Agency plans to blanket state with investor network

BYLINE: Patrick Hogan

RALEIGH - The Small Business and Technology Development Center has taken the lead role in establishing a statewide network of micro angel investment funds - including one in the Triangle - that could help improve the state's startup survival rate.

SBTDC, a 23-year-old agency created under the auspices of the University of North Carolina System and housed at North Carolina State University, is working to set up five new independent funds patterned after the 4-year-old Inception Micro Angel Fund in Greensboro.

Each fund will fuel "first-money" grants ranging from $25,000 to $100,000 to startups and spinoffs around the state, says Tim Janke, SBTDC's state program director for private equity initiatives.

So far, IMAF-Triad has invested in about 15 startups and is planning a second round of fundraising. IMAF-West in Asheville has been incorporated, and funds in Research Triangle Park, Kannapolis, Greenville and Wilmington are on tap in the next year or two, says Janke.

Each fund will secure between $1.2 million and $1.5 million in committed funds, implying a statewide total of as much as $9 million.

The IMAF funds will recruit individual investors, or "angels," who will "buy in" with a $15,000 commitment. Subsequent investments can be made by investors on an individual basis to expand the fund. Despite its role in forming the IMAF network, SBTDC will not be directly affiliated with the funds.

Each of the six funds will focus on a specific geographic area, Janke says, creating a blanket of early stage funding opportunities across the state. IMAF-RTP will target spinoffs from Duke University, the University of North Carolina at Chapel Hill, North Carolina State University and North Carolina Central University.

The IMAF model rests on the hope that its investments will enable the smallest of startups to survive. Each year, scores of startups focused on biotechnology or pharmaceuticals, software or medical devices hatch from Triangle research campuses to face a foreboding trudge toward commercial success. Many of these startups - perhaps most - will die before anyone knows their name.

For years, the earliest stages of life for new North Carolina businesses have largely been void of the financial resources needed by startups to bridge the gap between innovation and commercialization. SBTDC officials say the IMAF funds will help fill that crucial gap for fledgling companies with plenty of intellectual property but little business infrastructure to support them in the open market.

Interacting with the market

Eric Buckland knows what it's like to struggle for survival. He is president and CEO of RTP-based Bioptigen, a 3-year-old spinoff from Duke's Pratt School of Engineering that owns a technology that allows doctors to capture super-fine, three-dimensional images of the retina and anterior surfaces of the eye.

In January, Bioptigen landed approval from the U.S. Food and Drug Administration to sell its technology, making it one of the few Triangle-based medical startups to develop a product and navigate it to market.

Three years ago, Bioptigen's survival was, at best, unlikely. The company entered the corporate world with plenty of fuel for its scientific and development operations, thanks to a trio of Small Business Innovation Research grants worth a total of $450,000. But those funds could be used for technical work only, meaning Buckland and Chief Technology Officer Joseph Izatt had to find financial backing for anything and everything else - a list that included legal work, patent fees and, especially, business development.

"It's very hard to interact with your market without money," Buckland says, "and if you're not interacting with your market, you're not going to get anywhere."

Buckland and Bioptigen opened a series A funding round in June 2005 and quickly garnered the attention of IMAF-Triad, which invested $55,000 in the company. In the context of a round that ultimately topped $1.3 million, the IMAF infusion doesn't seem particularly impressive, Buckland says, but its timing was impeccable.

"The IMAF investment gave us our first institutional validation," he says. "I think it was getting IMAF behind us that gave us an in to the other angel investors like Piedmont Angel Network."

SBTDC's new home

Janke's work to launch a statewide network of IMAF funds represents the latest in a stream of developments at the SBTDC spurred by Erskine Bowles' arrival as president of the UNC System. Bowles, whose background includes serving as director of the U.S. Small Business Administration, relocated SBTDC from UNC's General Administration headquarters in Chapel Hill to North Carolina State University.

The SBA provides nearly half of SBTDC's annual budget, which totaled nearly $5.9 million in 2005-2006, says Blair Abee, director of SBTDC's Triad region.

"The move of SBTDC (to NCSU) has been a real plus for us," Abee says, "because it means we're in the same department as cooperative extension and industrial extension - three operations that serve small business statewide."

The move has had tangible results. SBTDC last year posted its most productive year to date, providing more than 60,000 hours of counseling to small businesses and holding more than 260 training events, according to NCSU's 2006 financial report. SBTDC clients posted average sales growth of 18.5 percent last year, compared to a North Carolina business average of less than 2 percent.