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


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



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. 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.

A useful resource provided by federal agencies are the sample proposals such as those offered by HHS (hyperlink: 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:, NOAA (hyperlink:, and the USDA (hyperlink: provide abstracts for the projects that receive awards each year and the NSF (hyperlink: and NASA (hyperlink: offer journalistic coverage of successful candidates. The SBIR/STTR website (hyperlink: itself hosts a long-form tutorial (hyperlink:, 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: 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:, 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.

The OTT POC Fund: A Little Goes a Long Way

What’s one of the biggest hurdles to startup success? Finding enough money to start.

Seed funding is absolutely critical to getting new technologies on the market. It’s the money that can help give an idea a physical shape, put it on the path to becoming a full-fledged product. The POC fund is a simple idea reflected in its simple acronym: proof of concept. The fund is meant to give Emory inventors enough money to develop their product with as little bureaucratic stalling as possible. By getting funds into the hands of innovators quickly and effectively, and by helping provide follow-up funding opportunities, we’ve been able to push the growth of multiple startups. Today, we highlight two teams that have used our POC funding to full effect: CorAmi and Covanos, both focused on finding new ways to treat heart disease.


Scientists have made leaps and bounds in finding new ways to heal our organs when they break. New medicines promise to restore damaged tissues in the heart, intestines, pancreas and beyond by physically attaching regenerative cells or drugs onto them using substances called hydrogels. But how do we get those drugs to hard-to-reach areas – for example, the surface of the heart?

Rebecca Levit photo

Rebecca Levit, MD

That’s where CorAmi comes in, with a proprietary device designed to deliver these hydrogels and related medications straight to the heart without requiring invasive surgery. Rebecca Levit, MD, is the inventor of this technology and CSO of CorAmi Therapeutics. She came up with the idea for her solution while working as a resident/ research fellow studying regenerative medicine. Levit was well aware of the technical challenges surrounding hydrogels, but was also interested in how to get them there. If a patient happened to need open heart surgery, delivery wouldn’t be a significant concern – but most patients don’t.

The challenge, then, is to create a device that can be inserted into the chest, through the sac that keeps your heart suspended in liquid called the pericardium, and on top of the surface of the damaged heart tissue – all without breaking blood vessels or interrupting the electrical signals that control the heart. After coming up with an initial design, Levit went to the Coulter Foundation and the OTT, who awarded her thirty thousand dollars from the POC fund to develop proof of concept for her device. She used the funding to hire an engineer, and with him created a design that could lay a hydrogel onto the heart without leaking out.

But many hydrogels are still waiting for FDA approval. “It’s like having a gun with no bullets,” Levit says.

So today, CorAmi is soliciting their hydrogel delivery device along with their own medication: a formulation of amiodarone, a drug that can treat irregular beating of the heart. With many hydrogels awaiting approval by the FDA, delivery systems like CorAmi’s could be part of a new frontier in treating patients.


About 1 million cardiac catheterizations (or caths) are performed in the United States every year. It’s a common procedure, but only a few steps short of surgery – it involves threading a long tube from outside the body through an artery in the leg and into the coronary arteries that supply blood to the heart. A contrast agent is injected and visualized using X-rays to see whether there are atherosclerotic plaques that are obstructing blood flow. This information is used to decide on further treatment, such as placing stents in the arteries or performing bypass surgery. About 50% of those caths, however, turn up negative results for obstructive coronary artery disease, so there was no need to have the cath procedure. Because of this, there’s a real need for a noninvasive but accurate way of screening for those people who actually should have the cath procedure performed – a need that can be fulfilled using 3D imaging technology and computational fluid dynamics.

Samady & Veneziani photo

Deborah Bruner; Habib Samady & Alessandro Veneziani; Raj Guddneppanavar

Don P. Giddens, PhD is the former dean of the College of Engineering at Georgia Tech and COO of Covanos, Inc., a start-up company that grew out of Emory research. He’s an expert in the fields of fluid dynamics and biomechanics – two fields that find their natural intersection in our circulatory system. Along with Emory cardiologist Habib Samady, MD and mathematics and computer science professor Alessandro Veneziani, PhD, the Covanos team recognized the need for a sea change in the way cardiac diseases were detected and set their interdisciplinary knowledge to the task.

