Business Incubator Series: Stephen Fleming, Enterprise Innovation Institute, Georgia Tech – Atlanta (Part 7)

By guest authors Irina Patterson and Candice Arnold

Stephen: Now, phase 2 [of the Georgia Research Alliance Commercialization Program] – and we go up to Phase 4 – phase 2 is an up to $100,000 grant, again, to the university or universities. Sometimes these are joint ventures between, for example, Georgia Tech and Emory.

It is competitive, so it goes to that same committee. The biggest change between Phase 1 and Phase 2, other than the increased dollar value, is that the company has to have demonstrated its ability to raise an equal amount of money from someone else.

So, if we’re going to put in $100,000, they need to have raised $100,000 from somewhere. That can be an angel investor. That can be an SBIR award. This is like an SBIR matching award. That can be they have sold something and gotten $100,000 worth of revenue.

They have to demonstrate the $100,000 from someone other than us, that we’re not fooling ourselves and know that someone else out there believes in the company.

Phase 3 is a loan program. It can be up to $250,000. It is an unsecured, very low interest, nonrecourse, nonguaranteed loan.

There are no personal guarantees. It’s on very friendly terms. Any banker would have me shot for offering money on such friendly terms. Even the lawyers push back.

It’s a balloon note that’s payable in five to seven years. The biggest unusual factor in that loan is that under certain circumstances, we can call the balloon back early. If the company is acquired or if the company leaves the state of Georgia, I get my money back. That’s part of the deal.

If a company goes through all three phases, Phase 1, Phase 2, and Phase 3, we are able to put $400,000, undiluted, into the development of that project and into the company. It’s split between the university and the company, but it’s $400,000 of translational research and commercialization assistance before they’ve ever had to take any dilution from equity investors.

That early money is incredibly valuable. It is truly a gift that we’re able to give these companies to get them started, a gift that most places don’t have. That sort of money is not available in most places. It’s helped us to launch a number of great companies here at Georgia Tech, at the University of Georgia, and at Emory. It’s six universities, but I’m biased. I think we’re the best.

Then we have Phase 4, which is an equity investment. We have raised an equity fund partially from the state and partially from private sector investors. I don’t know if the size of that fund is public or not. That’s the Georgia Research Alliance Venture Fund. This fund is able to take equity investments in the companies that have been through the process I described.

Just like any other venture investor, it’s a fund. It can buy equity. It sets a valuation and moves forward. It’s made more than five equity investments at this point.

That’s a set of funds, and through a combination of grants, low-interest loans – again, part of it can be SBIR matching – and equity we’re able to get university spin-outs started with those funds.

I said we had three different funds, and they all had different restrictions on them. The biggest restriction on GRA funding, through all four phases, is the company has to be based on intellectual property coming out of the member universities. So, if someone walks in off the street with a great company and a great idea, I can’t use this bucket of money for that company. It can be used only for the spin-outs from the university.

Irina: What can entrepreneurs who come in off the street get?

Stephen: We have the ATDC Seed Fund, which can be for anybody. We do have the Georgia Tech Edison Fund, if the company have a connection to Georgia Tech. They don’t have to have a legal requirement. The GRA funds, specifically because they’re designed for university commercialization, are constrained to the university.

Those are three pots of money we’re able to dip into. We also actively encourage our companies to apply for federal SBIR and STTR awards. We get a good number of those. That’s another source of money. It’s never fun for a company to raise money, but we certainly can make it possible. We try to help out wherever we can.

This segment is part 7 in the series : Business Incubator Series: Stephen Fleming, Enterprise Innovation Institute, Georgia Tech – Atlanta
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