SBIR at the National Science Foundation (2015)

Appendix E:

Case Studies

To complement its review of program data, the committee commissioned in-depth case studies of selected companies in the period 2009-13, with the earlier studies updated in 2014. Case studies are an important part of data collection for this study, in conjunction with other sources such as agency data, the survey, discussions with agency staff and other experts, and workshops on selected topics. The impact of SBIR funding is complex and often multifaceted, and although these other data sources provide important insights, case studies allow for an understanding of the narrative and history of recipient firms—in essence, providing context for the data collected elsewhere.

The case studies are of 12 SBIR companies that all received Phase I and II awards from the National Science Foundation (NSF), with most receiving multiple Phase I and II awards, including, in a number of cases, awards from other agencies as well NSF. A wide range of companies were studied: They varied in size; two were owned by women, several others had woman managers and founders. They operated in a wide range of technical disciplines and industrial sectors. Overall, this portfolio sought to capture many of the types of companies that participate in the SBIR program.

There are multiple variables at play; the case studies provide qualitative evidence about the individual companies selected, which are, within the limited resources available, representative of the different components of the awardee population. The 12 case studies presented in this appendix have been verified by the companies that they feature, and they have permitted their use and identification in this report (See Table E-1).

TABLE E-1 Directory of Case Studies

NOTE: The “Demographic” column describes the company as majority-owned by Women (W) or Minorities (M); these data are drawn from NSF awards data, and reflect company self-certification.

ALD NanoSolutions Inc.

Based on interview with

Dr. Karen Buechler, President and CTO

April 9, 2010

By telephone

BACKGROUND

ALD NanoSolutions (“ALD NanoSolutions”) is a spin-out from work on nanoparticles and nanomaterials at the University of Colorado Boulder.¹ Incorporated in 2001, ALD has broken new ground in atomic level deposition (ALD) techniques.

The company has exclusive licensing rights for the intellectual property on ALD techniques developed at UC, and has patented its Particle ALD™ and Polymer ALD™ technology. These are broad based “platform” technologies, and are now protected by patents issued in the United States, Europe, and Japan) (see intellectual property section below).

According to ALD NanoSolutions, the company is the first to carry out atomic layer deposition on particle surfaces and on polymer surfaces (also includes non-particle surfaces). These innovations are the basis for USPTO award of broad based process and composition of matter patent claims for ALD on particles, including approximately 100 related claims. ALD on particles has been successfully demonstrated by the company on numerous substrates, such as metals, ceramics, and polymers in many different materials markets including microelectronics, defense, battery systems, consumer products, construction, and biomedical. As ALD technology matures and commercializes, ALD NanoSolutions appears in consequence to be in prime position to grow rapidly.

Dr. Buechler, the President and Chief Technical Officer (and co-founder), noted that in 2001, the technology was interesting and potentially viewed as a broad “platform” technology with many applications, but that this did not fit well with standard models for technology transfer at UC, as there were no proven applications. By 2003, the technology had been successfully licensed and a commercialization team formed, led by serial entrepreneur Mike Masterson.

The business really started in 2003, as the team did not want to seek funding before the technology was fully under their control. The first SBIR Phase I award in 2003 slightly predated finalization of the licensing agreement.

The company is now seeking further investment and partnerships, and hence is spending more on sales and development. The company has sufficient funding

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¹ALD NanoSolutions’ proprietary technology is based on atomic layer deposition coating chemistries and processing methods developed at the University of Colorado by Dr. Steve George and Dr. Al Weimer. ALD NanoSolutions web site. Accessed June 6, 2010.

for the next 18 months, and expects that it will be able to demonstrate coating scalability at another order of magnitude.

TECHNOLOGY: THE ALD PROCESS

Atomic layer deposition is a gas phase two reaction process. For aluminum oxide, ALD NanoSolutions’ most popular and versatile chemistry, one layer is composed of molecules containing aluminum, the second layer is oxygen-containing molecules: water molecules. The aluminum molecules react with the surface to be coated, depositing one layer of aluminum atoms on the surface (since aluminum molecules do not react with other aluminum molecules). The surface is then exposed to the oxygen-containing molecules which put down a layer of oxygen. That completes one cycle, leaving the surface ready for the next layer.

Key Attributes and Advantages of ALD Technology

ALD NanoSolutions claims that ALD technology has a number of important advantages over other coating technologies, so using ALD means the company can build coatings that other technologies cannot, or coatings that have better qualities or cost less than those of competing technologies. Among the advantages claimed are as follows:

• Close control of film thickness which is controlled by film chemistry; most ALD films grow at 0.1 nm/cycle, with the thickness being determined by number of cycles
• Near zero waste of precursor chemicals for coating particles
• The process can be reliably reproduced, because the process itself is based almost entirely on the chemistry and is not dependent on other process parameters.
• The process is easy to automate/control, and permit close monitoring of gas phase by-products.
• Improved surface wetting and interfacial adhesion of fillers and pigments means that thermal fillers, metals, sunscreens are improved as the loading of specified components is increased.
• Enhanced resistance to moisture and air provides improve stability, important for (phosphors, battery materials, medical devices).
• UV / VUV Resistance—Protect materials in space and outdoor coatings
• Surface Passivation—Improve stability, color, prevent agglomeration
• Unique Composition—Construct nanocomposites with specific properties

PATENTS AND IP

ALD NanoSolutions is, according to Dr. Buechler, the first company to carry out atomic layer deposition on particle surfaces and on polymer surfaces (also includes non-particle surfaces), and has received patents that cover broad-based process and composition of matter patent claims for ALD on particles, including approximately 100 related claims. ALD NanoSolutions, Inc. has exclusive rights to this technology.

In January 2010, ALD NanoSolutions announced that the Japanese and Canadian patent offices had issued a critical patent covering the performance of atomic layer deposition (ALD) onto polymer surfaces and particles.

ALD NanoSolutions has also received numerous recognition awards, including a 2004 R&D 100 Award for Particle ALD, and the 2006 Frost and Sullivan Award for Excellence in Technology in Advanced Coatings and Surface Technologies.

MARKET OPPORTUNITIES

Use of nanoparticles and nanomaterials is growing rapidly, as new capabilities emerge to provide improved, more customized solutions to industry. These offer improved functionalities, such as wear resistance, corrosion resistance, scratch resistance, hardness, hydrophobicity, hydrophilicity, and catalytic activity.

Commercial deployment of conformal thin coatings or films on substrates has been difficult. Conventional techniques—such as chemical vapor deposition—have been commercially employed, but suffer from drawbacks such as agglomeration of nanoparticles on the substrate (which often deactivates the coated material), nonuniform coatings, line of sight dependency, and wastage.

ALD NanoSolutions technology has applications in areas such as drug delivery, magnetic resonance imaging materials, and powdered magnetic cores. The technique can also be used to develop thermal fillers with improved properties, improved battery systems, polymer/ceramic nanocomposites, improved lighting materials, low-energy high-sensitivity sensors, thermites, dental fillers, catalytic materials, and quantum tunneling surge protection devices.

ALD NanoSolutions has also developed a low-temperature process for depositing inorganic nanocoatings on either polymer particles or substrates, independent of the chemistry, or shape of the polymer. Hermetically sealing OLED devices used in making flexible displays are just one possible application.

In short, the range of commercial applications is very wide indeed, and ALD NanoSolutions has a very well protected position in the relevant intellectual property.

FUNDING AND COMMERCIALIZATION

ALD NanoSolutions has utilized a range of commercialization strategies and approaches, aside from SBIR funding. These include the following:

• Co-developing products or application
• Licensing the technology for a specific application
• Manufacturing products for testing
• Tollcoating full scale products
• Developing full scale processes

In February 2010, ALD NanoSolutions announced that its Particle ALD™ coating platform will be used to develop advanced electronic materials and applications in partnership with Tyco electronics. The companies will work together to utilize ALD NanoSolutions’ surface engineering technology to develop and fabricate thin films for certain electronic applications. Mark Ellsworth of Tyco noted that “We have identified several product development opportunities where we can potentially apply the ALD NanoSolutions technology. This collaboration provides us access to the capabilities and expertise we need to achieve the required technical solutions more effectively.”²

ALD NanoSolutions is now actively seeking more partnerships like that recently concluded with Tyco, where the partner is prepared to fund development of potential applications, in exchange for exclusivity in elected sectors and an agreed-on level of royalties. The Tyco multi-year project addresses an entire series of products and processes, over the short, medium, and long term. The agreement acknowledges that Tyco will need to license core ALD NanoSolutions technologies before commercialization is possible. This positions Tyco as a long-term customer rather than a licensee that simply wants access to the IP.

In contrast, ALD NanoSolutions is finding that many more companies are interested in outsourced research rather than hiring in house. Consequently, the contract R&D side of the business has grown rapidly, and now accounts for more than 80 percent of annual revenues.

ALD NanoSolutions continues to receive other funding as well, including more than $7 million in Phase I and Phase II SBIR awards from National Science Foundation (NSF), the U.S. Department of Energy (DoE) and the Air Force to develop specific applications. Four Phase I awards have been converted to Phase II.

SBIR

Over time, ALD NanoSolutions has gradually grown more experienced at identifying good and bad applications. However, Dr. Buechler observed that academics are often not good at spotting commercial results. ALD NanoSolutions is now writing fewer grants, and is finding that proposals are being penalized—at least at DoD and increasingly at NSF—for a poor commercialization record (in part because ALD NanoSolutions still has no commercial product for sale).

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²Dr. Mark Ellsworth, Senior Director of Technology, Tyco Electronics. Quoted in ALD NanoSolutions Press Release, February 2010. <http://www.ALDNanoSolutionsanosolutions.com/company/news/ald-nanosolutions-inc-and-tyco-electronics-announce-collaboration-agreement/>.

This issue with the commercialization record comes up in reviews, and Dr. Buechler noted that program managers have made it clear that the company must commercialize if it is to win more SBIR awards. They are now clearly reluctant to put more investment into ALD NanoSolutions before a product reaches the market. She noted ALD NanoSolutions as having received 2 Air Force awards, plus another recent Phase I from DARPA.

Dr. Buechler noted that the sales cycle in the materials industry is long—often 5-7 years. She believes that most of the company’s early work will in the end find its way into a commercial product in some way. And she also added that ALD NanoSolutions’ most promising commercial partnerships—for example with Tyco—have been based on data from NSF SBIR awards. In fact, NSF helped to find ALD NanoSolutions a commercial partner, which will become involved if the current Phase II award is successful. The commercial partner will fund Phase III, and has also provided some funding beyond P1 to broaden the research beyond the scope of the Phase I itself. The partnership is based on joint ownership of joint IP, and plans to negotiate a royalty for ALD NanoSolutions’ background IP.

Dr. Buechler is a strong supporter of the SBIR program. She believes it is doing a good job in building companies in many regions around the country. It is an excellent tool for moving university technology out into the marketplace, and it is an important mechanism for bridging the early stage funding gap. She believes that the program is also operated fairly efficiently.

Dr. Buechler had some comments about the program:

• One set of rules. It would be very helpful to small businesses if a single set of rules and applications governed all agency programs. ALD NanoSolutions had found working with NSF to be very easy, with close connections to program managers and more limited auditing requirements (which did however increase the possibility of abuse).
• Funding flow. For Phase I in particular, it would be simpler, more effective and much better for companies if funding was paid two-thirds on signature and one-third on delivery of the Phase I final report.
• DoD appears to be holding small companies to higher accounting standards than large ones. DoD could consider whether lighter requirements are more appropriate for smaller firms. In 2005, ALD NanoSolutions spent $20,000 on accountants for audits.
• Some recent changes have been positive. Using grants.gov has started the shift toward a more centralized submission process. This contrasts with EPA’s traditional model of single-sided hard copies stapled in the upper left hand corner. Some standardization would be useful.

Dr. Buechler further offered some opinions and suggestions:

• The one size fits all funding model is not efficient. For Phase I, $100-150k is more than enough to get to proof of concept. In some cases, this could be an order of magnitude too small—but in others it is twice the size needed (e.g., for some software projects). More flexibility rather than simply more money is needed. At ALD NanoSolutions, some projects would have required $80-100k in external testing—so they could not be funded through SBIR Phase I and were dropped.
• Timelines. People take the time allowed, so shorter timelines are preferable because they force companies to think about what is a reasonable Phase 1.
• Selection processes are not necessarily open and fair at all agencies. For example, ALD NanoSolutions had a lithium ion battery project rejected for a Phase 2 award at DoE, despite very good reviews.
• External reviewers. NSF use of external reviewers is a positive feature, in contrast, for example, to DoE where program managers appear to have substantial influence on selection.
• Business training. Dr. Buechler appreciated the training from NSF. She had not been invited to any DoE training sessions or others at DoD.
• Partnership and business development funding. Dr. Buechler felt that this was a somewhat neglected part of SBIR and did not provide sufficient funding in particular for partnership development. ALD NanoSolutions has for example partnered with A123 on batteries, but the latter is currently focused more strongly on immediate needs rather than longer term development. The ALD NanoSolutions platform is generic for all battery materials, and Dr. Buechler is actively seeking partners—for example at the University of Colorado and from offshoots. According to Dr. Buechler, even a small amount of funding might make a difference, and would have been especially important during the early years of the company when dollars were scarce.

UPDATE

As of December 2014, ALDN reported that two additional commercial partners are pursuing joint product development. The company currently only has a single Phase I STTR program that represents less than 5 percent of expected 2014 revenues. This follows more than 12 months of zero government dollars to ALDN. The Polymer ALD patent applications have been granted by the European Patent Office, which the company believes is a substantial step forward for their IP portfolio.

Divergence Inc. Case Study

Based on interview with

Derek Repp, CEO, and Dr. Jim McCarter, founder

September 21, 2010

By telephone

DIVERGENCE HISTORY

Divergence is an R&D company dedicated to the discovery of effective and ecologically sound strategies for the control of parasites and other pests. Its initial focus is on parasitic nematodes, one of the world’s major pest groups. Nematodes are roundworms that cause billions of dollars in damage annually to numerous crops, including soybeans, corn, cotton, strawberries, and bananas. Nematodes also cause widespread human diseases including hookworm, whipworm, roundworm (Ascaris), and the filarial worms responsible for lymphatic filariasis and onchocerciasis.

The company was founded by Dr. James McCarter at Washington University’s Genome Sequencing Center in St. Louis, Missouri, to use genomics to help control parasitic nematode infections in plants, veterinary animals, and people. Divergence argues that safer, more efficient agriculture is critical to our future, and control of pests including nematodes is an important part of the equation.

The company now employs 23 full-time staff, which includes scientists trained at Washington University School of Medicine in computational biology, molecular biology, genomics, and biochemistry. Divergence also attracted former Monsanto Company employees, who brought complementary skills in business and product development. Other scientists have been recruited from leading academic institutions.

In 2009, Divergence moved into a new building in the Bio-Research & Development Growth (BRDG) Park, a life sciences lab and office park located on the Danforth Center campus in suburban St. Louis County. Divergence also leases greenhouse facilities and uses core labs in advanced proteomics/mass spec and microscopy at the Donald Danforth Plant Science Center.

According to Dr. McCarter, very little was known about the genomes or even the molecular targets of parasites. On the basis of his long career focused on nematodes and roundworms, he saw the need for the ability to detect and treat parasitic illnesses, in plants, animals and humans.

The primary opportunity at the time was based on genomics. Washington University in St. Louis had been heavily involved in the sequencing of the C. elegans genome, and did considerable work on sequencing the human genome after that. NIH funding had been substantial for this work. Starting in 1999, university staff began sequencing the genomes of parasites.

Dr. McCarter expected many investigators in industry and academia to take advantage of this work, and believed that the best opportunity lay in the formation of a small company. He believed that while PIs often did excellent work operating academic labs, he did not see sufficient real world applications and impacts. In contrast, a small firm could focus, take risks, and assemble a multidisciplinary team. That would be difficult to do as new employees even in a large firm.

By February 2001, Divergence had 7 employees, and had completed its first financing round, comprising $1.4 million from 20 individual angels, in addition to $770,000 in family investments. This allowed Divergence to hire professional management, and Derek Rapp joined as CEO.

Divergence’s work began with the results from published university research. This meant that no technology licensing was involved—Divergence was unencumbered, in Mr. Rapp’s words. Exploiting genomics information, Divergence aimed to address the high toxicity inherent in the use of organophosphates as pesticides. Genomics made it possible to focus on molecular targets that were essential for nematodes, but divergent from humans.

BUSINESS STRATEGY

The company’s philosophy is focused on the following:

• Building expertise around a particular area—parasitic nematodes (including microbiology, human health, and plant biology). Divergence has acquired world class expertise in these areas.
• Identifying practical applications for knowledge. Not only does this generate revenues and act as a market for the research side of the company, it provides validation of the company’s technical approach

In essence, Divergence is aiming to build a company that has both high levels of research knowledge and effective development know-how. One core question is the balance between licensing and product-based market strategies. The core project of Divergence has been focused on discovery, and, according to Dr. McCarter, that will likely remain the case. But the company has been deliberately slow to license out product candidates, in order to retain significant value and to ensure that the maximum value is generated for the company. And where it does license, Divergence often imposes geographical or sectoral limitations.

Overall, Divergence does not expect to directly commercialize products except in specific circumstances. The marketing costs and regulatory challenges are seen as too prohibitive for a company the size of Divergence. Instead, Divergence is working with a number of potential collaborators, including, for example, Monsanto.

Divergence can afford to pick and choose among collaborators because it raised a substantial amount of investment funding. It has generated a total of about $40 million in income and investment, of which about 50% came from angel and venture investors (the Divergence C round closed in 2009), about 25 percent came from grants (including SBIR awards), and about 25 percent came from corporate relationships.

Strategically, Divergence has worked through the initial identification of targets, and continues to move downstream all the way to small molecule targeting and drug development. It is now shifting its focus from bioinformatics to a cheminformatics approach.

Finally, it should be noted that Divergence utilizes contract research organizations (CROs) and universities for aspects of its research beyond its core capabilities. It currently has over 20 contracts and collaborations in areas including synthetic chemistry, toxicology, and animal health.

PRODUCTS AND MARKETS

Nematodes are one of the world’s major agricultural pests, causing an estimated $80 billion in worldwide crop damage annually. Traditional nematicides are environmentally dangerous, expensive, and difficult to apply. Nematode-

infested crops with major economic losses include soybeans, potatoes, bananas, cotton, corn, citrus, strawberries, tomatoes, coffee, carrots, peppers, turf, and greenhouse ornamentals.

Divergence’s innovations include new nematicides and nematode-resistant crops, offering improvements in both parasite control and environmental safety. These constitute the primary market targets for Divergence.

Nematicides

Nematode control has traditionally depended on highly toxic pesticides now restricted or eliminated in the United States. Similar restrictions are being implemented in other countries. The current global market for nematicides is estimated at $0.7-1 billion annually, but Divergence believes that improved control methods could expand that market several fold. Overall damage caused by nematodes and insects are similar in value, and worldwide insecticide sales are approximately $8 billion annually.