CT scans have been a mainstay of medical imaging since the 1970s. By using X-rays to fire energy beams from many different angles, computers can receive and transform signals into three-dimensional images that doctors can use to diagnose disease. But it takes sensitive equipment and a lot of computing power to generate accurate pictures of spaces the size of the blood vessels in your heart. And images of the arteries alone don’t tell the whole story, and that’s where the fluid dynamics comes in – the images generated by CT scans form models for computing blood flow characteristics with mathematics similar to that used in aerospace engineering. A related technology has been approved by the FDA – but those systems don’t deliver services at the point of care for patients and also require supercomputers. To overcome those hurdles, Covanos optimized the relevant calculations to create a technology that can deliver results to the physician in less than an hour when used by a trained CT technician.

The initial Proof-of-Concept grant the Covanos team received from Emory’s Office of Technology Transfer allowed them to test their central question: can we make those computations faster?

“Our first test,” said Giddens, “was to see if we could simplify [the mathematics] without sacrificing accuracy … and that was successful.”

The information received from the CT scans allows for the calculation of a patient’s BFPi, or blood flow physiology indices – a set of metrics doctors use to determine whether a patient’s blood flow is healthy. Thanks to Covanos’ work, these programs can now “do the calculations in less than an hour on a laptop or desktop computer, by comparison to many hours on a supercomputer.”

Giddens credits the OTT for helping Covanos build important relationships among new partners and for helping to file patents for the technology. Recently, the OTT awarded Covanos its 2018 Deal of the Year Award after Emory entered into a licensing agreement for their software. With further support from the Coulter Foundation and the Georgia Research Alliance, Covanos has since expanded its team of innovators, moving closer to developing a product that could significantly improve the quality of cardiac care.

Read more about CorAmi and Covanos on their websites.

Crowdfunding Your Start-up? Be Wary.

Crowdfunding has been all the rage for years now. Take Ouya or the Pebble Watch, for example, which raised millions of dollars within a matter of weeks. The product-based platforms of Kickstarter or IndieGoGo aren’t even the only ones out there—equity crowdfunding is also becoming a popular method of raising funds among newer startups, even those that already have Series A funding. But it’s important to know crowdfunding isn’t without its drawbacks. Start-ups, especially less established ones, need to be careful before turning to the world wide web for what seems like free money. It isn’t.

Money off the Top
While companies like Kickstarter might “help bring creative projects to life,” they definitely aren’t doing it for free. Assuming a product or a firm gets successfully funded, a “platform fee” is instantly deducted from the money raised. Kickstarter and IndieGoGo both put down a five percent charge, not including a two to three percent “payment processing fee” on every contribution, but some sites charge up to 10 or even 15 percent, according to Investopedia. The fee structures for equity crowdfunding aren’t any less daunting: some platforms sell dauntingly expensive packages that cost thousands of dollars, while others charge for mandatory legal expense reimbursements or demand warrant coverage and equity, like SeedInvest. Always check the fee structure of a crowdfunding site before use and plan your investment goals accordingly.

Success Not Guaranteed
One potential risk with crowdfunding is that on some platforms if you don’t reach your minimum funding target, you receive nothing. Kickstarter’s raised 3.51 billion dollars in successful funding, according to its website. But that number loses its luster when you look at the number of successfully funded projects—152,423 out of 422,292 launched, a 36.45 percent success rate—and the number of projects that have raised over 100,000 dollars: only 3.5 percent of the total number of successfully funded projects, and 1.2 percent of all projects launched. WeFunder, one of the earliest SEC approved equity crowdfunding platforms, shows a higher success rate of 73 percent on its stats page, and with 233 successful offerings hitting minimum targets over 50 thousand dollars. But start-ups looking at using crowdfunding should understand it’s definitely not a sure shot, and the average amount of money raised isn’t substantial.

