TCF...CIF..WTF(unding)? How to prepare a winning application

TCF…CIF…WTF(unding)?
How to prepare a winning
application

Technology Commercialization Fund
Purpose:
Fund product development to position
a company for follow-on investment
Who:
Early-stage companies in MD meeting
eligibility requirements
What:
$100K Investment for up to 12 month
projects
When:
1st of every month
Program Contact:
Henry Ahn
hahn@tedco.md

Cybersecurity Investment Fund
Purpose:
Fund product development to position
a cybersecurity company for follow-on
investment
Who:
Early-stage “Cybersecurity” companies
in MD
What:
$100K Investment for up to 12 months
When:
15th of every month
Program Contact:
Ron Kaese
rkaese@tedco.md

TCF Eligibility Requirement
 Contract or license
with:
• MD university,
• Federal lab with
partnership
agreement, or
• Other not-for-profit in
MD
OR
 Affiliation with:
• One of Maryland’s
‘Qualified’ incubators
• RBI2, ACTiVATE, or
INNoVATE programs
 For-profit with
less than 16
FTE employees
• At least 50%
working in
Maryland
• Potential for
growth in MD
AND AND
 Pre-revenue
OR
 Pre-
institutional
Investment
(Less than
$500K
investment)

CIF Eligibility Requirement
 For-profit with
less than 16
FTE employees
• At least 50%
working in
Maryland
• Potential for
growth in MD
AND
 Pre-revenue
OR
 Pre-
institutional
Investment
(Less than
$500K
investment)

Review Timeline
TCF
CIF
Month 1 Month 2
1st
15th
Application
Due Date
Compliance Review + Site Visit
Compliance Review + Site Visit
Preliminary
Review:
2nd Wed of
the month
Preliminary
Review:
1st Monday
of the month
Pitch to
Committee:
3rd Wed of
the month
Pitch to
Committee:
1st Wed of
the month
Reference checks /
Additional due diligence as
necessary

TCF/CIF Reporting Requirement
 Milestone Reports and invoice
 Quarterly (April, July, October, January): Financial
statement
 Annual (April of each year):
 State and federal income and payroll tax returns
 Financial statement (full year)
 Annual economic reports (Revenue, # employees,
money raised)

 8% simple interest
 May convert to equity or another
form of investment after the
company raises $500K or more
(TEDCO’s option)
 No discount or cap provision
TCF/CIF Convertible Note Terms

Where do I get more information?
W W W . T E D C O . M D

Where do I get more information?
Request for
Application
Funding
Document
Application
Link
Program
Manager
Checklist

Project Orientation
 Empirical evidence that the technology works
 Commercial market(s)
identified
 Target market justified
 Designed to strengthens
IP position
 Project within company’s commercialization
pathway

Project Orientation
 Moves technology through next step(s) toward
commercialization
 Leverages additional resources (Federal /
Academic / Incubator / …)
 Achievable with the team proposed, funding
allocated, and within 12 months

A Good Project
 Importance to Business
 Project success likely to increase valuation of technology
and company
 Advances along commercialization pathway
 Builds business network

A Good Project
 Importance to Business
 Success attracts follow-on funding
 Plan for follow-on funding
The Ask
Planned Uses of Funds
Anticipated Sources of Funding

A Good Project
 Milestones
 Three milestones of nearly equal budget (tranches)
 Demonstrable achievement
 TEDCO informed if changes need to be made
 Closeout site visit scheduled as project end nears
 Timely receipt of Comprehensive final report
 Achieving technical/budget/schedule milestones

A Good Project
 Budget
 At least 80% “direct” funding to the technology project
 25% paid upon signing of the Project Agreement
Entrepreneur does not need to float the start
 Three 25% progress payments
 50% company match (may be in-kind)
 Company match keeps pace with TEDCO funding
 TEDCO informed if changes need to be made