Divergence has targeted markets for better and safer nematicides, and its nematicides are currently in 150 field trials. The EPA Reduced Risk Initiative may permit accelerated regulatory review timelines for these products.

Nematode Resistant Crops

Aside from nematicides, nematodes can also be controlled by developing plants with internal resistance to nematodes. Internal resistance could provide highly-specific season-long protection from nematode damage—without the need for nematicide treatment. This approach is especially attractive in some widely planted row crops—such as soybeans, corn, and cotton—where the costs of nematicide treatment are especially high.

Other High-Potential Markets

Divergence has identified several other markets where its core technologies could be applied commercially.

Veterinary Medicine: Animal Parasites

Livestock and companion animal parasites include internal worms such as nematodes (endoparasites) and external fleas, ticks, and flies (ectoparasites). These cause a number of diseases in domestic and commercially-raised animals. While global sales of antiparasitic compounds account for approximately $3.5 billion annually, resistance to all major drug classes is now widespread in sheep and goats, and is emerging in the North American cattle market.

Human Health: Human Parasitic Nematodes

Nematodes infect nearly three billion people worldwide, mainly in developing countries. According to Divergence, diseases caused by nematodes include

• Hookworm infection, a major cause of anemia and stunted growth in children in tropical countries;
• Ascariasis, a gut roundworm infection, which affects more than one billion people and results in decreased quality of life;
• Filariasis or elephantiasis, an infection of the lymphatic system resulting in grossly swollen and scarred extremities.³

No vaccines are available for these diseases, so there is an urgent need for a compound that will be effective.

DIVERGENCE TECHNOLOGY

Divergence utilizes its expertise in the application of comparative and functional genomics to the control of parasitic nematodes. The last decade has seen revolutionary progress in both the generation of sequence information and methods for rapid gene knock-down. Divergence was an early adopter in applying advances such as RNAi to gene target validation for nematicides and to the generation of plants that were resistant to parasitic nematodes. This focuses research on targets that are biochemically distinct and vital for the life cycle of the infecting organism.

Publicly available DNA sequences increased from fewer than 50 million nucleotides in 1990 to more than 200 billion in 2008, and hundreds of genomes have been or are being completed. Washington University’s Genome Center in St. Louis has played a leading role, and has now published more than 500,000 expressed sequence tags (ESTs) from 32 nematode species. Divergence has applied bioinformatics mining approaches to select promising targets from this basic genomic information, and with its collaborators the company has also directly generated genome sequences from key parasites of interest such as soybean cyst nematode. Divergence in-house expertise also includes a cross-species gene discovery approach that can rapidly clone gene orthologs from parasites of interest.

A Divergence scientific advisory board member was part of the team that discovered how to silence genes by degrading the corresponding messenger RNA, a process called RNA interference (RNAi). Divergence began RNAi-based work in 1999, and now leads its application to the control of parasitic nematodes.

Divergence has developed other proprietary technology platforms with potentially wide application, including Harvest™, which allows more rapid discovery and improvement of novel chemicals, and hence shortens the timeline from project conception to lead selection and reduces research and development

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³Divergence web site. Accessed October 17, 2010. <http://www.divergence.com>.

costs. STEM™ is another proprietary protein-engineering platform technology. Divergence is currently applying STEM™ to nematode control.

PARTNERSHIPS

Divergence has developed a considerable range of partnerships relationships with both academic and commercial partners. The company has had a licensing agreement with Monsanto since 2004, focused on imparting nematode resistance into soybeans. The company also has a research partnership with the National Corn Growers Association aimed at developing nematode-resistant corn since 2003, and a close relationship with the Donald Danforth Plant Science Center since 2001. Divergence’s laboratories are located next to the Danforth Center, and Divergence collaborates with multiple Danforth investigators, utilizes core laboratories in analytical chemistry and microscopy, and has received joint research grants with the Center.

DIVERGENCE AND SBIR

Divergence has received more than 33 awarded grants totaling more than $8 million, most by competitive peer review through the SBIR program.⁴

SBIR has, according to Mr. Rapp and Dr. McCarter, had a huge impact on Divergence. It was particularly helpful as the company prepared to offer a B round to venture investors in 2002—SBIR awards were seen as important factors in validating the company’s research capability. Mr. Rapp said that he believed very strongly in the SBIR program. Divergence is a very strong supporter; without SBIR funding he did not know where the company would be: it might not exist, and it certainly would not be the company that it is.

In addition, these awards provided a significant influx of non-dilutive funds, which added to the company’s attractiveness to professional investors. Mr. Rapp observed that it made life much easier when talking to investors if he could show that more than 50 percent of income and investment flows came from non-dilutive sources.

Divergence has received more than 29 SBIR awards (out of a total of 33 grants), which provided $8.8 million in funding. This funding has been absolutely critical in moving projects forward.

Since the addition of VC funding, the role of SBIR funding has shifted somewhat. It is now used more for projects which are more speculative and have less data to support them, where VC funding would not likely be forthcoming. This allows projects to mature and prove the design to both company management and reviewers to the point that they can reach product development. Even here, though, the company is disciplined in ensuring that SBIR funds are only used for

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⁴SBA Tech-Net database. Accessed June 10, 2011.

projects that fit the company’s broad strategy. Divergence is careful not to apply for awards on projects that do not fit the core strategy.

Divergence has also used SBIR to apply core knowledge to new areas. For example, initial work partly funded by NSF SBIR awards focused on soybeans, in partnership with Monsanto. Knowledge drawn from the project has since been applied more generally to root crop nematodes, where Divergence is currently seeking SBIR funding from NSF. Similarly, NSF has funded work applying Divergence technologies to corn and sugar cane.

Finally, Divergence also notes that SBIR awards are a powerful help in the recruitment of high-level scientists. They provide funding for projects but also generate excitement within the company. Eight different PIs have been in charge of projects at Divergence.

For Divergence, one of the biggest challenges in working with the SBIR program is timing. Grant applications require that the company look ahead to where the project might be 12 months in the future. Often, a number of the specific milestones to be addressed under a proposed award have been completed by the time funding arrives. It is therefore critical that program directors and TPOCs have flexibility to work with PI’s in adjusting objectives, such as by adding more advanced milestones.

Some program directors have been very flexible—indeed, NSFs have been especially so over the years and have been very strong on personal contact between NSF program directors and company PIs. According to Divergence, personal contacts at NIH are harder to manage, although they are now improving. USDA is also improving rapidly, and is now getting closer to the NSF model. Mr. Rapp and Dr. McCarter both stressed how important it was for the program director to maintain close personal relations with the company PI and company management, so that the PD could fully understand the project and could therefore provide active support as needed.

Divergence sees the NSF SBIR program as somewhat different from those at other agencies.

• Submission requires use of FastLane, which is completely different than other application processes, and requires that the company provide more detail.
• Funding—for Phase I, NSF often provides two-thirds of total funding on signature, with one-third on completion. Most others provide a steady stream of ongoing funding.
• NSF requires more detail in both submission/tracking science report, including time report by individual person, and a financial report that identifies funds spent on each category.

NSF is also different in the degree of pressure it exerts toward commercialization. This has become even stronger in the past two years, possibly coinciding

with the move to LARTA’s commercialization support program (see below for more on commercialization).

This has had some unanticipated consequences. At the start of this new approach, in Divergence’s opinion, some grant applications had been dismissed apparently simply because they were in the biotech sector, where regulatory timelines imposed significant delays, which apparently pushed the projects out of the timeframe for commercialization that appeared acceptable to NSF. The rejection of these applications has led to indefinite delays on projects that the company sees providing a potentially powerful range of applications.

Recommended Improvements

• NSF should—like most other agencies—provide more than one annual opportunity or deadline for each topic.
• NSF should also consider adopting at least in part the NIH model of open solicitations, where topics indicate areas of agency interest but proposals outside those areas are not automatically excluded. (According to NSF, it already has adopted this approach.)
• NSF should find ways to permit companies to rebut reviewers. In one case, according to the company, a reviewer who completely misunderstood a Divergence proposal “torpedoed it.” According to Divergence, “reviewer comments included five misstatements and one or two complete misunderstandings.” In contrast, USDA reportedly already uses a system whereby the program director emails Divergence a list of up to 10 questions arising from review. This gives the company an opportunity to make its case in more detail and to clear away misunderstandings.
• Resubmission. As with rebuttal, Divergence sees value in allowing applicants to improve their applications in response to review. The NIH resubmission approach responds to this need.
• Splitting commercial and scientific review. Divergence saw the need for this in a recent NIH application for funding to work on diagnostics for human parasites. Review comments noted that “poor people have no money to buy anything” and hence there could be no market for these diagnostics. USDA is reportedly now splitting commercial and scientific review.
• Commercialization support programs. Mr. Rapp participated in commercialization support programs conducted both by Dawnbreaker and by LARTA. He sees both as helping inexperienced scientists and engineers understand and prepare for the business world. However, being so strongly encouraged to participate is in his view a tax on the company’s executive resources. For example, Divergence is at a stage where it is looking at world markets for corn seed treatment. Generic business plans are of no use here—instead, the company hired an industry insider with

COMPANY UPDATE (NOVEMBER 2014)

Divergence achieved a successful exit in 2011 when it was acquired by Monsanto Company for $76 million. Three products from the company are being commercialized. The Divergence nematicide tioxazafen is now in phase III in Monsanto’s technology pipeline as a seed treatment for corn, soy, cotton and eventually other crops with an anticipated 2017 launch. Divergence’s collaboration with IDEXX Laboratories has resulted in commercialization of a revolutionary new test for whipworms in dogs with additional tests in development. An antiparasitic compound is in development for hornfly control in cattle with a pharmaceutical company licensee. All twenty-five Divergence employees joined Monsanto, and nearly all research scientists and technicians remain with the company. Divergence CEO Derek Rapp led M&A for Monsanto until 2014 when he joined the Juvenile Diabetes Research Foundation (JDRF) as President and CEO. Divergence founder Jim McCarter was an Entrepreneur in Residence (EIR) with Monsanto Growth Ventures until 2014. He is now a Senior EIR with BioGenerator, a St. Louis seed-stage venture group, working on his next start-up.

Imaging Systems Technology

Based on interview with

Carol Wedding, CEO and founder

October 12, 2010

By telephone

HISTORY

Imaging Systems Technologies is a privately held woman-owned firm located in Toledo Ohio, founded in 1997. The firm was a spin-off from a previous family business focused on display technologies, and is still family owned and operated. The previous firm—a technology innovator in displays—focused on military displays in the 1970s and 1980s, but could not compete effectively against globalized sourcing in the late 1990s.

IST has developed customized touch screens which can be mounted over standard computer displays. These screens fit around any flat panel display, and do not reduce viewing area, distort, obscure or dim the image in any way. The system allows for full mouse emulation via the touch screen input device. IST also sells a specialized video controller, and suite of test products for the auto industry. IST now focuses on research and development of large area distributed electronic networks including flexible displays and flexible sensors.

IST management has been working on flexible plasma displays since the late 1990s. The company’s strategy was based on pairing high tech glass display capabilities, which were located in the Toledo region, with low tech “bubbles” to create large, flexible displays at various sizes without the need to invest in a multi-billion dollar manufacturing plant.

Currently, the smallest bubbles in use are 250 microns. This means that viewers have to stand 5-6 feet away to get an acceptable view. It is a large display technology. IST believes that cost and deployment advantages will allow bubble-based technologies to capture a substantial share of the large markets for outdoor advertising billboards and large wall displays. The strategy is to develop technologies that are comparable in quality but much lower cost and much easier to transport and deploy than the current-standard LED based products. LED displays are $1-20k/sq. ft.; bubbles in contrast cost pennies per bubble to build even at relatively low volume.

IST has maintained an extensive consulting practice, on displays, imaging, and optical technology. Display technology includes AC plasma, DC plasma, LCD, and EL and their related drive electronics. The consulting practice has provided ongoing staff funding support while flexible plasma display technologies were developed. IST maintains a worldwide consulting business with large scale

display manufacturers. However, this is insufficient to fund product development or the marketing push needed to find the first major customers.

IST TECHNOLOGIES

IST is now focused on the application of bubble technologies to flexible displays. Hollow spheres formed of glass, ceramic, and metal are used in many industrial, scientific, and medical applications, including structural applications, insulation, imaging, solar collectors, and transducers.

IST has developed the capacity to fabricate high quality custom hollow spheres with uniform wall thickness and uniform diameter in quantities consistent with research and development projects. These range in size from 500 microns to 3mm, with wall thicknesses from 40 microns to 300 microns. IST uses a variety of shell materials, including glass, metals, and ceramics. Custom techniques include layering various shell materials, and developing customized shapes.

This capacity is the basis for an existing consulting practice, and could be the basis for a wide range of applications. However, the company is primarily focused on the production of flexible monochrome and color plasma displays using Plasma-spheres. Plasma-spheres are hollow microspheres encapsulating an ionizable gas mounted on rigid or flexible substrates.

A conventional PDP is composed of two glass substrates that enclose an ionizable gas. Electrodes are deposited on the two substrates and covered with dielectric. Barrier ribs are formed on one substrate. Phosphor is deposited on walls of the barrier ribs.

In contrast, a Plasma-sphere is a hollow sphere composed of a glass shell encapsulating an ionizable gas. The Plasma-sphere display is formed on a single substrate. The substrate is made from a variety of materials.

Plasma-sphere technology can be deployed through a continuous flow process, instead of a costly batch process. Some of the more costly steps involved in manufacturing standard plasma displays can be eliminated. These include blasting, vacuum deposition, gas processing, and numerous screen-printing cycles. The elimination of these various process steps and the cost advantages of flow production yield substantial cost advantages, according to IST. Plasma-spheres are also produced much more rapidly, as the 12-16 hour gas-processing step is bypassed.

According to IST, plasma spheres have substantial advantages over standard plasma displays. While Plasma-sphere displays are comparable in terms of color pallet, viewing angle, video speed, and ability to scale to large sizes, Plasma-sphere displays are much more durable, temperature tolerant, and above all flexible compared to standard plasma displays.⁵

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⁵C. A. Wedding, W. W. Olson, D. K. Wedding, O. Strbik, J. Guy, R. Wenzlaff, “Flexible AC Plasma Displays Using Plasma-spheres,” SID Symposium Digest 35:815, 2004.

IST has now developed displays that are highly flexible and can be manufactured in rolls rather than batches. Ms. Wedding noted that its flexible displays have substantial advantages in terms of shipping. They represent an 80 percent reduction in weight, are not fragile and hence do not require crates and pallets, and can be rolled for convenient shipping. Finally, they do not crack at high altitude.

MARKETS

Plasma-sphere display technology is initially being applied in the digital billboards, which is a multi-billion dollar market, and the company is developing relationships with a number of large scale display manufacturers—Christy Display, Barco, and Diamond, all of which make digital billboards. The market for digital billboards is, according to Ms. Wedding, growing at 40 percent annually.

The critical strategic problem for the company is the lack of capital needed to fund market entry. IST would be prepared to license its technology or (perhaps preferably) to provide proprietary components for display manufacturers. IST believes its optimal strategy is to market large strip displays (2ft × 6ft), which can be seamlessly integrated into displays that contain multiple strips. Currently, IST has prepared a demonstration swatch of flexible display, 1ft × 1ft. but expects to be able to build 2ft × 6ft swatches. This approach would not require radical change to existing IST production facility.

Companies in this market segment have, according to IST, adopted fairly conservative approaches to new technology. In particular, they have focused attention primarily on the home theater market for Plasma TVs, rather than on larger scale displays.

Ms. Wedding believes that IST is in a very good strategic position. No significant competitors appear to be working on bubble-based technologies, although one Japanese firm is utilizing tube structures in a somewhat similar way. That firm is somewhat better funded than IST and is further toward entering the market. She noted that it has a 2m × 3m display that is up and working, although this technology is considerably heavier than the IST equivalent would be and is also not bendable.

Market entry will not be inexpensive. Ms. Wedding estimated that costs would be on the order of $10 million, and that a number of technical problems would also have to be addressed, including the provision of a market-ready power supply.

Bubble-based display technologies have substantial opportunities in a wide range of areas aside from large-scale digital billboards. Ms. Wedding noted potential markets in several programs in DoD. IST recently received an inquiry and subsequent contract from the US Air Force for adapting bubble technologies for use as programmable antennae. Other potential DoD projects have focused on adapting the technology for development of a large-scale radiation detector and for shielding on a stealth project. In each case, the same core technology is

applied—putting gas into a bubble and the placing the bubble onto a substrate. Bubbles do not have to be made out of glass—IST has made bubbles out of ceramics and metals. For example, IST recently developed metal bubbles for a lightweight buoyancy application.

The range of possible applications is so wide that IST spun out another company to focus on non-glass structural applications, where large quantities of material are involved, and no electronics. IST might be interested in spinning off the display company.

IST AND SBIR

IST has a long history with SBIR, including a Tibbett’s award in 2001. The company is a strong supporter of SBIR. Without it, Ms. Wedding notes, “IST could not do the necessary research to develop its innovative products.”

IST has positive views on the NSF SBIR program in particular, which IST believes does a particularly good job of selecting high quality projects for funding.

According to Ms. Wedding, IST’s experience with other agencies has not always been so positive. The company found it particularly frustrating that DoD applications did not automatically receive a detailed debrief, which was provided only verbally rather than in writing.

Ms. Wedding had participated in more than one commercialization training program. She believed that overall commercialization training did help, and that the Dawnbreaker program was the most useful. She observed that Dawnbreaker provided more customized support.

IST has not made serious efforts to attract venture funding, according to Ms. Wedding. The company has presented at two venture gatherings, but has attracted little interest there.

However, other marketing efforts have been more fruitful. IST purchased a booth at the Society of Information annual conference in 2010, and this generated a considerable amount of interest. The 1ft × 1ft demonstration display was enough—for this expert audience—to attract attention, specifically from digital billboard manufacturers, though not plasma display firms.

Improvements to SBIR

Ms. Wedding and IST offered a number of suggestions for possible improvements to the SBIR program at NIST.

More NSF SBIRs

Ms. Wedding did not believe it to be good policy to focus funding on a smaller number of awards. She belied that $150,000 was reasonable for Phase I

and $500,000 was appropriate for Phase II. She observed that it was probably better to give smaller awards to more projects. Larger awards would lead to too great a focus on hot topics, and potentially good projects would be ignored.

More Flexibility on Matching Funds for Phase IIB

In particular, IST saw the need for more flexibility on the timeframe for acquiring matching funds. Currently, funding has to be obtained during the exact 18-month period from the start of the Phase II award to the last point of reasonable application for Phase IIB. She found it hard to believe that, starting on a new project, it would be possible to get to an investable point so quickly. At a minimum, she believed that NSF should accept matching funds acquired any time after the start of Phase I. Aside from timing, she thought the limits on the acceptable sources of matching funds were appropriate.

