My previous article on start-up funding sources covered Precarn. For the next article in this series, I will cover The Health Technology Exchange (HTX). I recently met with Norman Pyo, director of business development and investment to have a discussion on HTX.

Craig: Thanks for taking the time today to speak with the StartupNorth readership. To start, can you give the ’30 second elevator pitch’ on The Health Technology Exchange?
Norm: HTX is a not-for-profit organization that is funded by the Ontario Ministry of Research and Innovation. Our goal is to support innovation and commercialization in the Medical and Assistive Technology (MAT) sector in Ontario. Companies in this sector are working on things such as medical devices, medical imaging and laboratory devices. In this space we also have companies that are working on software oriented initiatives that the StartupNorth readership may relate to. Examples include healthcare IT systems to manage chronic disease conditions or remote monitoring by connecting personal medical devices to wireless devices such as the Blackberry. We support MAT companies through various programs that provide mentoring, grants, networking opportunities and events.

Craig: So in terms of eligibility, companies need to be Ontario based?
Norm: Yes, companies need to be based in Ontario for us to be able to fund them through our R&D programs; however, we work with organizations across Canada to provide linkages. We also focus exclusively on the MAT sector so we would refer other life sciences companies, such as those in the pharmaceutical or biotechnology industry, to organizations such as MaRS.

Craig: What’s the best way for a company to engage HTX?
Norm: We have three advisors at HTX, each with extensive and complementary backgrounds in the healthcare sector that provide mentoring on issues relevant to start-up medtech companies such as strategic planning, product/clinical development, regulatory strategy and early stage finance. Companies who are not referred to us should make initial contact with the HTX office. From there, they will be connected with an advisor that best fits their needs, in terms of expertise and geographic location. We mainly see early stage companies, so we actively work with the companies to understand what they are trying to achieve and see how we can use HTX resources to support them. This can include providing mentoring advice or making connections to industry partners and teaching hospitals/universities. We also run events on medical technology topics such as regulatory approval and discussion panels with CEO’s of companies in the space who talk about overcoming common hurdles and sector-specific challenges.

Craig: Can you talk about the funding programs you have?
Norm: We currently have three distinct funding programs: the Business Investment Program, the Health Technology Assessment & Implementation Program and the Clinical Validation Program. Each program has a specific focus for use of funds, all of which support advancement and commercialization of MAT initiatives.

Craig: Ok, let’s start with the Business Investment Program; can you talk about how this works and what its purpose is?
Norm: Yes, the Business Investment Program is meant to fund R&D within the MAT space. The program is funded by HTX, OCE and IRAP and provides up to $100K per project. Companies need to apply to the program with a specific project and have a publically funded research institution in Ontario lined up to perform the research. Companies much match the grant amount with 1/3 of their own money as well as 2/3 of in-kind contribution towards the project’s costs. In other words, HTX will fund up to 50% of the project’s cost and these funds will be directed to the research institution to help fund the R&D objectives of the project. Examples of past companies that have received this grant include Quantum Dental Technologies, GestureTek, and Quillsoft. An example of a company that has been awarded a grant under this program is Quantum Dental Technologies. Funding from this program helped to advance Quantum’s Canary System, which provides early detection for tooth decay, without the traditional use of X-rays.

Craig: For 2009, the initial application phase of this program has just closed. What happens next?
Norm: Correct, the call for Expressions of Interest (EOI) for the Business Investment Program closed this July. After the submissions are received, the funding partners (organizations that contribute funds to the program) meet internally to review the submissions to select the most promising projects. Those companies that make it to this next phase will then submit a full proposal. These proposals are reviewed by external reviewers who are familiar with the company’s space and that have a deep understanding of what the project is looking to achieve. Proposals are vetted against the capabilities of the company and research partner, past track record of management and its commercialization potential. Upon validation, the grant is awarded in a tranched fashion based on project milestones. The projects must be completed within a 6 to 18 month period.

Craig: To be clear, the grant is not directly paid to the company?
Norm: Right, typically, the company’s cash contribution is paid to the institution. The company’s costs over and above this are in-kind.

Craig: What is the next program planned?
Norm: We will be requesting Expressions of Interest (EOIs) for the Health Technology Assessment & Implementation Program this August. The purpose of this program is to support the acquisition and assessment of market-ready MAT products by Ontario hospitals. In other words, the program helps fund a hospital’s acquisition of a MAT product, and in return the hospital becomes a reference customer for the company’s product. Similar to the Business Investment Program, applicants can receive up to $100K per project, which must also be matched by the combined contributions of the company and the hospital/healthcare institution. The company provides a deep discount and the institution’s cost for evaluative services are recognized. The HTX contribution helps to defray the purchasing costs. Sentinelle Medical was a past recipient of this grant, and has successfully implemented their imaging technology into the Kingston General Hospital.

