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BFTP’s statewide coordinator reveals how his organization makes investments

In a what-have-you-done-for-me-lately world, it's hard to argue against  the 30 year-old Ben Franklin Technology Partnership's track record since 2007 in funding and nurturing promising startup and early stage technology companies.

“The fact that in the last five years our companies have attracted $1.8 billion in follow on financing means the capital markets certainly think they are stronger for their experience with us,” says BFTP statewide coordinator John Sider.

Sider and his team have rallied in the last year, doubling down on its efforts to grow job-creating companies in PA, including development of new programs like TechCelerator in Carlisle and State College and continued funding of the brighest startups. 

Keystone Edge (KE): How has (or how will) the JOBS Act impacted BFTP's role?
John Sider (JS): ertainly the most discussed provision of the bi-partisan JOBS Act relates to the removal of SEC restrictions to enable ‘Crowdfunding’ for young companies. Ben Franklin would be thrilled for our companies to have an easier means to aggregate small investments from large groups of people. One can see how Ben Franklin’s long investment track record and professional due diligence process could be appealing to investors “in the crowd.” This provision in the JOBS Act seems like a step in the right direction, but there are many unanswered questions that await the release of SEC rules governing this new tool.  The bill’s other provisions regarding private placements and IPO filing rules will help our companies as they grow and seek private investment capital. We are giant proponents of capital formation opportunities for young companies. In fact, one of the BFTP CEOs contributed to the Access to Capital Report issued by the National Council for Innovation & Entrepreneurship.  That report contained several Ben Franklin recommendations that found their way into the JOBS Act.  We will carefully monitor how this progresses and consider ways that we can be part of the solution.

KE: What role, if any, can BFTP play in helping support the Governor's Manufacturing Advisory Council's initiatives?
JS: We were quite active with the Governor’s Manufacturing Advisory Council. Part of Ben Franklin’s mission is to enhance the competitiveness of established manufacturers through innovation. Many of our early-stage firms are manufacturers, so we are very experienced in supporting the manufacturing sector. About the same time that this council was announced, Pennsylvania had been selected to participate in a National Governor’s Association ‘policy academy’ for advanced manufacturing. I was honored to be selected as part of that team, and it was decided to marry the two initiatives so that the policy academy team would support and provide staff work for the Governor’s council. We worked closely with the PA Department of Community and Economic Development, Team PA and the Industrial Resource Centers as well as the other members of the council. This past May, the council met and Ben Franklin helped lead the discussion on access to capital and innovation by having one of our portfolio manufacturing company and members of our staff speak on how they address these issues.

One approach used by Ben Franklin is to provide financial support to cover half the cost for a manufacturer to do a collaborative research project with a university, or to develop a strategic partnership with another larger corporation to improve a product or process. We discovered that there is a new global best practice called “innovation voucher,” that works similarly, but we have been doing this in Pennsylvania at Ben Franklin for years! We also facilitate collaborations among manufacturers, universities and emerging companies to address new areas of challenge and growth opportunity. The Council’s report is excellent, and addresses issues across the spectrum, including workforce, energy, exports, and a host of other critical issues for our manufacturers. Ben Franklin is staying involved as part of the implementation team, and we have provided four staff people in support of that effort.

KE: I'm sure you can cite several, but can you talk about one BFTP-funded company that has recently wowed you?
JS: You are asking me to tell you which child I love best, which I can’t do, so let me give you just four quick examples. We have a company called Linear Acoustic, based in Lancaster, that has a technology that clears up volume disparities in audio signals. Hugely important to broadcasters. It just won an Emmy Award – yes, an Emmy Award – for ‘Outstanding Achievement in Engineering/Technical Development,’ so that is pretty cool.

We have a company in Bethlehem called Micro Interventional Devices that has a medical device that can repair a poorly functioning heart valve without invasive surgery. The device looks like a little pistol and a tube extends through the patient’s chest wall, puts the mechanical valve replacement in place and retracts, all while the heart is beating! It’s like science fiction, and for patients who can’t tolerate surgery, it could make all the difference. 

In Exton we have Morphotek, which develops pharmaceutics to treat cancer, inflammation, and infectious diseases.  In 2007, Morphotek was acquired by Eisai Co. for $325M, and, just this year, the company had a ribbon cutting for a new 60,000 sq. ft. manufacturing plant in Chester County. 

Then there is Knopp Biosciences in Pittsburgh that is constructing a 20,000 sq. ft. lab and just launched a global phase III clinical trial (treatment is tested on large groups of people) on a very promising therapeutic for ALS (Lou Gehrig’s disease). ALS is a devastating disease, so if this becomes a drug, it will be a major breakthrough. We talk so much about the jobs and growth that these companies contribute, but they also truly contribute to improving the human condition. Across our statewide portfolio, that human impact is huge.”

KE: Can you walk us through some of BFTP's considerations when deciding whether to fund a company?
JS: We are all about jobs and growth for Pennsylvania, so let me focus on just three things that really matter in creating them — technology, market, and management. Our staff and the outside advisors we engage in our due diligence process have to assess those three main things in each of the companies that come to us. First, we need to validate the technology. Often, part of our process is some funding and advice to help an entrepreneur do the testing necessary to make sure that it does. We have a client that makes security barriers. We helped them conduct a test at Penn State University showing these barriers could stop an 18-wheeler. Indeed they could, and they have the compelling video evidence to prove it.

Second, we need to see if there is a compelling market opportunity that the prospective client’s technology could address. A question I often hear asked is, ‘Is this a solution looking for a problem?’  An innovation that doesn’t show the potential of selling into a large enough market is unlikely to attract follow-on capital and create the jobs and growth in PA that we seek. Finally, we have to assess the management team. Do we believe they can execute on a business strategy that will make them successful? There is as much art as there is science to this kind of people assessment, and we provide lots of coaching by staff who come from industry and have deep experience in supporting a new management team.

We also do a lot to help young companies find the right people, not only to build their teams but also to get them investor-ready. Almost none of our companies come to us with strength in all three areas. Our job at Ben Franklin is to select those opportunities we feel have the highest potential and work with them to make them stronger in each of these areas. I think the data shows we are doing just that. Seventy-six percent of Ben Franklin companies are still in business after five years, which compares very favorably to national statistics. Further, in the last five years, our companies have attracted $1.8 billion in follow-on financing. The capital markets certainly think our clients are stronger as a result of Ben Franklin support.

BFTP of Central & Northern PA, BFTP of Northeastern PA, BFTP of Southeastern PA, Entrepreneurship, Features, Innovation Works, Venture Capital