Hoping to spur entrepreneurs to found additional start-ups in the state, the North Carolina Biotechnology Center said last week that it has expanded its loan program for fledgling biotech companies by doubling the maximum dollar amount, making existing loan types more available, and adding new loan types.
The loan program, which is administered through NCBC’s business and technology development program, now includes a specific loan type for tech-transfer offices at North Carolina universities, and seemingly fills every funding gap that a nascent biotech might face from its earliest days in an academic lab to significant venture capital financing.
In addition, the expanded loan program, which went into effect July 1, is designed to better dovetail with the NCBC’s Business Acceleration and Technology Outlicensing Network, or BATON, a program launched by NCBC last year to match start-up loans with support and resources from regional businesses, including law and accounting firms (see BTW, 7/2/2007).
“Our loan program is designed to do three things: help company inception activity, company research activity, and growth activity or opportunities to move companies to the point where angel networks and venture funds will write big checks,” John Richert, vice president of the NCBC’s business and technology development program, told BTW this week.
“We have spent the last several months [asking] venture capitalists, tech-transfer offices, and entrepreneurs, ‘What can we do with our loan programs to make them a more valuable asset to the community?’” Richert added.
The NCBC gets some money from the state to underwrite its loans, while the rest comes from interest on loans it has collected since the program started. The organization actually started out awarding grants in the mid-1980s, but switched to a loan program in 1989.
The only wholly new loan type is a $50,000 technology enhancement grant that is intended to help tech-transfer offices at public or private universities in the state move promising technologies into play as potential licensing or investment opportunities.
“Many times university [tech-transfer offices] may have this great opportunity, but they need to do a small animal study of some sort, or they may have some IP issues they need to clarify.” Richert said. “This grant is there to make that opportunity more licensable to a large pharmaceutical company; or, more importantly, mesh with what we’re trying to do on the company inception side.”
If a biotech company is founded around a technology that was supported by a technology enhancement grant, the obligation is then transferred to the new company as an interest-free debt. The company will be required to pay the $50,000 back to the NCBC only upon a Series A investment of at least $5 million, Richert said.
The other “new” loan type, a $50,000 company inception loan, is actually a consolidation of two existing loan types. “We had two loans that were basically doing the same thing,” Richert said.
The first was a business development loan for $25,000 that was typically for a company that had already been formed and which required a company match; while the other, dubbed TEAM for technology enhancement and acceleration model, is worth a maximum of $50,000 and required a match in local services through BATON.
“But we decided that there is really no need for two separate loan programs; let’s just have one company inception loan,” Richert said. “The name is a bit boring but it describes exactly what it does” and should be viewed as a progression from the technology enhancement grant, he added.
NCBC has also doubled the size or availability of three existing loan programs.
The first, a small business innovation research, or SBIR, bridge loan now has a cap of $150,000, twice as large as before. It is designed to fill the gap between Phases I and II of the federal SBIR funding program.
According to Richert, the bridge loan “keeps the momentum up within the company on the technology they started with the Phase I [SBIR] grant, and can be used to pay the salary of the [primary] researcher; and it can also give them a leg up on the Phase II grant.”
“Our loan program is designed to do three things: help company inception activity, company research activity, and growth activity or opportunities to move companies to the point where angel networks and venture funds will write big checks.”
Another loan type, the small business research loan, has been increased from a $150,000 maximum to $350,000. This loan is meant to support applied research that may be crucial to the commercial viability of a product in development at a biotech startup. Companies must submit a specific research proposal and business plan.
“We evaluate both to make sure they are aligned and it makes sense,” Richert said. “We then send these to outside experts for review, and give a ‘yea’ or ‘nay’ to our executive committee.”
Lastly, access to a maximum $250,000 strategic growth loan has been doubled so that a company meeting milestones set forth in a first loan will be eligible for a second $250,000 loan through the same program. These loans are designed to provide support at the very latest stages of technology development when a company has a clear path and business plan, and is courting VCs for a larger investment.
All told, biotech startups in the state now may qualify for up to $1 million in loans in their early days — which would also put them $1 million in debt.
Unlike the technology enhancement loan, all other NCBC loan types are interest-bearing at one percentage point above prime rate, which has been 5 percent since last month, according to Bankrate.com.
In addition, Richert said that the loans are all unsecured, and require a balloon payment comprising principal and interest for no more than five years from the date of signing the loan, which may give a company more time to become successful, making it easier to repay the loan.
The vast array of loan types available through NCBC could also trigger anxiety among startup companies trying to figure out which loans are most appropriate for them. But Richert said that the center is taking a very hands-on approach throughout a company’s early days to make sure they aren’t overextending themselves.
“We spend a lot of time before a company even comes to us officially to apply for a loan, sitting down with them, and asking what the next most important thing is that they need to do,” Richert said. “We don’t just say, ‘OK, you’ve filled out the forms right. Now come back to five years and pay us.’”
The main strategy is to determine what the absolute most important thing is that a company needs to do, Richert said.
“If they come in and say, ‘We need that $250,000 strategic growth loan,’ and the most important thing they need to do is write a business plan, we’ll tell them that the $250K loan is not a good thing for you to do because that is a lot of debt,” Richert said.
“The company inception loan is really there to help you do that, and you really just need $5,000 of that $50,000 to do that. You can use the remaining money to do market research and to get the company to the point where you understand where you want to go with the technology and better design the research,” he added.
Although the loan program is designed to foster startup activity from North Carolina universities and existing companies, the NCBC is open to supporting companies from other states that are interested in relocating to North Carolina, Richert said.
To date, the NCBC’s loan program has helped spawn several startups in the state that are still in existence. These include Duke University spinouts Advanced Liquid Logic, which is developing lab-on-a-chip technology; Affinergy, which is developing biological glues for medical devices; and Precision Biosciences, which is developing gene therapy technologies.
Other NCBC-supported companies include University of North Carolina-Chapel Hill spinouts Entegrion and Global Vaccines; and Asklepios, a NanoCor Therapeutics spinout whose scientific founders are currently on the UNC faculty.