Appendix D
Selected Case Studies

Rosalie Ruegg

TIA Consulting

CASE STUDY COMPANIES AND CONTACT INFORMATION

Case studies were performed for the 10 companies listed below. Each listing provides the company name, location, telephone number, principal interviewee and his or her title, and email contact address.


Faraday Technology, Inc.

Clayton, OH

937-836-7749

Dr. Jennings Taylor, CEO and IP Director

jenningstaylor@faradaytechnology.com


Immersion Corporation

801 Fox Lane

San Jose, CA

408-350-8835

Dr. Chris Ullrich, Director of Applied Research

cullrich@immersion.com


ISCA Technology, Inc.

2060 Chicago Ave #C2

Riverside, CA

951-686-5008

Dr. Agenor Mafra-Neto

President@iscatech.com



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Appendix D Selected Case Studies Rosalie Ruegg TIA Consulting CASE STuDY COMPANIES AND CONTACT INFORMATION Case studies were performed for the 10 companies listed below. Each listing provides the company name, location, telephone number, principal interviewee and his or her title, and email contact address. Faraday Technology, Inc. Clayton, OH 937-836-7749 Dr. Jennings Taylor, CEO and IP Director jenningstaylor@faradaytechnology.com Immersion Corporation 801 Fox Lane San Jose, CA 408-350-8835 Dr. Chris Ullrich, Director of Applied Research cullrich@immersion.com ISCA Technology, Inc. 2060 Chicago Ave #C2 Riverside, CA 951-686-5008 Dr. Agenor Mafra-Neto President@iscatech.com 0

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 APPENDIX D Language Weaver 4640 Admiralty Way, Suite 1210 Marina del Rey, CA 90292 310-437-7300 Mr. William Wong, Director of Technology Transfer jwolfe@languageweaer.com (office manager) MER Corporation Tucson, AZ 520-574-1980 Dr. Roger Storm, CEO rstorm@mercorp.com MicroStrain, Inc. Williston, VT 1-802-862-6629 Dr. Steven Arms, President swarms@microstrain.com National Recovery Technologies, Inc. (NRT) Nashville, TN 615-734-6400 Dr. Ed Sommer, President and CEO ejsommer@nrt-inc.com NVE Corporation Eden Prairie, MN 952-996-1603 Mr. Robert Schneider, Director of Marketing bobsch@ne.com T/J Technologies, Inc. Ann Arbor, MI 734-213-1637, ext. 11 Ms. Maria Thompson, President and CEO mthompson@tjtechnologies.com WaveBand Corporation Irvine, CA 949-253-4019, ext. 123 Ms. Toni Quintana, Director of Business Development tquintana@waeband.com

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 APPENDIX D CASE SELECTION PROCESS The companies listed in Section D.2 were 10 of 12 companies who were con- tacted in the effort to obtain a targeted set of 10 cases. Of the 12, one company, Alderon Biosciences, Inc., of Durham, NC, declined the request for an interview without saying why. A second company, Triangle Research and Development Corporation of Research Triangle Park, NC, was contacted by phone and a review requested. The company principal was in the process of moving, making a site visit impractical. Although he was willing to discuss his company’s SBIR experience by phone, insufficient information was obtained to develop a full case study. The 10 companies listed all agreed to participate in the study and provided extended in-person interviews (generally from 1.5 to 2 hours in length) and usu- ally also provided lab tours and company reports. All but three of the interviews were conducted at company headquarters. Three were conducted in Reston, VA, at a Navy Opportunity Forum. The selection of the 12 companies contacted was not random. The companies were selected to provide companies of different age and size, pursuing different technologies, located in different parts of the country, with differing forms of ownership, and with some, although varying degrees of, commercial success. Some of the companies are university spin-offs; some are company spin-offs; some are neither. Some received many SBIR grants; some relatively few. Some continue to obtain a high percentage of their funding from government sources; others have reduced the percentage to low numbers. The 12 companies who were asked for an interview were drawn sequentially from the following four lists: 1. A list of 12 companies designated “stars” by the NSF SBIR Office was compiled at the request of the interviewer. The list showed companies sorted on the basis of whether they had received no Phase IIB grants, only one Phase IIB grant, or multiple Phase IIB grants. At the request of the interviewer, the companies were also selected to provide variation in state location, company age, years to first SBIR, sales volume (with categories ranging from $1 million-or-less to more than $10 million), and to provide at least one minority or woman-owned company. The “star” designation was said by NSF SBIR administrators to mean that the NSF Program Managers expected the companies eventually to achieve “better than average success.” The following six companies were selected from this NSF list of 12: Faraday Technologies, Immersion Corporation, ISCA Technologies, National Recovery Technologies, NVE Corporation, and T/J Technologies. 2. A list of 47 companies that had received NSF SBIR grants and were show- ing associated commercialization results was compiled at the request of the interviewer by the NRC research team member with responsibility for

