATP proj ects and programs in partnerships with academia, independent research organizations and federal labs. The ATP ha s strict cost-sharing rules. Joint Ventures (two or more companies working together) must pay at least half of the project costs. Large, Fortune-500 companies participating as a single firm must pay at least 60 percent of total project costs. Small and medium-sized companies working on single firm ATP projects must pay a minimum of all indirect costs associat ed with the project. The ATP does not fund product developm ent. Pr ivate industry bears th e costs of product development, production, marke ting, sales and distribution. The ATP awards ar e made strictly on the basis of rigorous peer-reviewed competitions. Selection is based on the innova tion, the technical risk, potentia l economic benefits to the nation and the strength of the commer cialization plan of the project. 27


The ATP's support does not become a perpetual subsidy or entitlement each project has goals, specific funding allocat ions, and completion dates es tablished at the outset. Projects are monitored a nd can be terminated for cause before completion. The ATP pa rtners with companies of all sizes universities and nonprofits, encouraging them to take on greater techni cal challenges with potentially large benefits that extend well beyond the innovators challenges th ey could not or would not do alone. For smaller, start-up firms, early support from the ATP can spell th e difference between success and failure. To date, more than half of the AT P awards have gone to individual small businesses or to joint ventures led by a small business. La rge firms can work with the ATP, especially in joint ventures, to develop critical, high-risk t echnologies that would be difficult for any one company to justify because, for example, the bene fits spread across the industry as a whole. (Reference 18) Universities and non-profit indepe ndent research organizations play a significant role as participants in ATP projects. Out of 768 projec ts selected by the ATP since its inception, well over half of the projects include on e or more universities as either subcontractors or joint-venture members. All told, there are more than 170 individual universities and over 30 national laboratories participating in ATP projects. (Reference 18) ATP awards are selected through open, peer-revie wed com petitions. All industries and all fields of science and technology are eligible. Proposals are evaluate d by one of several technologyspecific boards that are staffed with experts in fields, such as biotechnology, photonics, chemistry, manufacturing, information technology, or materials. All proposals are assured an appropriate, technically competent review even if they involve a broad, multi-disciplinary mix of technologies. (Reference 18) The ATP accepts proposals only in response to sp ecific, published solicitations. Notices of ATP com petitions are published in Commerce Business Daily You may also request to be placed on a m ailing list to receive notification of ATP comp etitions and other events. (Reference 18) See also Appendix H Exam ples of Early Stag e Bioscience Financing. 28


14. Findings. We conclude that there are many ways in which communities employ both private and public resources to attem pt to stimulate and improve th e well being of Low Income sections of their community. Although there are several different concepts and varieties of mix and match of funding sources and organizational involvement, the end results of all combined efforts must be to benefit economically disadvantaged people an d communities. The primary mission of serving or providing investment capital for, Low Income Communities or Low-Income Persons, must be of the utmost importance. A Bioscience project in the USF Enterprise Zone and beyond would be well suited for the use of any of the concepts discussed in this paper. Other communities have successfully done such projects. 29


References 1. Capital Access and Asset Building NCCED Pract itioners Guide, Community Developm ent Financial Institutions, Joe Akman, CDFI Coalition, capital.pdf.url 2. 65806 Federal Register / Vol. 66, No. 245 / Thursday, Decem ber 20, 2001 / Notices DEPARTMENT OF THE TREASURY Community Development Financial Institutions Fund Guidance for Certification of Community Development Entities, New Markets Tax Credit Program ( ), ( 3. Community Development Financial Inst itutions Fund New Markets T ax Credit CDE Certification Question & Answer CDE Certification Q & A Document Community Development Financial Institutions Fund, Revised July 2005 ( ), ( docs/certification/CDE/CDE certificationFAQ.pdf.url 4. 67 Fed. Reg. 40116 (June 11, 2002). 385846_1.DOC Karen Williams Lewis Horowitz (503) 778-2134 (5 03) 778-2171 07/15/03 2003 Lane Powell Spears Lubersky LLP 3 ( /practices/newmarkettax_1.pdf #search=' community%20develop ment%20entity ') 5. CDFI Fund web site, New Market Tax Credits Program. ( ) 6. New Markets Tax Credit, Allocation Agreement Q&A Document (January 2005) cation_agreement_faq.pdf.url 7. CDIF Web site, Highlights of the FY 2005 CD FI Program Financia l Assistance Com ponent /2005/2005FAawardHighlights.pdf 8. Capital Access and Asset Building NCCED Pract itioners Guide, New Market: New Market Tax Credit, Carol W ayman, NCCED capital.pdf.url 9. Presentation to Tampa Bay Partnership, by Jim Carras of Carras Community Investment, Inc. 2/13/2006. 10. CDVCA's Double Bottom Line, by Anne Moore Odell, September 13, 2002, /news/save.cgi?sfArticleId=927 30


11. NEW MARKETS VENTURE CAPITAL (NMVC) PROGRAM Frequently Asked Questions (FAQs), US Small Business Administration, May 16, 2001,'NMVC 12. 13. U.S. Treasury CDFI Fund Presentation, Ne w Market T ax Credits ; 2006 Allocation Application, NMTCoutreachPresentation8-4-05.pdf 14.'bank%20 enterprise%20awards' Community Comptroller of the Currency Deve lopm ents Administrator of National Banks Summer 2002 Community Affairs OnLine News Articles Ba nk Enterprise Awards and New Markets Tax Credits: Two Tools to Increase the Flow of Private Capital in Targeted Markets, By Tony T. Brown, Director, CDFI Fund 15. NIST GCR 02 Between Invention and Innovati on, An Analysis of Funding for Early-S tage Technology Development 16. SBIR and STTR Programs and Awards 17. CONTACT Joseph S. Svetina, NASA Innovative P artnerships Director, Phone: 757249-0884 Fax: 757-249-0738 Virginia's Center for Innovative Technol ogy (CIT), CIT CAPITAL ACCESS PROGRAM 18. Date created: September 1999, Last Update: April 28, 2005 19. N S RELEASE, Contact: Terri Glueck, Innovation Works, 412-681-1520 x 435, Charlotte Rapkin, Pittsbu rgh Life Sciences Greenhouse, 412-201-7483, Pittsburgh Life Sciences Greenhouse, Innovation Works Launc h LifeSPAN Investor Forum, New Network to Boost Investm ent in the Regions Life Sciences, Comp anies on the Cusp of Growth, Addresses Unique Challenges 20 Connecticut Innovations Forms Biotech Seed Fund, $5 Million Committed for Growth of Biotech Companies ROCKY HILL, CONN., September 25, 2001 31