A Good Project Example
 Entrepreneur licensed US Army technology
 Added further collaboration to leverage resources
 Started a company
 Received funding through TEDCO
 Joined local Incubator
 Software development (neighbor in Incubator)
 Product is a Research tool sold world-wide
 Company remains small with 4 to 5 employees
 Outsources 4 to 5 manufacturing jobs locally
 Rural community now has 8 to 10 high tech jobs

Financial Projections
 Financials are not separate from the business plan. They are
a different way of representing that plan
 The key to securing investors is telling a consistent,
believable story, and your numbers should tell the same
story as your elevator pitch

Investment Needs
 Strive to match critical milestones to capital needs
 Figure out what level of traction and commercialization
different stage investors (i.e. angel, early institutional, series
A) need to see, then develop a credible plan to get to each of
those discrete points
 Avoid common mistakes, such as:
 Projecting negative cash flow (or leaving too narrow a
cushion)
 Spending significantly less than the amount invested
 Raising a dollar amount incommensurate with the
magnitude of the opportunity

Investment Needs
 On the cost side of things, avoid fixing different categories in
operating costs at a certain percentage of revenue
 Instead, take the time to build out an actual headcount
model, driven by key assumptions around how many leads
salespeople can generate and follow up on and how much
progress developers can make

Revenue Model
 Use both the top-down and bottom-up approaches as aides.
The worst models rely on only one (e.g. we will grow from 1
– 5 % market penetration in the next five years). Ideally these
two approaches will converge
 Research the implications of GAAP revenue recognition on
your revenue model
 Marketplaces that do not take on inventory risk should
recognize only their commission as gross revenue, but
companies that utilize channel sales partners recognize all
the revenue with lower margins

Revenue Model
 Keep any industry-specific sales cycle dynamics in mind
 Retailers see sales spikes in December
 Education technology companies see MRR increases at the
end of their sales cycles
 Being conservative is good, but never be conservative about
metrics that are core to the value proposition

Operating Metrics
 Let key operating metrics drive both sides of the model.
When revenue numbers fall behind projections, operating
metrics help inform why
 General metrics that all companies should be tracking
 Cost per customer
 ARPU and lifetime value
 Burn rate
 Revenue model-specific metrics
 Churn for SaaS
 CPM for advertising

Example
 Selling software into the corporate wellness space
 Top-down (macro) approach:
 Total employer-provided insurance market: $700 B
 Roughly 2 pct. spent on wellness by payers and self-insured
companies
 Approximately $14 B market for corporate wellness

Example
 Bottom-up (micro) approach:
 27 MM firms in the USA
 21 MM are nonemployer firms
 5 MM have fewer than 10 employees
 1 MM have 10 – 100 employees
 About 100,000 have 100 – 500 employees
 About 20,000 have 500 employees or more

Segmenting the Market
 Nonemployer firms and firms with fewer than 10 employees
are non-addressable; few offer coverage to employees
 Large firms with over 500 employees are more likely to be
self-insured, have high actuarial standards, long sales-cycles,
and like to run wellness programs themselves
 Opportunity is in the middle of the market
 1 MM have 10 – 100 employees
 About 100,000 have 100 – 500 employees

Assumptions
 Friends & Family, development of prototype
 Founder plus one engineer
 Series Seed I, pilot with a few companies
 Founders responsible for sales, marketing
 4 engineers necessary for development
 1 account management/support person

Assumptions
 Series Seed II, acquisition and onboarding of ten paying
clients
 5 salespeople
 2 account managers
 1 marketer
 5 engineers
 Series A, start tapping into the payer and self-insured market
 Additional sales people to close higher quality deals
 Additional development to add features unique to the Tier 1
market

Projections
($K) 2015 2016 2017 2018 2019
Customers 5 15 45 140 220
Revenue - $ 450 $ 1,350 $ 7,200 $ 21,400
COGS $ 10 $ 90 $ 270 $ 1,800 $ 6,500
Gross Margin $ (10) $ 360 $ 1,080 $ 5,400 $ 14,900
SG&A $ 350 $ 900 $ 2,180 $ 2,900 $ 3,500
R&D $ 300 $ 560 $ 1,300 $ 1,400 $ 1,500
EBITDA $ (650) $ (1,110) $ (2,400) $ 1,100 $ 9,900
Investment $ 700 $ 1,200 $ 3,000 - -
EoY Cash Balance $ 50 $ 150 $ 750 $ 1,850 $ 11,750

What is TEDCO Looking For?
An innovative, possibly disruptive, seed stage, technology-
enabled solution to a big problem.
 Biologic/diagnostic
 Medical device
 Health IT / Tele-health
 Enterprise software
 Web application
 Engineered product
You get the picture…but, not simply a “me too” play.

