emerging companies survey
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TRANSCRIPT
NCBIO Emerging Companies
Survey and Focus Group InformationForum Meeting February 8, 2007
ECF Survey Overview
Conducted in fall 2006 Online survey sent to 190 companies members of
NCBIO and identified from NC Biotechnology Center database
A number returned because emails were no longer valid
47 companies completed the survey
Emerging Company ActivitiesFigure 7
Company Activity
Medical device, 17%
Other, 13%
Research and development,
70%
Contract research and testing, 17%
Production and manufacturing,
20%
Figure 12Company Stage of Development by Clinical Phase
Phase I, 22%
Phase II, 7%
Phase III, 15%
Preclinical, 41%
Phase IV, 15%
Phase of Clinical DevelopmentAmong Companies
with FDA-Approvable Products
Figure 11Current Employment
51 to 100, 13%
11 to 50, 28%
Less than 10, 60%
Emerging Company Employment
Figure 14Total Funding by Source
2005-2006($284,621,801)
SBIR/STTR5%
Grant & Other7% Private Equity
68%
Public Equity16%
Long Term Debt4%
Emerging Company Funding Sources by Amount
(2005-2006)
Percentage of Companies Accessing Funding Sources
19%
35%
30%
58%
2%
5%
17%
Biotechnology Center Loan
SBIR/STTR
Grant & Other
Private Equity
Initial Public Offering
Follow-on Public Equity
Long Term Debt
Emerging Company Funding Sources by Frequency(2005-2006)
Business Climate Factors
Quality of Workforce Venture Capital Debt Financing Alternative Financing Government Incentives Pro-Business Government Attitudes Cost of Doing Business Corporate Tax Rates Technology Transfer
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Scientific/technical workforce
Manufacturing workforce
Non-technical work-force
Venture capital
Debt financing
Alternative financing
State incentives
Local incentives
Pro-business government
Low cost of doing business
Low corporate taxes
Technology transfer
Life Science Company Satisfaction vs. Importance of Business Climate Factors
Satisfaction Importance
Importance vs. Satisfaction with Business Climate Factors
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
NCBC Funding
BPTC Funding
Credit Enhancement Program
Low-Interest Debt Financing
QBV Tax Credit Extension
Importance of Current Policy Inititiatives
Extremely Important Important
Importance of Current NCBIO Policy Initiatives
Analysis
Venture Capital Remains an Important Issue QBV, Capital Gains Initiatives address venture
availability by promoting deal flow
Incentives Tax and incentive responses indicate strong interest
among companies Incentives will leverage venture financing and further
improve climate for venture companies Key issue will be finding appropriate vehicles for
delivering incentive benefits
Analysis, cont.
Debt Financing & Credit Enhancement Dissatisfaction with debt and alternative financing
indicate continued need for programs to support manufacturing investments
Other Priorities NCBC Funding Medical Device Company Support
Focus Groups
Held in December to follow-up up areas of concern from survey and from group who attended October meeting
Capital Formation Tax and Incentives
Capital Formation Focus Group Report Capital formation acute problem for early-stage
companies Fatigue among angel investors limits access to start-up
capital Movement by venture funds to larger, later stage
investment
Later-stage companies also have continuing capital needs Not adequately addressed by existing capital formation
policies, which focus on early-stage companies
Existing Capital Formation Programs
SBIR Matching Grant Program NCBC Grant and Loan Programs Qualified Business Venture Tax Credit State Treasurers Venture Fund Investment
Authority
SBIR Matching Grant Program
Matches 100% of Phase I SBIR Grants $3000 Stipends for SBIR Grant Applications 2006: $5 Million Non-Recurring Appropriation
Completely utilized in FY 2006-07
Action Item: Seek recurring funding of $5-6 million per year in 2007-
09
NCBC Business Loan Programs
Business Development Non-scientific, business-related activities critical to the commercialization --$15,000 - $25,000
SBIR Bridge (RBL) Phase I/Phase II SBIR/STTR gap funding -- Up to $75,000
Small Business Research (SRL) Product development for technologies with clear commercial potential -- Up to $150,000
Strategic Growth (SGL) Matching loans for angel or venture investments -- Up to $250,000
NCBC Business Loan Programs (cont’d.)