Appendix A Listing of CDEs in Central Florida Certified Community Development Entities -Al p habetical By State of Florida and City certification/CDEstate.pdf Florida total 55 Central Florida Area: Bartow Date Certified: Eaglevision Community De velopm ent Entity, Inc. 760 5th Avenue, Bartow, FL 33830-3830 (863) 533-0366, Date Certified: 7/2/2004 Gainesville Neighborhood Housing and Development Corporation 633 N.W. 8th Avenue, Gainesville, FL 32601-2601 (352) 367-9800, Date Certified: 1/2/2002 Orlando Black Business Investment Fund of Central Florida, Inc. 315 E. Robinson Street Suite 660, Orlando, FL 32801-2801 (407) 649-4780 Date Certified: 6/27/2002 Florida Community Loan Fund, Inc. 3107 Edgewater Drive Suite 2, Orlando, FL 32804-3761 (407) 246-0846 Date Certified: 1/17/2002 Florida Community New Markets Fund, LLC Full Deliverance Church of Jesus P O Box 550906, Orlando, FL 32805-0906 (407) 843-9129 Date Certified:9/26/2003 W E Freeman Outreach Center Minority Women Business Enterprise Alliance, Inc. 625 East Colonial Drive, Orlando, FL 32803-2803 (407) 428-5860 Date Certified: 7/16/2002 Sarasota Reliable Business Solutions 3660 N. Washington Blvd Sarasota, FL 34243-6256 (941) 358-4200x147, Date Certified: 1/13/2004 Suncoast Community Partners LLC 32


6547 Midnight Pass Road #3 Sarasota, FL 34242-1512 (813) 766-5460 Date Certified: 9/2/2005 St Petersburg Catholic Charities Community Development Corporation Catholic Charities DOSP 1213 16th Street North St Petersburg, FL 33705-3705 (727) 893-1313 Date Certified: 3/21/2003 Tampa Corporation to Develop Communities of Tampa, Inc. 1920 E. Hillsborough Avenue Tampa, FL 33610-3610 (813) 232-1419, Date Certified: 3/3/2003 Neighborhood Lending Partners of South Florida, Inc. 3615 West Spruce St, Tampa, FL 33607-2504 (813) 879-4525, Date Certified: 9/27/2004 Neighborhood Lending Partners of West Florida, Inc. 3615 West Spruce Street, Tampa, FL 33607-2504 (813) 879-4525, Date Certified:1/31/2002 Renaissance Finance CDE, LLC 101 E. Kennedy Blvd. Suite 2100 Tampa, FL 33602-5148 (585) 581-6206, Date Certified: 2/21/2003 Renaissance Finance I, LLC Renaissance Finance II, LLC Renaissance Finance III, LLC Renaissance Finance IV, LLC Renaissance Finance V, LLC Tampa Bay Black Business Inve stment Corporation, Inc. 2105 North Nebraska Avenue, Tampa, FL 33602-3602 (813) 274-7923, Date Certified: 5/20/2002 Winter Park Florida Community Capital Corporation 2715 W. Fairbanks Ave. Suite 200 Winter Park, FL 32789-2789 (407) 898-1661, Date Certified: 7/11/2002 33


34Appendix B CDR NMTC Flow Chart 1. Form Alliance to create CDE 2. Allianc e applies for CDE status to Sec of State from state of registry 3. Sec of State Approves CDE status 4. Allianc e officially formed as a CDE 5. Subsidiaries for med (Optional) 6. CDE applies for certif ication from US Treasury 7. Treasury approve s certification 8. Treasury issued certifica tion and inform s CDFI Fund and CDE. (CDE becomes a qualified Q-CDE) 9. Q-CDE applies for funds to CDFI (CDE sel ects appropriate CDFI ba sed on availability of funds from various CDFIs) 10. Selected CDFI approves and provide s notification of funds t o Q-CDE 11. CDFI Fund issues Notice of Allocation Av ailability (NOAA) (Sends to qualified CDEs only m ust be for-profit CDE)) 12. For-profit Q-CDE applies for NMTCs to CDFI Fund 13. CDFI Fund approves am ount of Tax Cr edit for 7 years to Qualified CDE 14. Q-CDE applies m oney to designated projec t as indicated on NMTC application and implement project 15. Q-CDE request the TC for the cu rrent tax year from CDFI Fund 16. CDFI Fund approves Tax Credit and inform s Q-CDE 17. Sell TC to any for profit Com pany in return for equity 18. Compliance Test for Primary Mission and Accountability The following numbered keys map the interrela tionships we depict on the CDR-NM TC Flow Chart on the next page.


35 (1) Alliance Individuals, Financial Institutions, CDE's, Community Action Gps CDE Non-Profit Sec. of State Florida (7) U.S. Treseary (18) (4) CDE For-Profit ot NonProfit CDE For-Profit (8) "Qualified" CDE For-Profit (14) (18) Investors For-Profit (11) CDFI Fund (10) CDFI(Selected funding source) CDFI Congress CDR NMTC Flow Chart B e c o m e s Q u a l i f i e d BEA DBLFs CDVCA NMVC Private Funds Smart Funds CITVC SBIR STTR ATP SSBIC SBIC SBA Early Stage Gap Financing O p t i o n a l O p t i o n a l O p t io n a l 1. Alliance Created 2. Apply for CDE Status 3. CDE Approved 4. CDE Formed 5. Subsidiaries Formed 6. Apply for "Qualified CDE 7. Certification Approved 8. Issues Certification 9. Applies for funds 10. Funds Approved 11. NOAA issued 12. Apply for NMTCs 13. Tax Credits Approved 14. Money Applied to Project 15. Request Tax Credit for Current Year 16. Tax Credits Approved 17. Sell Tax Credits for Equity 18. Compliance Test(2) (3) Optional to form other CDEs(5) (6) (8) (8) (9) (11) (12) (13) (15) (16) (17) C o m p l i an c e T e s t i n g


Appendix C Key NMTC application scoring factors and selection process Key scoring factors for each of the 4 parts a re as follows: Business Strategy: o offer products and services that are fl exible and non-traditional in form o demonstrate a high leverage rate for its borrowers or investees o has a track record of providing products a nd se rvices similar to those it intends to deploy with QEI proceeds o has a strong pipeline of proposed projects o can demonstrate that its NMTC strategy will add significant value to the proposed activities. Community Im pact: o demonstrates that a high percentage of its QLICIs will be made in areas of higher distress o articulates credible, detailed, and quantifiable impacts o has a track record of ach ieving such impacts o strategy will catalyze other invest m ents into the LICs served Capitalization Strategy: o has secured QEI comm itments from invest ors or has a strong strategy for doing so o can issue Q EIs in the near term o demonstrates that a majority of the economic benefits of the NMTC will be passed through to borrowers and investees o is offering products and services that are substantially different from those of its investors o intends to deploy m ore than 85% of its QEI proceeds into QLICIs Managem ent Capacity: o staff has relevant investm ent experience, particularly in the LICs that the applicants strategy targets o has a track record of raising capital, part icula rly from profitmotivated investors o has the capacity to manage the additi on of NMTC activities into its current portfolio of activities o demonstrates meaningful involvement w ith LIC decision makers and coordination with local community plans (Reference 13) The Selection Process is divided into 3 parts. Peer Review Fund staff & external revi ewers evaluate/score applications and recommend allocation amounts Panel Review Applications that m eet mini mum scoring thresholds in each of the four major application sections are sent to a Fund panel for consideration Selection of Applicants Selecting Official m akes final determinations based upon panel recommendations. At the panel phase of review, applicants will be ranked in order of their com bined scores in the Business Strategy and Community Impact sections of the application. The Selecting Official will generally award allocatio ns in the order of th is ranking, subject to 36


applicants meeting all other eligibility requirements, until allocation authority is expended. (Reference 13) 37


