ATP Project Selection Criteria
1
- ATP funds high-risk, enabling technologies that may require
collaborative efforts among corporations, universities, federal
laboratories, and non-profit institutions.
- ATP provides funding past basic research and up through prototype.
- ATP does not fund product development or commercial activities.
- All research project
proposals submitted to ATP are evaluated against two
published selection criteria—scientific
and technological merit (50%) and potential for broad-based
economic benefits (50%).
Venture Capital Funding Criteria
2
- Venture capitalists avoid funding early stages, when the
technologies are uncertain, and market needs are unknown
or unclear.
- Venture capitalists also avoid funding later stages, when
competitive shakeouts and consolidations are inevitable and
growth rates slow dramatically.
- Majority of venture capital goes to follow-on funding for
projects originally developed through the far greater expenditures
of governments and corporations.
- Venture money is
not long-term money. Venture capitalists invest in a
company’s balance sheet and infrastructure
until it reaches a sufficient size and credibility so that
it can be sold to a corporation, or public equity markets
can step in and provide liquidity.
- In essence, venture
capitalists buy a stake in the an entrepreneur’s
idea, nurtures it for a short time, and then exits with the
help of an investment banker.
Venture Capital Funding Strategies
3
- VCs should never invest to discover new scientific
phenomena.
- VCs should almost never invest to prove a scientific
principle.
- VCs should rarely invest to develop enabling technology.
- VCs should often invest to use a technology to develop
a product.
- VCs should very often invest to revise and
improve a product.
Stages of technology development
The following diagram shows a conceptual chart of the different
phases of research and the entities usually involved in funding
those phases.4 By design,
projects for which ATP provides cost-share fall in Stage 3, early-stage
technology development.
Frequently Used Terminology in Academic and Financial Language
NSF definition
5 |
Model of development and
funding (Branscomb/Auerswald) |
Venture
capital terminology
(Source:
PwC/Thomson Economics/NCVA MoneyTree Survey6 and
Venture Economics Information Services7) |
Basic
Research
To
gain more comprehensive knowledge or understanding
of the subject under study without specific applications
in mind .
|
Basic
Research
Beginning
with the research base on which innovative
ideas rest.
Proof
of concept
Proof
of principle or concept of a technical device
or process believed to have unique commercial
value. |
Typically does
not fund projects or companies at this level. |
Applied
Research
To
gain the knowledge or understanding to meet
a specific, recognized need.
|
Early-stage
technology development
In the third stage, product specifications appropriate
to an identified market are demonstrated, and
production processes are reduced to practice
and defined, allowing estimates of product cost.
This is the point at which a business case can
be validated and might begin to attract levels
of capital.
This is the stage that ATP provides cost-share
for projects. |
Seed
The initial stage. The company has a concept
or product under development, but is probably not
fully operational. Usually in existence less than
18 months. The emphasis is on examining business
idea feasibility and getting the firm ready to commence
operations.
Start-Up Stage
Provides
funds to companies for product development
and initial marketing. This type of financing
usually is provided to companies just organized
or to those that have been in business just a
short time but have not yet sold their product
in the marketplace. Generally, such firms have
already assembled key management, prepared a
business plan, and made market studies. At this
stage the business is seeing its first revenues
but has yet to show a profit. This is often where
the enterprise brings in its first "outside" investors.
|
Development
The
systematic use of the knowledge or understanding
gained from research directed toward the production
of useful materials, devices, systems, or methods,
including the design and development of prototypes
and processes
|
Product
development
The
activities at the start of stage 4 are initial
production and marketing. At the end of stage
4, the product has been introduced in the marketplace
and an innovation has taken place.
Production
and marketing
In
stage 5, investors can expect to see the beginning
of returns on their investments. |
Early
Stage (1 st or “A”, 2 nd or “B” round)
The company has a product or service
in testing or pilot production. In some cases,
the product may be commercially available.
May or may not be generating revenues. Usually
in business less than three years. Expansion
Stage (“C” or 3 rd round and
up)
Product or service is in production
and commercially available. The company demonstrates
significant revenue growth, but may or may
not be showing a profit. Usually in business
more than three years. Mezzanine
(“Bridge
funding”)
Short-term
debt is used to support continued growth opportunities
while preparing for an acquisition, a management
buyout, a leveraged buyout or an IPO. |
_____________________
1 Science
and Engineering Indicators 2004, U.S. and International
Research and Development: Funds and Technology Linkages, National
R&D Trends, Definitions
of R&D.
2 PricewaterhouseCoopers, Thomson Venture Economics and the National Venture
Capital Association MoneyTree™ Survey
Definitions and Methodology, Stage of Development
Definitions.
3 Venture Economics Information
Services. 1999. National Venture Capital Association Yearbook.
Arlington, VA: National Venture Capital Association.
4 ATP’s
statute is codified in 15 CFR § 278n. The ATP Proposal Preparation
Kit (February 2004) provides more specific guidance on selection
criteria.
5 From
B. Zider, venture capitalist, in “How Venture Capital
Works,” Harvard Business
Review, Nov 1998 (pp. 131-137).
6 David
Morganthaler, former president of the National Venture Capital
Association, in Branscomb, Morse, and Roberts, “Managing Technical Risk” NIST
GCR 00-787 (2000).
7 Branscomb
and Auerswald, “Between
Invention and Innovation: An Analysis of Early-Stage Technology
Development” NIST GCR 02-841 (2002).
Factsheet 1.C9 (March 2005 by Prasad Gupte). |