2005: $434,000 Business Development, SBIR Bridge & Small Business Research Loans Loans
2006: Launched Strategic Growth Loan Program (Angel & venture matching up to $250,000)
Action Item: Seek continued increases in appropriations to NCBC and
continued increases in amount and volume of business development loans
Qualified Business Venture Tax Credit
25% Tax Credit for Investments in Emerging Manufacturing, Research and Other Companies
$50,000 per Investor per Year Cap; $7,000,000 per Year Statewide Cap
Expires December 31, 2007 Action Item:
Seek reauthorization of QBV Tax Credit to 2010 with increase in statewide cap to $10,000,000; seek increase in credit rate in 2008
NC Venture Investments
Treasurer May Invest Up to 10% of Pension and Escheat funds in Alternative Investments
2005: $1.1 Billion in Pension Assets; 1.7% of Total Assets
Action Items Encourage Treasurer to use more venture investment
authority Encourage Treasurer to leverage investments to attract
venture fund offices and investments to North Carolina Obtain and Publish Data on NC Investments in Venture
Funds
Proposals for New Capital Formation Programs
Expand Deal Flow Venture Fund Investment & Recruitment
Incentives Implement Capital-Extending Policies Credit Enhancement for Debt Financing
Expand Deal Flow
Capital Gains Tax Exclusion for Founders Stock & Angel Investments Exclusion from Personal Income Tax for Gains Derived
from Sale of Stock Purchased from Qualified Business Ventures
Advantages: Places More Capital in Hands of Experienced Investors
and Entrepreneurs Provides Recruitment Incentive for Key Employees
Action Item: Seek enactment of exclusion in 2007-08 General
Assembly
Venture Fund Investment & Recruitment Incentives
Research Programs in Other States Considerations:
2006: NC: 65 Deals, $471 Million in venture investments; 1.8% of US total
2006: MA: 368 Deals, $2.8 Billion in venture investments; 11.1% of US total
Action Item: Propose venture incentive legislation in 2008 General
Assembly
Capital-Extension Strategies
Make Existing Tax Credits and Incentives More Accessible to Emerging Companies
Reduce Sales Tax Rates on R&D Equipment and Supplies
Make R&D Tax Credit Rebatable or Transferable Further Discussion in Tax and Incentives Focus
Group
Credit Enhancement for Debt Financing
North Carolina Life Science Development Corporation Loans for new plant and equipment for life science
manufacturing facilities State income, franchise or premium tax credit for loss on
guarantees of loans by NCLSDC
Action Item: Seek support of banks and insurance companies for
enactment of legislation in 2007-08
Tax and Incentive Programs Focus Group Report
Emerging companies generally cannot access tax credits and other financial incentives offered by the state
Economic disadvantage for small companies versus large firms
Allowing the companies to benefit from the credits could make them more attractive for other investments
Existing Business Investment Tax Incentive Programs
Jobs Development Investment Grants Program (JDIG)
William S. Lee Quality Jobs and Business Expansion Act (Lee Act Credits)
R&D Tax Credit
Jobs Development Investment Grants Program
State Authorizes Targeted Company to Retain as Grant a Share of Employee Income Tax Withholding
Reserved for Large Projects; Requires Approval of Economic Investment Committee
Early-Stage Companies Unlikely to Achieve Threshold Scale
Lee Act Credits
Credits Against Income and Franchise Tax for Job Creation and Capital Investments
Available to Companies in Manufacturing, R&D in Physical or Life Sciences
Must meet Minimum Requirements, Including Investment or Job Creation Thresholds 5-15 New Jobs As Much as $2 Million Minimum Investment
Most Emerging Companies Lack Tax Liability Against Which Credit Can be Taken
R&D Tax Credits
Credit for Increases in Federally Qualifying R&D – 5%
Flat-Rate Credit for R&D in North Carolina Small Business - 3% Low-Tier - 3% University R&D – 15%
Most Emerging Companies Lack Tax Liability Against Which Credit Can be Taken
15-Year Carry-Forward Not Attractive to Most Emerging Companies
Tax Credit Rebates and Monetization
Consider Proposing Tax Credits Be Rebatable to Emerging Life Science Companies Revenue Department Makes Cash Payment for Credits in
Excess of Tax Liability
Consider Proposing Tax Credits Be Transferable to Other Taxpayers Emerging Companies Sell Tax Credits to Companies with
Sufficient Tax Liability to Recover Entire Credit Amount
Tax Credit Rebates and Monetization (cont’d.)
Considerations: Rebates Have Been Previously Proposed but Not Enacted Unrestricted Transferability of Credits Creates Secondary
Market
Proposal: Rebates Transferable to Emerging Companies Providing
Goods or Services to Credit Holder
Recommended Short Term Action Items
Full Recurring Funding for SBIR Matching Grants Expanded Funding for NCBC Emerging Company Loan
Programs Reauthorization and Expansion of QBV Tax Credit Capital Gains Tax Exclusion for Founders Stock Credit Enhancement Program for Debt Financing of Life
Science Manufacturing Encourage Treasurer to Increase Venture Investments Obtain and Publish Information on State Treasurers
Investments in Venture Funds
Recommended Longer Term Action Items
Encourage NCBC development of new financing programs for later-stage life science companies,
Encourage Treasurers Office to leverage venture investments to attract venture fund offices and investments to North Carolina
Develop and propose venture fund incentive programs, based on strategies used by other states
Develop and propose programs to improve emerging companies’ access to state tax credits for job creation, business investment and research and development.
Questions & Discussion
Future ECF Programs
Schedule April 3, 2007: Legislative Meet & Greet Breakfast,
Legislative Building, Raleigh September 2007: CEO Networking & Best Practices
Forum
Best Practice Forum Content Suggestions?
Your Help!
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Legislative Grassroots Support Fact Sheets Member Action Alerts Triangle Area Legislators
Questions?Comments?
Sam TaylorPresident, NCBIO
Brenda SummersProject Coordinator
(919) 281-8960