Appendix D Prior Round CDIF Financial Assistant Awards Results from rounds 1 3: Round Applicants Awards $s Requested $s Awarded Avg. Award 1 345 66 (19%) $25.9 B $2.508 B(9.7%) $37.9 M 2 271 62 (23%) $30.4 B $3.5 B (11.5 %) $56.5 M 3 208 41 (20%) $22.9 B $2.0 B (8.7%) $49.0 M Round 3 allocatees by type of entity: 11 CDFIs $494m 6 Banks/Thrifts $318m 17 Non-Profits $891m 4 Governm ent Entities -$160m 6 Publicly traded Enti ties $339 (Reference 13) Round 3 Allocatees Other Facts: The 41 allocatees h ave committed to achieve certain programmatic goals above and beyond what is minimally require d by statute and regulation They will be required to m eet these benchmar ks through their allocation agreements with the Fund Each allo catee indicated that at least 75% of their loans and investments will have flexible or nontraditional features, and 36 of the 41 allocatees indicated that 100% of their loans and investment s will have flexible or non-traditional features 35 of the 41 awardees in dicate that they will invest at least 95% of NMTC proceeds into low-income communities, an increase over the minimally required 85% o This includes 9 organizations that have committed to invest 100% (vs. 85%) of NMTC proceeds in QLICIs o In real dollars, this means at least $2 00 million more in low-income community investments will be made than are minimally required by program regulations. (Reference 13) 38


Appendix E Additional NMTC compliance criteria Additional compliance criteria: CDE must of fer credit to private investors with in 5 years QEI must stay invested in the CDE for 7 years CDE must m ake QLICIs within 12 months of receipt of Inve stor QEIs (Reference 13) There are more specific criteria relating to th e 4 various types of CDE activity. 1. Investing in QALICBs a. At least 50% of the total gross incom e is from the active conduct of a qualified business in LowIncome Communities (LICs); and b. At least 40% of the use of tangible property of the business is within LIC s; and c. At least 40% of the servi ces perform ed by the business employees are performed in LICs; and d. Less than 5 % of the average of the aggreg ate unadjusted bases of the property is attributable to collectibles (e.g., art and antiques), other than those held for sale in the ordinary course of business (e.g., i nventory); and 5) Less than 5% of the average of the aggregate unadjusted bases of the property is attributable to nonqualified financial property (e.g., debt instruments with a term in excess of 18 months). e. Ineligible Activ ities include: i. Residential rental property Buildin gs which derive 80% or more of incom e from residential dwelling units ii. Certain types of businesses: 1. Golf courses 2. Race tracks 3. Gambling facilities 4. Certain farm ing businesses 5. Stores where the principal busin ess is the sale of alcoholic beverages 2. Investing in other CDEs a. All time limits must be met as if the CD E with the allocation directly made the QLICI b. Investments may be made through multiple layers of CDEs (i.e., up to 3 CDEs) c. The last CD E recipient needs to demonstrate that it used those dollars to: i. Make loans to or investm ents in QALICBs; and/or ii. Provide FCOS to businesse s or residents of LICs 3. Purchase Loans form other CDEs CDEs may purchase loans but not investments from other CDEs if: a. The purchas ed loans were originated by an entity that was a CDE at the time the loan was b. sold; and c. The loans q ualified as QLICIs at either the time the loan was: i. originated; or ii. purchased b y the allocated CDE 39


4. Financial Counseling and Other Services a. Possible FC OS activities: i. Business plan development ii. Assistanc e with business financials iii. Operating as sistance to non-profit organizations b. FCOS is advice provided by the CDE rela ting to the organization or operation of a trade or business. (Reference 13) 40


Appendix F Benefits of NMVC Company The benefits of forming an NMVC company are: SBA Financial Assistan ce. SBA will suppl ement an NMVC companys own capital through guarantees of debentures to be issued by the company in a face amount of up to 1.5 times its capital. The debentur es will have a term of up to 10 years from the date of draw-down and be issued at a discount. Interest for years 1-5 is paid up front in the form of the discount, interest only is payable for years 6-10, and principal is due at the end of year 10. SBA will arrange just-in-time funding for the debentures under procedures similar to those utilized in th e SBIC program. The debentures ar e expected to be priced at a current market rate for comparable U.S. Government Treasury securities plus a premium. The debentures are expected to be pre-payable without penalty after one year. There are no SBA fees associated with the debenture. o For exam ple: An NMVC company with $10 million of contributed capital would be eligible to issue debentures with a face amount of $15 million. If a 6.49 percent interest rate prevailed when the debe ntures were issue d, the company would receive net proceeds of $10.62 million fo r the $15 million of debentures. No payments would be required for the firs t 5 years. Commencing with the sixth year, the NMVC company would pay interest on the $15 million at a 6.49 percent rate compounded semi-annually, and the enti re $15 million of principal would be due at maturity. SBA Operational Assistance Grants. SBA also will match the resources that the NMVC company has raised for operational assistance (whether in cash or in-kind) with an equivalent grant payable over 4.75 years. Th e NMVC company must use the grant funds and matching resources to provide mark eting, management and other operational assistance to the businesses in which it i nvests or intends to invest. (Reference 11) A potential investor can benefit in at least the following four ways through its investm ent into an NMVC company or SSBIC participating in the NMVC program: Giving back to ones community: The NMVC program is designed to target the needs of the community in which the NMVC company or SSBIC operates. State and local econo mic and/or community developmen t entities, local financial institutions (including thrifts), utility companies, bus iness leaders and philanthropists can pool resources into one fund for maximum inves ting in their local ec onomies. High profile investors also can benefit from the added vi sibility of their partic ipation in an NMVC fund for marketing and outreach purposes. Tax credits: Investors may be eligible to re ceive a New Markets Tax Credit, which the U.S. Department of Treasury will allocate through an annual competitive process. (See NMTC Issues link ) NMVC companies and SSBICs can apply for the tax credit, which they then can pass on to their investors. Community Reinvestm ent Act (CRA): Financia l institutions that invest in NMVC firms or SSBICs may be eligible for CRA credit. Su ch institutions would be required to follow rules governing equity investments by Federal financial institutions. A reasonable rate of return: NMVC com panies wi ll be for-profit entities that will seek to provide returns to investors. Although there can be no guarantee of success, producing an 41


attractive return on investment will be one of the NMVC Company's objectives. The appropriate use of operational assistance gran ts should enhance thes e returns. (Reference 11) Small businesses located in the LI areas can receive: No-cost operational assistance, for exam ple: accounting, business, or marketing plans and engineering assistance. Long-term risk capital. Proactive in vestor with a st ake in growing the business. The type, te rms and conditions of individual investments will be up to NMVC companies and SSBICs, within guidelines set by the regulations governing the program. SBA will monitor this compliance through examina tions and other oversight mechanisms. (Reference 11) 42


