Faculty as Start-up Founder: One Man’s Experience

Raymond Dingledine, PhD is Emory professor of Pharmacology and co-founder of Emory’s screening facility. His research focuses on the pharmacology of glutamate receptors and the causes of epilepsy. Dingledine’s has received numerous awards such as the ASPET’s Robert R. Ruffolo Career Achievement Award in Pharmacology and election to the National Academy of Medicine. He has published over 200 research papers, served as editor of “Molecular Pharmacology,” and sat on the editorial board of “Molecular Interventions.” Ray is also co-founder of Emory start-up NeurOp. In this interview he shares some of his thoughts and experiences as co-founder of a company.

Raymond Dingledine, PhD

Tell me about your background/research interests. Were you always interested in research with commercial potential?

Raymond Dingledine, PhD is Emory professor of Pharmacology and co-founder of Emory’s screening facility. His research focuses on the pharmacology of glutamate receptors and the causes of epilepsy. Dingledine’s has received numerous awards such as the ASPET’s Robert R. Ruffolo Career Achievement Award in Pharmacology and election to the National Academy of Medicine. He has published over 200 research papers, served as editor of Molecular Pharmacology, and sat on the editorial board of Molecular Interventions. Ray is also co-founder of Emory start-up NeurOp. In this interview he shares some of his thoughts and experiences as co-founder of a company.

Tell me about your background/research interests. Were you always interested in research with commercial potential?

I became interested in the properties of glutamate receptors in the early 80’s. There were a number of amazing discoveries in the 80’s and 90’s that led to the gradual emergence of glutamate receptors as a major focus in neuroscience. One of the goals and recognitions early in this work was that NMDA receptor antagonists should be useful eventually as anti-ischemic compounds for cerebral ischemia, like stroke. The problem was that NMDA receptors play so many roles in the brain in daily activity that blocking them is simply not tolerated.

The field of pharmacology inherently has a therapeutic goal, so yes, I’ve always been interested in contributing to the long history of solving medical problems with new drugs. Stroke is a huge problem that has no solution right now other than try to dissolve the clot quickly. Steve Traynelis, another faculty member in Pharmacology, and I had been studying the molecular properties of NMDA receptors for quite a while. We discovered that there are some compounds that exert a pH-dependent block of NMDA receptors in such a way that the drugs are more potent at acidic pH. The idea is that you should be able to give a dose of an NMDA receptor blocker that does not affect NMDA receptors in healthy tissue. As soon as a stroke appears, oxygen is shut off to that part of the brain and you begin releasing lactate and other acidic metabolites, so there’s a local drop in pH. The idea is that our compounds would selectively target the penumbra of strokes that feature a low pH and that would solve the last problem in the long path of developing NMDA antagonists for clinical use.

Tell me a little about NeurOp. What do you market?

We don’t currently market anything. We formed the company in 2002 or 2003 to develop a first-in-class NMDA receptor antagonist. We now have developed a NMDA receptor antagonist internally that has just finished going through Phase I clinical trials with no unexpected toxicities, so we are at the point now of developing a Phase II trial.

When you formed NeurOp did you have the antagonist you wanted or was it something you had to produce?

Human Brain

When we formed NeurOp, we had nothing to license – what we had was a novel idea. The rationale for forming NeurOp, in hindsight, was basically a personal development. For about three years before NeurOp, I had considered several jobs at large pharma companies to essentially oversee the development of many NeurOp-like projects. I talked these opportunities over with a friend of mine named Sol Snyder from Johns Hopkins. He gave me pretty good advice, which was to keep my day job and accomplish my need to give back to society by forming one or more small purpose-built companies. So that’s what we did. Steve Traynelis, Jim McNamara (Duke) and I started NeurOp after that and I decided to stay at Emory in my academic roles.

What was your initial role in NeurOp? What is your role now?

Originally, I was a founder and member of the board of directors. I have the same role there today as a member of the board of directors. The difference is today, NeurOp is led by highly experienced former pharmaceutical executives and business-types. So, although in the early days I and the other founders had more of a decision-making role, now it’s a more traditional board of directors. I give advice to the CEO and he takes it or leaves it.

Steve Traynelis and I had a necessity to maintain a bit of an arm’s length with the goings on at NeurOp for conflict of interest reasons, so we were not involved directly in designing all of the pre-clinical studies. NeurOp was a fully functioning company with medicinal chemists, neuroscientists, clinical trialists, and clinicians. My role initially was as one of the decision makers, but now I’m more of an advisor to this company.

Was NeurOp your first venture into the world of startups? What expertise did you bring to the formation of this company?

NeurOp was my first startup. My business expertise at the time was limited to having served on advisory boards for companies like Merck, Lilly, Bristol Meyers, smaller companies. I’ve learned a lot along the way. At the beginning, we were such a small endeavor that everybody had to do everything, so there was no real distinction between the scientific and the business decisions. Today the business expertise is held by our leadership and other people on the board and my main contribution is on the scientific side.

How did you go about putting together the executive team of NeurOp? In what capacities had you worked with your current collaborators in the past?

The other two founders, Steve Traynelis and Jim McNamara from Duke, have been longtime scientific collaborators. I had worked with Jim since the late 70’s and Steve since the mid 80’s. We respect and complement one another’s expertise. Jim is a neurologist and Steve is a world class molecular pharmacologist. Dennis Liotta and Jim Snyder from Emory’s Chemistry department played major roles especially in the beginning in compound design.

We recruited a startup CEO, Vince La Terza who had previously been director of Emory’s OTT, so he knew his way around the local and southeast startup business communities. Then we got busy trying to raise money. It was extremely challenging. In the early days, we had nothing to license. We had an idea, we had some commercially available compounds, and a few that hadn’t been well characterized yet that were proprietary. We must have given 100 dog and pony shows to potential investors, both pharmaceutical company partners or venture capital angels.

We basically got two messages. One was “We like you boys, but you’re too early. Come back when you’ve been in man.” The second response was, “NMDA, oh my god.” The idea of the second one was that the pharmaceutical industry had already by that time spent more than a billion dollars in failed clinical trials for NMDA receptor antagonists and the general thought was that we shouldn’t be wasting our time on something that wouldn’t work. Most people were not really interested in the novel strategy of incorporating pH dependence to develop a conditional blocker, so it was very challenging.