Copyright Caveats
As soon as your product goes up on the internet, there will be competitors who will try to beat you to selling it. Be aware that posting for funding can be a public disclosure and potentially make the product ineligible for patent protection; the patent rules vary from country. For example, filing a non-provisional or provisional patent application in the U.S. may be a good idea. This is one of the biggest threats of putting your product up for crowdfunding—if you’re making a consumer product that could be copied, it might well be. App developers working in hot fields like healthcare, for example, should be prudent in the information they disclose to their “crowd” of investors and take care to protect their ideas using the relevant copyright laws. Otherwise, they might find a very familiar looking icon on the App Store before they’re even done compiling the code.

Crowdfunding is a tool that can be very powerful, especially for small companies looking to fund their ideas without giving away equity—but it’s important that hopeful teams don’t fall for these common traps.

Monte Eaves’ a Kauffman Success Story

Monte Eaves is a professor of surgery at Emory University and Medical Director at Emory Aesthetic Center. He is also the man behind EMRGE, a company developing products that are revolutionizing the wound closure industry. EMRGE challenges the traditional needle and thread wound closure procedure with noninvasive and cost-effective technology that promotes healing and minimizes scarring. For this, Eaves was recently awarded the Office of Technology Transfer (OTT) award for 2017 Startup of The Year, one of many achievements. Shortly after, we got to talk with him about how he got there and the role OTT and Emory’s Kauffman Foundation FastTrac® TechVenture™ course for entrepreneurs played in helping him along the way.

Monte Eaves

Tell me a little about the origins of your startup company.

So I was a resident here at Emory in the ‘90s. I worked with one of the surgeons named Alan Lumsden and we were co-inventors of the first endoscopic vein harvesting system. Through the OTT we licensed that to Endosurgery Johnson & Johnson, and that product is still made today, more than 20 years later. It was eventually sold to Sorin, and it’s called ClearGlide®. That technology and its derivative products are now used in about 70 percent of heart bypasses. It’s really cool that one product could make such a difference, and that’s what gave me the bug.

Then I left Emory for about 15 years from 1997 to 2013. I had six additional patents that were licensed, but what I found was very frequently this intellectual property (IP) had a hard time actually getting significant and ultimately are just mothballed. I began developing the wound closure technology in 2010, but I was at a loss about how to move it forward until I came back to Emory where OTT really helped me get started and connected me to people in the community. They helped me sign up for the Kauffman course which was quite helpful, and got me into a southeast bio business plan competition. That’s what got me moving toward creating a company.

How did you realize there was this niche opportunity for you in the medical marketplace? What was your thinking process when first developing your products?

Our technology addresses a pretty well recognized need. I actually worked for two years with Johnson and Johnson in the field; I had an inventor’s agreement with them to try and develop new wound closure technology. They were always looking for things that would be faster, less invasive, and would improve scars. And yet, if you look at the majority of the way we close wounds it’s the same way we closed wounds 5,000 years ago; a needle and thread.

I’ve been aware that this was an area in need for a while now. As I was exploring the possibilities I probably tried 50 different technologies, trying to do it internally or trying to do it on the surface. Then one night I was thinking “Okay, I’ve really got to think outside the box. Well… what is the box?” I had to first figure out what box I had put myself in.

I started thinking, the box was that it had to be flat to the surface, or it had to be underneath. I kept examining, “If I can’t be underneath and I can’t be on top, what’s left?” Then I started thinking about Breathe Right® nasal strips and how they bend and flex. We took that concept but reversed it. This creates the forces that can push, turn, and twist tissues, but do it externally.

It’s a dynamic device that has two arcs of rotation, one opens it up and one pushes down this little footplate that’s like a strut, and between those two they create the right action to bring it all together. The process was, for me, a very interesting learning experience; when we’re trying to be creative and original we have to figure out what box we’ve put ourselves into.