Appendix G Angel Investor Information 1. What is an Angel Investor? 2. Angel Investor Networks and Groups 3. Summary of Angel Investor References 4. Examples of Angel Networks and Their Activities 1. What is an Angel Investor? According to the Wikipedia, a free on-line encyclopedia source, an angel investor (business angel in Europe, or simply angel) is an affl uent individual who provide s capital for a business start-up, usually in exchange for ownership equity. Unlike venture capitalist s, angels typically do not manage the pooled money of others in a professionally-managed fund. However, angel investors often organize themselves into angel ne tworks or angel groups to share research and pool their own investment capital. Angel capital fills the gap in start-up financing be tween the "three F"s (friends, family and fools) and venture capital. While it is usually difficult to raise more than $100,000 $200,000 from friends and family, most venture capital funds will not consider investments under $1 2 million. Thus, angel investment is a common second round of financing for high-growth start-ups, and accounts in total for more money invested annually than all venture capital funds combined ($24 billion vs. $22 billion in the US in 2004, according the University of New Hampshire's Center for Venture Research). Angel investments bear extremely high risk, and thus require a very high return on investment. Some angel investors seek a return of at leas t 10-20 times their original investment within 5 years, through a defined exit strategy, such as plans for an initial public offering or an acquisition. Angel financing can thus be an expensive source of funds. However, cheaper sources of capital, such as bank financing, are usually not available for most early-stage ventures. Angel investors are often retired business owners or executives, who may be interested in angel investing for other reasons in addition to pure m onetary return. These include wanting to keep abreast of current developments in a particular business arena, mentoring another generation of entrepreneurs, and making use of their experien ce and networks on a less-than-fulltime basis. Thus, in addition to funds, ange l investors can often provide va luable management advice and important contacts. According to the Center for Venture Research, there were 225,000 active a ngel investors in the U.S. last year. Beginning in the late 1980s, angels started to coalesce into informal groups with the goal of sharing deal flow and due diligence work, and pooling their funds to make larger investments. Angel groups are generally local organizations made up of 10 to 150 accredited investors interested in early-s tage investing. In 1996 there we re about 10 angel groups in the U.S.; as of 2005 there are over 200. In Janua ry, 2004 the not-for-profit Angel Capital Association, and later the Angel Capital Educational Foundation, were formed under the auspices of the Ewing Marion Kauffman Foundati on, bringing together over 100 of the most 43


active angel groups in the United States. The ACA and ACEF have an annual summit meeting each year in a different city, bringing together the leaders of th e different groups to exchange best practices. In 2004, according to the Center fo r Venture Research, 18.5% of deal s that got through the early screens of angel groups and were presented to in vestors attracted funding up significantly from 10% in 2003, which is about the historical averag e. But since this figure discounts the substantial initial screening, the percentage of all companies seeking angel fi nancing that actually receive funding is closer to 0.5%-1% (but still higher than the 0.2%-0.25% of applicants who receive funding from venture capitalists). Approximately 45,000 U.S. companies received angel funding in 2004, and on average, each raised about $469,000. The lion's share went to high-tech companies, and the single biggest cate gory within high tech was software. Reference. 2. Angel Investor Networks and Groups The Angel Capital Association (ACA) is North Am erica' s professional alli ance of angel groups. This fast-growing association brings together th e 200 angel organizations in the United States and Canada to share best practices, network, and help develop data a bout the field of angel investing. ACA offers its memb ers a variety of benefits incl uding an annual North American Summit, regional meetings to share more detail ed information, access to the top minds in the field, research papers and best pr actice information, and a members' only section of this site with data on each of the members. A true peer-t o-peer organization, ACA is already starting to change the nature of early stage investments fo r entrepreneurs, angels and venture capitalists. This organization provides thought-provoking discussions and valuable information. http://www.angelcapita From The Wall Street Journal Online Angel Investors Return, A nd They Are Serious By LEE GOMES Staff Reporter of The Wall Street Journal. Angels have been around for years, mostly as loose networks of unaffiliated rich folk. In recent years, though, they have started to form angel groups, which are upscale c ousins of the inves ting clubs that were common among 401(k) wage slaves during the 1990s bull market. Th ese groups have names like "Indiana AngelNet" and "Central New York Angels." Most have Web sites, and a few have full-time staffs. There is even a new trade group, the Angel Capital Association (ACA), whose goal is to raise the public' s awareness of angel investin g (angels complain that VCs get all the glory), as well as help improve the investing decisions of the several hundred angel groups that are members. The association had a meeting in San Francisco last week, and the crowded ballrooms at the event were evidence that the reputation of angel inves ting has recovered from th e bruising it received during the dot-com crash, when ma ny angels lost their wings. The sessions revealed that angels in America have all of the A-to-C diversity of the country's wealthy elite. Many groups are m ade up of re tired executives or professionals, while around coastal tech centers you'll find the occasional younger members who did well with their own companies. Some clubs get their business done at brandy-fueled country-club smokers. Others 44