We are right now trying to figure out what the best indication would be for a Phase II trial and we’re considering different stroke mechanisms or indications as well as pain and a couple of other ideas.

Has OTT been involved in the formation and success of your start up? If so, how?

In the early days, OTT was pretty passive, and I would say probably did not contribute very much. When Todd Sherer came along, the whole game shifted, and they are now the best they’ve ever been during my time at Emory. As NeurOp gained the ability to generate compounds on its own through its own medicinal chemists, the patents began shifting from Emory to NeurOp so for this effort, OTT didn’t contribute very much. Having said that, they were critical in licensing the compounds and they also helped us with the Georgia Research Alliance. GRA played a major role early on, eventually investing $450k.

What advice would you give a researcher interested in forming their own startup, based on the experience you’ve had with NeurOp?

We founded NeurOp too early when we basically only had an idea. We should have developed compounds internally at Emory and been closer to the point of having a clinical candidate before launching a company. I was influenced by my own need to get something going at the time and I should have held back on that. My advice would be to think carefully on the timing of the launch of a new company.

Three months ago, I cofounded a second company called Pyrefin to advance novel anti-inflammatory compounds through clinical trials. Our potential clinical indications are cognitive decline in epilepsy, endometriosis, arthritis, and potentially gliomas, all of which have been strongly benefitted by our compounds. The thing is, our science underpinning Pyrefin is about ten years ahead of where we were when we had founded NeurOp. Unless we run into unexpected toxicities or other problems during development, we’re done with basic discovery for the moment and we’ve selected clinical candidates and their backups.

Another piece of advice is something that was positive from both NeurOp and Pyrefin. Make sure that you are compatible with your cofounders. There will be inevitable questions about which direction to take, but if you respect one another and have an actual friendship, those conversations are so much easier to handle.

First Person Experience with the Kauffman FastTrac® Course

Cherry Wongtrakool is an associate professor of pulmonary medicine and a medical director at the Atlanta VA. She recently completed the Kauffman FastTrac® course and shares her experience.

Tell me about your background/research interests. Were you always interested in research that had commercial potential?

I am a pulmonologist and I take care of patients. The reason why I enjoy research is because I want to be able to add to the body of knowledge that translates directly into helping my patients. I will say that I probably did not go into research with the thought that I would be doing something along the lines of commercialization, but everybody considers their research to be translational in some way. For many clinicians, the reason we do research is to find out how to better serve and better help our patients, so anything we do serves to achieve that ultimate goal.

How did you first decide you were interested in forming a startup?

Well, we haven’t formed a startup yet. We’re still in what would be considered the “preclinical stages” or the “discovery stages” where we’re doing a lot of in vitro and in vivo work to create a body of data that we can use to show to investors once the startup is formed. If you don’t have the data to support your startup idea, you might as well not form the startup. If your data is not very convincing, you won’t be able to attract investor funding, so the quality of your body of work is essential.

We are looking at a nanoparticle-based delivery of oligonucleotides to regulate a specific gene in Type II inflammation in asthma with Khalid Salaita from the Chemistry department. We collaborate where he’s the chemistry arm and I’m the physiology arm. Because our commercialization would fall under the umbrella of drug development, it’s hard to advance without any in vivo data in this pre-clinical, pre-discovery phase. It’s very difficult to do only test tube or cell culture work and then expect to take it through to full drug development because seeing something in a test tube or cell culture is insufficient.  That limited approach doesn’t give any information about possible toxicities, for instance.

What was the rationale for forming a startup as opposed to licensing the technology to an established company?

At this stage, it’s still quite early to think about licensing, although I suppose theoretically it could happen. We feel we need a startup to attract funding to do the really heavy preclinical work needed to apply for an investigational new drug application with the FDA. That work typically includes toxicity and pharmacokinetic studies, with large studies involving two different types of animal species. Drug development has its own unique pathway to commercialization compared to a medical app or a medical device.

Had you previously had interests in entrepreneurship or developing commercial applications for your own research?

This is my first foray into the world of startups. I never really thought about our research in this way before or in this much detail. I didn’t study business or anything like that as an undergraduate. I think that our technology has a lot of potential for growth with different applications. We’re obviously targeting a very specific disease, asthma, and a very specific subset of that disease, but based on our technology, it potentially could have significant impact in other diseases too. From that perspective, it would be nice to see everything come to fruition.

What initially interested you in signing up for the Kauffman course?

As part of this whole venture, we were funded by the Coulter Translational Fund, which is a jointly administered between Georgia Tech and Emory. Getting funded by Coulter involves meeting regularly with their advisors and investors. A lot of what they were saying was relatively new to me. One of the questions as an academic is if you do form a startup, what is your role in it? Are you a CEO? Are you a CFO? Are you a CSO? Are you a CMO?  I didn’t know what to look for in a CEO, because an academic job and the CEO of a startup requires a different skill set.

I didn’t know what I was looking for in a CEO or what do they needed to do. Kevin was unable to attend, but this year, I thought “Okay, since we are potentially getting close to eventually forming a startup company with our data set growing stronger, it would be good for me to learn a little bit more about this.”

What were the most important lessons during the Kauffman sessions?

The biggest lesson I learned was that there is a completely different vocabulary to understand. Otherwise, what was really helpful was the way the course was designed. They invited people who were local to talk about different aspects of having a startup. One speaker gave a great talk about company valuation. There was a talk on IP, which is always helpful. The speakers were very supportive of the Kauffman course, so they were quick to say, “If you have any questions, please reach out to us, just email us directly.” Having that connection as a potential resource, even though you may not necessarily reach out to each person, was really wonderful. Kauffman also gave us a “toolbox,” which had a lot of information and examples of agreements with different companies and different investors, and spreadsheets for different budgetary projections. The course was very informational.

Was there anything you wish had been taught during the Kauffman course or you felt like could have been done differently?

One thing that is always good to learn more about is intellectual property as it relates to drug development. It’s a very specific area, so having a one-on-one with someone who does IP would have been nice, but obviously that may not be feasible in this crash course on entrepreneurship. A lot of drug development startups rest very heavily on their IP. Without proper IP protections, you are not in a strong position to compete for investor dollars. An investor will likely say “If I invest in you, someone might come in with the same thing, then how do I know I will get a return?”

What do you see as your next step after completing the Kauffman course?