Was there any other specific event or experience that got you thinking about creating your own startup?

After a certain point of getting IP mothballed and having projects that just don’t take off, you realize that sometimes you’re just going to have to do it yourself. I think the world has changed from 20 years ago when companies would frequently use internal product development and had the right researchers and engineers inside the company itself. Now, they want to go buy innovation. These days if you want to develop technology you might have to do it yourself.

The other thing that got me interested was being president of the American Society for Plastic Surgery. I think the experience of helping to run an organization made me realize how much I enjoy building teams, having projects, bringing people and concepts together, and figuring out how to pay for it. That’s exactly what you do with a startup.

Did the Kauffman course help you decide on a direction, or did you already know exactly what you wanted to do by the time you took the course?

Before I showed up here in 2013 I spent three years thinking through the technology, filing the original patent, and building what I could with models, but I didn’t have connections to any resources. When I came to Emory I knew I needed to move this forward, I just had no idea how. The Kauffman course was eye-opening in helping me know how to take the first steps.

Was there a specific moment in the course where you realized a startup was actually something you could do, or a particular session where something clicked?

Before the Kauffman course I knew I needed to do this, I just didn’t know how. Even just looking at the course material and its sections gave me an idea of what path to take. I went there knowing I was going to do this, I just needed guidance.

Were there any sessions that continue to provide guidance?

I think the most illuminating sessions were on regulatory processes. That, and understanding finances: what are your options, what are you going to do; that starts you thinking about what your best path is to get there.

Tell me about networking for your startup.

Networking isn’t just something that happens when you go to an event and walk around. That can certainly be helpful, but really what you have to do is just be hungry for it. And it’s amazing, when you start to cold call people asking if they know anyone who could help with a particular thing, if you do it enough you’ll eventually end up talking to the same people again. You get to know people, and then you become a resource for them as well. It’s a two-way street.

It’s amazing, one of my biggest lessons during this process was realizing how many people will help if you approach them with humility, and often after that it starts clicking. You just have to make that call or send that email.

Did any particular speakers from the Kauffman Course stand out to you?

Tom Calloway, he gave the talk on funding. There were a couple of things he said that stuck in my mind. Like, “Time is the enemy, money is the weapon.” I thought through that several different ways, and think it is a very important truism.

When you look back, do you see anything missing from the Kauffman course?

I think one thing that could be helpful is having someone who has gone through the process like me, talking about how to do this and still balance it with other responsibilities. It’s very much a learning curve, you can get so overwhelmed with clinical responsibilities or other research activities. You have to make decisions about priorities. That’s something that would be helpful: information on how to manage it, how to make connections and get the right contacts, how to be a good partner to your manufacturers, things like that.

The Kauffmann course tells you the steps, finances, regulatory, the legal details. It tells you what to do, but if I were teaching a course, I’d talk about how to do it.

Have your experiences in business given you insight into its relationship with medicine, and how the marketplace affects the evolution of the medical world?

Both fields are definitely mutually beneficial. Part of it for me was being the director of the Emory Aesthetic Center, which is a retail medical department, so it’s a business. You have a product, you have to manage people, you only have a certain amount of resources, there are barriers to overcome. There is a lot of beneficial crossover, particularly because I’m in a management position at the center.

Venture Funding, Tranches, What?

Every start-up wants to become the next verb.
“She definitely Photoshopped that image.”
“Do you think we can Uber home from here?”
“Here, let me Google that for you.”

But before any of those companies ever had their names added to the Oxford English Dictionary, they were lean units, not even a fraction of the size they are today. Those small groups of entrepreneurs got to realize their dream through accumulating funding — at first, coming from the pockets of their family and friends, but eventually from dedicated venture capitalists.

The list below will detail each formalized round of start-up funding.

Early-stage funding. Before institutional-sized investors start getting involved, start-ups need money to fund their operations. At the very beginning, that money can come from the entrepreneurs’ own assets — this type of financing is referred to as bootstrapping. Eventually, though, budding start-up teams will need more than they can personally spend, and will start to raise seed money (sometimes referred to as seed funding or seed capital) to keep their business afloat.