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 APPENDIX D existing survey databases. From this list of 47, one company—Language Weaver, Inc.—was added to the existing case study set to provide a com- pany that was very recently founded. Two already selected companies— Immersion Corporation and NVE Corporation—were noted to be also on this second list. 3. A list of four companies located near the interviewer was compiled by the same NRC research team member with responsibility for survey databases, at the request of the interviewer. The intention was to reduce travel costs. Of the four companies, the two showing the most SBIR activ- ity—Alderon Biosciences, Inc. and Triangle Research and Development Corporation—were selected as potential cases, but, as noted previously, neither led to actual case studies. 4. A list of NSF SBIR recipients that would be presenting at a Navy Oppor- tunity Forum in Reston, VA, in May 2005 was provided to the inter- viewers. Three companies were identified as having received NSF grants and had not already been selected for case study by other NRC research team members who were developing DoD-focused cases. These were MicroStrain, Inc., WaveBand, and MER Corp. The latter company was found also to be on the second list above. Thus the 10 companies selected do not represent a random sample. Yet draw- ing them from different lists reduces bias present in any single list. A bias that remains—particularly due to the fact that the third list did not yield cases—is that they all may be regarded as providing examples of revenue-earning SBIR-funded companies. They nevertheless provide considerable diversity. The 10 selected companies are located in seven states: California, Ohio, Tennessee, Minnesota, Arizona, Vermont, and Michigan. They are developing 10 different technologies, including technologies in the areas of software, elec- trochemical processes, information technology for pest monitoring and control, electronics, manufacturing processes, and nanomaterials. They range from a more than 20-year-old company founded in 1983, and using SBIR to make a new technology start, to a very “new” company founded in 2002 and already realizing significant revenue. They include very small companies with only about a dozen employees, as well as several companies with 70 or more employees, and one with nearly 150 employees. They include companies that were able to commer- cialize product very early and those whose technologies will take considerable time. Annual revenue among the companies ranges from $2 million to about $24 million. Among the companies are a university spin-off, a large company’s spin-off, a small company’s spin-off, a company started by a graduate student, one started by a retiring large-company executive, several started by university researchers, several started by scientists/entrepreneurs, and one started by a

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 APPENDIX D professor-husband and entrepreneur-wife team. They include two woman-owned companies, one of which is actively operated by a woman who is also a member of a minority group. They include companies whose share of annual revenue con- tributed by SBIR and other government grants ranges from a low of 4 percent to a high of 70 percent. Commercialization strategies include licensing agreements, contract research, sale of product produced in-house, commercialization partner- ships with larger companies, as well as sale of the technology or of the company to other companies. While they differ in these many respects, the companies in the case study set are similar in at least three respects: (1) All of the 10 companies have positive annual revenue, reflecting the selection bias that favored relatively successful grant recipients, though not the most successful grant recipients. (2) They share the expressed view that SBIR grants were critical to their ability either to get started at all or to develop capabilities critical to their businesses. (3) Without exception, they sought and received grants not only from NSF but also from other agency SBIR programs, and, in multiple cases, from other government funding programs as well—principally the Advanced Technology Program (ATP) and the Defense Advanced Research Projects Agency (DARPA). Given the limited number of case studies performed, and the diversity that characterizes them, the cases are illustrative only and cannot be taken as necessar- ily representative of any of the particular features they exhibit. Yet, a number of common themes run through them, as discussed in the body of the report. Inter- viewees were asked their views on how the SBIR program might be improved. These views are brought out in Section 4. First, brief synopses of the cases are presented and then the cases are presented in full. CASE SYNOPSES Faraday Technology. This case study shows how SBIR grants enabled a scientist-founded company in Ohio to develop an underlying electrochemical technology platform, and, through continuing innovation, to leverage it into mul- tiple lines of business. The technology provides cleaner, faster, more precise, and cost-effective processes to add or remove materials from many different kinds of media, ranging from metal coatings to fabricated parts, to electronic components, to contaminants in soil. The challenges of laying down uniform coatings in tiny holes of many layers of stacked circuits, for example, differ sufficiently from those of producing super smooth surface finishing for titanium jet engine com- ponents. The range of these challenges justifies application-specific research to develop the necessary processes. SBIR grants enabled the company to develop the technical capability needed to pursue these many application areas. The company uses an aggressive patenting strategy and licensing to generate business revenue. The relatively modest licensing fees rest on a much larger revenue stream realized