I feel like I’m better equipped to search for a CEO because I know the things we need our CEO to have experience with.  Somebody who was a CEO in non-pharmaceutical industries may be good with people skills and management skills, but they may not be the right person simply because they might not have the right contacts in the biomedical space to bring in investor dollars. I think I’m also more able to participate in ongoing conversations about what the needs of our investors are and how to structure milestones for the startup.

You mentioned that you had received Coulter funding and I know you also got funding from the GRA — how is that type of funding helpful?

Coulter funded us at the very beginning. Coulter is a stakeholder and investor in this process and they’ve provided us with ongoing consultancy. They’re very aware of what’s going on in the local market and they meet frequently with GRA (Georgia Research Alliance). There’s important cross talk between the two because GRA’s goal is to advance biomedical research in Georgia whereas Coulter is specific to Emory and Georgia Tech, so they have a very symbiotic relationship. We had GRA Phase I funding to help us do third-party validation studies. We don’t have GRA Phase II funding yet, but we are applying for it.

Both the Coulter and GRA funding have been immensely supportive and crucial to our project.  Without either of them, we would certainly be years away from where we are. That’s because traditional funding mechanisms such as the NIH or the NSF do not typically fund these types of efforts for individual investigators. They don’t fund repetitive third-party validations, so we really are dependent on the Coulter and the GRA funds to move our research down the commercialization path. It’s different once you’re a startup company because then the company can apply for NIH Small Business grants, but if you haven’t formed a company yet, your options are limited.

 

 

What Can be Learned From One of the Most Infamous Startup Failures: Theranos

In 2015, after enjoying a few years as Silicon Valley’s most in-demand startup, Theranos, the blood-testing company named for the portmanteau of “therapeutic” and “diagnostic,” was the subject of a groundbreaking article in the Wall Street Journal. Whereas previous profiles had focused on Theranos’ promise to revolutionize healthcare, as well as the company’s eccentric founder, Elizabeth Holmes, the Journal uncovered an unsightly truth in their reporting – Theranos had never developed technology close to the level of sophistication as they claimed. Within the next two years, the company completely imploded.

Theranos’ mission originated in Holmes’ famed phobia of needles. In her early years as a Stanford undergraduate, Holmes dreamed of a device that could rapidly process any medical test from only a drop of blood. Through a committed act of sleight-of-hand, Holmes was able to obscure from both investors and the public the challenges that the development team faced. By the time Theranos had rolled out its services in 2013, it was using skeletal prototypes and hacked machines from other companies.

The Theranos story is ultimately one of fraud, deception, and overshot ambition, However, it contains many lessons applicable to any biotech startup. Thus, we consider here a couple of takeaways.

1) Know Your Product
Holmes dreamed of delivering a consumer product ready for use in a patient’s home, but run-ins with the FDA quickly dashed her hopes. Eventually, it was decided that blood samples would be delivered to the Theranos lab for testing, but Holmes remained adamant that the machine still be designed like a consumer product. This created frustrations for the development team, as they were given strict size and aesthetic guidelines, impeding their technical work. This highlights the importance of zeroing in on a precise idea of what your startup will market and for whom. Contradictory or overlapping ideas complicate the development process and frustrate employees who lose sight of how their task fits into a broader effort. Furthermore, conflicting ideas of a product can lead to employees stepping on each other’s toes and undoing each other’s work.

2) Pick the Right Leaders
In 2008, only a few years into Theranos’ lifespan, mounting concerns from employees forced board members to consider removing Holmes as CEO to find a more experienced replacement. This was quickly rebutted by Holmes, who was able to convince the board to let her stay in her role. If Theranos found a new CEO at this point, they might have eventually unveiled a less ambitious, but more stable product. However, Holmes continued to lead the company in her own vision, holding impossible expectations and stamping out dissent along the way. Vision is a crucial attribute of any company leader. But, it must be balanced by practicality and flexibility – two traits Holmes lacked. Choosing the right leadership for your startup dictates entirely how the product you build will eventually be carried to market.

3) Timing is Everything
While it is possible for startups to form belatedly, more often, companies establish themselves without fully understanding their path ahead. This is particularly true in the field of medical technology, where incorporation is often necessary to raise funds for patents and approvals. Forming a company before successfully developing your product can lead to disaster. If you hope to market a new drug, you could spend years searching for a lead compound, and that compound might still fail. If Holmes had tried prototyping her vision even loosely before founding Theranos, she would have quickly realized the depth and complexity of the problem she hoped to tackle. Finding a humbler replacement could have also taken years, but once discovered, the incorporation process would have been much smoother. Take the time to develop a product you feel confident about so that once you pitch to investors, you know exactly what you have to offer. You’ll save everyone time, money, and pride.

4) Exaggeration is Dangerous
While embellishing investor pitches is standard in the world of startups, medical technologies complicate the ethics of exaggeration. A software company can overstate its capabilities because failure to deliver only limits the functionality of an app, at most frustrating some user. Exaggerating the functions of a medical product, however, can let down actual patients or worse, deceive them into non-necessary procedures. Organizations like the FDA provide a check on what a startup can claim to do, but Theranos proves that products sometimes slip through the cracks. Overstating your company’s success is tempting in investor meetings, but be sure not to violate the trust of your customers.

5) Communication is Key
One way that Holmes kept Theranos’ struggles under wraps was by personally mediating all company information. This meant that development teams had no point of access to each other, obviously prolonging most of their work. The team concocting blood tests had no clue what the physical constraints of the machine would be, the team responsible for sales often had an outdated idea of what the machine they were marketing could do, and so on. While Theranos provides an extreme example, it serves as a reminder that open communication is central to productive collaboration and ultimately leads to a better product. 

6) Patent with Care
At one point, an ex-friend of the Holmes family retaliated against Elizabeth by patenting a particular component of the Theranos device that she hadn’t thought needed protection. Whereas patenting a new drug largely involves patenting a novel compound, biotechnology startups looking to build medical devices have more ground to cover. A novel, sophisticated medical device will often feature proprietary components that need patent protection, components that don’t require patent coverage, and components that combine or improve upon previously existing technologies. If you’re opposed to licensing another inventor’s patents for any part of your device, make sure to search through the prior art before committing to designs.