stick to fast-paced working breakfasts with nothi ng on the menu but pancakes and PowerPoints. At a typical meeting, a few carefully screened lo cal entrepreneurs presen t their business plans, and the group asks questions and then votes on whether to invest. Lots of due diligence gets done before and after the vote. The process is slow, si nce even the busiest ange l groups can't invest in more than one or two start-ups a month. As a basic M.O., angel clubs search out high-growth companies in fields like technol ogy and biotech that might, in a few years, issue stock or get bought. This "return on investment" approach to funding companies is often contrasted with economic-development-style investi ng, which emphasizes job creation. The second category deals with restaurants, r oofing com panies and the like -stable local employers that put food on the table for many fa milies while lacking spectacular profits or stratospheric growth. Most ange l groups won't touch those busi nesses because they take up too much time and offer too little potential upside for the risk involved. This could become a problem if the local governments that are increasingl y working with angels -one of the trends in evidence at last week's session -begin to th emselves turn away from traditional meat-andpotatoes investing, which often produces the most jobs. As angel groups and angel networks become mo r e common, will they result in new generations of Googles and Genentechs, or simply lots of me-too junk? No one knows, though already it's apparent that the number of potential angel de als varies from regi on to region. Marcus Filipovich, of the Pasadena Ange ls near Los Angeles, says his group received 500 business plans over its Web site, and that while most were to ssed out right away, nearly two dozen ended up being worth serious investiga tion. In Little Rock, though, Jeff Stinson, who runs Fund For Arkansas, which recently collected $5.3 million fr om 48 local investors, says he is having trouble finding good places to spend the money. "The re is a lack of quality deals," he frets. Angel investors say a rule of thumb i n their world is that an angel' s first deal is always a bad one. Investors suspend tough business judg ment in their eagerness to get their oars in the cash flow. Which raises the surprising fact that no one real ly knows how well, or how badly, angel investors as a whole actually do. The field has its anecdot al examples of home runs, like the 1998 check for $200,000 that Sun Microsystems co-founder Andy Bechtolsheim wrote to the co-founders of Google, which became worth nearly $300 million. Such tales have the effect of evening news reports about lottery winners, and keep angels in the game even without hard aggregate data. In fact, the angel association is now attempting to answer the question of cu mulative angel profits (or losses) once and for all. Reference. http://www.startupjournal. com/financing/trends/20050412-gomes.html http://www.angelcap 3. Summary of Angel Investor References The groups listed just below are a few of the general groups that inve st nationally. The list below contain som e that are interested in partic ular industries, some are more general; some focus on startups, some want companies to ha ve some kind of track record; some will accept only online submission, some want a business plan. Also watch carefully: some angel investment networks charge a fee for review ing and/or presenting your business plan. Active Capital (f ormerly ACE-N ET) 45

PAGE 52 Atlantic Venture Networking Group Ha lifax, Nova Scotia Capital http: // Gathering of Angels Idealflow Angel Fund LLC m/ Investors Circle Brookline, MA Irish Angels Notre Dam e, IN National Association of Seed & Ve nture Funds New Product Development Consortiu m The Entree Network / The Tribe of Angels US Angel Investors US Visionaries Newport Beach, C A 4. Examples of Angel Networks and Their Activities Gathering of Angels (GOA) A recap from the Gathering of Angels (GOA) 2005 hosted by Tarby Bryant, Chairman of the Anasazi Capital Corporation. Ta rby Bryant has hosted 35 GOA m eetings in different cities across the USA. Ninety (90) different entrepreneurial companies presented and 17 companies got some level of capital funding from GOA attendees and subsequent referrals. The average capital funding from a GOA presentation was $175,000 with Angel investments ranging from 50k to $1.5 million in 2005. The Gathering of Angels is a monthly meeting of private, high net-worth investors, also referred to as "Angels," venture capitalis ts and m erchant bankers. The ev ent is hosted by Tarby Bryant, Chairman of the Anasazi Capital Corporation. Th e mission of the Gathering of Angels is to provide first stage "seed level a nd angel capital" financing to st artup and early stage firms. GOA is an Angel Forum where 6 companies present with PowerPoint for 20 min each followed by 2-5 m in of Q&A. Accredited Angel Investors, VCs and Invest ment Bankers attend our events complementary. Each GOA presenter pays $2500 presentation fee with no % of capital raised. Included in the GOA presentation fee is 3 hours of virtual coaching, mentoring and consulting from GOA CEO Tarby Bryant to insure that your presentation is clear, concise and defensible. We also provide coaching on cap ital & corporate structure, valuation, cost of funds, exit strategies, mgt. Team and other presentational enhancements to your PowerPoint efforts. The fee is $2000 for each additional GOA city. We helped 14 companies find capital from this GOA process in 2003 and 24 capital fundings in 2004 ranging from $50,000 $1.5 million. Reference: Phone 505-982-3050, http :// 46


New Product Developmen t Consortium (NPDC) The New Product Development Consortium (NPDC) is a m embership organization consisting of over 100 prominent current and former CEOs, execu tives, financiers, and professionals located in the United States and abroad. (The NPDC website is owned and operated by Spencer Clarke LLC (Spencer Clarke)). Spencer Clarke now handles all the new NPDC investment banking activities. You do not have to be a member to submit ideas to us. The following provides an overview of our structure. It is followed by the names and biographical descriptions of our Board of Directors. The business model is to bring together in a selective m embership environment high net worth individuals with an interest in early stage business situations. This network seeks to build and nurture successful businesses whos e value can sharply appreciate in a few years. All investments are independently made by members based on th e due diligence provided by Spencer Clarke; NPDC never invests its member s' funds and does not operate a blind pool. Ideas may be submitted to the NPDC website by non-members. In fact, most ideas are submitted by nonmembers. NPDC STATISTICS: Membership consists principally of CEOs, financiers, and busine ss professionals having broad market access and familiarity with a wide spectrum of products, services and technologies. The members, numbering over 100, are primarily located throughout the United States, but also in the Un ited Kingdom, Europe and Japan. NPDC's rough estimate of the assets of th e entire membership are $2 billion, with $100 million available for high risk investments. 90% participation rate (idea interests, id ea subm issions, other membership activities); 40% actually invested in NP DC identified situations. REPRESENTATIVE PROJECTS; FI RST R OUND FUNDING COMPLETED Land Mine Detection System s, Inc. Washi ngton, D.C. Commercialization of non-linear acoustic technology for the detection of land mines. Commerce Thru Digital Technology, Inc. Or lando, Florida. Provider of e-commerce platforms to small and medium busine sses through Chambers of Commerce. Electronic S ewing Machine, Inc. Philadelphia, Pennsylvania. Devel oper and marketer of a proprietary technology which reduces the m oving parts in industria l sewing machines. Ensolve Biosystem s. Raleigh, North Carolina. Developer and market er of proprietary system that renders the bilge water of ships safe for discharge into the open seas, lakes, and rivers. (NPDC was one of se veral funding organizations). o HydroGlobe o Athena o Trivia Shott-out o Biomec REPRESENTATIVE PENDING PROJECTS NPDC Stem cell blood storage and therapy company Biological cold storage for vaccines and blood Synthetic latex, non-allergenic, products Device for allev iating incontinence 47