TEDCO TOP 10 LIST
#1…
Please follow the instructions in the Request for Application
(RFA).
It sounds simple, but you’d be surprised!
And, remember, the “customer” is always right.

#2…
Prepare a high quality proposal that has been refined with the
help of outside advisors.
It’s a competitive process – and you’re up against previously
funded plans, not simply with those submitted “last month”.
And, remember, we use outside reviewers who see 100’s of
plans.
TEDCO TOP 10 LIST

#3…
Show us a technology, not just an idea.
 Significant Discriminator/IP that directly impacts competitive
position
 Preliminary data:
 Life Sciences – in vitro studies
 Engineered products – prototype & lab testing
 Software – MVP & some user feedback
And, remember, we can always point you to other, more stage-
appropriate funding options
TEDCO TOP 10 LIST

#4…
Show us a team, not an individual.
 We understand “stage-appropriate”
 Blend business acumen with technical expertise
 Identify no/low cost external resources that can help fill holes
 Demonstrate that you understand what new hires are needed and
when
And, remember, marketing & sales is a commonly overlooked skill set
TEDCO TOP 10 LIST

#5…
Show us a company, not just a technology.
 Revenue model w/ customer validation
 Go-to-market plan
 Realistic channel strategy
 Target segment and follow-on segments
 Breadth and depth
And, remember, this all needs to be linked directly to your P&L
projections
TEDCO TOP 10 LIST

#6…
Show us a clear, compelling value proposition.
 Will anyone actually buy what you’re selling? Why?
 Beta testers or early adopters (paying or not)
 Evaluate competition, including “do nothing”
 Be careful about a value proposition built on incremental
cost savings
And, remember, don’t forget to identify the paying customer
TEDCO TOP 10 LIST

#7…
Show us a validated understanding of customer & market.
 Minimize macro research report market size data
 Do some actual market research; talk to potential users and
build from the “bottom up”
 If you’re a platform, identify a target segment
 Life Sciences – address FDA & reimbursement pathways
And, remember, your market research conclusions should be
embedded into your P&L projections
TEDCO TOP 10 LIST

#8…
Show us a solid go-to-market plan.
 Can be a really powerful differentiator among competitive
proposals
 Address the classic 4 P’s of marketing
And, remember, don’t expect the customer to alter it’s buying
habits to suit your plan
TEDCO TOP 10 LIST

#9…
Show us a financial projections with clear, reasonable assumptions
that link directly to the other elements of your plan.
 Can also be a really powerful differentiator among competitive
proposals
 Include operating metrics so the reviewer can evaluate the “size of
the problem”
 Support the amount of money you’re raising
And, remember, don’t run out of cash and don’t make math errors.
TEDCO TOP 10 LIST

#10…
Show us a set of project milestones that actually advance the
company.
 Be realistic
 Be detailed
And, remember, TCF/CIF is intended to get you either to the next
fundraising inflection point or to revenue generation.
TEDCO TOP 10 LIST

#11… because we all love Spinal Tap!
Show us that you’re an effective communicator.
 Follow the RFA
 Balance between technology & business
 Don’t assume that TEDCO’s reviewers are experts in your technology –
pitch so your grandparents get it
 Get outside help with your pitch…and practice
And, remember, please have your proposal & presentation proofread by
someone not familiar with your application.
TEDCO TOP 10 LIST

Stephen Auvil
TEDCO
Senior Vice President, Technology Transfer &
Commercialization
410.715.4166
sauvil@tedco.md
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