Craig: And the third program?
Norm: This would be the Clinical Validation Program. The purpose of this program is to fund clinical testing or validation studies of a MAT product within an Ontario Hospital. The maximum grant per project is $50K and must be matched by the company – with 80% being cash-contribution. Mespere LifeSciences was a past recipient of this grant. Mespere develops a non-invasive hand-held device to measure central venous pressure in real time; replacing the traditional expensive, invasive and infection-prone procedure of catheterization. We have launched this program through partnership with regional innovation organizations such as BioDiscovery Toronto, YORKbiotech, and The Golden Horseshoe Biosciences Network.

Craig: If a company is ultimately selected for one of these programs, how long does it typically take to work through the process and get the cheque?
Norm: This depends a lot on the project being proposed, but it typically takes between 2-4 months.

Craig: How long have these programs been in place?
Norm: We have been running funding programs since 2004 and to date have provided $8 million in funding disbursements and helped fund over 70 projects. Approximately 1/5 of this has been for healthcare IT related projects. Example of healthcare IT initiatives funded include: MedManager Interactive, HInext, and Quillsoft, who all offer innovative solutions to distinct healthcare issues.

Craig: Great, thanks for taking the time to speak today. In closing, do you have any words of advice for entrepreneurs that want to get into the MAT space?
Norm: The MAT space has some unique angles given the public nature of healthcare funding, privacy issues and requirement for clinical research validation. That being said, there are a lot of interesting problems to solve and a lot of opportunities to provide innovation in the space through software or wireless technologies. HTX is here to help support entrepreneurs commercialize their ideas.

craig at mapleleafangels.com

My previous article on start-up funding sources covered the National Angel Capital Organization. For the next article in this series, I will cover Precarn. I recently met with Gary Gudbranson, VP operations at Precarn.

Craig: Thanks for taking the time today to speak with the StartupNorth readership. To start, can you give the ’30 second elevator pitch’ on Precarn
Gary: Precarn is a non-profit organization that supports the intelligent systems industry in Canada through funding of projects that seek to advance research into commercial applications. We fund R&D initiatives for Canadian companies doing research in areas of artificial intelligence, machine vision, sensors, and robotics. We are funded by federal government departments such as Industry Canada and provincial government ministries such as the Ontario Ministry of Research and Innovation.

Craig: What are some of the things that companies in this space are working on?
Gary: The intelligent systems field is quite broad and there are many exciting companies doing interesting work across a variety of industries. Precarn has funded a project by Braintech to further develop its software for industrial robots so they can intelligently pick out the correct part required in a manufacturing process out of a bin of random parts. Another Precarn funded project by Apstat technologies developed data mining software to allow insurance companies to better underwrite insurance risks. iGO Technologies undertook a project funded by Precarn to develop computer assisted surgery solutions. In one of our most well known projects, Precarn supported the research that went into the vision system used on the space shuttle to inspect the space shuttle’s tiles while in space.

Craig: What types of services do you offer to companies and what companies are eligible?
Gary: Our main focus is on funding programs. However, since we know the companies, universities, and researchers in the intelligent systems space, we also help with networking and making connections. We will work with any company in Canada that is in the intelligent systems space that meets the criteria for our funding programs.

Craig: How do your funding programs work?
Gary: Our funding programs are grants that contribute to the costs of a specific project. Precarn will fund a certain percentage of a project and the company must provide matching cash or in-kind funding. Projects must be oriented around advancing research into commercial products. Project proposals must include collaboration with an academic research partner as well as an end user customer. We feel this model best contributes to successful commercialization by having the company to collaborate its research efforts with an academic institution to reduce the technology risk as well as work closely with an end customer to ensure it meets industry needs to reduce the market risk.

Craig: You currently have a program open for applications, can you talk about it?
Gary: The program we currently have active is the Technology Gap Assistance Program (T-GAP) for startup companies. This program is oriented to small companies and funds eligible projects with up to $75,000 or up to 65% of the project’s total costs. Projects need to be in the intelligent systems space and look to further research into technologies that can have commercial applications. Applications are due by Sept 2, 2009 and the program has a total of $1m of available funding.