Ubiquitous sound sensing technology Moving boxes and related packi ng supplies for self-m overs Micro-fuel cell to power cellu lar phones, laptops, etc. Improved internet router system Personal training and health m a intenance internet company Automobile anti-theft device Nanomanufacturing technology Telemedicine Internet system for the buying/se lling of industrial equipment Ergonom ic beverage bottle especi ally for infants/children REPRESENTATIVE PENDING PROJ ECTS Spencer Clarke Alternative energy com pany Medical Test products Snack manufacturer Specialty restauran t Security Ide ntifica tion manufacturer Reference. The Entree Network Entree as an angel executive network has perfor med due diligence review s to varying degrees involving many of the 26,000 inquiries received in 11 years and we have selected or been selected to incubate and /or provide services to many of them. 95% of t hose have received either funding following preparation, term sheet offers business plan, angel investors, partnering arrangements, competitive analysis, acquisiti on suitors, management, board members, new clients and/or modeling services. 100% of our deal flow comes from our associates, the Internet and by word of mouth reference from associates, angel relationships, angel investors and clients. The Entre Network provides networking methods, networks, access to partners targeting, presentation, negotiation, retention of equity, valuation enh ancement strategies, packaging the venture, sales and revenue ramp-up models, deal structuring, equity optio ns, venture capital tieins, investment banking and how to approach them, common concerns, re d flag issues, plan execution content, strategic partnering, executive search and rounding out the management team, how to position the venture when founders have zero resources, board importance and how to source and attract members, plan packaging a nd modeling, the importance of PR, traditional and technology venture positioning, wea kness & strength reviews, identifying the obstacles, how to get in front of someone real, executive summary quick reviews and comments. The Entree Network frequently prov ides angel investors, partner a ngel investors, and other angel investo rs in the United States and internationally to clients. We often solicit outside angel investors to join us in supporting a technology or business se rvices company. We know many angel investors and our associates are active in numerous angel investing organizations. Professional venture capital firms invest about $12 billion a year in helping start and develop businesses. Angel investors inve st $60 billion a year. However, angel investors throughout the 48


United States provide more than money. They bring experience, enthusiasm, knowledge and contacts to the table. The angel investors Entree works with frequently are successful entrepreneurs who have "been there, done that" and who want to pursue anothe r success but do so at arm 's length. As such, they can be very valuable to an aspiring young co mpany. Other angel investors include lawyers, accountants, and other accredited investors eager to participat e in higher-risk, higher-return investment opportunities. Entre develops and nurtures companies that are shaping the future by allowing them to tap our network of retired executives and angel investors. W ith an empha sis on early-stage investments, the network has assisted companies since 1994 an d has served numerous innovative and marketleading enterprises. Reference. BioBusiness Alliance of Minnesota ST. LOUIS PARK, Minn. (Jul y 18, 2005)The BioBusines s Alliance of Minnesota, the business development organization for enriching Minnesotas future through the biosciences, today announced that it has chosen ANGLE Technology Group to conduct a comprehensive assessment of the states biobusiness capabilities. The assessment will begin immediately and be completed in the fourth quarter 2005. ANGLE Technology Group was chosen from a group of m ore than seven firms responding to a rigorous RFP process that incl uded 15 national and international firms. ANGLE was chosen for their vast experience both in conducting assessments in the U.S. and internationally, and for their consulting expertise in the technology industry. The BioBusiness Alliance of Minnesota st atew ide assessment effort is overseen by a committee that includes members from industry, government and academia, and is co-chaired by Professor Kelvin W. Willoughby, PhD, University of Minnesota Honeywell/W.R. Sweatt Chair in the Management of Technology, and direct or, Management of Technology Program; and Vince Ruane, retired vice president, 3M, a nd board director, Cap ital City Bioscience Corporation. The state assessment is the first step in a long-term planning process that will result in a 20-year strategic plan. The outcome of the statewide assessment will be a comprehensive census and database of biobusiness enterprises in the enti re state, regardless of the size of the business. Biobusiness is defined as economic activity devoted to the deve lopment and commercialization of bioscience or bioscience-related technologies, products or services. The asse ssment will provide a baseline evaluation of biobusiness in the state. This information will be useful to benchmark Minnesota against other countries and states. The outcome of the process will identify the states strengths and development needs, and provide recommendations to target specific areas of biobusiness in which Minnesota can compete as a global leader. These recommendations will reflect the 49


convergence of technologies, products, and market s that exist in the state, and identify Minnesotas opportunity areas for growth. According to Willoughby, Unlike other studies th at use standard indus try categories from publicly available databases, in this project we re digging down deep into the basic fields of technology and science that underp in biobusiness in Minnesota. ANGLE Technology Group has demons trated the understanding and th e ability to identify and m ap the information in a way thats useful to decision makers, added Willoughby. They speak the language of biobusiness, which is extremely valuable in gathering the data. In the end, Minnesota will have an assessment and reco mmendations that are unique to the state. The assessment process and the outcomes it will gener ate will confirm our capabilities and uncover the emerging technology-rela ted opportunities we have in the human health and energyagricultural/industrial sectors, sa id Ruane. Our ultimate goal is to identify specific and distinctive biobusiness categories where Minnesota can compete as one of three, or perhaps one of five global centers of excellence, as opposed to being one of 100 centers. This is a crucial step in making Minnesota highly competitive worldwide. According to Dale Wahlstrom, chair of the BioBusiness Alliance of Minnesota, We are very excited that ANGL E Technology Group was awarde d this project. They understand our mission and our commitment to action and job creation. Wahlstrom added, When it comes right down to it, the ultim ate benefits of the BioBusiness Alliance of Minnesota are to provide clarity to help our research institutions to target research, our legislators to target investments and policy needs, our educators to develop curriculum, our investment community to grow their confidence in Minnesotas business development capability, and our businesses to grow and create jobs for the citizens of the state. We begin with accurately assessing the capabilities of biobusiness in Minnesota. We are very pleased that ANGLE ha s been selected to deliver th is innovative, industry-driven assessm ent of Minnesotas biobus iness capabilities, said Dr. Gary P. Evans, CEO of ANGLE Technology Groups U.S. Operations. We look forward to working with the BioBusiness Alliance team to take the first step in the long-term planning and development of a biobusiness strategy for Minnesota. Founded in 1994, ANGLE Technology is an internat ional venture m anagement and consulting company. The ANGLE Team is comprised of pr ofessionals who combine backgrounds in science and engineering, co rporate finance, and economic development. ANGLE Technology combines experience in the academic, private and public sectors. This includes extensive expertise in the commercialization of tec hnology, new company formation, investment and corporate finance, research park and incubator development and management, and delivery of economic development programs. ANGLE estab lished a Minnesota office in August 2004 in recognition of the significant business potential it believe s exists in this state. 50