Topics

NSF topics are now very broadly defined—particularly in the materials sector—so it is possible for companies to find a topic in almost every solicitation. This used not to be the case at NSF and is an improvement in the program.

Application Process

IST was particularly complimentary about the feedback received from NSF SBIR applications. There were a substantial number of reviewers even for Phase I applications, and NSF provided both a summary review and individual reviewer comments.

Rebuttal

IST strongly supported the idea of providing companies with the opportunity to respond to reviewer comments within the framework of the selection process. Ms. Wedding observed that the ATP application process had provided exactly that opportunity by providing companies with a preliminary review and follow up questions to applicants.

Resubmission

NSF has in the past been flexible when an element of the application was not completed properly, but IST remains concerned about the possibility of having an application removed for administrative reasons, particularly as NSF does not permit resubmission of rejected applications.

Electronic Submission through FastLane

The FastLane process is not well designed for SBIR. Formatting can be very time-consuming, and as FastLane is used for all NSF applications, there are additional sections that are not relevant to SBIR applications. At a minimum, FastLane should identify application elements that are mandatory or not relevant for SBIR.

Recognition Received by the Company

• R&D 100, 2005
• Edison Emerging Technologies Award, 2005
• Roland Tibbett’s Award, 2001

COMPANY 2014 UPDATE

IST continues to develop the Plasma-shell technology that was previously funded by NSF under several SBIR awards. IST has teamed with a manufacturing partner in Japan to assist in integrating the Plasma-shell technology into display and lighting products. In conjunction with its manufacturing partner, IST is developing several prototype products, including a UV lighting product for a U.S distributor. This development is being funded internally.

IST considers itself a successful small business. IST sells three commercial products, and engages in various engineering consulting projects. Technology funding by NSF has resulted in 60 patents; licensing revenue; and the creation of two new spinout companies.

Since 2010, the company believes that the NSF SBIR program has evolved from providing assistance in commercialization (via DawnBreaker) to demanding commercialization within a time frame of about two years. Small businesses that do not fall into this accelerated growth trajectory are considered unsuccessful. In this respect, much more is being expected of small businesses than is of either large businesses or universities with federally funded research projects.

In Ms. Wedding’s view, the SBIR program was established to allow small businesses to access federally funded research opportunities. However, NSF seems to be focused on funding “start-ups” over established small businesses. In view of this, IST offered the following suggestions:

• Reduce focus on outside investment and venture capital.
• Broaden the definition of a success.
• Be mindful of the fact that established small businesses tends to have infrastructure and resources (facilities, equipment, personnel, IT, and proper accounting and project management) to apply to a research project that a “start-up” might lack.

Immersion Corporation⁶

Based on interviews with

Christophe Ramstein, CTO

August 17, 2009

In person

Chris Ullrich, Senior Research Director⁷

October 2, 2009

By telephone

BACKGROUND

Immersion Corporation (“Immersion”) is a publicly owned company headquartered in San Jose, California. Founded in 1993, Immersion went public in 1999 and is now publicly traded on the NSADAQ, with a market value of about $115 million.⁸ Immersion has focused on the provision of “haptic” technologies. These technologies allow users to engage their sense of touch when operating digital devices including touch screens, gaming devices, and other tools where touch adds a further dimension of connection for the user, as well in many cases as enhanced functionality.

Immersion currently focuses marketing and business development activities on five major sectors:

1. automotive,
2. gaming,
3. 3D CAD systems for industrial devices and controls,
4. medical simulation, and
5. mobile communications.

Depending on the market, Immersion sometimes licenses technology for inclusion in products branded by other manufacturers (e.g., video console gaming, consumer electronics, mobile phones, and automotive controls). In other markets (notably medical simulation), Immersion sells products directly under its brand name (see “Lines of Business” section below for details).

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⁶Note that Immersion Corporation was also included in a series of NSF case studies in an earlier study of NSF SBIR grant companies, published in 2008. Then the focus was on the endoscopy applications of the technology.

⁷Unless otherwise specified, information in this report is drawn from the interview with C. Ramstein and the Immersion Corp. web site (<http://www.immersion.com>).

⁸NASDAQ stock quotes, <http://quotes.nasdaq.com/asp/SummaryQuote.asp?symbol=IMMR&selected=IMMR>, accessed September 30, 2009.

Immersion is currently in the middle of a period of steady revenue growth, driven by the widespread adoption of its haptics technologies in cell phones. Overall revenues reached $36.5 million in 2008, up from $23.8 million in 2004.⁹ Along with some long-time agreements in this area (e.g., with Samsung), Immersion recently concluded a licensing agreement with Nokia. The successful conclusion of a patent infringement case against Sony appears likely to lead to further licensing agreements with Sony.¹⁰

INTELLECTUAL PROPERTY (IP)

Immersion is somewhat unusual in the extent to which its resources are expended on IP protection. The company claims to hold more than 700 patents,¹¹ a large number for a relatively small company not yet breaking even. However, the need for these patents is clear in the context of the license-based business strategy for non-medical devices, and the Sony patent infringement settlement shows that this approach has in some ways already been successful.

HAPTICS TECHNOLOGY

Immersion haptics systems typically include five kinds of elements:

• One or more sensors
• Actuator (motor) control circuitry
• One or more actuators that either vibrate or exert force
• Real-time algorithms (actuator control software, which we call a “player”) and a haptic effect library
• Connecting software that includes the application programming interface (API) and often a haptic effect authoring tool

Immersion’s technical advantage is focused on actuators, actuator control software, and the API and authoring tools. Mechanisms used to convey forces to the user’s hands or body include vibrotactile actuators; direct-, belt-, gear-, or cable-driven mechanisms; and other proprietary haptic devices that supply textures and vibration, assistance, resistance, and damping forces to the user. The Immersion API is used to program calls to the actuator, specifying which effect in the haptic effect library to play.

When the user interacts with the product’s buttons, touchscreen, lever, joystick/ wheel, or other control, this control-position information is sent to the OS, which then sends the play command through the control circuitry to the actuator, which in turn physically translates the command into touch-based effects.

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⁹Immersion Corporation, Annual Report 2008, p.32

¹⁰Interview with Christophe Ramstein, Immersion CTO, August 17, 2009.

¹¹Immersion Corporation, Annual Report 2008, p. 7.

LINES OF BUSINESS¹²

Immersion operates five lines of business. The gaming/mobile communications/automotive/CAD systems lines are based on licensing haptic technology to brand-name or OEM manufacturers. The medical devices business in contrast uses haptics technology to provide competitive advantage in the market for simulated surgical training.

The Licensing Business

Key components of the licensing business include the following:

Gaming Devices

Immersion began to license products in 1996, starting with the gaming devices sector. Clients include Microsoft (for use in its gaming products), Apple Computer (operating system), and Sony Computer Entertainment (PlayStation products), as well as more than a dozen gaming peripheral manufacturers and distributors such as Logitech and Mad Catz.

Mobile Communications and Portable Devices

Immersion’s TouchSense technology covers haptic touchscreens and programmable haptic rotary controls. In early 2009, Samsung announced its new P3 personal media player, which uses Immersion haptic feedback technology for touchscreen interactions. In 2008 Cue Acoustics announced and began shipping a premium AM/FM radio and iPod docking station that includes a TouchSense rotary control module as its primary control mechanism.

Immersion currently licenses TouchSense technologies to the top three makers of mobile phones by volume in the world: Nokia, Samsung, and LG Electronics, plus others such as Pantech Co., Ltd. and KTF Technologies Inc. In 2008, approximately 40 million handsets with TouchSense technology were shipped by Immersion licensees.

Automotive

Immersion began licensing TouchSense for use in vehicle controls in 2002. Licensees include Siemens VDO Automotive (now Continental) (for use in the high-end Volkswagen Phaeton sedan and Bentley cars); ALPS Electric (Mercedes-Benz S—Class sedans and Lexus RX 350/450h). Other automotive industry licensees include Methode Electronics, Inc., Visteon Corporation, Volkswagen,

___________________

¹²Ibid. p. 9.

and SMK Corporation of Tokyo. Since 2001, over 2.4 million vehicles have included TouchSense technology.¹³

The Medical Simulation Business

Immersion has developed numerous simulation technologies used for medical training and testing. By more fully engaging the sense of touch, Immersion’s technologies support more realistic simulations. In turn, this improves the training of medical students, doctors, and other health professionals. Simulators allow these professionals to practice in a risk-free environment where mistakes have no dire consequences and animal or cadaver use is unnecessary.

Specifically, Immersion has developed four lines of medical simulation products covering

1. needle-based procedures such as intravenous catheterization and phlebotomy;
2. endoscopic procedures, including bronchoscopy and lower and upper GI procedures;
3. endovascular interventions including cardiac pacing, angiography, angioplasty, and carotid and coronary stent placement; and
4. minimally invasive procedures involving abdominal and pelvic organs.

Each product line is designed to maximize the number of procedures that can be simulated with minimal additional customer hardware investment. These systems may then generate additional sales of relatively inexpensive software modules. Immersion currently offers more than 25 software modules that replicate such medical procedures as intravenous catheterization, laparoscopy, bronchoscopy, colonoscopy, cardiac pacing, and carotid and coronary angioplasty.

In addition, Immersion has developed simulation technology for other medical device companies, such as Medtronic.

IMMERSION’S FINANCIAL SITUATION

Immersion is not yet profitable; in fact operating losses increased during 2008 to about $25 million excluding special items (up from approximately $12 million in 2007). However, the company has substantial liquid assets (more than $85M) apparently drawn to a significant degree from its successful lawsuit against Sony, which resulted in a $134.5 million settlement in 2007.¹⁴

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¹³Ibid. p. 8.

¹⁴Ibid. p. 14.

R&D

After an early period focused on defining and testing its core technologies in the 1990s, which resulted in the patents that form the core of the company’s IP, Immersion switched its attention toward the exploitation of its existing technologies, and the rate of technical innovation within the company slowed somewhat.

This strategic choice has to some extent been recently reversed. Additional technical research staff have been hired, and the company’s R&D budget has doubled to $12 million since 2005. The CTO indicated that this expansion was expected to continue.¹⁵

SBIR AWARDS

Immersion won a series of SBIR awards starting in the late 1990s (See Table E-2).

ROLE AND PURPOSE OF SBIR AWARDS AT IMMERSION

The SBIR awards outlined in Table E-3 can be divided into four categories:

• Three early awards, including two DoD Phase 2 awards, supported development of the company’s core haptics technology.
• Starting in 1997, a number of DoD and NIH (HHS) awards supported development of medical applications, which now account for more than 40 percent of company revenues (see Table E-3).
• Subsequent NSF awards supported development and adaptation of the core technologies to the medical simulations business.
• The most recent Phase II award was in 2003; the most recent Phase I was in 2005.

Dr. Chris Ullrich, Senior Director of Research, provided further insights into the role and value of the NSF awards.¹⁶ He was originally part of the team developing virtual reality CAD systems for a very small company called Virtual Technologies, which was acquired by Immersion.

The NSF awards were originally made to support development of the VR CAD technologies, but Immersion’s research interests did not in the end support the long term research required for this technology. Instead, Immersion discovered that the VR CAD technology could be adapted for use within their medical simulator business.

The NSF Phase II and Phase IIB awards were, according to Dr. Ullrich, instrumental in funding this important development. The Phase IIB match was

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¹⁵Interview with Christophe Ramstein, August 17, 2009.

¹⁶Telephone interview with Chris Ullrich, October 2, 2009.

TABLE E-2 Immersion SBIR Awards

SOURCE: SBA Tech-Net SBIR awards database. Accessed September 15, 2009.

TABLE E-3 Distribution of Immersion Sales by Sector

SOURCE: Immersion Corp., Annual Report, 2008.

provided through an existing long-term relationship with Medtronic. Medtronic funded research aimed at creating virtual demonstrators of their surgical tools to be deployed to surgical centers as a sales tool.

The NSF funding thus allows Immersion to develop the core technology that continues to underpin the medical simulation business. Dr. Ullrich indicates that the NSF award came at a critical time for his group and provided the funding that allowed them to transition from VR CAD to medical situations.

SBIR AT NSF

Dr. Ullrich noted that Immersion was ideally suited for a Phase IIB, given the existing relationship with Medtronic. As with other NSF Phase IIB awards, this suggests that in some ways the Phase IIB program may simply reward existing relationships.

Dr. Ullrich said that he was positively impressed by the flexibility provided by the NSF project liaison, who understood the technical and market shifts under-

way at Immersion, and approved adjustments to the Phase II award that were critical to its eventual success.

Immersion participated in the Awardee conferences organized by NSF. Dr. Ullrich commented that although they provided useful networking opportunities and helped to build valuable connections between companies and NSF program managers, commercial training was not especially important to a publicly traded firm like Immersion. However, he thought the commercialization training was probably very useful for smaller companies with weaker commercial experiences.

Intelligent Fiber Optic Systems (IFOS^®) Corporation

Santa Clara, CA

Based on interview with

Dr. Behzad Moslehi, CEO/CTO and founder

November 14, 2010

HISTORY AND BACKGROUND

IFOS designs, manufactures and markets advanced photonic sensing systems to monitor and control high-value assets in harsh and demanding environments. It is a privately held company, based in Santa Clara, California. The company was incorporated in the State of California in 2001 by its current CEO/CTO, Dr. Behzad Moslehi.

In its early years, IFOS was a classic Silicon Valley startup—working out of a garage. It did not really gain traction until 2000-2001, when initial Phase II SBIR awards with NASA and NSF allowed the founder to commit himself fulltime to the company and lease its own 4000-square-foot facility initially in Sunnyvale, CA. SBIR funding was key to equipping the facility and hiring a dedicated founding staff. This development coincided with the final stages of the telecom boom.

Subsequent SBIR/STTR awards allowed IFOS to strengthen its technical team and better-equip its facilities, delivering across a wider range of disciplines and subsequently to move (in 2006) into a larger facility in Santa Clara, CA, with 10,000 square feet of research and development space.

Since the company’s inception, IFOS has worked toward implementing its vision of end-to-end fully flexible and scalable networked optical sensing systems that can detect and monitor a wide variety of physical and chemical data over a dynamic fiber network. IFOS is taking the leading role in optical sensing and will continue to supply innovative, advanced technologies for this market. The goal of the company is to meet a wide range of sensing needs cost effectively and competitively.

In IFOS products, optical fibers are not merely a transmission medium, but rather an active intelligent medium with simultaneous sensing, processing, and transmission capabilities. The company began to sell commercial products in 2006.

In recent years, IFOS has expanded its marketing efforts internationally and is working harder to connect to potential customers. It has been attending key industry trade shows and taking part in exhibitions and industry days. The company’s products are often of interest to clients who require substantial customization for applications in harsh and demanding environments, so it is not feasible to develop simple distributor-based marketing strategies at this time.

IFOS has developed a sensor platform that could be applied to a number of industries. This array of options presents marketing challenges and requires judgment and prioritization. IFOS addresses the needs of these emerging markets opportunistically. Following an extensive research effort, IFOS is presently focusing on three core markets:

• aviation and safety
• energy
• life sciences

The life sciences sector illustrates in part how IFOS works. Initially, the company worked with practitioners and surgeons at Stanford University Medical School, in cardiology, radiology, and oncology. Through its Stanford connections, the company then moved on to partner with several local medical devices companies who will manage FDA market testing and industry-specific marketing.

Dr. Moslehi completed his PhD in Electrical Engineering at Stanford University, where the company retains important connections. Prior to founding IFOS, Dr. Moslehi helped to commercialize fiber optic gyroscopes, known as FOGs, for avionics and towed hydrophone sensor arrays in submarine applications as a member of the fiber optic development team at Litton Industries (part of Northrop-Grumman). Dr. Moslehi holds numerous patents and has many peer-reviewed publications in this area. He played a part in the design of the first commercial WDM multiplexers based on diffraction gratings at Physical Optics Corporation (POC). His work also contributed to the founding of ONI Systems, a spin off from Optivision, which went through a successful IPO in 2000 and was later acquired by Ciena.

IFOS revenues are derived from numerous grants and contracts from a range of federal agencies and from commercial clients. The IFOS I*Sense^® Product Family has been sold to a number of clients worldwide, through in-house sales and marketing involving representatives and selected strategic partners.

IFOS retains close ties with several prime contractors, notably Lockheed Martin, Boeing, Raytheon, and Pratt and Whitney. Further connections have been made with customers in France, Germany, Italy, Japan, and Korea. Inquiries have also been recently received from several medical centers of research excellence in the United States, including UC San Francisco and Harvard medical schools.

In the energy sector, IFOS has worked with medium-sized oil/gas services companies (in Bakersfield, CA, Wallingford, CT, and Houston, TX) on down borehole well temperature profiling (based on Raman Distributed Temperature Sensing or DTS) and on tools for angled directional drilling and measurement-while-drilling (MWD), which would be highly applicable to deep sea drilling. As with other market activity sectors, however, there are challenges facing innovative technologies. Oil companies tend to operate in boom-bust cycles and are inconsistent in funding innovative research or products.

Partnering is again a cornerstone of IFOS’ strategy in this market and a partner typically contributes field-testing facilities while adding a new technology-enabled service to its own portfolio. One of the company’s partners has recently completed initial borehole testing of the IFOS DTS oil well temperature profiling system to prove the economics of using the IFOS solution, showing that the technology can work reliably in the field both on hot days and cold nights. IFOS is also planning a trial for the MWD tool incorporating its FOG technology next year. The project is now seeking partners to fund more advanced trials.

Related to these activities, IFOS is now in discussions to develop an advanced pipe monitoring system for a leading US infrastructure pipe maintenance company. Aging infrastructure in the US, including bridges, tunnels, railways, and pipes necessitate new intelligent means of planned maintenance and life expectancy modeling. Intelligent sensors and sensor interrogators are essential to support decision making in these situations and optical fiber sensors are among the most cost-effective new solutions emerging in this nascent market. Dr. Moslehi believes optical sensors will become ubiquitous due to their competitive properties and attractive economies.

PRODUCTS AND SERVICES

Dr. Moslehi believes that a key barrier confronting photonic-based applications is the level of discomfort users may have with these new and emerging technologies. As a result, both IFOS and the customer must expend considerable effort, cost, and time in establishing field reliability, and in educating and convincing customers to embrace the transition from Industrial Age processes. Unlike standard electronic-based wired and wireless transmission systems, the integration and insertion of photonic-based components into a system presents technical difficulties for many users who could otherwise be likely customers for IFOS. A symbiotic relationship that combines IFOS expertise in the technology and the client’s expertise in the field application engineering is often a key success factor, but such relationships take time and investment to establish.