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 APPENDIX D by Faraday’s customers (their licensees). At the time of the interview, nearly half the company’s revenue came from government sources. Immersion Corporation. This case study illustrates how government funding was used by a university spin-off to leverage private funding to develop technol- ogy inspired by NASA technology. The technology adds the sense of touch to diverse computer applications—enhancing entertainment experiences, increasing the productivity of computer use, training doctors, and more. With SBIR assis- tance, the company has developed a large intellectual property portfolio, which it licenses to other companies, increasing the value of clients’ hardware and soft- ware. Over its first decade, the company has grown the business to approximately 141 employees and $24 million in annual revenue. Immersion is the largest of the companies included in the case study set. Government R&D support at the time of the survey comprised only about four percent of current revenues. ISCA Technology, Inc. This case study illustrates how SBIR grants helped a young company that was started with export sales survive a collapse of those sales. Using SBIR, the company, founded by a university researcher, was able to innovate, bringing new technology to the important but then largely static field of pest monitoring and control. The company developed better lures and smarter traps, integrating them with advanced communication tools. ISCA developed new markets in the United States and reestablished export markets. The effect of the company’s technologies has been to reduce grower need for insecticides, cutting costs to growers, reducing unwanted effects on insects, lowering pollution, and improving the quality of produce. Another effect is to provide early warning of mosquito outbreaks, providing potential health benefits. Government funding sources at the time of the case study comprised about 40 percent of company revenues. Language Weaver. This case study shows how an NSF SBIR grant was criti- cal to bootstrapping a technology with national security and economic potential out of a university into use on a fast-track basis. The would-be company, unable to obtain private funding was about to shelve the idea, when the idea arose to seek a grant from NSF. The SBIR grant afforded the technology the credibility required to obtain the management, additional funding, and strategic partners it needed to make a viable business. The technology is statistical machine transla- tion that Language Weaver has applied to translating Arabic, Farsi, Chinese, and other languages. It is being used to create translations of Arabic broadcasts and for other military-related purposes. In addition to licensing its technology to the military, the company also has civilian customers for its software licenses. Without the NSF SBIR grant, a technology that turned out to be extremely timely would not have been developed in the same time frame. From its founding in 2002, Language Weaver has moved from being almost entirely dependent on

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 APPENDIX D government grants to cutting the share of government grants to less than half of company revenue by the time of the case study. In 2005, the majority of revenue came from licensing. MER (Materials and Electrochemical Research) Corporation. This case study illustrates the continuing role played by SBIR grants in the research of a grant- winning company started 20 years ago. The SBIR program was said to be particu- larly important to the owners as a means for not losing control of the company. It has allowed the company steadily to improve and advance its R&D capabilities in advanced composites, powders, coatings, reinforcements, nanotubes, manufactur- ing processes to produce near net shape metals and alloys, and energy conversion systems. In parallel with its R&D activities, MER is commercializing its tech- nologies, primarily through military channels. One current focus of the company is on commercializing its rapid manufacturing near net shape processing technol- ogy. The process allows a variety of very complex shapes to be produced without tooling, without waste of materials, with desirable joining features, and at a cost advantage to machining techniques. At the time of the case study, roughly 60% of the company’s funding comes from government sources, and the remaining from engineering services and product sales. MicroStrain, Inc. This case study shows a still-small company that leveraged EPSCoR grants to obtain SBIR grants. With SBIR support, it developed an innova- tive line of microminiature, digital, wireless sensors which it manufacturers. These sensors can autonomously and automatically collect and report data in a variety of applications. They have been used to protect the Liberty Bell during a move and to determine the need for major retrofit of a bridge linking Philadelphia and Camden. Current development projects include power harvesting wireless sensors for use aboard Navy ships, and damage tracking wireless sensors for use on Navy aircraft. Unlike most research companies, MicroStrain, started by a graduate student, has emphasized product sales since its inception in 1985. For a relatively small cost for installing a wireless sensor network, the company has demonstrated that millions of dollars can be saved. At the time of the case study, little more than a quarter of the company’s revenue came from government sources. National Recovery Technologies, Inc. (NRT). This case study shows how a company founded more than 20 years ago used the SBIR to rejuvenate its tech- nology platform in order to enter new growth markets. NRT used SBIR grants early in its history to support R&D underlying its first line of business—mixed municipal solid waste recycling and plastics recycling—lines which did not achieve the original projected growth. In its second decade, NRT used SBIR grants to leverage its existing technological base in a directional change that would offer the potential of increased growth. One of these areas of research was to develop an optoelectronic process for sorting metals at ultra-high speeds into

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7 APPENDIX D pure metals and alloys. Another area of research was to combine fast-throughput materials detection technology with data compilation, retrieval, analysis, and reporting to provide an airport security system that represents an improvement over the current nonautomated, manual inspection system. At the time of the study, the Transportation Security Administration (TSA) was evaluating NRT’s system, a necessary step in qualifying it for use in airport security. While it develops the metals reprocessing and security product lines, NRT has maintained a steady revenue stream of several million dollars annually, primarily from sales of plastics analysis and sorting equipment. NVE Corporation. This case study shows how a company, which traces its origins to a large company, used SBIR and other federal grants to help launch the company, to keep it from failing, and to improve its ability to attract capital from other sources. Since its founding, the company has pursued development of MRAM technology that uses electron spin to store data and that promises non- volatile, low-power, high-speed, small-size, extended-life, and low-cost computer memory. NVE has developed substantial intellectual property in MRAM. As NVE pursued MRAM development, it saw related potential applications, such as magnetic field sensors. The company has licensing arrangements with a number of other companies. Approximately half of the company’s funding comes from gov- ernment funding, and the remainder from commercial sales, up-front license fees, and royalties. The company is now traded on the NASDAQ Small Cap Market. T/J Technologies, Inc. This case study features an innovative materials research company, facing a relatively long time to commercialization, which has used a “building block” strategy, leveraging off SBIR and other federal grants to get started and build needed capacity. With this increased capacity, the company was able to go after government research contracts. The next step towards com- mercialization, underway at the time the case study was conducted, was to form partnerships with global companies for testing and demonstrating its advanced materials for electrochemical energy storage and conversion, and eventually to reach civilian markets. The case shows a company struggling to move up the value chain in order to receive more value for its technology in an environment where funding is scarce and negotiations are difficult. At the helm of the company is a minority woman, during a time that woman-owned businesses received less than 10 percent of SBIR Phase II grants, and minority woman-owned businesses received an even smaller percentage. The company, at the time of the case study, was receiving approximately 15–20 percent of its revenue from the SBIR/STTR program and the remainder primarily from contract research. WaveBand Corporation. This case study illustrates the role played by SBIR grants in the creation of a company as a spin-off of another small company. It also shows how the company used SBIR and other research funding sources to

