By Peter Osborne
Delaware early-stage science startups have a new tool in the toolbox with the Delaware Innovation Space's launch of First Fund, which organizers and observers hope provides an incentive for more science startups to transition from idea to proof of concept while locating and growing their companies in Delaware.
Obtaining funding from venture-capital funds normally requires "proof of concept." First Fund is designed to help startups get to that point with up to $75,000 in funding and, perhaps more important, access to the facilities of the Delaware Innovation Space. Essentially, the startups can choose to give up equity in exchange for much needed lab space and access to core expertise and business-building support programs.
"By combining both access and funding together, we can accelerate companies to early proof of concepts and business milestones in much more rapid fashion "“ allowing a company to move forward much more quickly," said Innovation Space President and CEO William D. Provine.
Delaware Innovation Space is a non-profit incubator and accelerator for start-ups opened in 2017 and located on the Experimental Station campus in Wilmington. It houses more than 130,000 square feet of multi-use, lab, office, and meeting space and a community of more than 200 science innovators.
Provine said early-stage seed investment in startup companies remains a "precious and somewhat rare resource. Programs such as the U.S. government's SBIR and the search for angel and seed capital can easily consume over a year to secure as most science entrepreneurs do not have the ability to self-fund their ventures or get all of the required funding needed to start up a company from friends or family."
Members of the entrepreneurial ecosystem in Delaware quickly applauded the First Fund launch.
"Resourcing deep tech startups to move with speed and agility over a three-to-seven-year first product development cycle is like rowing a leaky boat in a storm," said Dan Freeman, founding director of Horn Entrepreneurship at the University of Delaware. "First Fund provides a life vest that can be expected make the difference between death and survival for innovative new ventures working in areas in which Delaware has a right to win."
"What is paramount with the First Fund or any other early-stage fund is to make sure that (the recipient achieves) the next level of "investibility," said Bryan Tracy, CEO of New Castle-based White Dog Labs and chairman of the Delaware Sustainable Chemistry Alliance. "But bear in mind that their next level of investment very well may come from well outside the region, so beyond the First Fund, the real offering is the competitive advantage of Delaware."
Tracy said the "ChemTech" sector "“ needs investors from around the world to "de-risk" their next acquisitions and partnerships.
"There is no better place to do that than in the backyard of those ChemTech giants," he said. "This is a major -- if not the major -- factor that will make recipients of the First Fund get to that next level of investibility."
Helen Stimson, president and CEO of the Delaware Bioscience Association, said she's pleased to see the First Fund program added to Delaware's toolbox of available investment options for entrepreneurs.
"While every startup is unique, all need funding to demonstrate proof of concept to be considered for further investment," she said. "Not every startup will qualify for every program so expanding our available options is an asset to our community. Congratulations to the Innovation Space team for providing another significant investment alternative."
Provine said the First Fund applications were being completed shortly after the program launch via its online application portal in what he described as an "early signal that reinforces our premise that there is a need for the program."
"Our three phases of programs with science entrepreneurs are our Virtual Incubator Program (VIP) for folks working on the conceptualization of their companies to our Founder's Club for those driving for early Proof of Concept to our support of Growth Companies who have obtained significant early funding and are driving towards milestones sometimes over a number of years (e.g., with developing new medical therapeutics). The First Fund enables those that have exited our VIP program to apply as they transition to our Founder's Club."
The toolbox analogy applies to other funding initiatives. The Small Business Development Center, led by Mike Bowman, has a grant writer on staff to assist with applications. That initiative, says Stimson, has resulted in Delaware having a higher success rate than other states.
In 2018, the General Assembly passed the Angel Investor Job Creation and Innovation Act in Delaware, providing a tax credit to individuals or funds who provide angel investment to companies. These tax credits are refundable and apply to investments coming to Delaware from all states.
"It's still too early to tell whether the Act will spur investment, but it should provide an incentive to stay in Delaware for those companies who participate in the State of Delaware Angel tax credit incentive program," Bowman said.