Seed money can come from multiple different sources. Friends and family can provide an important stopgap while operating in the red, though it’s important to put your relationships first and let them know the full extent of risk involved. Individual or organized groups of less risk-averse investors, known as angel investors, are important players in early-stage funding. Angel investors can provide larger amounts of capital, but can also bring expertise and experience to an operation that needs it.

But there is a downside to the owners — both of these types of investors are compensated for their risk with partial shares, equity, in the company. Increasing the amount of shares distributed to investors decreases the relative percentage of ownership the founders of the company possess – this process is known as stock dilution. While distributing partial ownership of the company is often necessary and can be profitable, generally the more shares that are distributed overall, the less valuable each share becomes.

Another alternative method of financing is “crowdfunding”, a method that’s become incredibly popular in the past few years through sites like Kickstarter and GoFundMe. Sites like this often attract smaller amounts of capital per investor, but larger numbers of investors. Especially for teams producing consumer technology or games, these sites provide potentially lucrative opportunities. This is a potentially viable strategy especially when considering the dangers of dilution — investors are rewarded in “prizes” with flat cash values instead of partial ownership.

Venture capital financing. After a start-up begins to demonstrate signs of strong performance, much larger, institutional investors known as venture capital (VC) firms may begin to develop interest. With their capital comes the opportunity for structural growth for the company and an increase in revenue. Usually, VC firms will provide funding in multiple subsequent rounds, often referred to as tranches, named in alphabetical order (Series A, B, C, etc.) each with their own risks, rewards, and maturities. Read more about the general structure of VC rounds here.

Further funding. After a start-up successfully navigated to the later rounds of VC funding, the business is likely considering putting out an IPO, or “going public” — but in that intermediate stage, firms may still want to grow their business with more capital without bringing in new shareholders. That’s where mezzanine financing comes in. Firms can receive money in exchange for providing the lender the right to convert any outstanding debt into partial ownership of the company in case of default. Again, distributing equity holds the problems associated with dilution, but for already established firms, this is a highly effective way of getting capital quickly.

Financing Cycle

What is an IPO?

In 2012, Mark Zuckerberg opened his private company to the public. In the company’s initial public offering (IPO), $16 billion of stock were bought as investors sought to value the technology giant, vying for a share of its profits. Along with the selling of stock, Facebook’s management underwent a deep restructuring process.

Most people recognize an IPO as a company’s first introduction to the stock market, but what exactly is it? Most simply by Investopedia, an initial public offering is “the first sale of stock by a company to the public.” Before an IPO, equity is distributed among private investors whether it be the owner, individual angel investors, or venture capital funds. A company who initiates an IPO wishes to raise capital through the stock market which is accessible by investors across the world. Companies are usually private when they are first created, but through an IPO, they go public.IPO graphic

In exchange for the access to the public’s capital, the company must release their financial statements making the data visible to the public that is looking to invest. The Securities and Exchange Commission (SEC) require annual audited financial statements, interim unaudited financial statements, acquired company financial information, and other selected documents to be made transparent for an IPO according to Latham and Watkins. These include quarterly updates of a company’s financial condition filed with the SEC and, often, posted on the company’s website.

IPOs usually begin with the firm hiring an investment bank to manage the sales of its shares. The bank puts a team together to analyze financials, risk, and estimated funding before going forward with the process. The bank and the firm agree to an underwriting deal which sets what kind of securities will be offered. After this process, the bank helps the firm release its first public financial statements which are reviewed by the SEC before approving the IPO. This process is described at here at CNBC.

For entrepreneurs, the decision to go public can be one of the most important he or she makes for the company. The most obvious benefit to going public is the capital that is made available to you through the sale of stock, but this comes at the cost of equity in the company. With the sale of equity, the entrepreneur often has his or her own stake diluted. In addition to this, the new investors now have a claim on some of the company’s profits which are distributed in dividends.