7) Trust Criticism
If there was one take away from the Theranos story, it would be this. Holmes’ insistence on building out her personal vision jeopardized the well-being of the company consistently, and her inability to reckon with the truth – that the Theranos device was an impossibility – ultimately led to her downfall. It wasn’t as though her employees were simply left in the dark, tackling small tasks without knowledge of Theranos’ greater problems. Consistently, when faced with criticisms or even simple concerns from researchers, engineers, lab technicians, lawyers, investors, and others, Holmes deflected and doubled down on her own commitments. When honest, reasoned criticism comes your way, it is always in your best interest to listen.

Reference: Carreyrou, John. Bad Blood: Secrets and Lies in a Silicon Valley Startup. Knopf, 2018.

Emory Start-ups Continue to Have Impact, Success, and Products to Market

In 2014, OTT published a comprehensive survey of all start-up companies founded on Emory intellectual property. The results proved Emory to be an economic hub in the South, generating not only private and public investment capital, but also job growth and life-saving products. Across the 72 companies surveyed at the time, 1,200 workers had been employed at peak, mostly in the areas of drug development, diagnostic materials, and software-based products. These start-ups cumulatively raised more than a billion dollars in funding and brought 30 different products to market. Now, five years later, OTT has updated its survey, unquestionably demonstrating the importance of tech transfer in an academic settings.

The updated survey covers 103 companies, indicating that 31 start-ups were founded in only the past five years. Impressively, roughly 85% of Emory’s start-ups were founded after the year 2000.  These figures indicate the ways in which success begets success and the impact that the support provided by the office to the University’s budding entrepreneurs. There is a curiosity that follows the idea of starting your own company that is present with academic researchers too. OTT has matched this growing interest with a number of support programs aimed, such as the Kauffman course. The office has also worked to connect young start-ups with financiers and networking opportunities via the Start-Up section on the OTT website, which outlines regional resources, provides thorough advice, and contains a directory of previous Emory start-ups.

startup-infographic

Since 2014, three more Emory companies have gone public, raising about $200 million more in public investment dollars. During the same time period, Emory start-ups doubled their private investments, bringing their total to $2.1 billion. Ten more products came to market from Emory companies in the past five years for a total of 40 products. These were developed by 27 different companies, showing that Emory start-ups often find success, continue to develop and market new discoveries. Additionally, seven more companies merged or were acquired, totaling 16 companies generating $14.2 billion.  These gains have worked to benefit the local community, as more than half of Emory’s start-ups operate out of Georgia. At some point during the past few years, at their peak, Emory companies collectively employed 1,700 people. Of the 103 companies studied by OTT, 68 are still active and operate today, meaning two-thirds of Emory start-ups have survived.

The update to the start-up survey once again proves Emory’s excellence in this area. The University’s vastly talented researchers find entrepreneurial resources and business connections and are guided by the hard-working professionals in OTT. These results show that Emory continues to grow even faster than before. Such news could only mean that there are bigger discoveries and more exciting innovations ahead.

An Introduction to Investor Pitches

You’ve filled out all the paperwork, organized all your patents, developed your prototypes, and maybe started selling products. Your company has reached the point where if you want to get any further, you’ll need some money. It’s time to pitch to investors.

Investing GraphicThe biggest mistake you can make when developing a business pitch is thinking that what you’re pitching is simply a business or a product. Investors hear of great ideas and promising businesses constantly. A key element that distinguishes one company from the next is the people running it. Try to pitch the team behind the company. A great product is a great product, but it’s ultimately the people who manage a company who turn that product into a success. A business pitch, then, is really a story. Investors want to see where your business has come from and where it will go next. Rather than fitting every detail about the company into a crammed pitch, prioritize elegance and rhetorical effectiveness. The details to include should serve the broader narrative and nothing else.

If a business pitch is a story, it must grab the listener’s attention. Emphasizing the narrative aspect of a pitch is crucial in those opening moments. Instead of jumping right into data or demonstrations, start simple and succinct – layout the problem the company addresses. This creates a human reference point to understand your product. It also conveys that there is a need and market for the product. The first one or two slides (or paragraphs) should be highly engaging for this reason, opting for impactful visuals and even media/customer blurbs. It’s important not to drag this section out for too long.

Use the problem as a springboard into your proposal – how does your product aim to solve your problem? Is it a need that no one else is addressing or is it being addressed in a better way? It’s important to indicate how this product will be able to beat out your competition. Once you’ve done this, you can start to discuss your business model in more depth. Be realistic about potential market penetration. Include information about production costs, features, benefits, regulatory requirements, and potential sales price.

Take some time to explain the revenue model – potential investors are interested in how the business will generate revenue. This is a good time to deploy testimonials you may have from users and previous investors. Any positive media or trade coverage will come in handy here. Close by indicating what your next steps are. What is your company looking to do that it can’t do now? This of course leads to the natural question – how will an investment support these next steps? You want to make clear what you are looking for from investors, as they’ll want to know where their money will go.

Meeting GraphicAs a business pitch is a story, round out your narrative with an exit strategy. Investors are interested in payoffs, not just returns. Emphasize the different possibilities for growth, but be realistic. The best business pitches find the right balance between the emotional tenor of the company’s story and the data to show its true strengths.

The final requirement for an effective business pitch is research. Research the person and group that you’ll be presenting to. If you can find it, see what they’ve invested in before, how much time they can/will devote to your company, how well they know your industry, the types of connections and referrals they have and any other important interests. During this process, both sides are trying to find the best match.

Once you have a pitch, practice is key. Try to be prepared for the unexpected, things often don’t go as planned. It may be advisable to have a few different pitches prepared. The most formal would be a full business plan. At a step down from this would be an adaption of the business plan in a PowerPoint of 20 slides or less to accompany an oral presentation. For an even more concise pitch, cut everything down by half – this sort of condensed, impactful proposal is known as a “pitch deck.” As your barest option, prepare a quick, five-minute “elevator pitch” without visuals. This way, you have a pitch ready for a wide variety of situations.

Your business pitch is meant to demonstrate your company’s potential as well as your aptitude not only as someone who can generate capital, but as a leader and effective communicator. Keep things tight, keep things emotional, and let the rest follow.

