2. Money given to a firm for developing a technology
that involves a tax shelter
Sponsoring company developing the technology with funds
being provided by the limited partnership of individual investors
Good when the project involves a high degree of risks and
significant expense
Risks and ensuing Rewards are shared
4. R&D LIMITED PARTNERSHIP
CONTRACT
Specifies the agreement between the sponsoring company
and limited partnership whereby the sponsoring company
agrees to use the funds provided to conduct the proposed
research and development that hopefully will result in a
marketable technology for the partnership.
Key features:
Liability for any loss incurred is borne by the limited partner
Tax advantages to both the limited partnership and the sponsoring
company
5. A party in a partnership agreement that usually supplies money
and has a few responsibilities.
Limited partners have limited liability but not a total taxable
entity. Any tax benefits of the losses in the early stages of R&D
limited partnership are passed directly to the limited partners
offsetting other income and reducing the partner’s total taxable
incomes.
when the technology is successfully developed in later
years, the partners share in the profits.
R&D LIMITED PARTNERSHIP
LIMITED PARTNERS
6. acts as the general partner developing the technology
General partner - the overall coordinating party in a
partnership agreement
has the base technology which they offer in the
partnership in exchange for money but needs funds to
further develop and modify it for commercial success
retains the rights to use the base technology to develop
other products and in the future for a license fee
R&D LIMITED PARTNERSHIP
SPONSORING COMPANY
7. Funding Stage
a contract is established between the sponsoring company
and limited partners,
money is invested for the proposed R&D effort
terms and conditions of the ownership
scope of the research are documented
Development Stage
sponsoring company performs the actual research, using the
funds from the limited partners
8. Exit Stage
commences when the technology is subsequently successfully
developed
the sponsoring company and the limited partners commercially
reap the benefits of the effort
3 Basic Types of arrangements:
Equity Partnership- sponsoring company and limited partners form
a new, jointly owned corporation, limited partners’ interest can be
transferred to equity in the new corporation on a tax-free basis
Royalty Partnerships- royalty based on the sale of the
products developed from the technology is paid by the
sponsoring company to the R&D limited partnership
Joint Venture- manufacture and market the products
developed from the technology
9. R&D Limited Partnership
Benefits and Costs
Provides the funds needed with a minimum
amount of equity dilution while reducing the
risks involved
Restrictions placed on the technology can
be substantial
Exit from the partnership may be too
complex and involve too much fiduciary
responsibility
10. Examples
Syntex Corp. raised 23.5 million in an R&D
limited partnership to develop five medical
diagnostic products
Genentech successfully develop human
growth hormone and gamma interferon
products from its 55 million R&D limited
partnership that it raised 32 million through a
second partnership six months later to
develop a tissue-type plasminogen activator
Trilogy Limited raised 55 million to develop
a high-performance computer
11.
12. Grants from the U.S government to small technology-based
businesses
offers a uniform method by which each participating agency
solicits, evaluates and selects the research proposal for funding
Federal agencies involved in the program develop topics and
publishes solicitation describing the R&D topic it will fund
Small businesses submits proposals directly to each agency using
required format which is standardized
Agencies evaluates the proposal on a competitive basis and
makes reward through a contract, grant or cooperative agreement
13. Department of Defense (DOD)
National Aeronautics and space Administration (NASA)
Department of Energy (DOE)
Department of Health and Human Services (DHS)
National Science Foundation (NSF)
U.S Department of Agriculture (USDA)
Department of Transportation (DOT)
Nuclear Regulatory Commission (NCR)
Environmental Protection Agency (EPA)
Department of Education (DOED)
Department of Commerce (DOC)
14. Phase I
Awards are up to 100,000 for six months of feasibility-related
experimental or theoretical research
Objective: To determine the technical feasibility of the research
effort and assess the quality of the company’s performance
through a relatively small monetary commitment
Phase II
principal R&D effort for those project showing the most
promise at the end of phase I
awards are up to 750000 for 2 years of further research and
development
Money is to used to develop prototype products or services
Phase III
does not involve any direct funding from the SBIR program
funds from private sector or regular government procurement
contracts are needed to commercialize the developed
technologies in Phase III
15. Government Agencies participating publish solicitations
which contains documentation on the agency's R&D
objectives, proposal format, due dates, deadlines, and selection
describing the areas of research they will fund
Submission of the proposal by a company or individual
Awards are granted to those projects that have best potential
for commercialization
Patent rights, research data, technical data and software
generated in the research are owned by the company or
individual, not by the government
16. Five Agencies participate in STTR
DOD, DOE, DHHS, NASA and NSF
SBIR vs. STTR program
1. In SBIR program the principal investigator must have primary employment
with the small business receiving the award while for the duration of the
project there is no employment stipulation in the STTR program
2. STTR requires research partners at universities or other nonprofit institutions
with at least 40% of the research conducted by the small business and at least
30% conducted by partnering nonprofit institution while SBIR program has a
maximum of 33% and 50% in consulting costs.
17. Other grants are available to the entrepreneur at the
federal, state and local levels
Many different forms, vary on the objectives of the level of
the government involved and geographical area
incentive programs for developing technology and technology
companies located in the particular state or providing jobs in
labor surplus areas