Now that equity is divided among more individuals, the company’s management will change as well. Most notably, the entrepreneur must answer to a board of shareholders who have bought into the company and want to help run the company themselves. Often times, the addition of shareholders can provide access to more resources and knowledge, but sometimes, they can distract from the ultimate vision the original entrepreneur might have.

Companies that go public are also faced with the task of presenting sensitive information as required by the SEC. In the financial statements, companies must record the salaries of the leadership and the transactions of their equity. While transparency is not detrimental to the company, the amount of regulation (and time and money spent on managing the regulation) can sometimes get messy. Although, with the information and shares public, the company is able to claim a valuation rooted in the share price determined by investors.

SBIR & STTR Funding for Your Start-up

Entrepreneurs and small business owners at Emory who are looking for an alternate source of income can tap into Small Business Innovation Research (SBIR) funds administered by the federal government. In association with some of its largest and most influential agencies, the U.S. government is looking to support innovation and growth by funding the newly seeded businesses involved in research and development.

The SBIR program was founded in 1977 when two men, Roland Tibbetts and Senator Edward Kennedy, recognized the importance of small business growth in the economy. Birthed out of the National Science Foundation (NSF), success in the first few years led to its adoption by the Small Business Administration (SBA) which mandated that government agencies should set aside SBIR funding.

Each federal agency, which have research and development budgets greater than $100 million, are required to commit at least 2.8 percent of these budgets to SBIR funding. The eleven agencies that participate in the program have their own guidelines for acceptance under Congress’s established legislation. They are listed below along with links to their SBIR pages:

Similar to the STTR program, SBIR funding is given out in three phases. Phase I consists of an agency’s attempt to establish “technical merit,” feasibility, and commercial potential of the potential research or products sponsored by the small business. If these three factors are present, the company moves into Phase II which consists of more research and development. Funds usually do not exceed $1 million in this 2-year period. In Phase III, the developed product is prepared for commercialization and, if successful, put into production.

The main difference between SBIR and STTR funding concerns the origin of the entrepreneur. For businesses to qualify for STTR funding, they must be associated with a university. For SBIR qualification, the PI of the project is required to be associated with the proposing small business.

For Emory faculty members choosing between the two programs, the SBIR program offers certain benefits over STTR. For one, more funding is available through SBIR as federal agencies are mandated to allocate a larger portion of their budgets here. In addition, a more diverse selection of agencies have SBIR funding compared to STTR (eleven versus five). These advantages must be weighed against the commitment of a small business owner has for his venture. SBIR PIs must devote at least 51 percent of their time to the supported venture. Because STTR includes an association with a university, faculty entrepreneurs are allowed to keep their employment with the university while serving as PIs.

We realize that these programs and requirements can be confusing and we’re here to help. If you have questions about these programs or how they might assist with your Emory start-up please contact us, in particular Kevin Lei (klei [at] emory [dot] edu or 404-727-7241).

Funding Your Start-up

Every start-up founder hopes one day for their project/technology to succeed, reach the market, and quite often improve patients’ lives. Funding is just one of the critical hurdles in the early stages. The following list will explain just a few of the many sources of investment.Money Graphic

  • Bootstrapping: Sometimes the best source of funding for a small business can be its entrepreneur(s). Bootstrap financing is starting a business with minimal capital mostly provided by a person or group of people from the start-up team. This often includes dipping into savings, retirement, personal loans (including home equity), or accessing credit cards. This is the most common type of financing in small business. Given the costs involved with a pharmaceutical or medical device company this approach can be challenging, but for a software company can be a successful approach.

  • Friends and Family: Another source of funding is through the people who are closest to you. Tapping your family and friends to invest in your start-up can strain relationships and is only advisable if they fully understand the risks involved with your start-up. Forbes suggests that a loan from friends and family is sort of like a “grant with no strings attached,” but a more formal agreement is advisable and will allow a smooth, transparent investment that is beneficial to all.

