Top 10 Federal Investment Strategies for MaximizingAmericas Proven Net Job Creation Engine:

Young Companies

Background

• Investment in startups and young companies creates a sustainable entity that can generate its own revenue and create jobs without constant refunding, and

• Net job creators are proven to be young companies, not just small businesses (see previous reports), and

• The biggest challenge facing startups and young companies is a lack of growth capital. (see previous reports).

• Accordingly, what role can the federal government take to fill the capital void in such a way that fosters more successful startups and small companies?

• A significant federal benefit is it can point these programs at any group of industries, agencies and applications.

Top 10 Ways to Fix Lack of Capital(From tech transfer to startups to growing companies)

1. Fund best practices of tech transfer2. Require small % of every federal R&D dollar be allocated to tech transfer

and startup working capital3. Revise SBIR programs to shift investment away from research addiction to

commercialization activities4. Leverage huge customer buying power5. Re-create rapid fielding pilot programs6. Create MBA Startup seed funds to distribute thru existing university

channels7. Government Venture Fund (GVF) targeting early stage investment 8. Promote existing wealth into smart money angel pools thru alumni angel

groups 9. Co-invest federal funds with angels and VCs to stimulate more investment10. Create “floorplan” financing for government contractors

Fund Best Practices of Tech TransferCreate a “Spin Out Engine”

Spin Out Engine

Immediately Increase Startups Created Annually from Fed R&D Dollars by 200%

• Currently $150B annual R&D spend averages output of 1 startup per $77M R&D = roughly 2,000 startups

• Allocate 1% of R&D spend or $1.5B to fund 6,000 startups• Use Spin Out Engine to identify

• unique technologies • with large market interest, • with short time to market • and modest capitalization requirements

• $25K per startup for tech transfer (incentivizes spin outs)• $225K working startup capital per company• Tech transfer infrastructure already in place to manage this program

• 6,000 fed technology startups per year is game changing

Revise SBIR Programs to Foster More Startups/Young Companies

• Currently $2.3B spent thru these programs

• Average $250K SBIR I and require output is….• A working prototype • In a small business

• SBIR I “graduates” eligible for SBIR II averaging $750K and require that the funds…. • Are allocated to the completion of a pilot test with the sponsoring/funding agency

• If Pilot is successful, • the sponsoring agency is required to buy and implement the technology it funded (sole

source allowed for SBIR III companies)• The sponsoring agency maximizes its investment • Agency procurement provides valuable revenue and credibility for young company that will

help them obtain more customers (and investors if necessary)• Infrastructure already in place, just modify funding and result requirements

Ensure adoption of 1,000s of new technologies helping the agencies fulfill their missions, supporting young companies and job growth

Leverage Huge Customer Buying Power

• Federal Government huge source of procurement

• Purchasing infrastructure already in place

• Leverage federal funding by purchasing the fruits of its investment

Re-create Rapid Fielding Programs

• Numerous successful Rapid Fielding, Rapid Prototyping and Pilot programs in private and public markets

• Allows customer to “test-drive” product in small controlled environment similar to real world needs

• Substantially accelerates procurement timeframe making new technology purchases while technology still new

• Would require modest new organizational staffing and infrastructure but many successful models in place with modest overhead

MBA Startup Seed Funds

• Provide equity capital to MBA graduate students to fund new business plans as final credit for business course

• Student works with other students, faculty and advisors to build business plan• Target business to an industry pegged by federal government as national priority in

need of innovation and growth (energy, healthcare, defense, transportation, education, manufacturing)

• Students receiving an A also receive a $100,000 seed loan • Students receive $100,000 additional funding if they license technology from their

university tech transfer office

• University network has existing faculty infrastructure and capacity to fund tens of thousands of startups per year

• Have data and investments managed by Federal ANGEL Network

• $2.2B = 20,000 startups (2,000 with licenses)

Government Venture Funds

• Follow and improve proven federal models: In-Q-Tel and OnPoint• Proven federal models learning best practices from successful corporate venture

capital funds• Leverage the huge purchasing power of the federal government to generate valuable

revenue for young companies• Take to market new technology in healthcare IT, renewable energy, energy

conservation, cyber security, defense• GSA, VA Systems, DOD, State Department, DHS best candidates• Establish multiple 3rd party funds with full time proven corporate VCs

