Tweet

PREPARE to Fund Your Technology Development

Guest post by: Fred Patterson

Article Overview: Finding funding for technology development can be a daunting process. Sources of funding, which include Federal Grants, State economic development funds, debt financing from investment banks, and equity funding from Angels or Venture Capital, will use some form of rating to determine your suitability for funding. This article presents a schema for evaluating a venture's "Funding Readiness Level (FRL) ®", which includes the market readiness of the technology or "Technology Readiness Level (TRL)", the maturity of the business or "Business Readiness Level (BRL)", and the ability of the venture to manage the deal process and negotiate in its own best interest or "Dealsmanship". (This article appears in the Jan/Feb 2006 issue of The Austin Business District magazine.)

PREPARE to Fund Your Technology Development

Everything I Ever Learned About Funding I Learned From Andy Hardy

In the 1940’s MGM produced a series of Andy Hardy movies in which the main characters (Mickey Rooney played Andy, Judy Garland was his girlfriend and Lewis Stone played Judge Hardy, Andy’s loving but firm father) managed to solve their problems by using the device of “Putting on a Show”. Having exhausted their own meager resources, and desperately needing to raise money for a worthy cause, the talented and enthusiastic young entrepreneurs staged a musical production to raise the money they needed. The resulting musical productions were the very best the MGM Prop, Set Design and Music Departments could produce.

Today’s entrepreneurs looking to raise money lovingly construct their backdrops with business plans and PowerPoint presentations. Their intent is the same – get their audience to willingly part with their money because they like what they see and hear! It worked for Andy Hardy and his friends. They always accomplished their goals and raised the money. But they had an advantage: they were fictional characters in a movie that always had a happy ending.

What faces today’s entrepreneur?

The casual observer of the process to acquire technology funding might conclude business plan preparation, finding the sources of funding, choosing between Angels and VCs and giving brilliant PowerPoint presentations, is all that is required to win funding. Unfortunately, presentation strategies alone often fail to create the expected payoff.

There’s much more to the evaluation process than the message in your business plan and PowerPoint presentations. These components, though important, will not deliver a win by themselves. What’s missing? A firm understanding of what funding sources are available and how each potential funding source is going to evaluate you and your business.

Each Funding Source is Unique

There are many potential funding sources. The obvious ones are Angels and VCs but there are other options – many of which won’t dilute your ownership. The Small Business Innovation Research (SBIR) Program provides grants and contracts for technology development. The Texas Emerging Technology Fund (ETF) provides grants for business growth. The Department of Energy has annual Inventions and Innovations (I&I) competition providing grants for energy-sector technology development. NASA, the Department of Defense, and the Department of Homeland Security all do extensive partnering of small technology businesses with their prime-contractors who are seeking innovative technologies to integrate into their systems. Major universities, such as The University of Texas and Texas A&M actively seek small businesses with whom they can partner in the commercialization of their technologies. Which source you should target lies in the assessment of your readiness for funding.

Investors will evaluate your suitability for funding

Any potential investor will evaluate you. Two critical dimensions will be assessed. The first is the developmental status of your company’s technology. The second is your company’s maturity and ability to conduct business to realize the revenue potential of your technology. The perception of how you rate in these two areas will determine whether the investor will continue discussions with you, or take a pass.

Evaluating developmental status: the Technology Readiness Level

A convenient classification index is the Technology Readiness Level (TRL). It is one of the primary assessment tools used by the Department of Defense and NASA. A company’s TRL will range between a “1” and a “9”, with “1” being no more than a conceptual articulation of an idea and “9” being a fully developed product. Here's the TRL Index:
___________________________________________________

Level Technology Readiness Level(TRL)

1 Conceptual articulation.
2 Technology and Applications described.
3 Laboratory studies and analysis.
4 Limited capability prototype validation in laboratory (pre-alpha version).
5 Full capability prototype validation in laboratory (alpha version).
6 Prototype validation in relevant environment (pre-beta version).
7 Actual system validation in a relevant environment (beta version).
8 Initial production and rollout.
9 Full production mode.
___________________________________________________

You can be sure the funding entity will expect your company’s technology to be at a minimum readiness or TRL level for the investment to be considered appropriate for further evaluation. It’s to your advantage; therefore, to know ahead of time what each targeted funding source uses as their readiness criteria and what the minimum thresholds they expect.

