Grant to Aid Knowledge-Based Companies in Arkansas

FAYETTEVILLE, Ark. - Statewide efforts to provide Arkansans with access to better paying jobs just received a significant boost as a result of a three-year, $600,000 grant from the National Science Foundation. Funds from the grant will help knowledge-based companies in Arkansas receive private investment and advanced Small Business Innovation Research (SBIR) funding, with the goal of easing the difficult business transition between concept and commercialization.

The grant will be administered by the Innovation to Commercialization Incubator, a partnership led by the College of Engineering and the Sam M. Walton College of Business at the University of Arkansas. The partnership will help innovative companies by increasing access to the business expertise they need to bring their new products from the lab to the marketplace.

"We believe this partnership will benefit all involved," said Walton College Dean Doyle Z. Williams. "Our graduate students will provide more business expertise to help engineers commercialize ideas, and the state may gain high-tech businesses to fuel the economy."

Assistance is already in place to help Arkansas companies receive the first level of SBIR funding, referred to as Phase 1. Phase 1 funding requires "proof of concept," detailed business and technology plans, and it typically results in a $100,000 award. Approximately one applicant in eight receives funding at this level.

After this initial period, small businesses face their biggest challenge between the development and the sale of a product, or the "valley of death" as entrepreneurs call it. Think, for example, of a large company. It can fund research and development from revenues based on the sale of current products. Brand-new companies don't have that cushion.

The grant targets improving Phase 2 and 3 success in three ways:

· The grant will support the salaries and tuition of graduate students who will work for the new company. "As we educate undergraduate and graduate students in engineering, it's important that they also understand the relevance of the research," said College of Engineering Dean Ashok Saxena. "This is not an ivory tower experience. The students will gain experience as well as vital contacts in the business world."

· Second, the companies will receive help from a board of advisers made up of professionals from varied backgrounds including law, accounting, sales and marketing. "What is frequently missing from high technology companies is the business knowledge to turn ideas into products or services that people will buy, then producing those products or services at a profit," said Carol Reeves, associate professor of management. "The board of advisers will provide critical business expertise to the Phase 1 grant recipients, dramatically increasing their chances of establishing a successful business."

· Third, the grant will facilitate an Angel Investor Network to encourage investments that are less structured than venture capital. "A key goal of the program is to develop an infrastructure of entrepreneurial support that will help companies survive the valley of death," said Ron Foster, director of the Innovation to Commercialization Incubator.

But why is developing an entrepreneurial culture in Arkansas so crucial? Two-thirds of all new jobs in the country are created by the 11 percent of small businesses that are high-tech, according to Ross DeVol, director of regional economics at the Milken Institute. In addition, the jobs formed by knowledge-based companies "pay high salaries and are relatively immune to outsourcing," said Foster.

Once the ball gets rolling, positive growth begets more positive growth. "Service-based jobs tend to spring up around knowledge-based jobs, enriching the entire business environment," said Foster. "For example, there may be a need for a specialized machine shop or water-purifying company. And more jobs mean more tax revenue for local communities and for Arkansas."

Historically, agricultural states like Arkansas have trailed the country in this type of job creation. For example, between 1983 and 1998, the University of Arkansas spun off fewer than five high-tech companies, despite the fact that the university competed well at publishing cited high-tech research results in professional journals. In contrast, the Massachusetts Institute of Technology created 150 small businesses each year during the same time frame.

"Through a prior NSF-supported partnership, we brought together university, state and private sector support to address these issues in 2000, and the results are stunning. This new program is designed to take us to the next level," said Foster.

For instance in 2002 and 2003, the University of Arkansas developed seven spin-off companies - compared with fewer than five over the past 20 years.

The number of SBIR Phase 1 proposals submitted from Arkansas is even more encouraging. In 2000, there were 20 proposals submitted. In 2001, 22 were submitted. In 2002, the number of proposals doubled to 45, with nine awards totaling $1.8 million. And in 2003, more than 80 proposals were submitted with 17 gaining funding. So far in 2004, 15 awards have been received that total $4.2 million. "Overall, the acceptance rate is very close to the national average, which indicates that Arkansas' proposals are high in quality," said Foster.

According to DeVol, Arkansas climbed from 50^th in the nation in SBIR funding in 2000 to 43^rd in 2003 and from 50^th to 26^th in Small Business Technology Transfer funding.

"Now that our SBIR Phase 1 funding numbers are improving, it's time for us to focus on achieving similar success with Phase 2 and Phase 3 funding," Foster said.

In addition to the College of Engineering and the College of Business, partners include the Office of Research and Sponsored Programs; the microelectronics-photonics graduate program; Virtual Incubation Corporation; and the Arkansas Science and Technology Authority. Led by principal investigator Saxena, the co-principal investigators on the NSF grant are Foster; Reeves; Scott Hancock, licensing officer for the Technology Transfer Office; and Greg Salamo, university professor of physics.