In addition, Dr. Moslehi observed that photonics face the classic difficulties encountered by many highly innovative technologies in that they face underdeveloped markets if they are early to the game: while customers may want a new product, he notes that they may not feel they need it immediately. This sometimes causes substantial problems for innovative companies working in emerging markets. They must either invest to create the market—like Apple—or wait for the market to emerge while other companies catch up. While there have been substantial US government investments in photonics and optical networks—from DARPA and other agencies—the US has not really replaced the infrastructure of dedicated world class research behemoths like Bell Labs, AT&T, XEROX PARC, etc., conducting costly fundamental long-term research. So sustainable innovation is facing challenges in the United States.

Accordingly, IFOS has worked to develop end-to-end solutions for particular applications. This has required development of additional company capacities, branching out from the original core competencies surrounding sensors to include electronics, algorithms, software, and proprietary electronic/mechanical/optical user interfaces. Unlike telecom/datacom, standards are not yet developed in the optical sensing field. This is a barrier to faster market growth at this stage and may, in the future, cause new players with larger financial backing to hijack the direction of the technological standards to benefit their own versions of products.

Aside from lower cost, IFOS’ innovative products provide a number of important benefits to end-users:

• High Speed. IFOS has demonstrated speeds of 1MHz on multi-channelcount IFOS sensing platforms and expects that the technology will yield higher speeds still in the future.
• Easy to use. Advanced decision-aid software for data management provides support for automated or programmed tasks.
• Economical and reliable. Highly innovative photonic designs reduce costs and enhance system scalability and reliability.

The I*Sense^® family of commercial products includes several core elements:

Sensors

Optical sensors are the nerve endings of any monitored system and IFOS provides many different types of sensors as described below:

• Offtheshelf sensors packaged for industrial usage
• Bare fiber Bragg gratings (FBG) that can be adhered to various structures for strain, temperature and other types of measurements. These FBGs can be embedded, enclosed or placed in highly protective casings.
• Customized packaging for user-specific applications. IFOS works closely with the user to define the system requirements and sensing needs.

IFOS has also developed several customized physical and chemical sensors using its proprietary and patented fiber half-coupler (FHC) technology (referred to as FyberSpace) to build some of its custom sensors. The technology also has potential for biochemical sensing.

Optical Interrogators

At the heart of the I*Sense^® Interrogation System is a proprietary state-of-the-art, solid state, high-speed photonic spectral processor (PSP) with sub-picometer resolution (0.01 picometers demonstrated). This system supports integration of

multiple optical sensing systems for physical, chemical, and biological applications, ranging from a single sensor to a multi-sensor system with auto-calibration and highly customized end-user display. The base version of I*Sense^® can presently support up to 16 high-speed sensors per fiber on four fibers (total up to 64), the multisource version supports up to 64 per fiber over four fibers (total up to 256). IFOS expects to expand this to approach to several thousand sensors. Each wavelength (or color) is fully flexible and sensor independent. Different sensing elements can be deployed on a single optical fiber using wavelength (color) multiplexing, enabling users to mix sensors, such as strain, vibration, acceleration, displacement, tilt, pressure, temperature, moisture, gas concentration, and other variables. These sensors can be deployed at one or multiple locations several kilometers apart. A unique feature of the IFOS interrogator design is the possibility to configure them for simultaneous examination of up to 16 sensors at rates up to 1 Mega-sample-per-second measurement of high frequency phenomena such as acoustic emissions as indicators of structural damage. Support of higher sampling rates and larger sensor numbers are in development.

User Interface

IFOS provides a proprietary Windows-based user interface to monitor sensor outputs. This interface is highly configurable, offers multiple display options for concurrent monitoring of multiple sensors. Because the interface is proprietary, it is tuned to meet the specific needs of IFOS customers, which include features related to decision-aid intelligent algorithms, data export and storage, varied monitoring modes, and extensive online support. While this component was not originally part of the IFOS core technical competency, it is now an important element in the end-to-end options that IFOS provides.

FyberSpace™

FyberSpace™ optical components (such as couplers, polarizers, modulators) are based on the well-established geometry of standard fibers, but add precision side polishing. This eliminates many device interfacing challenges and permits the adoption of further technical advances in integrated optics. One initial FyberSpace™ product is a simple precision family of fiber half-couplers used as a sensing platform. By depositing overlay specialized materials (including biomaterials and nanomaterials), one can build novel optical (bio) chemical and physical sensors. IFOS is presently negotiating a licensing agreement with a well-established company.

APPLICATIONS AND MARKETS

Traditional electronic sensors can meet many current marketplace needs but often fail to operate in harsh and demanding environments, have insufficient

sampling speeds, limited resolution, or inflexible user interfaces, and have high costs. IFOS’ innovative product families address these limitations by providing tools that can monitor a flexible number of sensors in harsh and demanding environments cost-effectively. A modular design allows precision signal measurement by a scalable series of multiplexed optical sensors sharing interrogation hardware. Primary application areas include

• Avionics & Safety (including Civilian Infrastructure and Transportation);
• Energy (including Oil & Gas, Geothermal and Wind);
• Life Sciences (including Smart Surgical Tools and Robotic Surgery).

IFOS anticipates that market dynamics are pointing toward more ubiquitous use of advanced sensors. In preparation for this, IFOS has recently hired a fulltime President with substantial experience and expertise in commercializing high-technology products.

Current applications for IFOS technologies include infrastructure health monitoring and condition monitoring for energy production.

Weigh-in-Motion (WIM) measures the weight and speed of trucks as they move along roads, without requiring them to stop. The system can collect statistical traffic data, support commercial vehicle regulation enforcement, and help analyze funding allocations for the repair and upkeep of roadways, tunnels, and bridges. Fiber-optic sensors provide significant advantages in this sector; they are not affected by electromagnetic interference (including lighting strikes), can withstand harsh environments, and have low power requirements.

IFOS has also demonstrated the use of FBG-based sensors to monitor the structural health of a composite marine pile under static and dynamic loading, large span wind turbines, exhaust temperatures of jet engines, and other high-value assets and structures.

In oil and mining applications, the operating and loading environments are harsh. As recent events in the Gulf of Mexico have shown, it is critically important to monitor the performance and structural health of drilling equipment, down borehole conditions, transport pipelines and production equipment. Fiber optic sensors are used because they are small, highly sensitive, immune to electromagnetic interference, and reduce the risk of explosion.

To take one example, optical sensors can be used in sub-sea environments to monitor dynamic pipeline strain levels, provide real-time detection of impacts by hydrate movements, and to monitor pressure, temperature and strain in deep-water pipelines at water depths greater than 2,000 feet and at temperatures around 400 degrees F.

IFOS is also applying its sensing technologies for use on the emerging smart electric grids, for measuring temperature, strain, vibration, and other critical parameters.

IFOS AND SBIR/STTR

IFOS is a very strong supporter of the SBIR/STTR program and believes the program should be expanded, as it “really fosters innovation,” according to Dr. Moslehi.

IFOS has developed good working relations with several NASA, DoD, and DoE centers. Dr. Moslehi noted that many of NASA/DoD/DoE/NIH Technical Points of Contact (TPOCs) are highly technical and understand the difficulties encountered in developing cutting edge technologies, do not require instant commercialization results, and appreciate companies that work on challenges worth addressing.

The first commercial product from IFOS was based on work completed for NASA Langley Research Center (augmented by NSF funding), where the head of the relevant research group was a well-respected scientist in the photonic field and had a deep understanding of the technical/commercialization issues and challenges. Subsequent work completed in collaboration with the Jet Propulsion Laboratory (JPL) and Stanford University led to other commercial developments, and IFOS currently has two awards with NASA Dryden to develop exciting new technologies on structural health monitoring and damage detection of complex avionics structures.

By contrast, some NSF program directors do not entirely appreciate the challenges involved in developing highly innovative technologies for emerging markets. Unlike other agencies, which have an end use in mind for their own needs and are therefore happy with a working system for their use, the NSF struggles to demonstrate a wider impact and consequently expects a broader commercial success. Dr. Moslehi noted that this is often unrealistic, considering that venture backed companies are often funded with tens of millions of dollars to succeed commercially and a $1 million program cannot expect the same results.

As a result, NSF sometimes has unrealistic expectations for its awards and tends to treat all technologies as though they could be commercialized on the same time line and with the same resources. This is clearly nonviable. Currently, IFOS is being discouraged from applying for NSF SBIR/STTR funding because, according to Dr. Moslehi, its commercial sales are not in the many millions of dollars. He observed that as a result, NSF is no longer a good source of funding for certain medium size businesses working on challenging emerging technologies.

Overall, Dr. Moslehi is concerned that NSF’s approach needs to be reviewed so that it can have a realistic impact on the competitiveness of small innovative businesses over the long term. He believes that NSF should ideally focus on industry-university partnerships organized around long-term high-risk high-reward projects with the potential for substantial commercialization.

IFOS supports the Phase IIB program, in which it has participated in the past. Matching funds have been primarily generated through purchase orders from customers as part of IFOS efforts to garner interest in its products and partner

with larger primes to act as clients or OEM manufacturers. IFOS has also recently worked with the DoD through the MDA, where it has received some Phase 2 Transition (P2T) funding for its G*Sense^® (fiber optic gyroscope) platform with matching funds through a purchase order from Lockheed Martin. IFOS has also attended the Navy Forum and has worked with the Dawnbreaker programs.

Overall Dr. Moslehi is concerned that agency SBIR programs do not distinguish clearly enough between emerging and non-emerging technologies or between areas where incremental improvements can be marketed and others that are potentially transformative but markets are limited in the short term.

SBIR/STTR RECOMMENDATIONS

TPOCs need to be better trained and empowered to champion the technology they manage. In addition, once TPOCs exhaust their allocation of time for an SBIR project, they have no way to charge time on their timesheets. This effectively means their effort ends, often when it is most needed (this problem is most closely related to DoD/NASA TPOCs). The diffusion of technological innovation is not a straightforward linear process nor is it a short-term sprint. It is more akin to a long running marathon with several sprinting episodes. Managing the early phases only is not sufficient.

TPOCs at most agencies are not trained by the contracting/acquisition officers to be fully aware of Phase II transition programs and support mechanisms beyond Phase II, so there are often disconnects along the road to commercialization. TPOCs are often technically skilled but can have a relatively limited understanding of commercial realities and barriers.

Dr. Moslehi believes that small businesses which have successfully obtained traditional VC funding should not be allowed to participate in the SBIR/STTR programs, as these funds should not be used to protect the interests of financial players. Dr. Moslehi also believes that commercialization prospects of a well-funded company should not be compared to one that is bootstrapped (growing organically) and needs SBIR funding to reduce technology risks.

Likewise, larger companies, including major primes that benefit from large government orders, should be obligated proactively to partner with the SBIR/ STTR companies, according to Dr. Moslehi. By providing resources (cash and in-kind) in Phase II for technology transition/transfer without taxing the SBIR system with their large overheads and other internal accounting surcharges when they partner with small companies, larger companies often make desirable partners.

Learning in Motion, Inc.

Based on interview with

Marge Cappo, CEO and co-founder

Santa Cruz, CA

August 19, 2009

Learning in Motion (LIM) is a privately held company located in Santa Cruz, California. LIM now focuses mainly on providing consulting services to the education publishing industry, covering both software and print materials.¹⁷

LIM was founded in 1993 by Marge Cappo and Mike Fish, who were employees of Sunburst Communications which was relocating to New York, NY. As Vice President of Sunburst Communications (1982-1992), Ms. Cappo’s division had developed and marketed over 350 educational software programs.

Initially, LIM had about 10 employees, and was focused on a business model very similar to Sunburst—becoming a profitable software publisher. However, initial revenues—like those of many SBIR firms—were drawn primarily from consulting contracts with other publishers.

LIM was, however, still focused on pursuing its original business plan. Ms. Cappo notes that “at the time, I did not believe we could be successful just as a consulting company. I thought we needed products as well.”¹⁸ Development of products would, however, require resources, and at such an early stage in the company’s development, additional resources for product development were not available.

As a result, LIM decided to apply for NSF funding. LIM received its first Phase I award from NSF in 1994, and this was followed by a Phase II in 1995 (LIM eventually converted all three of its NSF Phase I awards into Phase II awards).

These first awards were used to develop the company’s first major educational software product, AssessMath! This product aims to provide teachers with tools for accessing a database that included more than 1,000 problems and exercises, which could be selected using a range of criteria (see Box E-2 for detailed description).

Subsequent Phase I awards in 1997 and 2000 were used to build a tool for developing mathematical stories and a subsequent project to adapt the story tool for use with deaf children that includes technology for generating sign language animations. The latter allowed LIM to address a market which was too small to attract substantial attention from large publishers—perhaps analogous to the market for orphan drugs in the health sector.

Each of these three Phase I awards were converted to Phase II, and each resulted in the development of software titles that reached the market.

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¹⁷Unless explicitly noted otherwise, all information in this case study is derived from an in person interview with Ms. Cappo in Santa Cruz (August 19, 2009) and from the company’s web site.

¹⁸Interview, Santa Cruz, August 19, 2009.

THE INTERNET REVOLUTION OF THE LATE 1990s

Reaching the market is insufficient for commercial success. The widespread advent of the Internet in the late 1990s changed educational software dramatically; the provision of online tools and web-based environments generally meant that publishers had to be prepared to offer larger system able to handle much larger numbers of simultaneous users. Web-based publishing required a new set of authoring tools; more important, instead of simply delivering a CD which simply plays an application within the PC or Mac operating system, web-based applications run remotely on company-owned and- maintained servers. And at the same time, textbook publishers began to branch out to provide web-based tools and resources of their own.

LIM found that selling individual titles to school systems presented multiple challenges. Understandably, buyers preferred to acquire complete solutions that

covered multiple years of math via multiple successive courses. And school systems were somewhat reluctant to buy titles that did not explicitly fit with their curricula but simply provided support for it (like AssessMath!). These changes would necessitate a change in LIM’s business model and require investment to compete with major text book publishers.

NEXT STAGE

Because there was little evidence that LIM could compete effectively as a software publisher in this new environment, it returned to focusing on its consulting business.

Today, LIM sometimes acts as a publisher for independent projects that cannot attract support from the larger software publishers. For example, LIM published the Voyages Through Time series, which includes information about evolution and had been rejected by other potential publishers.

LIM acquires varying shares of ownership for these projects. In some cases, LIM has acted in ways similar to OEM manufacturers. LIM has helped to develop products based on the latest research, which they monitor both in the US and internationally. This in itself provides a valuable service for clients.

LIM’s titles are, according to Cappo, well regarded and continue to sell. They will remain available as long as the technology still supports them. However, they have accounted for a steadily declining share of company revenue and now in aggregate generate less than 2 percent of total revenue.

Today, LIM is an educational product consultant that provides a wide range of services needed to develop educational products. Perhaps surprisingly, for a period of time from 2000 to 2010, a large percentage of LIM revenues has been drawn from print-based products. In 2011-2013, Learning in Motion did a major project with Pearson to develop a K-12 math curriculum delivered on tablets.

IMPACT OF SBIR

SBIR funding from NSF was critical for the company during its early years. Cappo stated that the company likely would not be in existence without this funding, even though SBIR awards did not directly support the company’s foundation. NSF funding provided a critical revenue stream that supported staff while the consulting business grew.

Over time, LIM stopped applying for NSF SBIR awards, for two primary reasons. First, the company shifted toward consulting and away from self-generated stand-alone projects. Second, according to Ms. Cappo, NSF SBIR topics themselves increasingly focused on testing and electronic student records, which were not of interest to LIM.

COMMENTS ON SBIR

Ms. Cappo identified a number of important issues related to SBIR awards at NSF and elsewhere.

• Funding Gaps. LIM experienced a significant gap—up to a year—between Phase I and Phase II. This presented substantial problems, even though the company was able to fund project staff through other work. These gaps and lags need to be addressed, especially given the importance of stable funding for small firms.
• Overambitious requirements at the Department of Education. The Department of Education effectively requires that Phase I applications include information covering Phase II commercialization. This is often not feasible.
• Erratic selection. LIM applied again in 2009 to the Department of Education for a highly promising reading project in Eugene, Oregon, based on an award-winning initiative from an elementary school teacher to provide 30-minute readings delivered via student IPods. This application was rejected for reasons that seemed obscure to LIM.
• Topics. The NSF focus on testing has narrowed the range of potential projects. Broader topics would be very welcome and would support a wider range of innovation.
• Annual deadlines. Given the speed with which market conditions change, a single annual deadline seems unnecessarily inflexible.

Ms. Cappo views NSF grant administration as highly professional. The project manager at NSF provided pre-application advice and early feedback on applications She views the NSF team as highly supportive and focused on making the project successful.

Membrane Technology and Research Inc.

Based on interview with

Dr. Hans Wijmans, Director of Research¹⁹

August 19, 2009

BACKGROUND

MTR is a privately held company headquartered in Menlo Park California. The company has sales offices in Houston and Brussels. It has focused primarily on providing membrane technology and products in the oil and gas industry, and has applied its technologies in other industries as well.

The company was founded in 1982 by Richard Baker, previously a co-founder of Bend Research. Mr. Baker believed that a company based only on contract research would not be viable in the long term. He also believed that the standard alternative for research companies, a model based on licensing proprietary technology, was equally fraught with difficulties. Thus from its foundation, MTR has been concerned with the direct commercialization of its own technologies.

Originally all revenues were from contract research, and MTR grew very gradually with revenues on the order of $5 million by 1997. Of this, about $1 million per year came from SBIR. According to Dr. Wijmans, during this time MTR was a technology-driven company that focused on addressing interesting technical problems, and pioneering membrane applications for the petrochemical and natural gas industries.

In the early 1990s, a turning point occurred for MTR when the company was approached by a PVC company to solve their problems with carbon tetrachloride, which was both very dangerous and on the verge of being outlawed by the EPA. The company was, according to Dr. Wijmans, so desperate for a solution that MTR was able to sell a system with limited testing and no warranty for $200,000. This constituted a large step up in pricing for MTR but more importantly provided funding for a prototype system which could be deployed into the market at no risk to the company. Today, according to Dr. Wijmans, about two-thirds of all PVC plants worldwide use MTR membrane technology to address carbon tetrachloride issues.

After the success of the PVC product, MTR moved on to address industrial markets related to polypropylene and polyethylene manufacture, a market two orders of magnitude larger than the PVC market. MTR delivered its first commercial system in this area in 1996, and MTR now sells several systems a year in the

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¹⁹All data for this case study, unless otherwise attributed, was provided through the interview with Dr. Wijmans or from the MTR web site at <http://www.mtrinc.com>. Accessed on September 17, 2009.

$6 million range. This finally transformed the company from a contract research organization into a company dominated by the manufacture and sale of commercial products. The impact of this transformation is captured in MTR revenues.

With a strong and growing position in these markets, MTR was able to explore other commercial opportunities. VOCs—volatile organic compounds—represented a new opportunity. Membranes allow the collection of VOCs during various kinds of industrial processing, and can therefore be used to remove potentially harmful or banned contaminants before they reach open airways. At the same time, the membrane approach can also collect valuable compounds that can generate an additional revenue stream for the client.