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 APPENDIX D develop a portfolio of technologies attractive to a larger company that recently acquired it. The case illustrates the dual, unique roles played by highly targeted SBIR grants from defense agencies and by less targeted grants from NSF. The company specializes in antennas that rely on an electron-hole plasma grating to provide rapid beam steering and beam forming without the use of bulky mechani- cally moved reflectors, which are slow, and electronically steered phase shifters, which are fast but expensive. WaveBand’s antennas reportedly offer a price advantage 100 times more favorable to buyers than traditional systems. At the time of the study, approximately half of WaveBand’s revenue comes from SBIR and other government grants.

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9 APPENDIX D Faraday Technology, Inc.1 THE COMPANY After a stint in a large company research lab where few of the research ideas actually became products, Dr. E. Jennings Taylor was eager to test the waters in a small company environment. He subsequently worked at first one, then another small research company in the Boston area. During this period the entrepreneurial bug bit, and he added an M.S. in technology strategy and policy at Boston Uni- versity to his Ph.D. in material science from the University of Virginia. Shortly afterwards, he left Boston for Ohio where he launched his own company, Faraday Technology. Dr. Taylor chose Ohio for two reasons: It was his home state, and, while at Boston University, he had heard about the Ohio Thomas Edison Program, which offered an incubator system for business start-ups. The incubator turned out to be an old school building in Springfield. Basement space was provided at the rate of about $2.00 per ft2, plus telephone answering and part-time use of a conference facility. It was modest assistance, but it gave the company inexpensive space to get started. Two years later, the company was able to move into a research park near Dayton, and, two years after this, into a custom-built facility, which has since been expanded. The custom facility provides space for the development of pilot-scale prototypes of electrochemical-based processes. The staff of approximately 10 full-time and 9 part-time employees includes researchers and experienced manufacturing engineers. Dr. Taylor, who is a reg- istered patent agent, serves not only as CTO, but also as IP Director. The com- pany has developed core business competencies in patent analysis. The staff also includes a full-time marketing director who oversees implementation of the company’s strategic marketing plan for developing new implementation areas and customers. The company has collaborative arrangements with a number of universities, including Columbia University, Case Western Reserve University, University of South Carolina, University of Dayton Research Institute, University of Cincinnati, Ohio State University, Wright State University, University of Nebraska, Univer- sity of California-San Diego, United States Naval Academy, University of Vir- ginia, and others. It often employs students, professors, and postdocs in a research 1The following informational sources informed the case study: interview at the company with company founder, CTO, and IP Director, Dr. E. Jennings Taylor; telephone discussion with company marketing director, Mr. Phillip Miller; company Web site: ; company brochures and other company documents; news articles; Dun & Bradstreet Company Profile Report; and earlier interview results compiled by Ritchie Coryell, NSF (retired).

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0 APPENDIX D FARADAY TECHNOLOGY, INC.: COMPANY FACTS AT A GLANCE • Address: 315 Huls, Clayton, OH 45315 Telephone: 937-836-7749 • Year Started: 1991 (incorporated in 1992) • Ownership: private; majority woman-owned • Revenue: Approx. $2 million annually • Approx. $6.6 in direct cumulative commercial sales Approx. $22.9 in cumulative licensee sales — Revenue share from SBIR/STTR grants & contracts: 48 percent — Revenue share from sales, licensing, & retained earnings: 52 percent Number of Employees: 10 full-time, 9 part-time • Issued Patent Portfolio: 23 U.S., 3 foreign • Issued Patents per Employee: 1.4 • 3 Year Issued Patent Growth: 130 percent • SIC: Primary SIC: 8731, Commercial Physical Research • 87310300, Natural Resource Research Secondary SIC: 8732, Commercial Nonphysical Research 87320108, Research Services, Except Laboratory Technology Focus: Electrochemical technologies • Application Areas: Electronics, edge and surface finishing, industrial • coatings, corrosion countermeasures, environmental systems, and emerg- ing areas, e.g., fuel cell catalysis and MEMS manufacturing. Funding Sources: State and federal government grants and contracts, • government sales, commercial sales, licensing fees, reinvestment of retained earnings, and private investment. Number of SBIR grants: 47 • — From NSF: 10 — From other agencies: 37 capacity. The company also has collaborated with national laboratories, including Los Alamos National Laboratory. Asked what drives the company, Dr. Taylor responded, “What drives us is we are technologists and we want to see our stuff implemented. . . . A company like Faraday is an innovation house for a number of companies that are not well positioned to innovate themselves.”