Craig: How does the application process work?
Gary: Interested companies should reach out to Precarn to start a dialog on what they are looking to accomplish. They can contact Rick Schwartzburg. We can then give feedback if we feel their project is a good fit for what we are looking to fund with the program. Companies should then complete an application form and formally submit prior to the deadline. Once we receive all applications we internally review them to ensure they meet the program criteria. For the applications that meet the criteria, we distribute them to our expert advisory panel to review and rank them. Our expert advisory panel is made up of external industry and academic individuals that are knowledgeable in the intelligent systems space. Based on the ranking, we then award funding starting with the strongest submissions. In order to receive the funding, companies must finalize a contract with Precarn and submit a milestone based plan by which funding will be tranched based on project milestones. As part of the program requirements, Precarn has reporting and audit requirements the company/project must adhere to. From the application cut-off date, a chosen company can typically expect to receive cheques in a period of 3 to 6 months.

Craig: What separates the good applications from the rest of them?
Gary: Our goal is to ensure companies/projects we fund result in successful commercialization and advancement in the intelligent systems field. We look for companies that have a good understanding of their market-space and ability to execute on taking a research initiative to a commercial offering. We like to see initiatives that don’t just do research for the sake of doing research, but do research that will create products that have economic value. We also look for companies that understand the need and have developed good partnerships with academic institutions and industry.

Craig: The T-GAP program was last run last fall. What are some of the companies that received funding?
Gary: Some examples of the 12 funding recipients for the most previous T-Gap round include: Client outlook, Biopeak, Incogna, Nutri-Loc Ingredients, and OneLight.

Craig: In addition to the T-GAP program you also have other larger programs?
Gary: We run larger funding programs that are also open to larger companies to fund projects researching more complex problems. In these programs, the project duration is longer (18-24 months) and funding is larger at up to $500k.

Craig: When do you anticipate opening up new programs?
Gary: Precarn is at the end of its 5 year funding cycle. We are currently sourcing funding for our next cycle so until this is sorted out have not begun to plan out our next programs. We typically will do between 1 to 3 funding programs each year. Each year’s programs can have a different focus to remain relevant with times. We would anticipate that cleantech and energy efficiency would be key areas next year.

Craig: Gary, thanks again for speaking about Precarn with the StartupNorth readership today. It was very interesting to learn more about Precarn and the good work they are doing to support commercialization in Canada.

craig at mapleleafangels.com

My previous article on start-up funding sources covered the Investment Accelerator Fund. For the next article in this series, I will cover the National Angel Capital Organization (NACO). I recently met with Dan Mothersill, President and Bryan Watson, Executive Director from the National Angel Capital Organization.

Craig: Thanks for taking the time today to speak with the StartupNorth readership. To start, can you give the ’30 second elevator pitch’ on the National Angel Capital Organization?

Dan: Sure, the National Angel Capital Organization is the umbrella organization that represents angel groups in Canada. Its members are the 32 organized angel groups across Canada. NACO has various programs to help support and encourage angel investment in Canada such as:

• Support for angel groups to get setup and be sustainable
• Publishing best practices on angel investing and running angel groups
• Advocating to government for policy initiatives to support angel investing (i.e. grant money to support angel groups, tax breaks for angel investment dollars)
• Fostering co-investment across angels groups in Canada and other regions of the world

Craig: To clarify, NACO does not make investments in companies like your member organizations?

Bryan: Correct, individual angel investment occurs via our constituent groups and their respective members. If companies approach NACO looking for funding, I refer them to one of our member groups that is the best match in terms of location / industry.

Craig: For angels in Ontario, there has been an exciting program, the Angel Network Program, that has made a big change in the ecosystem around angel investing. Can you talk about this?

Dan: Angel investors play a critical role in helping fund early stage companies and helping them commercialize and advance to the next level. However, from an entrepreneur standpoint, without organized angel groups, it can be hard to find and approach ‘lone wolf’ angels that invest individually. Prior to the Angel Network Program, there were only a couple of organized angel groups in Ontario. Now there are a dozen that cover a range of geographic areas, industry sectors, and university affiliations. Having organized angel groups makes it easier for entrepreneurs to get matched with angel investors as the groups are setup to promote themselves, intake deal-flow, and present to members. The Angel Network Program is funded by the government of Ontario and provides grants to angel groups in Ontario to give funding to groups to setup and support themselves.

Craig: This is a great program, I know the board at Maple Leaf Angels really values the work NACO did to get the program established and it is a key factor in the successful operation of our group. Having established angel groups is clearly beneficial to entrepreneurs. Can you speak about the advantages to angel investors?