• Add $1B of investment capital into the market• Substantial and immediate impact• 26,000-80,000 permanent jobs per $1B

• Would require new but small/agile teams to be built• Next generation of federal and corporate venture capital best practices

Support Creation of Alumni Angel Groups

• Examples- Irish Angel Network at Notre Dame and Wisconsin Badger Alumni Capital Network model (BACN)- Alumni group members provide:

• leadership to startups• Introductions to customers, strategic partners, investors, mentors, etc• Vital working capital• Corporate partnerships• Corporate customers

• Turn $5M of alumni participation into • Alumni ROI and future giving• Supporting passionate entrepreneurs is personally rewarding • New generation of CEO Alumni givers (successful entrepreneurs)

• $1B Federal matching funds for qualified alumni angel groups• Manage through SBA, or create national Federal Alumni Network Government Eligible

Leaders Network (Federal ANGEL Network)

• 40 Alumni Groups = create/support 100 young companies per year!

Co-invest Federal Funds With States, Angels and VC’s

• Reverse declining trends of available early stage investment capital by…• Annually distribute $1B among states as matching investment dollars

for young companies• Annually invest $1B as LP into early stage VC funds

Create “Floorplanning” Funding for Government Contracts

• Small businesses obtain contracts with govt agency but need working capital to build products and/or staff up to service new contract

• Investor capital very expensive• Business does not have the credit scoring for adequate loan• Business owners do not have the credit scoring and/or assets to personally guarantee a

loan• Asset based lenders or “receivables” lender cannot lend because product/service has not

been delivered and there is no receivable yet• A “floorplanning” funding vehicle, similar to the way car dealers have their vehicle

inventory funded would fill this significant capital void for small businesses

• Existing banking industry could provide the lending infrastructure similar to how it works with government for SBA loans

• Add $1B of investment capital into the market• Substantial and immediate impact

How Do We Prevent Déjà Vu?Use Proven Models

• Cover Valley of Death with more early stage investment $$• Proven federal venture funds and alumni angel groups

• Recycle proven entrepreneurs and provide them with fertile growth environment• Product (technology) + customers + investment capital

• Use proven competition model to match technologies and young companies to investors and customers• X-Prizes• NASA Challenges• American Security Challenge

• Support unproven entrepreneurs • Mentors + product + customers + investment capital

• Build farm system of future entrepreneurs• Shadow programs, inject more life experienced experts into curriculum, internships, Entrepreneurs in

Residences, etc

• Leverage existing assets• Successful early stage angels, VC’s and state funds• Existing university MBA infrastructure• Huge inventory of intellectual property and technology from government research funding• Existing banking infrastructure• Existing Alumni Angel networks• Existing SBIR infrastructure

How much $ creates how many new jobs?

Program annual fed $$

startups created from tech transfer

funding

startups and young companies funded

Best Practices of Tech Transfer- EIR Programs, etc $1,000,000,000 6,667re-allocate 1% of federal R&D to fund startups $1,500,000,000 6,000revise SBIR (3 to 1 ratio of SBIR I to SBIR II) $2,300,000,000 4,600 1,533leverage huge customer buying powerre-create Rapid Fiedling Programs $1,000,000,000 2,000 MBA Startup Seed Fund $2,200,000,000 2,000 20,000Goverment Venture Funds $1,000,000,000 1,000 matching funds for Alumni Angel Groups $1,000,000,000 800 3200Matching funds for State Angel $1,000,000,000 4,000 Matching funds for early stage VCs $1,000,000,000 2,000 floorplan financing $1,000,000,000 1,000

total $11,500,000,000 20,067 34,733

New Jobs 288,736

Cost per new high paying permant job in growing sustainable company

$39,829

Thank You

ChairmanAmerican Security Challenge

Moving Innovation to Marketwww.AmericanSecurityChallenge.com

Innovation DirectorChesapeake Crescent Initiative

www.thechesapeakecrescent.com

Roger London

6031 University Blvd. Suite 180Ellicott City, Maryland 21043

410-340-5335Email: RLondonMD@gmail.com

LinkedIn Profile: http://www.linkedin.com/in/rlondon