Evaluating maturity: the Business Readiness Level

Similar to the TRL, another classification index, the Business Readiness Level (BRL) can be used to assess the capability of the organization to conduct business. Like the TRL, it ranges between a “1” and a “9”, with a “1” representing the proverbial “inventor with a dream” and “9” being a fully articulated business with appropriate infrastructure and staffing. Here's the BRL Index:
___________________________________________________

Level Business Readiness Level(BRL)

1 Inventor or team with a dream.
2 Paper studies and analysis produced.
3 Capability for conducting laboratory experimentation.
4 Capability to work limited-scope R&D programs with project teams.
5 Capability to support project engineering development and design
6 Capability to support development and design with a market-driven business team.
7 Capability to support limited production; full business team in place.
8 Capability to transition to full production and distribution.
9 Fully articulated business with appropriate infrastructure and staffing.
___________________________________________________

Any credible funding source will want assurance your organization has the resources and business acumen to successfully execute the plan and manage their money!

The Investor’s Evaluation Process: TRL + BRL

Every potential investor will rate your technology development and business maturity on some relative scale. They will compare your perceived rating against their preferences. For example, both the SBIR and I&I funding programs focus on TRLs of no higher than a “3” but a company having a BRL of a “4” or higher has a much better chance of getting an award. The Texas ETF is more favorable to companies with a TRL and a BRL of “5” or higher. The Federal agency partnering programs get excited when TRLs are a “6” or higher and are matched with BRLs that are at a “7” or higher.

Angels and VCs each have a unique profile that they are seeking to match. Angels might be willing to invest in a company with a low TRL when the investor has significant knowledge or experience within that technology domain. Most VCs, however, expect a TRL of a “6” or higher. Expected BRLs also vary widely -- some investors prefer a fully defined business team, others prefer to help build the team.

Let’s make a deal!

There’s a third component involved in finding and dealing with a funding source. We call it Dealsmanship TM. It’s all about your understanding of the deal process and your skill in negotiating favorable terms and conditions. If you can’t negotiate a funding agreement that protects your company’s best interests, then everyone associated with the investment loses.

A strategy for success: Raise your Funding Readiness Level(FRL)® appropriately

For successful funding, the company must objectively evaluate its TRL and BRL, know the profile and preferences of potential investors, and be prepared to make deals that position the company for profitable growth.

There’s no point in making a presentation to a VC, for example, who expects a TRL of 6+ and a BRL of 5+ if you’re at a level 3 on both scales. However, an Angel who has experience in your technology area might be very interested. At the same time, you might consider the SBIR Program and plan on applying for Texas ETF funds in a year or two when your TRL and BRL have both risen.

To be successful you need a funding preparation strategy that includes research and evaluation of all potential funding sources, generate a roadmap to raise your TRL and BRL levels to match targeted funding sources, and develop a strong dealsmanship capability. The basis of the strategy: raise your Funding Readiness Level(FRL)® to the appropriate level to be successful.

Let’s Put On a Show!!

Now what about that business plan and PowerPoint presentation? These are the “Show” you produce to attract and convince possible investors. A good show with “props and music” will keep the investor interested and talking. Without the show, you’ll never get the chance to demonstrate the reality of your technology’s developmental status, capabilities, and potential. After all, that’s what the investor is “buying”. And, frankly, a poor show is an indication of a lack of business maturity.

Andy Hardy had the right idea after all!

