ELIA Life Technology, Inc. 354 East 66" St. Suite 4A, New York, NY 10021 (212) 327 2550 December 15, 2009 Dear New York City Council Members, | am writing to encourage you to initiate legislation that would help the city attract the talent and capital needed to ‘win SBIR grants. The proposed legislation would create a 20% matching program for companies that are awarded SBIR grants. This would attract companies to New York City and it would provide them with the resources needed to build a successful company. am a former investment banker who left finance to start a technology company. Since founding ELIA Lite ‘Technology, | have raised over $500,000 in financing from investors, won and executed over $1 milion in research and buit the company up to a staff of 8 people Roughly $800,0000 of our funding has come from SBIR grants, We have a core competency regarding the SBIR funding process. Indeed, | have serve NIH as a review of dozens of other companies SBIR grants. As such, | have a soid understanding of what it takes to win and execute these very valuable awards. ‘There are three points | would emphasize in my testimony: 1. SBIR grants are the best means by which New York City can create and retain high technology jobs, jobs that generate intellectual property and competitive advantage. The city should focus its incentive funding on attracting and keeping companies and talent thats capable of winning these grants, 2. 20% matching fund for SBIR grants would be more effective that tax incentives for attract start ups. This is because small businesses don't pay taxes in the start up phase, because they have no revenues. So tax incentives are of litle use to them until much later. 3. Venture capitalist wil invest where there is good technology with a solid intellectual property portfolio and ‘where a technology has moved to beyond the demonstration phase. Ifa company with this happens in New York, VCs wil invest. The 20% matching fund for SBIR grants would help to attract venture capital dolars. Indeed, venture capitalists typically invest seven dollars in a company for every dollar in SBIR funding the company is awarded. ‘The SBIR Pf d Serve as the City’s Due Ditigence Mechanism ‘This proposal is efficient from the citys financial perspective. Instead of providing funding to all start ups — whether they are innovative or not = the city would provide funding to start ups that have undergone a rigorous selection process. It is @ process that is supported by a $2 bilion federal govemment research program. Its administered by leading experts from across the country in each technology field ‘The funding would enable innovative companies to fund the commercialization efforts that are required after the SBIR grants execution - because the SBIR grants fund only a limited set of R & D activities. The proposed funding would also help them to start new research projects that would generate additional research funding and product revenues, | should note that venture capitalists use the SBIR program as a measure of success, and for due dligence. Ifa ‘company has won SBIR funding, that company has convinced an SBIR panel of experts in their field, as well as seasoned program officers in the federal government, that the company is both engaged in good science and pursuing a commercialzable product. It would be wise for New York City to leverage this program in the same ‘way that successful investors have done for decades, | should note that the proposed SBIR matching program could be scaled quickly and would require ite expertise Cr additional staff from the City. It is very difficult to pick potential winners among a group of start ups, Indeed, to find people capable of providing due diigence may be cost prohibitive / ineficient if instituted on a large scale. Butifthe city leverages the due diigence conducted by the SBIR program, it would cost itte extra to the city to attract ‘and retain the research professionals necessary to carry out these highly technical grants. How New York City Compares to Other Markets SBIR funding is woefully under utiized in New York City. For example, New York City institutions attract roughly $1.3 bilion in research and development dolas from the National Institute of Health (NIH). Agencies such as NIH ‘are mandated to provide 2.5% of there funding for their SBIR programs and 0.5% for their STR program (which is identical to the SBIR, but requires university collaboration of at least 30%). Given these numbers, New York City should be attracting roughly $39 milion in SBIR funding (3% of $1.3 bllon). In 2008, New York City attracted roughly $7 millon. By contrast, the Boston and Northem Calffomia venture capital markets typically attract more than 3% of their federal funding in SBIR dollars. This is due in part to the fact that many of the innovations that ‘occur in New York City end up commercialized in Boston or Silicon Valley. In Massachusetts, Calforia, Viginia and Texas, SBIR firms account for 22%, 13% 14% and 18% respectively. In New York State, they account for 8% (18,640 employees). In New York City, the number is estimated to be far less that 8%. IR Program Could be Leveraged for the Cit Finally, | should note that this fund, by its 20% match nature, would be leveraged by the federal government at a rate of 5 to 1. For every milion dollars the city contributed, the federal goverment would contribute five millon dollars. If New York City were performing at the average of all cites in the US, there would be $30 milion more in SBIR funding flowing to the city. The cost ofthis program in total would be $10 milion dollars. It would result in the hiring of approximately 600 scientists and engineers, but more important, it would support the research and development efforts for companies that would employ approximately 15,000 high tech workers. As SBIR funding dollars attract venture capital dolars at a rate of 7 to 1, the matching program, and its resulting ‘SBIR funding would attract $210 to $280 milion dollars in VC funding. In other words, the $10 milion fund would generate a five to one match from the federal government and a 25 to one ikely match from venture capitalists, ‘Summary In summary, an SBIR matching fund would achieve three goals — 1) it would incentivize highly skiled scientists and engineers to start SBIR worthy companies in New York City; 2) it would provide and attract needed capital to company's that noted experts on the SBIR review committees have deemed to be highty competitive: and 3) the fund would have a low cost of operations, as the City could leverage the due diigence that the SBIR committee has already invested when it chose the most competitive proposals from a field of invested applicants. | would be glad to share additional information (such as information sources for the above figures) with the council | hope that you choose to initiate the matching program proposed herein