References

The Small Business Administration: Its Resources and Opportunities

Getting a startup off the ground is a grueling task. What’s harder is working through the process alone. Luckily, the US federal government recognizes the value in entrepreneurship and as such, works to support small companies through various resources offered by the Small Business Administration. In this article, we will highlight the key resources offered by the SBA broken into four categories.

Funding Programs

For its funding programs, the SBA mostly acts as a mediator between lenders and small businesses. For instance, interested entrepreneurs can utilize the SBA’s Lender Match service, an online referral tool that connects small businesses with SBA-approved lenders in an effort to boost access to investment capital. To the same end, the SBA acts as a guarantor for small businesses looking to receive surety bonds. The only grant programs the SBA currently operates are selective, providing funds to businesses affected by natural disasters, businesses involved in scientific research and development, or small businesses developing their export capacity. On the whole, the SBA finds it more beneficial to facilitate rather than give.

We’ve covered the SBA’s scientific research grants, (SBIR and STTR are not SBA’s research grants) the SBIR and STTR, on the OTT blog before. Researchers at Emory who are looking to commercialize their scientific work might benefit from either program. Both require government agencies to allocate a percentage of their yearly allowance for projects helmed by small businesses. This can provide a hefty amount of non-dilutive capital for entrepreneurs involved in technology-based startups.

Federal Contracting

The SBA runs a handful of assistance programs meant to support small businesses that compete for federal contracts and are operated by underrepresented groups. These include businesses owned by women and service-disabled veterans as well as businesses that either operate out of historically underserved areas or are run by economically insecure owners (i.e. business in the HUBZone and 8(a) Business Development program). The federal government tries to award a percentage of federal contracting dollars each year to businesses in these categories and once again, the SBA acts as the mediating point between the two. These programs offer mentoring resources and create set-aside contracts – contracts that have their applicant pool reduced exclusively to program participants.

Technology startups at Emory interested in contracting with the federal government should assess if they are eligible for any of these SBA assistance programs. If you’re a female PI who recently incorporated your startup, you could benefit greatly from registering as a Women-Owned Small Business with the SBA. Not only can you gain access to valuable federal contract assignments, but you can acquire industry contacts along the way.

Learning Center

The SBA also provides an invaluable educational resource through the maintenance of its Learning Center, a free series of courses on the SBA website. These courses typically consist of audio lectures paired with worksheets for the thorough student. The Learning Center features classes that cover the fundamentals of business management and classes that delve deeper on topics that might concern more niche industries.

Emory researchers who pursue the startup route could benefit from two of the courses on the Learning Center website. The first is the Patents, Trademarks, and Copyrights course, which provides a primer on intellectual property law for business owners looking to leverage their research. The course covers the legal theory differentiating patents from trademarks from copyrights and walks through the details concerning the application process for all three. The SBA also offers a course on Taking Your High-Tech Product to Market, which is useful for researchers deploying a new medical software or biotechnology advancement. This course takes a more straightforwardly business angle in elucidating the market characteristics of high-tech products and introducing concepts related to the product life cycle and diffusion curve.

Business Guide

The centerpiece of the SBA website is its Business Guide, a collection of informational webpages that walk through the different phases of business planning and management. Through these guides, the SBA hopes to instruct business owners on how to plan, launch, manage, and grow a business. These guides don’t just offer self-contained information, but often hyperlink out to other helpful resources across the web and hosted by other government agencies. For instance, you can use the guide to locate government databases that indicate spending patterns on federal contracts and databases that allow various agencies to list what they anticipate they’ll be contracting for.

Business Plan Example

This is the companion post to our introduction to business plans, you can find that post here.

Executive Summary

MotionBud Inc. designs, manufactures, and markets a practical and portable non-pharmaceutical approach to motion sickness that prioritizes style, comfort, and effectiveness. Our mission is to lead the motion sickness relief market in the development of novel solutions that target the inner ear, our brain’s motion sensor, directly. Our FDA approved device is the first of its kind on a market that traditionally favors OTC drugs and acupressure wristbands. As roughly 50% of the world’s population suffers from motion sickness in some form, this is no insignificant advancement. Our unique positioning, as well as our advanced technology, primes us to reach a decent portion of the $670m motion sickness relief market. We currently project to reach profitability within the next 2 years based on strong revenue growth and are orienting our strategy to attain contracts in various technology sectors as well.

Product Description

Our product, the MotionBud, is an in-ear headphone set. Along with traditional headphone functionality, the MotionBud features a transmitter that releases vibrations to overwhelm the motion sensors in the inner ear. This crowds out the brain’s ability to process motion, thus collapsing the physiological conflicts that create motion sickness. MotionBud does this by assessing three main questions – “How fast is this person moving in a given direction?” (traditional velocity), “How much is this person spinning around in a circle?” (centripetal force), “How much in this person being thrown around?” (variability in motion). By understanding these dimensions of a person’s motion, the MotionBud uses proprietary algorithms to disperse vibrations that adequately confuse the brain.

Industry Overview/Market Analysis

The motion sickness relief market was valued at $670m in 2017 and is primed to grow to $900m by 2026. The current industry for motion sickness solutions is primarily centered around canonical drugs such as Dramamine and their generics. Our product exists in a smaller section of the industry that offers a non-pharmaceutical approach. We will analyze our relationship to these other alternative approaches more carefully in the Competitive Analysis section.

Due to the ubiquity of motion sickness, we have a fair amount of latitude in securing a customer base. Our target demographic can roughly be split into two types of consumers. The most common use of motion sickness treatments is for personal use or for a customer’s child. Motion sickness most commonly afflicts children and young adults, and most of the industry is geared towards serving this population. Alternatives like MotionBud have an innovative edge but are less established in an already crowded market. Thus, we seek to serve customers who are already seeking alternatives to the usual medicated approach.

The other market is comprised of integrative opportunities – opportunities to incorporate MotionBud technology into already existing products. For instance, a need for motion sickness treatments exists in a military context. Servicemembers report motion sickness at high rates, considering the significant portion of their time spent on wheels, in boats, or cruising the skies. The government historically hasn’t collaborated with or contracted biotechnology firms to address this issue, but recently has taken interest in non-pharmaceutical options. Virtual reality technology developers have also taken interest. As VR becomes more widespread, developers hope to find a way to quell the motion sickness that deters a subset of users. Military or VR contracts are both more appealing, but demand a product that is convenient, integrable into current technology, and able to outperform competitors.