The BioBusiness Alliance of Minnesota ha s applied for 501 (c) (3) not-for-profit organizational status. Reference. BioBusiness Alliance of Mi nnesota Chooses Angle Tech nology Group to Conduct State Assessment, Contact Jeremy Le nz, project executive at 952/542-3077, extension 8. Posted on 07/18/2005. http://biobusinessa rticles/2005-0718angle Minnesota Partnership MINNEAPOLIS/ROCHESTER, Minn. (Aug. 9, 2005)The Minnesota Partnership for Biotechnology and Medical Genom ics kicked off c onstruction on a new research facility, which will be built on top of the existing Mayo Clinic Vincent A. Stabile Building, at a roof raising event held in Rochester today. The research f acility will significantly enhance Minnesotas competitive position in the biosciences race building on the strong commitment of the University of Minnesota and Mayo Clinic The strength of this facility extends beyond bricks and m ortar, this new research facility will allow research teams from Mayo Clinic and the University of Minnesota to collaborate even more closely to build on the signficant progress thats already been made by the Partnership and advance medical science, said Hugh Smith, M. D., Chair, Mayo Clinic Rochester Board of Governors. Funding for the new research facility was in cluded in the s tate bonding bill passed by the legislature earlier this year. Gove rnor Tim Pawlenty and a bipartis an group of legislative leaders participated in the roof raising. The Partnership also announced an agreement with the BioBusiness Alliance of Minnesota, the business developm ent organizat ion for enriching Minnesotas future through the biosciences, to work collaboratively to rais e awareness throughout Minnesota for the bioscience industry and investments made in biosciences. The effort will provide information to opinion leaders and economic development officials, especially thos e in Greater Minnesota, about the potential to transform research discovery into economic de velopment. The outreach effort, scheduled to begin this fall, will also provi de hands-on tools to help spark bioscience business development in local communities. This is a critical investment for Minnesota, and we are focused on growing and enriching econom ic development opportunities in the area of biobusiness, said Dale Wahlstrom, Chair, BioBusiness Alliance of Minnesota. By working together, the BioBusiness Alliance and the Partnership can provide spark fo r future biobusiness development in regions across Minnesota, as we compete to become a global leader in agriculture, bioprocessing, medical technology, and health sciences. While other states are struggling to turn their research investm ents into reality, Minnesota has been investing in biosciences for many years, funding actual research, said Frank B. Cerra, 51


M.D., Senior Vice President for Health Sciences University of Minnesota. Working with the BioBusiness Alliance, we are confident that research we begin through the Partnership will result in jobs, as well as health improvements for Minnesotans. The Partnership and the BioBusiness Alliance wi ll he lp to demonstrate the importance of the bioscience industry to Minnesota as a whole, as well as enhance resources already in place. Both organizations are committed to implementing speci fic action items that dramatically impact the state in terms of jobs, new sources of revenue, an d overall health improvements, while helping to advance bioscience discoveries. The Partnership is committed to giving back to the state of Minnesota by converting Partnership research discoveries into econom ic developmen t opportunities for the state, said Dr. Smith. Reference. Minnesota Partnership Celebrat es Constructio n Of New Research Facility Announces Plans for Collaboration with the BioBusiness Alliance of Minnesota, http://biobusinessalliance .org/news-articles/2005-0809part nership Posted on 08/09/2005 BioEnterprise Corp. and JumpStart Inc. Northeast Ohio nonprofits BioEnterprise Corp. and Jum pStart Inc. are flyi ng south in search of investment dollars, and theyr e bringing some local startups along for the ride. The two nonprofits, along with two Northeast Ohio entrepre neurs, have helped organize a group of 25 angel investors who will meet in Naples, Fla., to hear presenta tions from four Cleveland-area companies in search of venture cap ital. It is no accident that they picked Naples, which in some circles is known as Cleveland South. Angels are wealthy individuals w ho invest in young com panies, a nd most of the angels who are scheduled to meet today, March 27, at the Ritz-C arlton in Naples are former full-time residents of Northeast Ohio who now live at least pa rt of the year in southwest Florida. The idea is consistent with our general approach of following the money and bringing it back to the region, said Baiju Shah, president of BioEnt erprise, a Cleveland group that assists biotech com panies. The Naples angel group is expected to meet at least three times per year, Mr. Shah said. The investors are mainly entrepreneurs, busine ss people and health care professionals whove lived in Northeast Ohio and want to contribute to econom ic devel opment in the region, said Bill Sanford, one of the events co-hosts and former CEO of Mentor-based Steris Corp., a maker of medical sterilization products. Mr. Sanford is a former chairman of BioEnterprise who still sits on its board. The common thread is that (the angels) are all successful, they all have affection for Northeast Ohio and th ey all spend a lot of time in Florid a, said Mr. Sanford, who lives year-round in the Naples area. 52


In addition, the Alumni Associat ion of Case Western Reserve University furnished the events organizers with a list of alumni living in Florida who might be in terested in participating, said Daniel Clancy, the alumni groups interim director. Co-hosting the event with Mr. Sanford is Stu G iller, chairm an of Summa Enterprise Group, the entrepreneurial arm of Akrons Summa Health System. The four companies scheduled to present at t odays m eeting are Charitee LLC, a Solon company that sells hole-in-one monitoring systems to gol f courses; Embrace Pet Insurance of Cleveland Heights; medical device company Interventional Imaging Inc. of Cleveland; and electronic health records company ProPract ica Inc. of Shaker Heights. Nonprofit venture investor Jumpstart alrea dy has committed up to $300,000 to Charitee and up to $335,000 to Embrace. Our hope is that each of the companies will c onn ect with several angel investors who will invest funds in their enterprises, Mr. Shah said. Reference. Crains Cleveland Business on the web Nonprofits angle to find Florida angels BioEnterpris e, JumpStart hope Sunshine State group will back fledgling Ohio Businesses, By BR ANDON GLENN, 6:00 AM, March 27, 2006 2006/crainsnaplesmarch2006.pdf#search=%22angle%2 0investors%20Florida%22 Cleveland, BioEnterprise (June 2, 2005) Business formation, recruitment, and acceleration initiative designed to grow health care com panies and commercialize bioscience technologies. Five-year partnership (2002) am ong Case Western Reserve University, Cleveland Clinic Foundation, University Hospitals He alth System and Summa Health System, Received a grant from a collaboration of nearly 70 philanthropic foundations Provides Companies: o Experienced bioscience m anagement guidance. o Privileged r elationships with world-cla ss research and clinical institutions. o Access to bioscience venture ca pital and private equity firm s o Business developm ent and alliance support for strategic partnerships. o Network of regional bus iness capabilities Results since July 2002,: o 45 companies created, recruited, and accelerated o $200 million in new funding o $50 million in revenues o 150 technology transfer Reference: Denise Richardson, Manager, Business Developm ent, BioEnterprise Corporation 11000 Cedar Avenue, Suite 100, Cleveland, OH 44106. 53