One example of this approach relates to chlorofluorocarbons (CFCs). As CFCs were phased out in the 1990s, users of heavy duty industrial refrigerators faced difficult issues: these refrigerators represented a major capital investment with substantial remaining product life but required increasingly expensive inputs as CFC prices rose. CFCs generated emissions that were subject to increasingly higher legal penalties. MTR developed new applications that focused on VOC recovery. These applications were sold at about $50,000 each. More importantly, MTR designed and built the whole system and gained critical experience in product design manufacturing while building ties to customers.

Today, MTR generally sells complete systems, built using outside fabricators, but completely engineered by MTR. Two-thirds of sales are outside the US, although MTR sees a growing domestic market, especially for gas separation and a new biofuel business.

Aside from its substantial and growing presence in the petrochemical sector, MTR is increasingly focused on green energy including a carbon sequestration project for which MTR has won a $4 million Department of Energy contract. MTR announced that it would conduct a six-month field test of its membrane process to capture CO₂ from flue gas at the Arizona Public Service’s (APS) Cholla coal-fired power plant near Phoenix, Arizona. The system was scheduled for startup in the first quarter of 2010 and was designed to process 250,000 scfd of flue gas, separating about 1 ton CO₂/day. The field test validated the potential for MTR’s membrane process to efficiently capture up a substantial portion of the CO₂ from coal-fired power plant flue gas.²⁰

SBIR AWARDS

Clearly, SBIR played a critical and ongoing role in funding the development of MTR’s core membrane technology, while providing the equivalent of stable contract funding to underwrite a portion of MTR’s overall budget during the 15 years before commercial products finally began to dominate.

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²⁰Tim Merkel, Xiaotong Wei, Jenny He, Bilgen Firat, Karl Amo, Saurabh Pande, Steve White, and Richard Baker, “Membranes for Power Plant CO Capture: Slipstream Test Results and Future Plans.

While MTR has won SBIR awards from seven agencies, and NSF and EPA have provided significant SBIR funding, the bulk of MTR’s awards have come from DoE.

According to Dr. Wijmans, SBIR was an integral part in the evolution of the company, and supported the development of most of the company’s early core technologies:

• early DoE awards supported development of the CFC technology
• EPA SBIR awards addressed PVC manufacturing
• DoE SBIR awards funded work on polyolefin applications and demonstrations of the application of existing technologies to wider applications

Most awards supported the work well beyond simple feasibility studies.

NSF awards came later, and supported work on hydrogen (for green energy) and perfluoropolymers. In general, NSF awards focused on development of novel or improved materials, which appeared to be critical for success in the NSF SBIR competition according to MTR. This contrasts with DoE, where reviewers were more open to funding process innovations.

TECHNOLOGY

Since its beginnings in 1982, MTR has grown continuously as industry embraced membranes as an effective gas separation technology. After MTR sold its first commercial system to the petrochemical industry in 1992, the portfolio of applications expanded quickly. MTR now provides a full range of gas separation solutions for petrochemical plants, refineries, and gas processing facilities. Systems for these demanding applications need to be effective, economical, reliable, safe, and conforming to industry standards. MTR’s systems are based not only on state-of-the-art membrane know-how—they are also custom engineered to fit the application and the industry.

MTR received the Kirkpatrick Chemical Engineering Achievement Award for the successful commercialization of the original VaporSep^® membrane technology. The award, which is sponsored by Chemical Engineering magazine, honors the best chemical engineering technology commercialized during the preceding two years.

Vapor Separation Technology

Membrane-based vapor separation systems are used in the petrochemical, refining, and natural gas processing industries. Current applications include the following:

• Recovery of olefins from resin degassing vent streams in polyolefin plants
• Recovery of liquefied petroleum gas (LPG) from refinery vent streams
• Fuel gas conditioning (removal of heavy hydrocarbons from fuel gas)
• Recovery of natural gas liquids (NGLs) from natural gas streams

The VaporSep process works by separating hydrocarbons from mixed liquids or gases. A mixture of hydrocarbons in nitrogen, hydrogen, or methane is compressed and cooled, condensing some of the hydrocarbons which are recovered as a liquid. The remaining gas is fed to the VaporSep membrane. The membrane separates the gas into a hydrocarbon-rich permeate stream and a hydrocarbon-depleted residue stream (the purified gas). The permeate is recycled to the compressor; the residue stream is vented or reused.

MTR’s competitive advantage is based on the membrane unit, comprising one or more VaporSep modules. Each module contains proprietary membranes which are manufactured as flat sheets and then rolled into spiral-wound modules. The feed gas enters the module and flows between the membrane sheets. Hydrocarbon vapor passes through the membrane and flows inward to a central collection pipe. Lighter gas (e.g. nitrogen or hydrogen) is excluded by the membrane, and exits as the residue.

This membrane-based approach has been applied in other industries, including

• Recovery of flavor compounds from food industry process streams.
• Recovery of ethanol from fermentation and food industry process streams.
• Removal of organic contaminants from wastewater streams.

POLYPROPYLENE PRODUCTION

During the production of polypropylene (PP), a portion of the propylene feedstock is lost. The value of the lost feedstock is substantial, ranging from $1 million to $3 million per year for a typical polypropylene plant. Propylene losses occur primarily in resin degassing vents.

For resin degassing applications, the vent stream is compressed and then cooled to condense the propylene. The gas leaving the condenser still contains a significant amount of propylene. This gas is fed to the membrane unit, which separates the stream into a propylene-enriched permeate stream and a purified nitrogen residue stream. The permeate is recycled to the inlet of the compressor and then to the condenser, where the propylene is recovered. The purified nitrogen stream is recycled to the degassing bin.

For C₃ splitter overhead applications, the VaporSep unit is very simple, consisting of membrane modules only, with no moving parts. The stream leaving the column overhead is primarily propylene, mixed with light gases such as nitrogen or hydrogen. The VaporSep unit splits this stream into a propylene-enriched stream and a light-gas-enriched stream. The propylene-enriched stream

is returned to the distillation column, where the propylene is recovered, and the light-gas-enriched stream is vented or flared.

VaporSep units are currently used by major polypropylene producers including Formosa Plastics, Ineos, SABIC, Sasol, and Sinopec.

POLYVINYL CHLORIDE (PVC) PRODUCTION

Polyvinyl chloride (PVC) is produced by polymerization of vinyl chloride monomer (VCM). Unreacted VCM is pumped out of the reactor and condensed, and non-condensable gases are vented from the condenser. Depending on the temperature and pressure of the condenser, the vent stream also contains from 50 to 2,000 lb./h of VCM. As VCM emissions are tightly regulated, the vent stream must typically be incinerated and scrubbed before release.

The vent stream from the existing VCM condenser is sent to the VaporSep system. VCM passes through the membrane at a greater rate than inert gases, producing a VCM-enriched permeate and a VCM-depleted residue. The permeate is recycled to the inlet of the existing compressor and the residue is incinerated. The VCM recovered by the VaporSep system is condensed in the existing condenser.

VaporSep systems allow PVC producers to recover 90 percent to 99+ percent of the VCM currently lost in vent streams, providing a significant economic benefit. VaporSep systems are currently used by major PVC producers including Oxyvinyls, Westlake, Solvay, and Aiscondel.

IMPROVING SBIR

Dr. Wijmans believes the NSF SBIR program is too focused on the VC funding model. In his opinion the DoE model with a DoE-funded demonstration phase after Phase II is more realistic.

NSF is, according to Dr. Wijmans, not interested in counting partnering agreements as the matching funds needed for Phase IIB, even though such an agreement is important to commercialization. NSF does not count in-kind contributions, only cash from third parties or sales revenues. In contrast, DoE counts cost share letters from partners. Wijmans says cash in is almost impossible—“investors want to play further downstream.”

The NSF approach can force companies into agreements with VC funders, which may not make strategic sense. In particular, these agreements narrow the strategic options open to the company, focusing it on the specific product identified for VC funding. Dr. Wijmans contrasted the rigidity of VC funding with the need to make strategic changes as opportunities grow and shrink. Many companies need to switch commercialization direction during research, but VC agreements can make this difficult. VC funding is best suited to projects that are designed to grow very rapidly and very big.

SBIR awards are very good for small companies and support the foundation of new companies. Barriers to entry are low and reporting is limited and manageable. MTR still uses SBIR to look at new things. The company sees Phase II awards as an important stepping stone toward bigger things, such as new applications of existing technologies or new membranes. Now that MTR has manufacturing and a steady stream of sales in place, it is much easier to add products incrementally.

COMPANY UPDATE 2014

MTR’s commercial sales were flat in 2010 through 2012, but have been picking up since 2013. Sales and profits will be at record highs in 2014; MTR now has more than 90 employees. The U.S. shale gas boom has significantly increased MTR sales in the natural gas industry.

MTR’s participation in the SBIR program is significantly reduced compared to 5 years ago, particularly in the NSF program. MTR’s impression is that the company is “too big” for the SBIR program, even though it employs fewer than the 500 employee limit used to define a small business. According to MTR, proposals submitted jointly with universities are received more favorably, and generate a higher success rate.

Mendel Biotechnology

Based on interview with

Neal Gutterson, CEO

Hayward, CA

August 21, 2009

Mendel is a privately owned biotechnology company located in Hayward CA. The company focuses on biotech for agriculture. From its foundation in 1997 until 2003, the company was funded largely through a research partnership with Monsanto.

Until recently, the company focused on developing its core technology, largely via a contract based research relationship with Monsanto, aiming to develop technologies that can be licensed either within or outside the partnership with Monsanto. In line with this, the company developed a number of partnerships focused on different applications of its core technology.

Since 2005, the company has increasingly focused on a new set of markets and a new business model. By applying its technologies to the biomass needed for the biofuels industry—which is projected to grow dramatically in the US and worldwide in the coming years—Mendel believes it can add substantial value to the sector. It has therefore decided that it will seek to be a direct operator in this sector, developing genetically enhanced feedstocks and pre-processing them to the point of purchase by Mendel customers—the utilities. This ambitious new approach is being developed in partnership with BP (see Box E-3).

HISTORY

With the human population set to reach 9 billion by 2050 and the ever increasing environmental pressure on agriculture, there is an urgent need to develop crops with enhanced productivity and yield stability. In short, global agriculture will need to produce nearly twice the current amounts of food, feed, fiber and fuel with less energy and with an improved carbon footprint.

Mendel was founded in early 1997 based on the idea that controlling gene expression would create new opportunities to improve plant productivity and quality. From 1997-2003, Mendel focused on a class of genes encoding products known as “transcription factors” (TFs) given these proteins act as master regulators of gene networks. During this period, Mendel identified essentially all of the TF genes from a model plant species (Arabidopsis thaliana), and systematically analyzed the function of each of the encoded proteins by producing experimental plants that had increased or decreased amounts of the target protein.

Mendel discovered individual TFs that control complex valuable traits such as freezing tolerance, drought tolerance, intrinsic growth rate, photosynthetic output, plant form, disease resistance, water use efficiency, and nitrogen use effi-

ciency. Many of these discoveries are now patented by Mendel. These discoveries were in testing internally in 2000-2001, and then to Monsanto.

From 2003 through 2009, in collaboration with partners, Mendel showed that TF technologies can generate commercially meaningful improvements in crops, producing corn and soybean varieties with improved yield, drought-tolerant corn varieties, freezing-tolerant eucalyptus trees, and drought-tolerant ornamentals.

In 2004, Mendel started work on the regulation of valuable traits in plants by direct chemical application to the plant. Starting again with Arabidopsis, Mendel identified molecules that improve tolerance to freezing, drought, and cold. That led to a collaboration with Bayer CropScience to identify commercially valuable chemistries that enhance stress tolerance.

In 2005, Mendel made a strategic decision to pursue biofuels. This industry will require dedicated sustainable energy crops with high biomass yields and low inputs. In collaboration with BP, Mendel is beginning to create elite, proprietary varieties of energy grasses. This will be the basis for a new BioEnergy Seeds and Feedstock business that will provide seeds and services directly to farmers, and refineries.

Business Strategy

For the years up through 2003, Mendel appears to have been largely dependent for funding on its relationship with Monsanto. In exchange for funding, MB delivered packages of information to Monsanto, which then decided whether the technology would be commercialized. This close relationship made it relatively simple for Mendel to meet the requirements for NASF SBIR Phase IIB without any change to its standard business operations (see SBIR below). It is worth noting that Monsanto is by far the largest company worldwide involved in the genetic modification of plants for agriculture. According to Dr. Gutterson, it accounts for more than 80 percent of the global market for genetically modified seeds. So Mendel’s partnership with Monsanto is potentially of tremendous long-term commercial significance.

That strategy was complemented starting in 2003 with a growing emphasis on the acquisition of additional marketing and development partners beyond Monsanto able to address different markets (see partnerships). This expansion has led to several commercially significant developments in a range of areas, including ornamental plants and the use of eucalyptus as a feedstock for wood products.

More recently, this expanded strategy has again been complemented by an ambitious effort to build a completely different business focused on biofuels. Rather than relying on licensing and royalty payments, Mendel intends to become a physical supplier of biomass to end users.

This new approach represents a major shift in strategy for Mendel. Instead of relying entirely on R&D, developing IP, and licensing for long term revenue, the company is prepared to make the investments necessary to become a feedstock provider itself, with facilities in several locations. Obviously, the success of this strategy will likely impact the overall success of the company itself.

Mendel’s successful development and expansion of its partnership strategy is reflected in its employment growth, more than 60 percent in 2007-2008, with over 100 employees in 2010.

MENDEL AND SBIR

Starting in 1999, Mendel has received a series of SBIR awards primarily from NSF and USDA. Over the course of seven Phase I awards and four Phase II awards (the most recent of which being in 2005), Mendel received a total of ap-

proximately $2.3 million in SBIR Phase I/Phase II funding. These awards were used primarily to further validate Mendel’s TF technology first in soybeans and then in ornamental plants.²¹

The freeze-tolerant TF technology developed with the help of NSF awards has been at the heart of Mendel’s commercial strategy to date, according to Dr. Gutterson. The ArborGen eucalyptus project is specifically based on enhanced freeze tolerance.

SBIR also helped Mendel return to genetic approaches to disease resistance, for example addressing the rapidly growing threat of Asian rust in soybeans. SBIR funding and the award itself helped Mendel attract Monsanto’s attention to a possible solution to this problem.²² This reflects Gutterson’s view that “SBIR is all about leveraging to build off the core Mendel platform into new areas.”

Mendel also received some Phase IIB funding from NSF. In 2006, it received an award of $500,000 based on a match against $2 million in funding from Monsanto for a project entitled “Engineering Broad-Spectrum Disease Resistance in Crop Plants.” In 2007, it received another $500,000 for a project on “Developing Crop Plants with Wide-Spectrum Disease Resistance,” again based on a match against (unspecified) funding from Monsanto.²³

It is not clear whether Mendel had to adjust its existing business plan or operations in order to qualify for the Phase IIB funding. The partnership with Monsanto fits the Phase IIB model so closely that it is entirely possible that Mendel could receive Phase IIB funding without any adjustment at all.

This is not necessarily a bad thing: it is not clear whether NSF sees Phase IIB as a tool for enhancing and rewarding commercialization activities, or as a tool for encouraging firms to undertake or expand those activities and attract outside funding, or both. Mendel’s entire business model is predicated on attracting funding from companies like Monsanto.

Moreover, Gutterson notes that the Phase IIB did have some significant effects on Mendel in terms of shifting the internal balance of power between the business and technical sides of the company, and as a result, enforced the need for scientists to learn more about the business side.

Looking forward, Mendel will again be seeking SBIR funding, although not from USDA where Mendel believes the process is too burdensome to justify the effort.

PARTNERSHIPS

Mendel has maintained a growing number of partnerships, starting with its founding relationship with Monsanto.

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²¹Gutterson interview.

²²Gutterson interview.

²³Phase IIB Information provided privately by NSF.

Monsanto

Mendel’s long-term technology collaboration with Monsanto was initiated in 1997, and provides Monsanto with exclusive licenses to Mendel technology for application in some large-acreage crops and vegetables. Essentially, Monsanto’s biotechnology/genomics group funds Mendel to develop and license to them technologies for incorporation into their R&D pipeline. Mendel receives royalty and milestone payments on the developed products—a fairly typical biotechnology industry relationship.

Monsanto’s most advanced soybean yield trait product, based on a Mendel-developed technology, has now entered into Phase III advanced commercial development based on excellent field results.²⁴ According to Dr. Gutterson, some other technologies are also showing promising results in the Monsanto commercial development pipeline.

According to the Mendel Annual Report, “the companies have (also) initiated a systems biology program to develop an integrated framework for predictive control of plant gene expression that is anticipated to streamline future discovery and product development activities.”²⁵

ArborGen

According to Mendel’s Annual Report, ArborGen has deployed Mendel’s freezing tolerance technology (which was supported by the first of the NSF Phase II awards) to create eucalyptus varieties that are tolerant to the periodic freezes that occur in the Southeastern United States. Eucalyptus is a fast growing and valuable tree used for a variety of wood products.

ArborGen submitted a regulatory dossier in December of 2008 for approval of a freezing-tolerant Eucalyptus variety. The submission of a regulatory dossier represents a major step toward final commercialization.²⁶

Bayer CropScience

In early 2008, Mendel announced a new research partnership with Bayer CropScience, which continues previous joint activities focused on stress responses generated by Bayer agrochemicals like Imidacloprid and Trifloxystrobin. The program aims to discover and develop further chemical products that regulate plant stress tolerance, leveraging Mendel’s knowledge of plant transcription factor pathways with the expertise of Bayer CropScience as a leader in agricultural

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²⁴See Mendel Biotechnology Press Release, “Mendel Biotechnology Yield Trait Reaches Phase III for Monsanto Soybean Products,” January 9, 2009.

²⁵Annual Report 2008, p. 7.

²⁶Annual Report 2008, p. 8.

chemistry. This collaboration follows the discovery of chemicals that can be applied to crops to enhance their tolerance to a range of stresses.

BP

In May 2007, Mendel and BP entered into a strategic long-term collaboration for the development of a BioEnergy Seeds and Feedstock business. This reflects Mendel’s new focus on biofuels as a pillar of the company’s future.

According to Mendel, BP is developing advanced biofuels and will need the biomass feedstock that Mendel’s crops will produce. So BP is funding development of Mendel’s new business which will provide energy crops to refinery customers including BP. Mendel’s new BioEnergy Seeds business will have BP as a preferred customer, but expects to attract other customers throughout the biofuels and power generation industries. Because the grasses used as feedstock are low density, Mendel envisages a regionally organized delivery structure, with up to 40,000 acres serving a 50 million gallon/year bio-refinery.