Come to think of it, Andy Hardy and his friends certainly had a high enough TRL to put on a block-buster show, and Judge Hardy served to bolster their rather weak BRL. Andy’s dealsmanship skills, moreover, always helped him get his way. Despite being fiction, these movies did offer valuable business principles and a blueprint to modern entrepreneurs that are relevant after all!

Break a leg!

Related Articles
  9.3.2 The Small Industries Development Organization: Support for Growth-oriented Women Entrepreneurs in Tanzania, 2005
  5.2.1 The MIT-SME section: Support for Growth-oriented Women Entrepreneurs in Tanzania, 2005
  Nigerian Government Creates $426m Microcredit Development Fund
  SME's - a link between funding and a compliance model
  Q How can we get our company funded

Article Tags: andy hardy, backdrops, business plan preparation, business plans, casual observer, entrepreneur, fictional characters, funding sources, judy garland, meager resources, mgm, mickey rooney, music departments, powerpoint presentations, presentation strategies, putting on a show, sources of funding, vcs, worthy cause, young entrepreneurs



Related Forum Posts
Seek Venture Capital & Funding - Hello, Greetings from India. I am Seeking Venture Capital for Offshore Software Company Start-up. Need advise along with Business Model Sample. I have a basic outline for an offshore company. 1. Technology - like Microsoft Dot Net, Java, LAMP 2. Talent Team - Found Good Technology Developers. 3. Where I can get the leads/potential customers - Leads have been identified who are willing to move forward offshore projects. 4. I do not have resources like funding. It is a very critical factor to me Industries: Manufacturing, Real Estate, Retail, Insurance, Distribution & Logistics, Healthcare, Industry Associations and Software Product Development, Agricultural Industries and Etc. Services: Offshore Software Development Company. Offices to be located: Hyderabad, Andhra Pradesh, India and USA. Products/Services/Applications in areas like POS & Billing, Sales & Distribution, Production Planning, Material Management, Inventory Control, Plant Maintenance, Purchasing, Accounting and Logistics. Dynamic Web Programming with Database Driven Content Management Systems, Online Stores for E-Commerce, B2B Solutions, Community Portals, Website Redesign and Development, Custom ERP with Enterprise Wide Functional Modules such as Marketing, CRM, Accounting, Inventory Control, Sales & Distribution, Production Planning, Purchase & Stores, Logistics and Supply Chain. Seek your further questions and help. Thank you, Best Regards, Jayapratap.
Re: what position to request? - Hi Michael, Great suggestion from David, or you could try something around a design consultancy, How about Website Design Consultant, Design and Development Manager, Website Support and Development Manager or maybe Internet Business Development Consultant. Ultimately whatever you are comfortable with and good luck for the future, Mal.
BDC - [quote="IWDCanada":jib6tqt9]I think if you try to do business in the Maritimes the Business Development Bank of Canada might be able to provide grants.[/quote:jib6tqt9] On that note, does anybody have any experiences with the Business Development Bank of Canada that they would like to share? I have been considering approaching them for a business loan.
Re: BDC - [quote="Jones":255lkmrn][quote="IWDCanada":255lkmrn]I think if you try to do business in the Maritimes the Business Development Bank of Canada might be able to provide grants.[/quote:255lkmrn] On that note, does anybody have any experiences with the Business Development Bank of Canada that they would like to share? I have been considering approaching them for a business loan.[/quote:255lkmrn] I'll be working with the BDC later this month on a few projects. From what i've been told they are really great when it comes to small business. Their loans have a little higher interest but their payment terms are a lot easier to swallow. I can give you a contact if you need.
International Technology Exchange - Hello, Does anyone have idea about International Technology Exchange? I’m keenly interested to get the views of the members. Without going into confidential details, good or bad reports would be appreciated! Thanks


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Angel Investors Where Are You?

Five Ways to Show Honest Appreciation

What If You Had a 100% Success Rate?

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.