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 APPENDIX D said Ms. Thompson. She noted that the company is now focusing on “moving further up the value chain. We have demonstrated the value of our proprietary technology to the end user in specific applications. When the customer under- stands that our materials will enable them to enter new markets, the conversations with suppliers in that value chain are much easier.” “T/J Technologies has a pipeline of cutting edge alternative energy technolo- gies which has made the company interesting to larger corporations seeking to get into this market. While forming partnerships can be beneficial, they need to be negotiated with great care. There must be real need for both parties,” she said. “The increasing need and interest in alternative energy technologies, and the cutting edge intellectual property that we have developed through the SBIR and ATP programs, have attracted multiple players to us. Small companies have a stronger negotiating position when more than one company competes for their technology.” “It is essential that these small companies—particularly those run by scien- tists—not be forced into a position where they will be taken advantage of,” she said, commenting on public policies that might lead to this outcome. . . . Yes, the requirement for a match for the Phase IIB grant is useful in ruling out dumb technologies which will never be commercialized. But, too often the companies that you go to for matching funds want too much in return—if you go too early to the table. . . . A better approach is to work with them, develop a relationship. Find out what the end customer wants; what the relevant problems are. Let them test your materials. They will spend resources to do so, and they will not do so unless there is real interest. It is usually possible to get them to put a dollar value on those resources.” The significance, Ms. Thompson explained, of obtaining such valuation of resource expenditures comes into play if it is acceptable for meeting SBIR match- ing funds requirements of the Phase II grant. This is a good indicator of interest in commercialization, she explained, “Because companies are busy; they are not going to give you in-kind support unless they are interested.” However, she went on to say that letters of commitment and estimates of resource committed for test- ing are also very difficult to get. “You might get an agreement from the scientist or business person, only to be shot down by the company’s legal department. They may agree to do the testing, but refuse to put it in writing.” T/J Technologies’ novel materials offer potential benefits in terms of meeting the need for alternative energy sources that can be used to power automobiles and other vehicles, as well as to meet stationary power needs. The materials offer high-rate performance and reductions in the cost, size, and weight of batteries. The materials also offer environmental benefits in that, unlike most other lithium ion cathodes, T/J Technologies materials do not contain cobalt, an undesirable component from a safety and environmental perspective. In addition, if the com- pany’s technology furthers the adoption of alternative energy sources, it stands to yield broad environmental and national security benefits associated with reduced dependency on conventional energy sources.

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 APPENDIX D VIEWS ON THE SBIR PROGRAM AND PROCESSES Ms. Thompson expressed her views about the SBIR program and its pro- cesses. She also made relevant comments about broader public policy concerning government support of innovative companies in the United States. These com- ments are also summarized. Different Roles of the SBIR Programs of NSF, DoE, and DoD “NSF is unique in that it is willing to fund basic materials research,” explained Ms. Thompson. “Even though the military is an early adopter customer, a lot of DoD-funded SBIR grants tend to be focused at the systems end versus the basic- materials-research end.” Difficulty in Getting SBIR Grants “I think it has gotten harder to get SBIR grants,” said Ms. Thompson, “because other sources of money have dried up or gotten harder to get. This seems to have resulted in more competition for SBIR grants. Funding Gap Early on, there was a problem with the gap between the different SBIR funding phases, noted Ms. Thompson. But the state [Michigan] had a program— which was very short lived but very helpful while it was there—that provided some funding to help keep you going until Phase II came through. She further noted that now the company is big enough and has enough of a variety of funding sources, so sustaining the gap is no longer a problem. Value of Keeping Phase I Grants as Prerequisite to Phase II Ms. Thompson sees several reasons to keep the Phase I grant as a prerequisite to Phase II. One concern she expressed was that allowing companies to bypass Phase I may give larger (small) companies, which tend to have more internal funds and more experienced managers, an advantage over smaller (small) compa- nies. The larger companies could self-fund entry level research and be positioned to win more Phase II grants. “Keeping the Phase I requirement may help keep the playing field more level,” she said, “because the only companies you are compet- ing with at the Phase II stage are all the others who, like you, won a Phase I.” Size of Grants “Writing proposals for small amounts of funding is a distraction from the research. So I think I’d rather see fewer but larger Phase II SBIR grants,” she