Marketing and Sales

We currently are able to offer the standard MotionBud package for $150. This includes the headset itself, which can be used just like traditional headphones, along with a MotionBud sticker pack and new pair of AA batteries for the battery pack attached to the transmitter. This price is slightly higher than we would like, and our aim is to market at $100 by June 2019. Pending final negotiations with a new assembly plant, we are on track to hit this target. For the time being, we utilize two promotional strategies to offset the higher consumer cost. We occasionally run 30% sales on everything in the MotionBud store and new customers receive a promotional code for a 33% discount that they can share with a friend. We retail on our own website as well as through a few e-commerce websites (our contract with Amazon begins March 2019). In August 2018, we finalized a contact with CVS Pharmacies and our products are sold in 2000 of their stores as of December 2018.

Operations/Execution Strategy

MotionBud technology is entirely proprietary and all patents are owned by MotionBud, Inc. Assembly and packaging is handled by an outside plant, but we hire employees to perform final checks on all products as well as manage the shipping process. All materials are common electronic equipment that we source from a domestic vendor. Our FDA approval cleared last year (October 2017) and affirmed the efficacy of our technology. We currently don’t require any additional, nonstandard regulatory approvals.

As noted, our current business model centrally relies on retail success. Our aim is to transition with time to a model in which revenue is primarily generated by licensing contracts with headphone manufactures and the military or VR opportunities outlined above. But for 2019, we hope to continue focusing on building a retail base that shows both the strength of our product and its popularity among consumers, fielding contract proposals as we find them.

Competitive Analysis

Our competition comes in two forms – traditional pharmaceutical drugs used for motion-sickness and new, alternative treatments. As it currently stands, we do not have the resources to launch a marketing campaign against pharmaceutical use for motion sickness. Our best strategy isn’t conversion, but dominating the alternative market.

While alternative treatments have become more popular, their diversity and variability in performance helps MotionBud’s image. The most popular form of holistic motion sickness care comes in the form of wristbands that stimulate the P6 (Nei-Kuan) acupressure point either electrically or through pressure. MotionBud consistently outperforms the five most common wristband brands by a wide margin, as indicated by internal research. Furthermore, the two products exist at different price points. MotionBud is a more expensive, but more consistent, higher quality product. The closest direct competitor of MotionBud utilizes similar technology on a headband. They currently market their product at $159 and lack the dual headphone functionality provided by MotionBud. This lack of functionality additionally creates the appearance of a more cumbersome design. MotionBud is the most modern, consistent, and exciting product on the market currently.

Advantages Over Competitors

  • Uniformity of product: MotionBud can ensure consistent performance due to its singular design, whereas alternatives like wristbands vary in efficacy between manufacturers.

  • Performance: In internal consumer studies, we’ve found the MotionBud to work 40-50% more effectively than the top 5 brands of acupressure motion sickness wristbands.

  • Multi-functionality: The MotionBud is marketable as “smart” technology as it performs traditional media functions (headphone use) while using bioinformatics to interact with bodily processes – this also opens the possibility for future integration with the new wave of “smart” devices.

Financial Statement

Projected Expenses – We measure “Cost of Goods” and “Operating Costs” in dollar amounts, whereas “Operations”, “R&D”, “Marketing”, “General/Admin” are measured by employee headcount per division. “Cost of Goods” is measured per unit, whereas “Operating Costs” assesses auxiliary expenses (e.g. rent, company events, etc.)

Expense 2019 2020 2021 2022 2023
Cost of Goods 74 65 60 60 50
Operations 15k 20k 30k 57k 70k
R&D 3 4 5 6 6
Marketing 3 5 7 10 15
General/Admin 2 2 3 4 5

Projected Revenue – We measure “Sales Volume” in units sold and “Pricing” in dollar amounts.

Revenue 2019 2020 2021 2022 2023
Sales Volume 19k 23k 27k 37k 43k
Pricing 100 95 95 95 89

Net Income – We measure “Net Income” in dollar amounts. It should be noted that this only considers net income as generated by retail revenue. We are not currently negotiating any licensing contracts, though we have started preliminary discussions with vendors that should materialize throughout 2019.

Income 2019 2020 2021 2022 2023
Net Income -10,000 -3,000 5,000 14,000 26,000

We have sufficient funds to carry out operations through 2020, Q1. We have raised roughly $500k in investment capital thus far and are currently asking investors for $250k in order to expand our retail base, accelerate our marketing hires, and sustain general operations until we hit profitability.

Exit Strategy

Our primary exit strategy aims for a buyout. We envision acquisition of MotionBud Inc. to occur in one of two ways. With continued retail success and a substantial portfolio of licensing clients, MotionBud Inc. could be approached by a traditional biotechnology company such as GE that is interested in disseminating the technology throughout its wider, internal network. The other scenario involves a company that initially hopes to license MotionBud technology but decides it would be more prudent to buy the company full out. For instance, if Oculus were to acquire MotionBud Inc., it could leverage exclusive rights to MotionBud technology for any VR devices it updates or releases. The same goes for a company like Sony, which could take interest in a high-end line of motion-sickness reducing headphones.

Simultaneously, we do not foreclose the possibility of an IPO offering down the line. With current projections, our company should have the foundation to transition to an IPO in roughly 5-7 years.

Getting Started with a Business Plan

A business plan outlines a company’s goals and the strategies by which it achieves these goals. Typically, a business plan consists of: a) an executive summary, b) a description of products or services, c) industry overview/market analysis, d) marketing and sales strategies, e) operations/execution strategy, f) competitive analysis, g) description of management team, h) financial statement and i) an exit strategy. Below is a high-level description of each of these components.

A business plan starts with an executive summary, an overview of the business plan. This operates as a reader on the company and is meant to concisely communicate its most crucial features and activities. It often features a mission statement or memorable tagline that summarizes the company’s work. This paves the way for more detailed descriptions of the organization. The b) section describes the need met by a product/service before expounding on its technical features. This section additionally lists any technologies licensed/used by the company as well as any intellectual property owned by the company, as these become relevant when discussing competition.

The next section of a business plan gives an overview of the current industry and market for the product/service offered. This means indicating the company’s target demographics and its main competitors. Market analysis usually requires a lot of data in order to develop a well-rounded description of the target market along with its behavioral and demographic trends. This also more clearly identifies the relationship to competitors, both direct and indirect, based on the properties of the shared market.