Dan: Research has shown that that angel investors that invest via an organized group get better deals and higher return on investments. Since the angel group is actively marketing itself, they generally see more deals and higher quality deals. Most angel groups have a selection committee that helps narrow down the deals into the best few that are presented to members. Since this selection committee is comprised of several members with a wide variety of professional expertise, they can better assess the quality of deals across a variety of industries. Similarly, when it comes time to do due diligence on a candidate company for investment, there is a greater chance that somebody in the angel group has direct industry expertise or contacts that can do a detailed assessment of the company. Compared to an individual angel that may only do deals in the industry they are comfortable with, by investing through an organized angel group, they can assess deals in a wider range of industries which will help them build up a more diversified portfolio.

Craig: What are some of the companies that have been funded by angel groups established by the Angel Network Program?

Bryan: Some examples include: Speech Bobble, Cubeit, Spartan Biosciences , and a StartupNorth favourite, Well.ca. In total, an estimated $13 million in investment has been made as a result of this program.

Craig: That’s great. In addition to the capital investment, have there been other advantages?

Dan: Yes, definitely. From the entrepreneur standpoint, the ability to get several angels invested in their company is extremely beneficial from a mentoring/networking point of view. Many angels are themselves cashed out entrepreneurs and are willing to lend their expertise and connections to help their investee companies. From the government standpoint, the success of the Angel Network Program has helped to showcase angel investment as a class and show the importance that angels play in the commercialization lifecycle. Angel investment in Canada totals over $2.2b annually.

Craig: Moving on, NACO has been spending a lot of time of late to foster co-investment across angel groups. Can you talk about why this is important?

Dan: With the challenges in the VC system, it has become harder for companies to get follow-on financing. This is bad from the company standpoint as well as the angel investor standpoint. Co-investment aims to encourage deal exchange between angel groups. Namely, if one angel group invests in a company and sees them make good progress, we want to enable deal flow to other angel groups for follow-on company financing. This is a win-win situation as other angel groups will see high quality deals since their peer angel groups already have a working relationship with the company and the original angels will ensure there is a follow-on source of funding for their portfolio companies.

Craig: What events has NACO held around co-investment?

Bryan: NACO held the first Canadian co-investment summit in November 2008. 25 companies presented at this summit and at last count over $2m of investment has closed as a result. NACO recently held a second Canadian co-investment summit in May 2009 where 15 companies presented. We will aim to hold 1-2 co-investment summits in Canada each year. To date our events have been in Toronto but we are looking to hold them in other cities next year.

Craig: How does a company get selected to attend a co-investment summit?

Bryan: We have two qualifying criteria. First the company must be nominated by an angel investor. This angel will appear at the summit alongside the company to give their perspective on the company and why they feel the company is a strong investment. Secondly, the company must have at least $250k of outside money (i.e. in addition to friends/family/founders). For our last co-investment summit we received 60 applications. A selection committee composed of managers of several angel groups reviewed the submissions and narrowed it down to the 15 that presented.

Craig: What future co-investment initiatives are planned?

Dan: In the fall, we will be expanding our co-investment initiatives to the US and Europe with co-investment events planned in Boston and London. In the future we are looking to expend this to other regions such as China and India.

Craig: Most companies in Canada probably look to the US as their key market outside of Canada. Can you talk about how the European co-investment initiative will be able to help companies?

Dan: As you mentioned, the US is an important market for an early stage Canadian company to target. This is relatively easy to do given the language, culture, geographic proximity. However, when expanding sales and marketing channels, to Europe, this gets harder. Our goal is to find established early stage companies that are looking to penetrate the European market. By matching with angels in Europe we can help enable this expansion through capital and more importantly knowledge/contacts that European angels can bring to support the company in launching into Europe.

Craig: We’ll look forward to seeing this grow and develop over time as it will be good to develop broader relationships across angel groups across the world. Lastly, NACO is holding their annual summit in October. Although more geared towards investors vs. entrepreneurs, can you give a preview of what is planned at this event?

Bryan: Our summit is run for angel investors with various speakers, panels, and educational topics to help angels understand the investment process and keys to being successful. Two confirmed keynote speakers include Basil Peters, who will talk on how to build (angel funded) companies for early exits based on his recent book , and by Alan Barrell, renowned UK Angel investor, who will talk on cross-border investment. We will also have a small co-investment track where 5 companies nominated by our member angel groups will be able to make an investment presentation.

Craig: Dan and Bryan, thanks again for speaking about the National Angel Capital Organization today. NACO has done a lot of great work to promote and develop angel investing in Canada and all of us in the community look forward to continued development of the various programs you have on the go.

craig at mapleleafangels.com