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7 APPENDIX D noted. “Even with the cost share, a benefit of the ATP is that the money was suf- ficient to allow us to focus on getting the research done to a stage where we could get commercial interest.” Time Between Solicitations “Having no more than six months, instead of a year, between solicitations would help,” she stated. “It would allow the SBIR program to generate better and more ideas.” Proposal Review “I think the agencies need more people who have headed small innovative companies as reviewers,” stated Ms. Thompson. “I think this because sometimes you get the reviews back and you get two ‘excellent’ ratings that clearly explain why, and one ‘poor’ rating with comments that show that the reviewer just doesn’t get it. This happens to everybody. It is frustrating for a company that has put a lot of resources into its proposal. It’s just your tough luck. There currently is no remedy for this problem.” Reviewer Feedback Feedback from the reviewer process was described as “very useful.” Most agencies were said to give feedback only if the company loses. “It would be helpful to give it to you if you win also as it makes sense to continually improve your work.” Application Process Ms. Thompson noted that differences in formatting styles among the various agencies can cause extra effort, and there does not seem to be any apparent value in having the differences. However, she also noted that having variations in styles is only a minor problem. Value of Commercialization Assistance Ms. Thompson (who herself has an MBA and years of industry experience) found some things about the Dawnbreaker Program useful, but she also saw opportunities for improvement. She found the quality of the assistance provided to be highly variable depending on the particular staff assigned. At the same time, she said, “I think for a scientist who doesn’t have anybody who is business oriented, it would be a very good training ground. It would let them know that it is not just the technology that they are betting on. They need to hear this and also

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 APPENDIX D learn how to put together a business plan.” Assuming the appropriate companies attend the matchmaking event, the program can be very helpful. Ms. Thompson found that the networking events sponsored by the various agencies could be very beneficial. These allowed her to go and meet companies who are interesting in possible partnering arrangements. T/J’s relationship with Lockheed Martin started at one of these events that was held in Michigan. She also commented that training sessions at the NSF conferences were very useful, particularly the session on patents. She suggested that adding more educa- tional events aimed at business topics could be very helpful to companies. Com- menting on NSF’s online Matchmaker service, Ms. Thompson said she thought it was more focused on fostering matches with venture capitalists. Company Site Visits by Agency Program Managers “Having site visits would help the SBIR program staff get closer to the companies and understand better what they are doing,” she said. “SBIR program managers have a tough job dealing with a variety of technologies. Getting out to the companies would help them develop more depth.” She gave as an example of an excellent model the company’s experience working with ATP’s program manager for battery research. “[This ATP program manager] knows everybody who is working in the field. He knows the business. He performs matchmaking very naturally and very skillfully. It is very valuable.” Assumption of Inappropriate Business Models Ms. Thompson urged that some public policy makers reconsider the business models many appear to hold. “Some policy makers may think a small company like ours can get a Phase I SBIR grant, then a Phase II, then get venture capital and build a plant, and then produce product. There are other business models that can be equally as successful. Assistance to Innovators Continuing, Ms. Thompson noted that other countries—providing fierce competition to the United States—have set up their own technology funding programs like the ATP . . . “at a time that our own ATP program is under attack. They are positioning to eat our lunch! Not only are our manufacturing jobs at stake, but now our research jobs are also at stake. We are in a time-critical race. And it is tough to get American companies to invest in a market that is still down the road. So when you look at all these small companies toiling away with SBIR help, and making it in spite of the situation, that is very exciting. And whatever from a policy standpoint we can do to help these companies that are developing new technologies and markets—activities that ensure our economic future and competitiveness—then we should do it.”

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9 APPENDIX D SuMMARY This case study features an innovative materials research company facing a relatively long time to commercialization and a need to form partnerships with global companies to reach civilian markets. It shows a company moving up the value chain in order to increase the value it can receive for its technology in an environment where funding is scarce and negotiations difficult. The case illus- trates a “building block” strategy, where SBIR grants enabled the company to start and build capacity; that capacity was leveraged into an ATP grant; the ATP grant leveraged the company’s ability to go after government research contracts; and research contracts leveraged its ability to form commercial partnerships with much larger companies for testing and demonstrating its materials. The next step is commercialization, which will be achieved through a partner. At the helm of the company is a grant-winning minority woman, during a time that woman- owned and minority-owned businesses have received a relatively low share of SBIR grants.

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0 APPENDIX D WaveBand Corporation18 THE COMPANY WaveBand Corporation emerged in 1996 as a spin-off of Physical Optics Corporation (POC). POC is a small, employee-owned company that specializes in optoelectronic solutions and products. WaveBand is one of several companies that POC has spun off. Six POC employees moved to WaveBand to assist with the spin-off, and POC retained major ownership of the new company. According to Ms. Quintana, WaveBand’s Director of Business Development and a former POC employee, “a goal of WaveBand was to become truly independent of POC.” Based in Irvine, CA, WaveBand Corporation became known for innovation in the field of millimeter wave (MMW) technologies, including beam-steering antenna and imaging radar systems. In early 2005, the company had 24 employ- ees, half of whom had Ph.Ds. Its revenue in 2004 was $5.5 million. Today, WaveBand is a wholly owned subsidiary of Sierra Nevada Corpora- tion (SNC). SNC acquired WaveBand Corporation in May 2005. SNC is a rapidly growing innovative systems integrator, located in Sparks, NV, specializing in the design, development, production, installation and servicing of defense electronics engineering systems. Founded in 1963, SNC is the parent company of a group of more than six companies with the following four areas of focus: air traffic control; unmanned aerial vehicle systems; instrumentation, test, and training systems; and intelligence, surveillance, and reconnaissance systems. SNC employs more than 750 employees, and, hence, is not eligible for SBIR grants. THE TECHNOLOGY AND ITS uSES WaveBand’s antennas provide rapid beam steering and beam forming, and they do this without the use of bulky mechanical steering. Rather, the WaveBand antenna technology in one of its implementations relies on a grating formed on a spinning drum to steer the radar beam. In this way, it avoids the use of mechani- cally moved reflectors, which are slow, and electronically steered phase shifters, which are fast but expensive. In short, WaveBand’s antennas were developed to overcome problems of slowness or expense that characterize traditional antennas. Their more advanced antenna technology implementation is designed to meet the need for electronically steerable antennas that are comparable to phased array 18The following informational sources informed the case study: interview conducted with Ms. Toni Quintana, WaveBand’s Director of Business Development, at the U.S. Navy Opportunity Forum, May 2–4, 2005, in Reston, VA; WaveBand’s Web site: ; Sierra Nevada Corporation’s Web site: ; Sierra Nevada Corporation’s press release announcing the acquisition of WaveBand; and WaveBand’s Department of Defense SBIR Commercialization Report.