  • Crowdfunding: The rise of the internet has provided a new type of funding known as crowdfunding. Websites, like Kickstarter and GoFundMe, have altered finance by connecting individual or small groups of investors who may not have had access to opportunities the ability to contribute small sums of capital to start-ups looking for financing. This form of funding saw a boost in mid-May 2016 after the JOBS Act lifted some restrictions which are explained by the Financial Industry Regulatory Authority website.

  • Angel Investors: If you’ve ever watched the show Shark Tank, then you’ve been introduced to the idea of angel investors already. Angel investors are individuals or groups of individuals looking to invest in small businesses with pooled resources and capital. These groups typically have different perspectives and objectives, so finding the right fit can be the most important part of finding access to funds. One of the additional benefits to angel investors can also be gaining access to expertise to help advance your start-up.

  • Bank Loans: Taking on debt is, perhaps, the most traditional form of funding, and for some entrepreneurs, is the best form. Because a bank (or other financial entity) has a large base of capital, they can provide liquidity for a start-up looking to grow. Given the high risk and failure rate of start-ups this type of funding can be challenging to secure. Find an institution that understands start-ups is a good place to start and build a relationship. Another source of information and advice is your local Small Business Administration (SBA) office (SBA loan information website).
  • Grants: If an entrepreneur can find the right program this can be a good source of start-up funding. One of the major benefits of grant funding is that, unlike the above-listed sources of funding, grants are non-repayable and non-dilutive. One of the most famous agencies that distribute grant money is the Defense Advanced Research Projects Agency. Since 1958, DARPA has provided hundreds of millions of dollars in funding to start-ups working on a project in which the military had become interested. Your business might not align with DARPA’s interests, but there are plenty of other grants from the government and even large private companies operating in your industry. The SBA is also a good source of grant information. If a start-up is women or minority owned company there are many grant programs specifically aimed to assist.


Startups: Words from the Trenches – Part 7

Each year OTT helps launch high-quality start-up companies based on discoveries made by Emory faculty or staff. Over the past few months, OTT set out to interview a selection of the entrepreneurs and VCs we have worked with and pick their brains about what it takes to make a successful startup venture.

  • To visit Part 1: here

  • To visit Part 2: here

  • To visit Part 3: here

  • To visit Part 4: here

  • To visit Part 5: here

  • To visit Part 6: here

What key items do you feel contribute to a successful startup?

Stephen Snowdy (CEO; Venture Advisory Board Member at Emory University): In medical science startups, it is critical to have the best people possible analyzing and vetting the technology, the best people possible building the opportunity into a fundable story, and the best people possible selling the opportunity to funding sources; in other words, human capital is just as important as all of the science and medical business issues and is one of the most difficult resources to build. Extreme capital efficiency is also critical in the early stages owing to the dearth of early-stage funding that is available. Objectivity around decision-making is absolutely key.

When and how did you plan for an exit?Agreement Graphic

Daniel White (President & CEO of the joint Emory/Georgia Tech start-up Clearside Biomedical): Exits are very hard to come by, but by definition, an entrepreneur should be thinking about timing for an exit from day one. There’s no telling when but be prepared to walk through the exit door when the opportunity arises and do not be too picky when the time arises.

Why do you suppose so many startups fail?

Stephen Snowdy: In the medical sciences, the scientific risks in startups is enormous; Mother Nature has reserved her greatest mysteries, surprises, and humor for those who wish to manipulate the human body’s natural course. Some of the more controllable reasons for failure are emotional attachment to the technology, not having the right people in place to make critical decisions and to sell the story, capital inefficiency that occurs too early in the life cycle (e.g., paying for an office and an assistant before one even validates whether the technology is possible), and failure to talk to all of the stakeholders before making decisions, such as the end user, the end payer, and others affected by the entry into the market of a new technology.

Tom Callaway (Life Science Partner Founder, President): What it really comes down to is unrealistic expectations of the founder regarding valuation and his or her own leadership skills as well as a lack of knowing when to step back and accept help from others.