Selecta Klimm

In 2006, Mendel formed a joint venture with Select Klimm called Ornamental Biosciences, Inc. for the commercialization of ornamental crops with improved growth and survival characteristics. Research facilities are located in Stuttgart, Germany.²⁷

MMR Genetics/Richardson Seeds

In 2008, Mendel partnered with MMR Genetics/Richardson Seeds to develop sorghum varieties for the bioenergy industry, with maximized cellulosic biomass rather than starch or protein. MMR Genetics is a leading sorghum breeding company, associated with Richardson Seeds, one of the largest sorghum seed producers in the United States.

IMPROVING THE SBIR

Gaps

Mendel is concerned about the existence and potential size of financing gaps between Phase I and Phase II for a company of this size. While other funding can usually be found, the gaps do present problems, such as challenging a company’s ability to retain key staff.

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²⁷See Ornamental Biosciences web site. Accessed September 22, 2009.

Training

Gutterson said that the SBIR symposia he attended were of little use, although they were likely to be helpful to smaller and younger companies. Mendel did use Foresight’s support and found it useful.

Application Deadlines

Gutterson strongly endorsed the need for multiple deadlines; a single annual deadline is no longer sufficient given the rapidly accelerating speed of technical change.

Topics

Mendel would like to see more broad topics, where firms can decide which technologies fit the agency’s requirements.

COMPANY UPDATE

In December 2014 the research business of Mendel Biosciences was purchased for an undisclosed amount by Koch Agronomics Services LLC.

Techno-Sciences Inc.

Based on interview with

Professor Gilmer Blankenship,

CEO June 1995-June 2009, Chairman June 1995-May 2014

BACKGROUND

Techno-Sciences, Inc. (TSi) is a high technology company headquartered in Beltsville, MD. Lee Davidson, a Professor of Electrical Engineering at the University of Maryland who specialized in information theory, founded the Company in California in 1975. The Company was created to provide systems engineering services to the U.S. government and prime contractors in communications, signal processing, and search and rescue. In 1988 Techno-Sciences merged with Systems Engineering, Inc., a company founded by Gil Blankenship and Harry Kwatny.

Until the late-1980s, Techno-Sciences was largely a contract research house that used government contracts, including SBIR awards, as way of funding investigator-initiated research, and as a basis for research and development in the U.S. SARSAT program. In the mid-1990s, the company underwent a major shift of emphasis. Professor Davidson retired, and Professor Blankenship²⁸ became CEO and Chairman.

In 1988, the company had developed its first significant product—search and rescue command centers satellite ground stations for international search and rescue programs. The new product line formed the basis for a new kind of company. Since then, TSi changed to a company with a global market, selling ground stations and mission control centers in more than twenty countries, most of which have retained TSi for ongoing management and maintenance, often for decades.

In the early 2000s TSi rolled out a second major product line, the Trident Integrated Maritime Surveillance System (IMSS). This was sufficiently successful to create a new operating division for the company, called Trident Maritime. The Trident IMSS is now deployed on more than 3500km of coastline in Southeast Asia and North Africa—one of the largest such deployments in the world.

As a result of these successful products, TSI transitioned from a contract research house to a company primarily concerned with the development, deployment, and support of new products.

In May 2014 Techno-Sciences was acquired by the Orolia Group.

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²⁸Dr. Blankenship is also professor and associate chairman of the Department of Electrical and Computer Engineering at the University of Maryland, College Park.

COMPANY STRUCTURE

Prior to its acquisition, TSi had three divisions:

• SARSAT, which provides ground stations for search and rescue at sea and over land. TSi’s SARSAT products are now mature systems, backed by an experienced staff that has a well-developed process for scoping projects, deploying systems, and following up with effective maintenance and support. In short, the Division has a smoothly operating ISO 9000 certified model of what it takes to deploy and support these systems on an international basis. Working with the US NASA and NOAA, the SARSAT Division developed the next generation SARSAT ground systems based on MEOSAR satellite technology. TSi has sold these important new systems in the US, Australia and New Zealand, and in Algeria. Many additional sales are expected, as the COSPAS-SARSAT community changes to this next generation technology.
• Trident, which sells coastal and ship-based surveillance and security systems, is active in Southeast Asia and North Africa. It has installed about 35 coastal stations, several command centers, and multiple shipboard systems. The coastal station network in Indonesia and Malaysia covers more than 3000km of coastline along the Strait of Malacca and around the Celebes Sea. Trident has also installed surveillance and security systems on oil platforms in the Middle East. The Trident coastal stations include dual band radars, AIS, long range day and night vision cameras, and command and control systems and communications systems. Trident Maritime Operations Centers feature remote access and control functions and extensive cyber security systems. Since most of the stations are installed in extremely remote regions, the Trident Division also manufactures and installs grid free power systems using solar, wind, and generator units.
• The Advanced Technology Division, which undertakes both contract research and supports TSi’s products and services. The Division has worked in software, sensors, control systems, and active materials, including magneto-rheological fluids for semi-active dampers. Supported in large part by the SBIR program, the Division has investigated a wide range of areas, some leading to new products for TSi (elements of the coastal stations), and two spinoff companies. The Division has strong ties to universities and has funded several million dollars of university based research and development. Innovital Systems, Inc. acquired the Advanced Technology Division in 2013.

SPIN-OFFS

TSI has spun off three companies: TRX systems, which focuses on a specific application of TSI tracking technologies: the ability to track personnel in GPS

denied areas; Innovital Systems, which designs novel medical devices, including an implantable respirator for persons with impaired diaphragm function; and E14 Technologies, Pvt. Ltd. a Mumbai based company that produces custom electronics for a wide range of applications.

TRX’s personal location and tracking products are based on years of research following the disaster of 9/11 in which hundreds of firefighters were among those lost in the collapse of the World Trade Center buildings. From the outset TRX’s research focused on meeting stringent operational requirements for first responders. The system had to be low cost; highly portable (i.e. laptop based “command center”); built largely from off the shelf components; and able to work in 3-D without building maps.

TRX Systems met these requirements. Its products are deployed in several countries with firefighters and the military. TRX is now working on location and mapping services for consumer applications using handheld technology.

Innovital Systems has leveraged TSi’s defense based technologies to design novel medical devices, including an implantable respirator for people with diminished diaphragm function. The Innovital DADS system employs pneumatic muscle technologies to move the diaphragm to support breathing. As a small business, Innovital has made use of the SBIR program to fund its basic research.

TSi Products and Markets

Satellite-based Search and Rescue (SARSAT)

A wide array of information is available to search and rescue (SAR) personnel. Integrating and managing the data from Mission Control Centers (MCCs), for SAR crews on land and in the air, and other sources is crucial to saving lives. The faster SAR resources are mobilized, and the more efficient the response, the greater the potential for saving lives. TSI’s SARSAT system automates the coordination of SAR information and resources.

The COSPAS-SARSAT system generates distress alert and location data for SAR operations. Emergency transmitters (distress beacons) are detected by polar orbiting, geosynchronous, and medium earth orbiting satellites, and these signals are relayed to ground facilities, where they are processed for location and identification and ultimately distributed to Rescue Coordination Centers (RCCs), which perform the actual search and rescue missions.

SAR personnel require accurate, concise, information that can be accessed quickly and easily. SAR missions may involve high-risk rescuers and costly resources. So accurate, reliable, and timely data is critical. The TSi SARSAT system links information from the international search and rescue system (COSPAS-SARSAT) via MCCs that have database, communications, and 3-dimensional graphical information systems (GIS). Data drawn from comprehensive digital maps of the world help rescuers understand the search re-

quirements in specific locality (roads, rivers, lakes, population centers, airports, geographic elevations, ocean currents, etc.).

TSI’s RCC maintains an extensive, automated database that manages all received alert information. New alert information generates alarms, and the map display highlights recently updated locations. Users can easily access data by time (most recent) or for a specific incident. Messages are tracked and archived automatically.

The TSI MCC is a command and communications system based on a client server structure, which gathers data from satellite ground stations (Local User Terminals), aggregates and manages the data through its server and proprietary software, and delivers the data for display and analysis in a graphical interface and 3D GIS. By using a standard client-server architecture based on standard Microsoft/Intel technologies, costs are reduced and reliability enhanced. Proprietary software provides the competitive edge needed by TSI.

International sales have always been important to TSi, since search and rescue (S&R) systems are sold on a national (or sometimes regional) level. The company’s record as a highly trusted supplier of SARSAT systems has allowed it to penetrate other markets including those for maritime safety and security and the personal location technology developed by TRX Systems.

TSI has worked to limit the cost of initial installation with the objective of developing long-term maintenance and upgrade contracts and customer retention. This approach has been successful, with almost all SARSAT and Trident customers purchasing long-term contracts from TSI. Some have been customers for more than twenty years.

Trident

The Trident Division provides TSI’s Integrated Maritime Surveillance System. It is designed for governments and other authorities that need to manage the complex flow of traffic and information around crowded, vital coastal regions. The system “deploys a tightly integrated network of ship and shore based sensors, communications devices, and computing resources that collect, transmit, analyze, and display a broad array of disparate data including automatic information system (AIS), radar, surveillance cameras, global positioning system (GPS), equipment health monitors, and radio transmissions of maritime traffic in a wide operating area. Redundant sensors and multiple communications paths make the system robust and functional even in the case of a major component failure.”²⁹

The system can be sold as an integrated package or in component elements. In 2004, the Indonesian Navy bought the first TSI coastal radar system. This was the result of $7.5 million in R&D investments, primarily from the US government

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²⁹TSI: the Trident Maritime Integrated Marine Surveillance System, <http://www.technosci.com/trident/imss.php>. Accessed October 30, 2009.

and to a considerable degree from the NSF and DoD SBIR programs. Specifically, the core technologies for the Trident system were derived from a single NSF SBIR (Phase 1 and 2) award.

The NSF awards allowed TSI to develop the technology that would go into a ship-based system. A subsequent SBIR award from US Special Operations Command (SOCOM) supported the adaptation of the system for use by Navy Seal operations, to track the precise location and status of Seal boats.

The sole source advantage conferred by these SBIR awards had a significant effect on the subsequent decision by US Space and Naval Warfare Systems Command (SPAWAR) to deploy the technology in the United States. Overall TSi received more than $70 million in contracts to install coastal systems as SBIR Phase 3 awards, and has received over $100 million in contracts in this business area.

Other Advanced Technologies

In the Advanced Technology Division, TSi worked on a wide array of technology areas including software engineering, operations scheduling (for maintenance operations), sensors and actuators, wireless networks, and many others. One particularly interesting application area involved the use of magneto-rheological (MR) fluids for (semi-) active dampers for vehicles and occupant safety. Using MR dampers for soldier seating, TSi and its partners at the University of Maryland were able to demonstrate dramatic improvements in occupant safety when the vehicle was subjected to a dramatic shock such as an IED explosion. Both SBIR and BAA funding supported this research.

In parallel, TSi used SBIR funding to develop solutions using flexible hoses and air to provide air driven mechanical operation of flaps on aircraft wings. The air driven hoses (“pneumatic muscles”) can deliver 300lbs or more of force, while avoiding the weight penalties of hydraulic systems. SBIR projects, joint with the University of Maryland, were used to support research on pneumatic muscle applications. One project funded by the US Army, as part of the development of a robot for battlefield rescue of wounded soldiers, led to the development of a powerful robotic arm. The pneumatic muscle powered arm could easily pick up a 300lb person (including their equipment) using 90psi of air pressure.

In other applications Bell helicopter has tested pneumatic muscle controlled wing flaps in the University of Maryland wind tunnel. If adopted, this technology would revolutionize helicopter design. However, it is has other potentially important applications as well. Wind turbine efficiency could be substantially improved through the adoption of automated flaps; the weigh and cost of hydraulic systems have made this impractical thus far.

SBIR and TSI

Prof. Blankenship stated that SBIR awards had played a pivotal role in several different ways at different times in the Company’s life cycle. Initially, SBIR awards had provided funding for investigator-initiated research and an important funding stream that allowed for the growth of the company and its personnel during its early years.

As the Company transitioned toward a product-driven model, SBIR funded the research that led to both of the Company’s core product lines—SARSAT search and rescue, and Trident ship based monitoring. It also supported the creation of two of TSi’s three spinoff companies: TRX Systems and Innovital Systems.

The Advanced Technologies Group is now part of Innovital Systems, where several SBIR proposals are submitted each year. SBIR projects are now helping to fund Innovital’s push into new technologies and new markets for next generation medical devices.

SBIR and Advanced Staff Training

According to Prof. Blankenship, SBIR awards played a critical role on the human resources side of TSi. He observed that SBIR projects provided an ideal training ground for certain classes of project managers. TSi’s research groups typically hired PhD researchers soon after graduation—at which point they are technically trained but have little understanding of how to manage projects, support clients, or work to fixed schedules.

SBIR projects at TSi were treated as stand-alone projects, and were often handed off to staff not yet ready for major commercial projects. In the course of managing one or two SBIR awards, Dr. Blankenship strongly believes these staff acquire critical management skills, which can then be applied to commercial projects and eventually to the management of entire product lines.

For example, TRX Systems is a spin-off from TSi. Its CEO—Dr. Carol Teolis—was hired by TSI as a new PhD from the University of Maryland. She was assigned to several SBIR projects before entering senior TSI management as Vice-President of Engineering. Her experience at TSi—which included complete management responsibility for a research project for the US Mint, and other key customers—allowed her to develop skills in customer development and support. Her skills have translated into several million dollars of research contracts that have supported the development of TRX Systems. Two other TSi employees have followed a similar path and now lead their own companies (Innovital Systems, and E14 Technologies).

SBIR and Skills Acquisition

Prof. Blankenship also sees the SBIR program as means of acquiring technical skills and know-how that, while not necessarily directly commercialized, may have significant uses downstream on other projects.

For example, TSi won an SBIR award to build high performance gun turrets. As part of the project, TSi built a prototype that required a high-performance gimbal. Commercially available gimbals were not suitable, so TSi learned to build its own high performance gimbal. While the DoD ultimately did not eventually pick up the gun turret technology for acquisition, the gimbal design knowledge was later applied to coastal surveillance systems, supporting the Trident long-range cameras. Similarly, TSI now builds high performance cameras, which are also sold as part of its integrated systems, and grid free power systems for installations in remote areas lacking in reliable power.

Phase IIB

TSI’s spinoff company TRX Systems won one of the first Phase IIB awards from NSF. This $500,000 award matched $1 million in investments by strategic partners and sales of the company’s products to key customers. This project helped to create what is now TRX Systems main line of business.

SBIR Improvements

Prof. Blankenship indicated that the current size of awards is acceptable, although he is confident that TSi would not have suffered if the size of SBIR awards were to be increased and the number of awards reduced. He noted that the gap between Phase I and Phase II awards had been a problem for many smaller companies; however the introduction of optional tasks to bridge the gap has remedied this.

Prof. Blankenship was somewhat concerned about what he called Phase I SBIR mills, which win numerous Phase I awards but in general fail to convert them into Phase II awards or to commercialize the research. TSi focused heavily on converting Phase I awards, and according to Prof. Blankenship, the Company typically matched a Phase I award with an additional 50 percent internal company money to ensure that the result is good and that TSI has a strong case for a Phase II award. TSi’s commercialization record for SBIR projects achieved and sustained the maximum rating.

Prof. Blankenship also observed that larger small businesses—those with more than 100 employees for example—had a smaller need for SBIR awards, which should be focused primarily on very small firms (those with less than 10 employees), and then on smaller and mid-size small firms. The Government is often the only investor willing to take a chance on a company just starting out. Indeed, as TSi grew, SBIR contracts supplied about 5 percent of revenue.

TECHNO-SCIENCES TRANSITIONS

In May 2014 the Orolia Group, a rapidly growing French group, acquired the SARSAT and Trident Divisions of Techno-Sciences. This acquisition followed a period of sustained rapid growth for the Company. Over the period beginning in 2005, the Company grew rapidly both in revenue and number of employees. In June 2009 Jean-Luc Abaziou joined the Company as CEO, with the mission of managing growth and increasing the value of the company. (Prof. Blankenship continued as Chairman of the Board and Principal Scientist.) Mr. Abaziou had led Torrent Networks prior to its acquisition by Sony-Erickson. He later worked at Highland Venture Capital. Under his leadership, TSi was among the Deloitte Fast 500 Technology companies for 3 years in a row. In 2010 the Company was named as the High Tech Company of the Year in Maryland. Several companies expressed interest in acquiring the TSi. The Company entered in to negotiations with the Orolia Group in 2013, and the deal closed in May 2014. Since the acquisition, the SARSAT Division was merged with the McMurdo subsidiary of Orolia. McMurdo is one of the world’s leading manufacturers of emergency beacons for the COSPAS-SARSAT program. The merged company is “vertically integrated,” offering beacons, ground stations, and rescue planning systems to a global market.

Prof. Blankenship retired from Techno-Sciences in June 2014. He has since started two new companies, one working in sleep health, and the other in medical devices. Both have received SBIR funding.

TOUCH GRAPHICS

Based on interview with

Steven Landau, founder and CEO

October 11, 2010

BACKGROUND

Touch Graphics (“TG”) is a privately held company located in New York, New York. It focuses on providing tools for building tactile images so that educational materials can be used by visually impaired students. TG is a world leader in this field, with commissions from a wide range of educational and government organizations.

Mr. Landau started in a completely different profession. He was an architect, and was recruited by the university academic (at City University of New York) initially as a consultant to help develop tools. As a consultant, Mr. Landau created a CAD-CAM system for making tactile maps for the NY subway system. Once that project was completed, the idea was to move the technology into a more universal platform, based on audio-tactile graphics where raised line pictures responded to touch with an audio response.

HISTORY

TG’s technology derives from a patent held by Mr. Landau in partnership with his co-inventor, by an academic researcher who is an advisor and collaborator with TG, but not a stockholder. She has no interest in commercialization. In fact, the university paid patent legal fees in exchange for 5 percent royalty payments until the $30,000 debt is eventually retired, after which the university will receive a 1 percent royalty thereafter.³⁰

TG was founded in 1997, and started selling its flagship product, the Tactile Touch Tablet (TTT) in 2002. the TTT required development of both hardware and software elements. For example, while touch screens are now a stock component for many products, a standards screen is transparent. To persuade a manufacturer to customize the product, TG had to make a large purchase (much of which is still on hand).

Over time, Mr. Landau indicated that the market for TTTs in U.S. schools—and especially in Schools for the Blind—has largely been saturated in the United

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³⁰Today, TG’s technology is protected by two patents, issued in 2006 to Mr. Landau and his academic partner, Professor K. Gourney. See S. Landau, “System for Guiding Visually Impaired Pedestrian Using Audio Cues,” U.S. Patent No. 7,039,522, Issued May 2, 2006; and K. Gourgey & S. Landau, “Tactile Graphic-Based Interactive Overlay Assembly And Computer System for The Visually Impaired,” U.S. Patent No. 7,039,522, Issued September 12, 2006.

States. TG has in some cases sold 20-30 units to a single school (such as the Perkins School).

TG is now developing a completely different version of the tablet which uses the touchscreen in a new housing. However, the TTT currently retails for $699, which is far too much for a developing country. The new version, designed to reduce cost, can be sold for about $300, and is much lighter weight as well, which will reduce shipping costs.