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 APPENDIX D WAVEBAND CORPORATION: COMPANY FACTS AT A GLANCE • WaveBand Address: 17152 Armstrong Ave., Irvine, CA 92614 • Telephone: 949-253-4019 • Year Started: Spun off from Physical Optics Corporation (POC) in 1996; acquired by Sierra Nevada Corporation in 2005 • Ownership: Sierra Nevada Corporation, 444 Salomon Circle, Sparks, NV, itself a privately held corporation • Revenue: Approx. $5.5 million in 2004 — Revenue share from SBIR/STTR grants and contracts: approx. 50 percent — Revenue share from sale of products, including DoD sales: approx. 50 percent • Number of Employees: 24 prior to the acquisition • SIC: Primary SIC: 3812 Search, Detection, Navigation, Guidance, Aero- nautical, and Nautical Systems and Instruments Secondary SIC: N/A • Technology Focus: Millimeter wave (MMW) technologies • Application Areas: Beam-steering antenna and imaging radar systems for aviation, transportation, and security use • Funding Sources: Product sales in military and commercial markets, and federal government grants and contracts • Number of SBIR grants: — From NSF: 3 Phase I grants, of which all three went to Phase II and one to Phase IIB — From other agencies: 45 Phase I’s and 19 Phase II’s antennas in performance, but are highly compact, light weight, robust, with low power needs, without requirements for continuous calibration, and comparatively inexpensive. The antennas are smart; they can be set to provide multiple beams, each steerable. They offer a price advantage 100 times more favorable to buyers than traditional systems. The antennas can help meet guidance needs for aircraft landing, missile seekers, and surveillance sensors. In civilian markets, they may also be useful for adaptive cruise control on cars, allowing cars to regulate their own speeds in response to traffic congestion. The advantage is that WaveBand’s antenna scans, enabling it to cover more area than the fixed-beam radar antennas in current adap- tive cruise control systems, and, therefore, enabling it provide the car’s computer with more data on which to base its calculations. The millimeter wave radar beam can penetrate fog, rain, or snow, making it ideal for a variety of autonomous guidance and landing systems. WaveBand is working with both the automobile

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 APPENDIX D industry and avionics suppliers to develop prototype systems. It is in the process of validating application of the antenna to the Navy fleet. THE ROLE OF SBIR IN COMPANY FuNDING When WaveBand spun-out of POC, it continued to work—in a subcontractor role—on some of the SBIR programs its personnel had been involved with prior to the spin-out. Later on, funding for the company came directly from SBIR, according to Ms.Quintana. At the time of its take-over by SNC, WaveBand was receiving approximately half of its funding from SBIR grants. The remainder came primarily from studies and sales, particularly sales to defense agencies. Earlier, WaveBand had pursued SBIRs that were mainly aimed at highly focused military objectives. But around 2000, the company made a decision to put increased attention on attracting commercially driven R&D to broaden the tech- nology’s applications into nondefense markets, and to deemphasize the attention given to winning highly focused SBIR grants and contracts. It also went through a cycle of Phase 1, Phase 2, and Phase 2B NSF SBIR grants. More recently, it switched back to the highly focused defense SBIRs. According to Ms. Quintana, a result of this strategy was the development not only of technical prowess but also commercial strength for WaveBand. According to WaveBand’s SBIR Commercialization Report to the Depart- ment of Defense, “the technologies that WaveBand has developed under Phase II SBIR research are all vital to our commercialization success. Each research project contributed to our commercial and Non-SBIR revenue.” WaveBand received a total of 48 Phase 1 SBIR grants and 22 Phase 2 SBIR grants. It has received SBIR grants mainly from Navy, Army, Air Force, NASA, and DoE, and to a lesser extent from NSF. It received 2 Phase 1 STTR grants and 2 Phase 2 STTR grants. The amount the company has received in SBIR/STTR grants since 1996 totals $19.8 Million. Table App-D-8 summarizes the company’s SBIR/STTR grants in number and amount. Eligibility for SBIR grants has ended with WaveBand’s acquisition by SNC, a company with more than 500 employees. BuSINESS STRATEGY, COMMERCIALIZATION, AND BENEFITS WaveBand’s beam-steering antennas are expected to find about equal market applications in civilian and military applications. Civilian applications are expected to include landing systems for commercial jets and helicopters, as well as intelligent cruise control for automobiles. Military applications include landing systems for military aircraft, guidance for missile seekers, and surveil- lance systems for Navy ships. WaveBand has sold test units of its MMW steering antenna to major auto-