A business plan usually proceeds with marketing strategies, touching on pricing and promotions. This section also features information on where the company currently sells its goods and where it hopes to expand. The following section explicates the operation and execution strategy, discussing facilities and logistics planning, relevant government regulations, where material is sourced from, etc. An execution strategy also typically outlines a company’s goals and the metrics by which it measures success. This is paired with a note on the successes a company has already seen, also called traction.

The amalgam of data presented in the preceding sections naturally coalesces into a competitive analysis. This section highlights the ways in which a company differs from its competitors and how it can play these differences to acquire a larger share of the market. This can relate to advantages provided by a company’s production process, or to a strong brand identity a company might develop. In any case, this section should indicate how a company holds its own in a crowded field.

As the business plan approaches its end, it often includes a section regarding the company’s history that covers important details like its legal structure and any patents currently pending approval. It also gives brief biographies for members of the management team, explaining why they are best fit for their position. The last major section of the business plan then outlines a company’s finances, systematically categorizing all expenditures and revenue. This way, when indicating capital needed from outside investors, it is easy to show where investments will go. A financial section often includes projections for important metrics over the next few years. This includes sales projections, usually calculated monthly for the first year, and then yearly after that, as well as operating cost projections as the company experiences growth.

The final section details exit strategies. As business plans are most commonly read by potential investors, this outlines the path to a payout. Once this is written, you have the option to attach an appendix that provides additional information, like extra data or product images.

With all the technical aspects of writing a business plan covered, here are a handful of important Do’s and Don’ts for anyone looking to start the writing process.

  1. DO know your audience
    Business plans are functional documents traditionally meant for outside investors, bankers, and internal managers. Instead of writing what you want to share, prioritize what someone would need to know about your company’s operations before getting involved. Especially important for research-based startups is to avoid technical language or jargon, as most readers will lack the requisite specialization to understand.

  2. DO write a few versions of your plan
    A full-length business plan is useful for courting interested investors or possible employees, but you may need access to a comprehensive overview of your business in other contexts. Prepare a one-page version of your plan as a networking tool for recently-acquainted investors and a mid-sized plan focused on company goals and health for internal circulation.

  3. DO update your plan regularly
    When regularly updated, a business plan can act as a good read on company health. This boosts efficiency by keeping company goals focused and allows for better decision-making by ensuring company data is up-to-date. Plus, nothing is more embarrassing than trying to win over investors with a document that references obsolete goals and market trends.

  4. DO use sensible estimates
    One of the most common mistakes for first-time business owners is to overestimate the amount of money their business will make in its first few years. Business consultant Joel Razi recommends doubling your expenditure projections and cutting your most conservative revenue forecasts in half in order to account for this. Try not to list overly specific estimates either ($103,774.32 versus ~$100k).

  5. DO synchronize your writing with other important activities
    A study by the Harvard Business Review found that the best time to write a business plan is 6-12 months after company formation. Furthermore, companies in the study found that if they wrote while talking to customers to prepare for the initial marketing phase, their venture viability increased by up to 27%.

  6. DON’T take too long
    Both in starting and in completing the writing process, waiting can be detrimental to a company’s prospects. The same study by the Harvard Business Review found that starting to write over a year after formation actually negated the positive effects of writing a business plan and that writing for longer than 3 months could even damage a company’s venture viability.

  7. DON’T hide your weaknesses
    A business plan should accurately portray a company rather than idealize it. As such, it should indicate where there’s room for improvement in operation and management. While one might think this would diminish a company’s promise, investors want to work with a business capable of mature self-reflection and improvement so they know how to contribute.

  8. DON’T overemphasize your numerical data
    Quantitative data regarding your company’s market, financial health, and projected earnings are a prerequisite for a well-rounded business plan. However, it’s important not to get lost in the numbers. Balance quantitative findings with evidence that speaks to the heart of your company, like customer testimonials or impactful media coverage.

  9. DON’T overextend your goals
    While having a lofty vision for the future is important, the realities of business management, as well as investor expectations, demand pragmatism. An execution strategy should focus on improving current operations, at most hinting towards possible expansions, and milestones should be kept in a relatively contained time-frame. Anything else is best kept for a different conversation.

  10. DON’T become overly attached to your plan.

A business plan is a company’s guiding document in many ways, indicating its central operations and points of focus. However, anyone is susceptible to the pitfalls of over planning. A company needs to believe in its plan and the strategy it lays out, but it shouldn’t become so overly attached to said plan that it misses out on unexpected opportunities.

Check out our post on an example business plan.

References

Corporate Structures for the Newbie

Choosing a corporate structure isn’t just an exercise in paperwork – it determines the company’s tax status, as well as its relationship to potential investors and managers. In this regard, it is one of several key decisions to be made in the early life of your startup. Generally speaking, there are four primary considerations that can guide this decision-making process. These are a) tax requirements, b) access to outside funding, c) level of legal protection, and d) administrative obligations. Below is an outline for a handful of common corporate structures relevant to university-based startups focusing on these elements.

C Corporations
Registering as a C Corp renders the company as an independent entity with its own set of finances and procedures. This offers the strongest protection against personal liability for any of the corporation’s losses, or more importantly, debts, as a C Corp is distinct from its owner-members by design (and a C Corp can have any number of owners). There are, however, administrative requirements that can be complex and expensive, both monetarily and in time-cost. Registering a C Corp often requires a filing fee. There are a number of benefits to registering as a C Corp, however. In addition to allotting common stock to shareholders, C Corps can issue preferred stock that comes with additional terms and benefits. These are usually a key component of financing deals with venture capital firms and angel investors, who want tailored assurances and returns on their investments. C Corps are also designed to facilitate the transfer of stock. However, C Corps are typically seen as being subject to double taxation – as a partial owner, individuals have to pay income tax on any dividends issued and the company itself is subject to various corporate taxes. C Corps are generally eligible for more tax deductions than other business structures.

S Corporations
S Corps are highly similar to C Corps but generally viewed as having a less burdensome tax structure. Any profits or losses recorded by an S Corp “pass through” into the owners’ personal tax returns, avoiding the double taxation quandary. This structure has implications for self-employment taxes. An S Corp, however, lacks many of the provisions that make C Corps so attractive to investors. For one, S Corps are capped at 100 shareholders and business owners must either be U.S. Citizens or residents, eliminating the involvement of foreign investors or other business entities. S Corps also only issue common stock instead of preferred stock as discussed.