TTT has helped found a sister company in Spain (TG Europe). It has no ownership stake in TG Europe, seeing it as a distribution vehicle. However, the difficult economy in Europe has limited sales to date. More generally, TG finds that partnering is not so easy because it operates in a very small niche market. Standard distribution agreements are not appropriate, as distributors simply want to move product, but the TTT requires much more contact and ongoing relationships with customers.

The TTT and related products have found a place in classrooms across the US and Canada. These tools remain an effective way to address legal requirements to serve disadvantaged students, without requiring a large local staff.

MARKETS/PRODUCTS

Products

In 2003, Touch Graphics introduced the Talking Tactile Tablet (TTT), now the company’s flagship product, which adds audio annotation that is accessed by the user pressing his or her finger on any part of a picture. Combining tactile images with user-triggered speech improves comprehension and independence.³¹

The TTT is currently in wide use around the world, and TG now provides additional capabilities related to the TTT, such as the TTT Authoring Tool, which allows teachers and other users to develop their own talking tactile materials, and are now also being used to publish illustrated digital talking books.

In addition, the TTT has been used to deploy standardized tests to visually impaired students, for example the MCAS 8th grade math assessment.

For more sophisticated users who need to probe materials more deeply—such as high school and college students—TG has developed the Talking Tactile Pen. The Pen has allowed development of a scientific calculator as part of the STEM binder developed by TG. According to TG, “A camera near the pen’s tip “sees” clusters of dots and the on-board computer performs rapid calculations that are transparent to the user. Once the computer knows its location, it speaks the name of the element that was touched.” TG is now working on a library of fundamental STEM illustrations for use with the TTP.

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³¹See S. Landau, Tactile, “Audio-tactile and Other Multi-Sensory Curricular and Assessment Materials,” Pearson Accessibility and Innovation Conference, Upper Saddle River, NJ, <https://docs.google.com/present/view?id=djngnsb_870dcqmswfh>. Accessed October 25, 2010.

TG’s technology can also be applied outside the classroom, in the form of museum guides and tools for other environments.

TG has developed an audio-tactile version of the “Getting in Touch with Ancient Egypt” self-guided tour at the Metropolitan Museum of Art in New York city.³² The technology has been applied to development of talking maps (e.g., for the Carroll Center for the Blind in Newton MA),³³ as well as portable tactile maps (e.g., Lincoln Center for the Performing Arts, NY),³⁴ and Talking Kiosks (for New York City).³⁵

Following the 2008 settlement of a Justice Department suit under the Americans with Disabilities Act (ADA) against the International Spy Museum in Washington DC, which required the deployment of tactile map options,³⁶ advocates for more tactile map deployment hope that these tools will be deployed more widely in museum settings.

Strategically, TG seeks to develop a pipeline of projects at different stages of development. Some are on the market, others are just entering the market, and others still are in the very earliest stages of concept development. So TG has 5-6 separate product lines at different stages of development.

Some of these products can be understood as extensions of the TTT—for example, TG is well along in deploying Braille courseware which runs on the TTT. This product is the result of partnering with other SBIR companies—in this case, Exceptional Teaching Inc., which developed the course independently, and then teamed with TG to bring the course out as an accessory for the TTT. This successful partnership is based on a profit share approach.

The Braille courseware project and others reflect the company’s view that it would be unwise to place too large a bet on any single product or product line, and also that with the accelerating pace of technological change, it is not feasible to bank on any single product indefinitely.

The Talking Tactile Pen (TTP) is now on the verge of market deployment as the next generation of audio tactile products. The TTP is more suitable for high

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³²This project is described and explained in detail in S. Landau, “Exhibit design relating to low vision and blindness: tactile mapping for cultural and entertainment venues,” 2010 LEAD Conference, San Diego, CA. <http://www.touchgraphics.com/publications/Tactilemapping-Landau.pdf?id=djngnsb_827cmfkq3kd>. Accessed October 25, 2010.

³³S. Landau, An Interactive Talking Campus Model at Carroll Center for the Blind: Final Report, 2009, <http://www.touchgraphics.com/downloads/carrollcentertalkingcampusmodelfinalreportlow.pdf>. Accessed October 25, 2010.

³⁴S. Landau, “Multi-sensory way-finding and orientation tools for cultural and entertainment venues,” 2010 LEAD Conference Workshop on Exhibit Design for Visitors with Print Disabilities, San Diego, CA USA, <https://docs.google.com/present/view?id=djngnsb_827cmfkq3kd>. Accessed October 25, 2010.

³⁵S. Landau, “New York City’s Growing Network of Talking Kiosks,” Access and the City Conference, Dublin, Ireland 2008, <http://docs.google.com/Present?docid=djngnsb_539gxcj74cp>. Accessed October 25, 2010.

³⁶Settlement agreement between the United States of America and the International Spy Museum under Title III of the Americans with Disabilities Act, DJ 202-16-130.

school and college students, and hence allows TG to expand its markets into other groups that do not currently use the TTT.

TG has also sought other vectors for deploying its technologies. Wayfinding information kiosks utilize information maps and 3-D models and other displays in public places. Users can interact with them in a multi-sensory way. Chicago has deployed two new Wayfinding kiosks at the Lighthouse for the Blind, which serves hundreds of visually impaired users every day. Building directory. TG has deployed kiosks for many institutional clients, for travel systems and rehabilitation facilities. The company has developed a methodology for doing it cheaply and well, so this is a growth area for the company. It is in discussion with the Veterans’ Administration to deploy at facilities for wounded returning veterans. Museums are another substantial market.

More recently, TG deployed another new product—a cane based around a Wii controller, which can be used to train blind people how to walk safely using a cane. This product could be useful for preparing people who are newly blind to use their canes in a safe manner, doing the training in a safe indoors/ lab setting.

STRATEGY

TG is in the midst of a long term shift out of funded research, and is focused on taking concepts into more mainstream setting. R. Landau believes that there may be wider opportunities for presenting multi-sensory information—for example, auto controls use a lot of tactile marking.

In part, this shift is driven by the view that there is an increasingly poor fit between the timeline for a completed SBIR project and the faster moving markets in which TG operates. Mr. Landau points out that from Phase I application to Phase II completion is on the order of three to four years, which is much too long for commercial applications in his market sector.

Collaboration remains apart of TG’s strategy, as long as there is a strategic fit. The partnership with Exceptional Teaching (ET) in California was in fact engineered by the NSF program director, Ms. Sara Nerlove, whose hands-on approach generated some additional work, but also led her to make a connection that neither company was initially very interested in making.

In this case, ET had received a grant from NSF to develop speech assisted learning, a way to present Braille in a more multisensory way. ET was also working with Freedom Scientific, a larger company that made much more expensive assistive devices. The result was a hardware device to use with Braille courseware which cost $5,000 each. The product did not sell at this price point, so was pulled from the market, leaving ET no deployment vector through which to sell their software.

TG in contrast already had the hardware device (the TTT) which cost about 10 percent of the Freedom Scientific device, but needed software courseware to run. This partnership is referenced further on the NSF web site.³⁷

ROLE OF SBIR AT TOUCH GRAPHICS

SBIR provided initial funding for company formation. The niche market for these assistive devices is not suitable for venture financing.

There was a learning curve for TG with regard to SBIR. Their first application failed—as did their first phase II application. But after the first Phase II, TG had a remarkable run of successful applications—according to Mr. Landau, their next ten applications were successful. The five or six Phase II awards made it possible to develop most of the TG products now for sale. These came directly from SBIR, but not always by the most direct route.

According to Mr. Landau, SBIR was very important for TG: The company would never have developed any commercial products without the SBIR funding. There is no money in the assistive technologies field for new technologies.

However, the transition out of SBIR funding is now under way. In part this is driven by the mismatch with SBIR timelines (see above). The fixed funding amounts are also a problem for TG.

Mr. Landau observed that TG is competing fiercely with other companies, and this requires that TG be very nimble in bringing products to market quickly when needed. While there was initially only one competitor, now there are several. This makes it all the more important that TG retain its technological edge over the competition. SBIR would slow development to the point that the company would likely be doomed.

More importantly , the nature of technology development for TG has shifted. Previously, the company was developing core technology that required a considerable amount of technological innovation. Now it is focused on developing applications for its flagship technology which is already in use worldwide, and which requires less fundamental research.

RECOMMENDATIONS FOR IMPROVING THE SBIR PROGRAM

1. Higher standards of due diligence for proposals. Different standards of evidence are needed in the commercial world. Reviewers coming from academia may be unaware that in the business world it is normal to emulate your competitors or to develop a similar and competing model. This would be unethical in academia. Mr. Landau notes that another company used SBIR funds from a different agency to compete with the TTT—in his

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³⁷See NSF Discoveries, “Electronic Braille Tutor Teaches independence,” <http://www.nsf.gov/discoveries/disc_summ.jsp?cntn_id=105832&org=IIP>. Accessed November 10, 2010.

2. view, a waste of government money and counterproductive. The competing company eventually left the market. It is important that applicants be required to be honest about prior art.

3. More flexible funding amounts and timelines. Increased flexibility in these areas would permit TG to return to NSF for further SBIR funding.
4. Better focus on proposed budgets. These are often an afterthought, and reviewers in his experience rarely pay much attention to budgets (at NSF and other agencies where Mr. Landau has reviewed proposals).
5. More open solicitations. NSF is clear about their funding priorities. Some other agencies are less targeted (for example DARPA and NIST). This would open the door for a wider range of projects.

PRIZES AND RECOGNITION

• Louis Braille Prize, National Braille Press, 2007.
• IDEA Competition, Computer Equipment category. Gold Medal, 2006.
• Tech Awards Laureate (Microsoft Education Award), Tech Museum of Innovation, 2004.
• US National Inventors’ Hall of Fame, Invent Now America Finalist, 2004.

COMPANY UPDATE (NOVEMBER 2014)

Since this case study was completed, the company has entered into an important new relationship with the premier publisher of educational material for the blind, American Printing House for the Blind (APH). Touch Graphics developed the US Map for Talking Tactile Pen for APH, the first of a series of new products based on the TTP platform, a technology pioneered through multiple SBIR Phase 1 and 2 grants.

TRX Systems

Based on interview with

Carol Politi, CEO

February 2, 2013

Greenbelt, MD

TRX Systems is a privately held company headquartered in Greenbelt, Maryland. Founded by Carole Teolis, Gilmer Blankenship, and Ben Fun, TRX established a focus on indoor location in part because of its success in winning an SBIR award from NSF in 2007, which provided critical seed capital.

The company focuses on developing new tools for geo-locating personnel in locations where existing technologies (such as GPS) do not work or work poorly—for example, indoors or other areas where there is considerable signal interference.

BUSINESS MODEL

TRX is the developer of NEON®, an indoor location system that delivers precise, infrastructure-free tracking of personnel inside buildings where GPS is not available and in outdoor urban centers where GPS is unreliable. NEON greatly improves situational awareness and command effectiveness through the use of advanced sensor fusion, time of flight ranging, and mapping algorithms that deliver precise, real-time location of personnel in GPS-denied locations.

The TRX business model focuses on selling NEON, including a TRX developed accountability system, to federal and public safety markets as well as in licensing the NEON technology on an OEM basis for integration into third-party products.

CORE TECHNOLOGIES

GPS, Wi-Fi, and ultra-wideband technologies are all used for geo-locating, but they have significant shortcomings. They work less effectively in certain environments, particularly indoors where GPS and compasses are unreliable, and in circumstances where building maps are not available.

TRX NEON is a software suite that integrates data from numerous and disparate sources to create accurate 2D and 3D maps and to track personnel across them. These patent-pending sensor fusion and mapping algorithms integrate data from a broad range of sensors including compasses, GPS, ranging, inertial, light, and pressure sensors to deliver accurate tracking of personnel paths.

NEON determines when a degraded sensor (e.g., compass or GPS) is providing accurate estimates and when it is not. Poorly functioning or degraded sensors are isolated and de-emphasized or eliminated in the navigation solution. As

a result, NEON works well even when a sensor’s data is more than 50 percent erroneous.

NEON uses received sensor information to build site maps, building features, and other landmarks dynamically as people move about an area or building. Information from multiple people is merged to deliver “team-wide” location estimates. Essentially, by managing the data flow from multiple sensors NEON can determine the likelihood that any one data stream is erroneous, and act accordingly.

Ranging information, if available, can also be used to constrain location results. Examples include people operating within 50 meters of each other or working within range of a fixed RF node.

Accuracy is further increased where there are known features or floor plan information, because NEON can also match location estimates and inferred maps to known features and floor plans. User corrections can also be incorporated into NEON’s data stream.

PRODUCTS

NEON Location Services

The NEON Location Services are the core product for TRX. NEON uses an open architecture that is easily implemented with sensors from partner-provided hardware systems. The NEON Engine software includes application programming interfaces APIs for integrating input or constraints from partner systems and for providing indoor location data to third-party applications.

System Components

In addition to delivering location information in an API, TRX delivers an application into the public safety market (called NEON Tracker Command Software) that supports rapid and easy 3D building mapping, clear 2D and 3D views of personnel operating in and around buildings, and a record/history of personnel activities for after action review. System configuration can be performed in advance or immediately prior to an event or training session. Personnel equipped with NEON tracking units, or devices running NEON software, are automatically detected and monitored. NEON’s Tracker Software allows commanders to visualize the location of personnel outfitted with NEON Tracking Units in both 2D and 3D as they operate indoors.

NEON Tracking Units are waist-worn devices (about the size of a deck of cards). They include a number of sensors: temperature compensated triaxial accelerometers and gyroscopes, triaxial magnetic sensors, barometric pressure, light sensor, Time of Flight (TOF) RF ranging, and GPS. These Tracking Units interface to radios or smartphones to transmit location information back to the NEON Tracker Command software. TRX is also now implementing its location

algorithms on Android smartphones which now have many of the same sensors that exist in the NEON Tracking Units.

NEON Multi-Sensor Anchor Nodes can be used in fixed site applications to enhance precision. Anchor Nodes do not require networking and can be added during operations. It’s also possible to use both Bluetooth and Near-Field Communications to support location initialization using cellular devices.

Markets

There are numerous potential markets that require an efficient means to geolocate people in circumstances where standard GPS does not work effectively. TRX has focused on three core areas: first responders, defense, and security.

First Responders

First responders often work inside buildings, in dangerous circumstances, where GPS is unavailable and where the location of personnel is a critical need for commanding officers.

NEON’s key feature is that it can work in areas that are currently unmapped and that are not equipped with networked beacons: it does not require a building plan or pre-installed infrastructure to constraining the routes through which people move. This differentiates NEON sharply from many competing approaches, which rely in part on existing building maps and often require installation of beacons to deliver location indoors.

Defense

Dismounted war fighters increasingly rely on location for navigation and to deliver the situational awareness required for optimal command effectiveness. In some cases, GPS may be either unavailable or insufficiently precise. NEON is currently being adapted for use specifically for training, where trainers benefit from immediate review of exact personnel movements in near real time, as well as information on personnel orientation and proximity to other personnel or entities to enhance training realism.

Security

Security applications require easily deployed systems to support monitoring and tracking of essential security personnel. Event security requires highly portable systems that can be rapidly deployed with a minimum of facility integration, reliance, or impact. Many fixed facilities need to incorporate monitoring and tracking of security personnel in harsh environments, where infrastructure cannot be relied upon, or where networking of infrastructure is difficult or expensive.

NEON greatly improves situational awareness and command effectiveness for these applications, delivering real-time 2D and 3D locations for personnel operating in and around buildings. Key features include

• Real-time 2D and 3D location of personnel,
• Clear situational awareness, indoors and out,
• Effective after action review,
• Portable, lightweight, and rapidly deployed.

Partners and Business Model

TRX has focused primarily on infrastructure-free applications for which it has a substantial competitive advantage and on government applications in particular. It is now expanding to include mobile applications. Primarily, sales are made through partner organizations, which include Motorola, Globe Manufacturing, and ST Electronics.

In general, partners integrate TRX’s NEON geo-tracking system into their own solutions, thus becoming in effect a distribution channel for TRX, which can then focus on R&D and partner management. Partners often bring an extensive suite of tools in the form of a fully integrated solution, such as Motorola’s radio systems or Globe Manufacturing’s fire suit, and may also have expandable existing contracts and a sales and support organization already in place.

In addition, TRX has deployed some systems directly both in the United States and internationally. Such sales typically involve sale of a system for evaluation, followed by customization to integrate the system with existing radio networks or other situational awareness tools. This has allowed TRX to deploy very rapidly, providing a further competitive advantage.

Finally, sometimes TRX directly licenses its algorithms for use on other hardware, which provides greater form factor flexibility for the partner.

Over the long term, the management team at TRX foresees a much wider range of potential uses. According to Carole Teolis, CTO, “While TRX Systems started with a focus on firefighters, it has become clear that there are many situations that would benefit from precise indoor locations without relying on pre-installed infrastructure for support. In places like malls and office buildings, this technology would allow a person to navigate to the exact restaurant where a friend is waiting, to a store with a favorite item is on sale, or to an office cubicle to meet a colleague.”³⁸

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³⁸A. Rote, TRX Systems, Inc., “Taking a new Perspective, researchers develop new locating tech,” NSF Livescience online magazine, December 12, 2012.

R&D

TRX R&D programs include the deployment of NEON location services in a “software as a service” or SAAS environment, and on mobile devices. Current research projects include the following:

National Science Foundation: Collaborative Indoor Mapping Technologies

TRX is developing a smart phone application that creates indoor maps through sensor fusion and crowd-sourcing. The resulting indoor map database changes dynamically as individuals move about indoor spaces, using data gathered from sensors in Android smartphones. Building features and navigable passageways are detected and displayed, while accuracy increases as the number of users increases.

Federal Highway Administration: Navigation Aid for the Blind and Visually Impaired

TRX is developing a navigation aid for the blind and visually impaired, to track the location of a blind person anywhere, including areas where GPS is not available or reliable (for example, indoors or in urban areas with tall buildings). The application also aims to plan and adaptively update a route based on recognized obstacles to be avoided (for example, people or construction within the path). A third objective is to take gestural input and provide natural route guidance based on tactile stimulus instead of relying solely on auditory or visual instructions.

Army: Distributed Navigation

The goal of high accuracy and robust navigation for mobile soldiers requires a flexible system design that uses all available information. A network of soldiers must be able to move seamlessly from operating individually to navigating as a team. TRX is building a soldier-worn device that shares location information and leverages available communications (to other squad members and optionally to ground sensors and vehicle-based navigation systems and command), generating dynamic and timely information for improving navigation.

Department of Homeland Security

The Department of Homeland Security Science and Technology Directorate has sponsored Honeywell, with team members Argon ST and TRX Systems, to develop the Geo-spatial Location, Accountability and Navigation System for Emergency Responders (GLANSER). GLANSER provides accurate and reliable location of emergency responders (ERs) in all types of environments. It aims to

provide indoor/outdoor precision navigation, robust communications, and real-time position updates for commanders.