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 APPENDIX D TABLE App-D-8 Waveband Corporation: SBIR/STTR Grants from NSF and Other Agencies Total Other Agency Total Amount NSF Awards Number Amount ($) Awards Number Amount ($) Number ($) SBIR Phase I 3 274,946 SBIR Phase I 45 4,479,906 48 4,754,852 SBIR Phase IIa 892,291 SBIR Phase IIa 2 18 12,167,924 20 13,060,215 SBIR Phase IIB/ 1 249,961 SBIR Phase IIB/ 1 249,488 2 499,449 Enhancements Enhancements STTR Phase I — — STTR Phase I 2 199,984 2 199,984 STTR Phase II — — STTR Phase II 2 1,249,924 2 1,249,924 STTR Phase IIB/ — — STTR Phase IIB/ — — — — Enhancements Enhancements Totals 6 1,417,198 68 18,347,226 74 19,764,424 aExludes Phase IIB/Enhancement awards which are listed separately. SOURCE: WaveBand Corporation. motive companies and to a major manufacturer of avionics instrumentation. MMW steering antenna units have been installed on unmanned ground vehicles; a unit has been demonstrated for a railroad grade-crossing monitoring system; it has been demonstrated for bird detection along airport runways; and it has been demonstrated to “see through” various atmospheric conditions to facilitate aircraft landing. WaveBand’s acquisition by SNC has reportedly not changed WaveBand’s technology direction. However, the acquisition has changed its funding situation. Without the ability to receive SBIR grants and contracts to support its research, WaveBand is expected to develop more of a product orientation, even as it attempts to stay on its R&D path. The parent company is expected to provide some direct R&D funding, it is including WaveBand as a subcontractor on mili- tary contracts, and it is expected to encourage the group to attract R&D funding from other sources. Accelerated growth of sales revenue is expected to provide another source of support for continued R&D. WaveBand’s antennas offer performance benefits and cost advantages. They stand to increase automotive and aviation safety in civilian and defense applica- tions and improve the effectiveness of a variety of military-defense systems. VIEWS ABOuT THE SBIR PROGRAM AND ITS PROCESSES Ms. Quintana made the following several observations about the program and its processes, some of which focused on the NSF program:

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 APPENDIX D Reporting Requirements Each agency has its own reporting requirements, noted Ms. Quintana. “Uniformity in reporting would help.” Financing Gap The existence of a financing gap varies by agency SBIR program, accord- ing to Ms. Quintana. The Army bridges over the gap, making the transition from Phase I to Phase II relatively seamless. The Navy has a funding gap between phases of its program, making it very hard for small companies without alterna- tive financing. Requirements for Phase IIB Matching Funds Air Force and Navy require that matching funds for Phase IIB grants be con- tingent on approval of the contract, as specified in a letter by the organization to provide the match. This causes trouble: One problem is that the timing is tricky. It requires that a contingency pledge be made not too soon and not too late—tim- ing which may not suit the potential provider of the matching funds. Another problem is that many companies who would provide matching funds do not think in terms of contingencies—they decide either to provide the funding or not to provide it. In contrast, NSF does not require that the matching funds be expressed as a contingency. Therefore, companies are able to use a purchase order or sales revenue in the bank. NSF’s approach, according to Ms. Quintana, makes it easier for companies to comply with the Phase IIB matching funds requirement. Solicitation Cycles Unlike some of the other interviewees, Ms. Quintana does not believe that more solicitations each year would be advantageous. In fact, she sees more solicitations and more changes in topics as a potential burden, as company staff must be constantly monitoring the situation and trying to respond to the changes. Once yearly posting of topics allows companies more time to plan their research programs around the announced topics. SuMMARY This case study illustrates the role played by SBIR grants in the creation of a company as a spin-off of another small company. It also shows how the company used SBIR and other research funding sources to develop a portfolio of technolo- gies attractive to a larger company that recently acquired it. The case illustrates the dual special roles played by highly targeted SBIR grants from defense agen- cies and by less targeted grants from NSF. It describes SBIR-funded innovations

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 APPENDIX D important from both a military standpoint and important in civilian markets. The company has used its SBIR funding to develop antennas that rely on an electron- hole plasma grating to provide rapid beam steering and beam forming without the use of bulky mechanically moved reflectors, which are slow, and without electronically steered phase shifters, which are fast but expensive. WaveBand’s antennas reportedly offer a price advantage 100 times more favorable to buyers than traditional systems. Approximately half of WaveBand’s revenue in 2004 came from SBIR grants and contracts. The company provided helpful comments for improving the SBIR program.