Limited Liability Companies (LLCs)
Limited liability companies, commonly known as LLCs, differ from traditional corporate structures in that they provide liability protections to their owners while offering more tax and management flexibility. This means owners can protect their personal finances without needing to submit to the same requirements of a traditional corporate structure. Furthermore, owners can elect to have an LLC treated as a corporate entity, like C Corps are, or as a “pass through” entity, akin to how S Corps are, as it relates to taxes. LLCs are often viewed as a blend between a C Corp and more informal corporate structures and their requirements are meant to be adaptable to the needs of each business. LLCs are usually less preferred for outside investment though as their ownership is dictated by membership interests, which are ownership percentages that allow for a share in profit/decision-making, rather than stock allotment.

 

C Corp

S Corp

LLC

Continuity of life (company duration is not contingent upon original owners) Yes Yes Yes, unless otherwise specified in Certificate of Formation
May award stock to attract investors Yes Yes No
May award membership units to attract investors No No Yes
Owner liability Shareholders have limited liability Shareholders have limited liability Members have limited liability
Upper bound on number of owners No Yes No
Owners must be U.S. citizens or residents No Yes No
Other businesses may assume partial to full ownership Yes No Yes
Owners can list business profit/loss on personal tax returns No Yes Contingent upon elected tax status
Annual board meeting requirements (with compulsory meeting minutes) Yes Yes No
Annual report requirements Yes Yes Yes

References

STTR/SBIR Proposal Assistance Resources

In the world of startup funding, resources and donors abound. Securing a piece of this abundance, however, is quite a tricky prospect. Two such funding programs, the STTR (Small Business Technology Transfer Research) and SBIR (Small Business Innovation Research), are operated by the U.S. government agencies such as NIH, DOD and others. These initiatives allot federal research money to small businesses with the intent of funding scientific research directed towards commercialization efforts. Previously, we’ve covered the basics of these programs in a series (hyperlink: https://scholarblogs.emory.edu/techtransfer/2014/11/helping-our-faculty-navigate-the-world-of-sbirs-sttrs/) of posts (hyperlink: https://scholarblogs.emory.edu/techtransfer/2016/12/sbir-funding-for-your-start-up/) on our blog (hyperlink: https://scholarblogs.emory.edu/techtransfer/2017/01/sttr-funding-for-your-start-up/). This article will dive deeper into the STTR/SBIR application process, highlighting various resources available to researchers who wish to utilize such funding in their own startup efforts.

Likely the most useful resources provided by federal agencies are the sample proposals offered by the HHS (hyperlink: https://www.niaid.nih.gov/grants-contracts/sample-applications#r43r44) and DOD (hyperlink: https://www.acq.osd.mil/osbp/sbir/sb/resources/sample-proposals.shtml). These collections feature the full text of successful applications that have been submitted to the respective departments over the past few years. Biomedical researchers/entrepreneurs at Emory would find the HHS directory particularly useful, as many of their samples pertain to drug discovery and novel methods for disease treatment and detection. Certain applications come with their summary statements as well, which are drafted by agency employees and in some ways are even more helpful than the applications themselves. These summary statements start with an overview of the applicant’s research goals, contextualized by their target problem, and then detail the extent of the research’s public health impact. The real insight, however, is provided in the latter half of the document, during which three agency reviewers comment on the strengths and weaknesses of the project’s significance, investigators, innovation, approach, and environment. This can help researchers understand what the HHS is looking for in the projects they support, and the sorts of goals and accomplishments the HHS finds realistic, compelling, and impressive.

Even when agencies lack such a level of transparency, their SBIR/STTR webpages still provide useful information. NASA (hyperlink: https://sbir.gsfc.nasa.gov/abstract_archives), NOAA (hyperlink: https://techpartnerships.noaa.gov/SBIR/Past-Awards-Solicitations), and the USDA (hyperlink: https://nifa.usda.gov/abstracts-funded-sbir-projects) provide abstracts for the projects that receive awards each year and the NSF (hyperlink: https://www.youtube.com/playlist?list=PLGhBP1C7iCOkPp8yv2I3ZGk16LiMIiikb) and NASA (hyperlink: https://sbir.gsfc.nasa.gov/success-stories) offer journalistic coverage of successful candidates. The SBIR/STTR website (hyperlink: https://www.sbir.gov/) itself hosts a long-form tutorial (hyperlink: https://www.sbir.gov/tutorials), which one can view in video or text mode and which covers the ins and outs of submitting an SBIR/STTR application. Some of the topics explicated in this tutorial series are registration requirements, SBIR data rights, cybersecurity, and preparing a proposal. One section is entirely dedicated to university partnerships with small businesses, which again would be particularly useful for Emory-affiliated researchers looking to commercialize their work. Though broader, the SBIR/STTR website is also a good starting point in that it centralizes a lot of information. It also features a registry (hyperlink: https://www.sbir.gov/sbirsearch/firm/all) of every company to have secured an SBIR/STTR award.

One of the most useful sections of this generic SBIR webpage is its local services database (hyperlink: https://www.sbir.gov/state_services?state=105816), which furthers the work done in the State Service Providers section of the online tutorial. Viewed in map or list form, this section details a collection of offices/workspaces where small business owners can find various forms of assistance. For instance, in Georgia, entrepreneurs can access help from SBA Growth Accelerators and State Contacts. SBA Growth Accelerators are SBA-endorsed co-working spaces that allow local entrepreneurs to network and form partnerships. This could provide growing startups with a forum to test ideas and connect with other SBIR/STTR applicants or previous awardees. State Contacts are directly affiliated with state and federal programs that support entrepreneurial growth. These offices provide direct assistance and council in the application process. Furthermore, Georgia has a state-funded SBIR Assistance Program, managed by the Advanced Technology Development Center (ATDC), meant to help Georgia-based businesses win SBIR/STTR grants, which one can explore further through one of these contacts. These physical locations provide material resources to startups interested in the SBIR/STTR programs and well-complement the digital resources that populate our various federal websites. All in all, budding researchers and entrepreneurs have a comprehensive set of options in seeking assistance for the SBIR/STTR process.