PRIVATE INVESTMENT

In 2012, TRX received a $2 million A round of venture funding from Motorola Solutions Inc. (NYSE: MSI), New Dominion Angels, the Maryland Department of Economic Development, and inside investors. It is using the investment to fund integration of NEON with Motorola Solutions’ radios and to expand sales and marketing operations more generally.³⁹ (Since that time, NEON was approved for use with the Motorola APX radio and is now available to Motorola customers through its catalog).

“The ability to locate personnel operating indoors and often in hazardous situations improves command effectiveness, increases personnel safety and ultimately saves lives,” said Mel Gaceta, investment manager, Motorola Solutions Venture Capital. “The TRX NEON Indoor Location System clearly complements Motorola Solutions’ capabilities to improve safety for mission-critical users.”⁴⁰

TRX AND SBIR

TRX can already be viewed as an SBIR success story. Only 5 years after its founding, it received a Tibbetts award in 2012. TRX founder Carole Teolis was

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³⁹J. Clabaugh, “TRX Systems gets $2 million in VC funding,” Washington Business Journal, November 13, 2012.

⁴⁰Motorola Solutions invests in TRX Systems Inc., PRWeb, November 12, 2013.

well aware of the SBIR program; Teolis had previously been a PI at TSI, another successful SBIR recipient in the Maryland suburbs of Washington, DC.

The company’s focus on indoor location was critically enabled by its first SBIR award from NSF. It has since received several awards from DoD, including a recently expanded award from DoD’s Army training command. Three of TRX’s four Phase I awards have been selected for Phase II, providing total committed SBIR funding as of year end 2012 of about $3 million.

Important early support was also provided by a TEDCO grant from the state of Maryland, which together with the SBIR program provided critical early funding to deliver proof of concept. Carol Politi notes that this early support was very important to the company’s success and allowed it to file its first patents in 2007 and 2008. (Since that time, TRX has had 7 patents awarded, four of these in the US).

TRX worked with Army’s Simulation and Training Technology Center (STTC) on group training and simulation technologies, focused on developing an application to help train soldiers in urban areas. Army is required to develop effective urban training and particularly needed a tool for after-exercise review in near real time. Existing solutions required expensive networking technologies such as ultra wide band or the introduction of numerous cameras for video review. A better approach would be lightweight and rapidly deployable, and it would require no pre-existing infrastructure or network, while still providing a means to track the location and path of all soldiers during an exercise. The Army also sought integration of interior maps where available.

TRX received substantial support from a program manager, Tim Roberts, at SSTC, who linked the company to staff conducting live training exercises. This provided important feedback for improving NEON, as well as access to testing venues.

Eventual take-up in DoD, according to Politi, must be based on end-user support and establishment of the right partners. TRX has recently partnered with General Dynamics to integrate NEON within the Army CTIA training architecture, and to extend the NEON capabilities to further enhance training realism.

For TRX, key competitive advantages include the following:

• low costs (no infrastructure required, which means that training organizations can simply buy the technology without any significant prior planning or authorization, or need for integration with current systems);
• easy interface with programs of record, but no requirement for integration;
• multiple sales options (more than 100 military training organizations are potential buyers);
• light weight both physically and technically (which means high degree of portability, so systems can be deployed for training within theater).

TRX primarily markets its product by looking for partners. Ms. Politi notes that in many cases, “TRX is an important piece of a much larger program.” As a result, partnership is inherent to TRX’s business strategy.

Similar solutions and approaches are used to address the training needs of other organizations, notably law enforcement, first responders, and others in the wider field of security. Here partnerships such as that with Motorola and Globe, and the development and potential licensing relationship with Honeywell, are the primary conduits for sales.

TRX has a flexible business model. Although Ms. Politi expects to make most sales through partners, TRX is set up to make direct sales where necessary or to offer OEM services where it provides the product but not fulfillment.

Ms. Politi observed some angel and VC funders are concerned that companies will become dependent upon SBIR funding, and apply for programs that become distractions from developing a product business. TRX frequently rejects opportunities to pursue SBIR funding in order to stay focused on its core business of location and mapping.

SBIR Matching Funds and Enhancements

TRX has found enhancement programs within SBIR to be of considerable value and would recommend expanding them, particularly at DoD where they can be used to help fund company efforts to traverse the difficult and demanding DoD validation process. Developing hardened products is expensive, and enhancement programs can provide key funding in that area.

DoD funding in this case required matching funds, which TRX was able to raise from a strategic partner (Motorola) as well as other investors.

TRX was also the recipient of an NSF Phase IIB award, which provided another important contribution. NSF support was central in helping the company raise its first angel funding: the ability to point to a federal contribution that effectively doubled the money of investors was “a huge benefit in raising outside money.”

More generally, Ms. Politi observed that “matching programs give you a reason to reach out to people, and the double-your-money offer is very well received.”

Recommendations

TRX is not woman-owned but it is woman controlled. Both the CEO and CTO are women. Because TRX was successful in raising outside funds, its time as a woman-owned business, according to SBA’s definition, was limited. So, although the company is still well below 50 percent venture owned, it is more than 50 percent owned by outside funders—and therefore is no longer woman-owned. This change suggests a significant weakness in efforts to track the engage-

ment of women (and minorities) within the SBIR program: successful companies quickly fail to meet the standard SBA definition of woman-owned.

Ms. Politi observed that through NSF, TRX had received commercialization support from LARTA, whose process was especially helpful in relation to a new collaborative mapping initiative. LARTA’s method focuses on business planning and partnerships from the start of Phase I, which could also help to support a new initiative within an existing company. TRX has also used the method to train new PIs.

In addition, through NSF, TRX has received invaluable marketing support. This support included the development of publicly available spotlights of TRX founders and technology, as well as videos showcasing TRX developments.

Workplace Technologies Research Inc. (WTRI)

Based on interview with

Dr. Lia DiBello, Research Director and Founder

September 21, 2010, and October 30, 2014

By telephone

COMPANY HISTORY

WTRI (Workplace Technologies Research Inc.) is a woman-owned firm located in San Diego, CA and Brooklyn, NY. Originally based in academic research—first at City University of New York and then at UC San Diego, Dr. DiBello responded to customer demand by moving her research and work on workplace cognition into the private sector (her first major client, Amtrak, preferred a private sector base).

Dr. DiBello has retained strong connections to the academic community, and remained primarily academy-based until WTRI received its first SBIR award from NSF in 2000. She sees WTRI as continuing to serve two missions: growing a commercial enterprise, and continuing its commitment to academic research. According to Dr. DiBello, this dual focus draws criticism from some parts of the academic community; however, other senior academics have been strong supporters of WTRI’s work.

WTRI’s business to date can perhaps best be understood as providing sophisticated and highly customized war gaming capacity to business organizations, focused on improving the efficiency of their internal processes within the business environment that they face. WTRI builds a highly sophisticated model of business processes, populated in part by data drawn from public business databases, and then provides either a physical or Multi-Player 3-D Virtual World environment in which company executives—usually at the C-level—can run the model to identify bottlenecks and inefficiencies, and review the impact of alternative strategies for addressing them.

This approach has attracted an impressive roster of clients, including

• Amtrak
• Brigham and Women’s Hospital
• ComEd
• EdNet
• IBM
• Invitrogen
• Kellogg

• Monroe Plan for Medical Care
• NASA
• New York City Transit
• NSF
• Siemens
• Most of the major mining companies, such as Kenross Gold Corp., Rio Tinto
• Merck
• Number of major schools such as UCSD, Yale University

The roster of clients reflects Dr. DiBello’s view that the role of C-level managers and especially the CEO is changing, and that a more dynamic perspective is required. She believes that the age of careful management has in some senses been replaced by CEOs who can respond rapidly to accelerating change. This can be technical, via the introduction of disruptive technologies, but it can also be political or commercial, as the rapid collapse of major corporations such as Pan-Am or TWA suggest.⁴¹ In this more dynamic environment, the ability to war game new strategies is increasingly useful. Companies are prepared to pay premium prices for the capabilities embedded in WRTI’s approach.

WTRI struggled for some time with the highly labor intensive character of the initial approach (the “OpSim” model). Customers however insisted that the company continue to provide these services, and eventually, as noted below, much of the process was automated (in part using technologies developed with funding from SBIR), so OpSim is now a profitable enterprise for the company.

WTRI is comfortably profitable, and aside from seeking to develop mass market applications of its work for training and assessment purposes, and now has a global network of alliances, with offices in Sydney and London and partners in Africa, Europe and elsewhere. It is considering alliances with larger consulting organizations.

WTRI’S TECHNOLOGY BASE

While WTRI is based on academic research that describes how individuals and organizations change and can be changed, the technologies it uses play a crucial role in its simulations. Dr. DiBello observes that by breaking business processes into discrete elements, a substantial amount of the simulation design and build process—perhaps 90 percent—can be automated and scaled.

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⁴¹See Clayton Christenson, the Innovator’s Dilemma when new technologies cause great firms to fail. Harvard Business Press. 1997.

Dynamic Strategic Modeler

WTRI has developed a modeling tool that provides expert system support for applying the theory of constraints to the value proposition of the business, and determining what aspects of the business process to work on. Models are based on detailed analysis of trends evidencing themselves in business environments. As a result, the modeler has automated substantial parts of the strategy development and review process, which now takes 15 minutes instead of weeks of staff effort. The resulting charts still require expert review, but the process itself is operated by student interns.

Cognitive Agility Assessment Tool

This tool supports the elicitation of embedded knowledge. Using it, WTRI staff can expose the underlying mental model of the expert—which could be a mental model for clinical interventions, operating a lathe, or marketing a business. The point of the tool is to automate the interview and the scoring process. As participants in a simulation complete tasks, the tool automatically scores their efforts. This rapid feedback is valuable, as it permits companies to see whether their executives can handle change at the pace and depth required. For example, a chemical company planned to introduce radical change into their business model, and wanted to determine whether C level managers can could work with the new strategy. Building on expertise focused on the specific needs of C-level managers in the chemical industry, the tool is now being used by the CEO and other C-executives to make mission critical decisions. WTRI believes that the company is now seeing information in the tool that even WTRI cannot identify. In this case, WTRI did not even have to meet the client in the course of the project.

WTRI PRODUCTS

WTRI provides three main products, which can be combined in different configurations: OpSim, Modeling, and Profiling.

OpSim

WTRI’s high end product is OpSim, a live immersive environment where companies and organizations can war game solutions to problems and issues facing the organization. According to WTRI, “OpSim™ Live” provides a “safe” environment in which to rehearse strategies to address current challenges or crises (e.g., losing revenue based on significant backorders), or to anticipate future uncertainties (e.g., a potential decline in the value of your core products).”

OpSim focuses on helping businesses achieve core outcomes, designed in conjunction with the company. WTRI then builds the artifacts and materials that support achievement of this goal in a simulated environment. So for example an

OpSim involving a foundry company included development of real molds at a miniature scale. Participants actually run the company under accelerated time pressure (20 minutes often represents one month of real time (according to WTRI), so that participants face the real pressures and competing demands experienced in actually running the business. By performing the exercise multiple times, participants can experience directly the impact of different decisions and strategies.

Critically, the OpSim approach draws on WTRI’s work on what it calls “cognitive agility,” defined as the extent to which an individual’s thinking is flexible when data indicate the situation has changed. This approach incorporates cutting edge brain science.⁴² The first component of each OpSim exercise encourages participants to manage the company in line with status quo procedures and strategies, while measuring outcomes. The experiential nature of the exercise helps to break down resistance to new approaches, as participants experience for themselves the disastrous consequences of some current strategies (which is of course why WTRI has been engaged by the company—to address critical problems). Once participants are open to new possibilities, OpSim allows for scenario-based efforts to address newly identified difficulties and bottlenecks.

WTRI has also developed versions of OpSim using virtual world operational simulation, using environments such as Second Life.⁴³ The virtual world OpSim provides more flexibility in design, and is used by WTRI in particular for rehearsal of business strategies that are heavily technology supported, such as logistics distribution or network management. In 2008, WTRI collaborated with IBM to developed 3-D environments for training IBM employees in the managing enterprise IT engagements.⁴⁴

WTRI is now heavily involved in using OpSim to work with leaders of the project management and mining industries, and will likely sell its lower end capabilities in this area to a buyer in the project management sector.

Modeling

OpSim works, according to Dr. DiBello, in part because it is closely integrated with WTRI’s FutureView™ modeling software. FutureView™ can perhaps best be understood as an expert system, based on modeling the insights and approaches of highly experienced business strategists.

WTRI initially populates the model with publicly available data (drawn from standard business database subscriptions). Once the initial model has been populated, users—normally C-level company executives—can use the model to

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⁴²WTRI “What is Cognitive Ability?” <http://www.wtri.com/documents/What_is_cognitive_agility.pdf>.

⁴³An online multi-player environment with significant analogs to real work processes including virtual money, trading, and business development. See <http://www.secondlife.com>.

⁴⁴Made in IBM Labs: IBM Develops a “Rehearsal Studio” to Let You Practice Your Job in a 3-D World <http://www.wtri.com/documents/IBM-WTRI_press_release_v2.pdf>.

simulate the effect of changes in resource distribution and other company policies that affect critical constraints (including for example capital structures) as measured against the result of an “ideal” competitor company.

FutureView™ dynamically models the impact of bottlenecks in an organization’s operations on company performance, and conversely, the net present value of moving or removing the bottleneck. For example, it can be used to calculate the impact of specific changes in R&D to the organization’s pipeline of new products, and then calculate the subsequent value that can be realized (gross revenue, profits, stock price).

It can also use a mathematically derived profile of financial to benchmark company performance against competitors, which can be used to help with strategic planning. For C-level executives, the modeling tool can be used to move around constraint points to visualize the impact of changing resource allocations, or the impact of adjusting major financial variables on company performance.

Scaling and Automation

Based on the expanding library of business cases completed using OpSim and the Cognitive Assessment toolset, WTRI is now moving to build a set of decision-assessment tools that would be available at a much lower price-point, targeted as assessing executive decision-making and also at training to improve skills and hence outcomes.

These new tools confront executives with cases of actual companies. Using information that would be available to management, users must make the decisions that will lead the company into the path required. Review of decisions made in this environment can help companies assess executives’ capabilities (and indeed those of potential executive hires). Executives can also improve skills by completing simulated cases online through the Profiling toolset, and receiving feedback on their strengths and weaknesses. According to WTRI

SBIR AT WTRI

Dr. DiBello remains overall a strong supporter of the SBIR program in general, and the program at NSF in particular. SBIR has been central to the development of WTRI technology—and has been used to fund development of

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⁴⁵WTRI <http://www.wtri.com/profiling.html>. Accessed September 28, 2010.

each of the WTRI tools. The initial NSF SBIR award in 2000 was, according to Dr. DiBello, successful in part because the NSF program director was familiar with the relevant academic work.

The projects that NSF funded in early 2000s were targeted as different markets entirely. However, they were used to make virtual worlds “immensely powerful,” leading to a WRTI’s world leading position as a provider of virtual worlds for war gaming for business, according to Dr. DiBello. Overall, she believes that NSF sees its role as funding innovative ideas, without being too concerned about how exactly those ideas will be commercialized.

This funding was important not least because some of the projects funded by SBIR in the early 2000s would not have been funded by private sector sources because they were simply too risky, with too much uncertainty about the eventual market.

WTRI believes it was the first company permitted to use revenues from sales as the matching funds for a Phase IIB award at NSF. This was at the time controversial within NSF, although this is now apparently the preferred option within the agency.

WTRI’s own experience suggests that the initial NSF focus on encouraging firms to acquire VC funding might have been misplaced. Dr. DiBello notes that WTRI’s experience in fixing broken companies indicates that many of them got VC funding too early, at too high a price. In addition, many VC companies failed after the financial crash in 2008 and others have become more conservative in their investments.

SBIR funding helped WTRI transform the OpSim business, from a homemade product that is almost entirely customized for each client, to a much more sophisticated product with substantial automated and reusable components. Dr. DiBello also noted that NSF’s support for the company’s financial modeling capability transformed the value of the overall service, making it much more valuable.

Similarly, the SBIR funding supported automation of the cognitive assessment tool. WTRI did not have enough trained staff to continue expanding if it continued to use a paper questionnaire and an in-person interviewer. In addition, the interviewer introduced variables into the process that affected observed outcomes. The SBIR funding helped WTRI develop an assessment tool that clients could complete on their own—reducing costs and improving quality. Very large scale assessments are now routine.

Overall, Dr. DiBello has a positive view of the NSF SBIR program, and of the division with which WTRI has been working. WTRI’s strong commercialization track record and effective use of SBIR funds in the past has, she believed, helped to support successful application record.

NSF’s program has changed over the years. When WTRI initially interacted with the program, the focus was on very innovative ideas that might have the potential for significant commercial success. This underpinned initial WTRI awards in 2000-2001.

This has gradually changed.

Today, Dr. DiBello sees a contradiction between the demand for innovation and growing requirements that projects be far along toward commercialization, even before the start of the first Phase I award. It is not much of an exaggeration, according to Dr. DiBello, to suggest that NSF is seeking projects that are more or less ready for Phase IIB at the time of the Phase I.

Yet on the other hand, Dr. DiBello has experienced negative reviews because the technology and/or the project were too mature, too close to market-ready. It is possible that a current application for a project in partnership with IBM may be declined for that reason.

In short, Dr. DiBello believes that NSF now wants a much more completed idea for Phase I than is reasonable, but at the same time screens out projects for being too mature.

There are also growing problems with the Phase I review process, which has become somewhat less helpful than her initial experience. Dr. DiBello is concerned that WTRI may be facing a competitor on the review panel, but she is unable to determine whether this is the case, as NSF uses anonymous reviewers. She believes it is too easy for a competitor to find something wrong with an application. Further, the consistency of quality and qualifications of reviewers themselves is not what it once was; some reviewers do not seem to have the background to follow the proposal details while others do an exemplary job and offer important insights, even if they are being critical. This is a problem only for Phase I review; her experience is that Phase II reviews separate commercial and technical review, and that the resulting reviews are better quality.

WTRI’s experience with NSF program directors has varied. Some, like the first program director with whom WTRI worked, were very helpful, seeing their mission as aiding the company. Others have been much less helpful, and have shown little understanding of how companies like WTRI work with their customers. This has in some cases been a problem, especially in relation to the oral defense part of the application process for Phase IIB.

RECOMMENDATIONS

Dr. DiBello was primarily concerned with what she saw as two core issues for the NSF SBIR program:

1. NSF should review the balance between innovation and commercialization in the review of applications. While it was important to ensure that projects were commercially focused, it was also important to allow sufficient room for innovation.
2. NSF should ensure that Phase I remained focused at the level of feasibility studies, and did not demand too much in terms of completed research. To a lesser degree this was also true for Phase II.