Oxford Bioscience Partners (OBP) This is a Life Science venture capital firm that provides equity fi nancing and m anagement assistance to advanced-stage star t-ups and later-stage commercially oriented organizations. Its Objective is to generate long-te rm capital gains for both investors and entrepreneurs. This fund invests in businesses capable of improving the diagnosis and trea tment of disease, as well as companies with technologies that acceler ate drug discovery and development. Reference: For General Information: Kathleen Moeckel, Office Manager, 222 Berkeley St. Suite 1650, Boston, MA 02116, (617)357-7474, Fax: (617)357-7476, Bioscience Innovation Funds This fund was founded in 2003 to help university investigators translate prom ising early-stage discoveries into marketable technologies. Th e Oregon Health & Science University (OHSU) awarded its first funds March 3, 2005. The project involves: Helping to f und OHSU researchers bridge the "valley of death" funding gap Includes five investigators that shared a total of more than $400,000 The goal of the fund is to help scient ists overcome the financing gap between discovery and initial co mmercial seed funding. Reference: wspub/releases/030305biosciencehtm l.cfm,, Arundeep Pradhan, di rector of OHSU Technology and Research Collaboration, 3181 S.W. Sam Jackson Park Rd., Portland, Oregon 97239-3098, (503) 494-8311 Pittsburg, Life Sciences Greenhouse LifeSPAN Innovation Works (IW) and Pittsburgh Life Sc iences Greenh ouse (PLSG) forms LifeSPAN Investor Forum. It is a network for angel i nvestors supporting early-sta ge life sciences. PLSG invests in and supports gr owth in the areas of: bioinform atics; bionanotechnology; diagnostics; medical devices; medical robotics; therapeutics; The projects objective includes: Employment creation, community developm ent, and elimination of urban blight The program: Provides Capital Involves People Makes Space 54


Maintains Leading Edge Research Establishes Industry Connectivity Reference: S RELEASE, C ontact: Terri Glueck, Innovation Works, 412-681-1520 x 435, Charlotte Rapkin, Pittsburgh Life Sciences Greenhouse, 412-201-7483, Rocky Hill, Connecticut Innovatio ns (CI) Biotech Seed Fund The fund helps to catalyze th e developm ent of biotech comp anies through the crucial early stages. $5 Million for growth of Biotech Companies, (S eptember 25, 2001) States leading investor in high technology Created to accelerate the gr owth of early-stag e biotech enterprises in Connecticut Makes equity investm ents in emerging Connecticut technology companies Provides essential, non-f inancia l support to entrepreneurs Conducts initiatives that address sp ecific needs of technology sector. Support includes: o BioScience Facilities Fu nd finance th e expansion or creation of laboratory space; o Yankee Ingenuity Technology Com petiti on offers awards to Connecticut universities that collaborate with Connecticut businesses on applied research and development projects leading to marketable products and processes. Provides transitional laboratory spac e available to biotech start-ups. o Eli Whitney Fund both equity capi tal and guidance for high-technology companies Reference:, Connecticut Innovations President and Executive Director, Victor R. Budnick. Connecticut Innovations 200 Corpor ate Place, 3rd. Floor, Rocky Hill, CT 06067, Phone: 860-563-5851 Fax: 860-563-4877 55


Appendix H Examples of Early Stage Bio-Science Financing Virginia's Center for Innovative Technology (CIT), CIT CAPITAL ACCESS PROGRAM, CIT CAPITAL ACCESS PROGRAM CIT's Federal Funding Assistance Program identifie s and accelerates opport unities for Virginia' s small technology businesses to obtain SBIR, STTR and ATP awards and other government contracts. Each year, CIT works with hundreds of regional technology compan ies to assist them in identifying federal R&D funding opportunities a ppropriate to their growth objectives. Through a series of educational events, proposal development support offerings, and hands-on consultative activities, CIT enhances their chances of winning federal grants and commercializing resulting technologies. (Reference 17) The objective of CIT's Growth Accel eration Prog ram is to help close Virginia's "funding gap" for pre-seed and seed stage technology companies. CIT identifies and makes funds available to early-stage technology companies with a high-pot ential for commercialization, rapid growth and downstream private equity financing. Through cl ose consultation with CIT's Entrepreneurship and Investment Services Team, GAP portfolio companies will be positioned to achieve predetermined performance milestones required to secu re subsequent angel investment and Series A venture capital financing. ( ) (Reference 17) Innovation Works Launch Life SPAN Investor F orum, New Network to Boost Investment in the Regions Life Sciences, Companies on the Cusp of Growth, Addresses Unique Challenges Pittsburgh, PA, March 23, 2004 Innovation Works (IW) and the Pittsburgh Life Sciences Greenhouse (PLSG) The PLSG and IW created LifeSPAN Investor Forum out of a need to help m ore of the regions early-stage life sciences companies overcome a common and highly crit ical funding gap that often occurs as they progress from the research phase to commercialization. Investments from LifeSPAN Investor Forum participants will help bridge this funding gap. In addition to arranging periodic company presen tations to investors, LifeSP AN Investor Forum will create virtual access ( ) to those presentations thr ough a special-access Internet component of the program. (Reference19) The formation of LifeSPAN Investor Forum responds to several na tional trends in early-stage enterprise investing. First, is th e significant increase in the number of networks for private investors to share expertise, access to companies and due diligence activities. Second, investm ent in life sciences companie s is on the rise. In 1993, private investment in biotech firms was approximately $3 bill ion nationwide. In 2003, that number had grown to approximately $17 billion. Despite this growth, the need for more angel investment in early-stage companies of all t ypes persists. Last y ear, venture capitalists invested only 19 percent of their dollars into seedand early-stage businesses, following a decade-long trend toward financing expansion and late-stage deals. 56


In addition to helping bridge a gap in early -stage financing, LifeSPAN Investor Forum is intended to help bridge a knowledge gap among existing investors. (Reference19) According to Florri Mendelson, President & CEO of Innovation W orks, Our success with SPAN shows there is a healthy appe tite for investing in local star t-ups across all industry sectors. But since people tend to invest in what they already know and understa nd, LifeSPAN Investor Forum should help reach a targeted group of individuals whose background and interests are specifically in the life sciences, thereby capitalizing on our regions growing capacity in the life sciences arena as well as potential in vestors expertise. (Reference19) According to Dr. Doros Platika, President and Ch ief Executive Officer of the PLSG. LifeSPAN Investor Forum represents what can be accomplis hed when organizations like the PLSG and IW come together to create a win-wi n opportunity for the region. The investors win by having a network that will f acilitate investments in the life sciences; the companies benefit by having informed investors who fill the capital gap in company formation and growth; and the region benefits through th e creation of high quality com p anies and jobs that create products which save lives and improve the quality of life throughout the community and world. (Reference 19) Connecticut Innovations Forms Biotech Seed Fund, $5 Millio n Committed for Growth of Biotech Companies, ROCKY HILL, CONN., September 25, 2001 The fund will h elp to catalyze the developmen t of biotech companies through the crucial early stages, said Connecticut Innova tions President and Executive Dire ctor Victor R. Budnick. New enterprises on the frontiers of science will have the opportunity to demonstrate to future investors the strength and promise of thei r concepts. (Reference 20) The Biotech Seed Fund adds to the continuum of support available for biotech companies. This support includes the BioScience Facilities Fund, which helps biotechnology companies finance the expansion or creation of laboratory space; the Yankee Ingenuity Technology Competition, which offers awards to Connecticut universities that collaborate with Connecticut businesses on applied research and development projects lead ing to marketable products and processes; transitional laboratory space available to biot ech start-ups; and the Eli Whitney Fund, under which CI provides both equity ca pital and guidance for high-tec hnology companies. (Reference 20) 57


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