Emerging Business Models: Innovation Finance. Clearwater, Florida 22 February 2018

Transcription

1 Emerging Business Models: Innovation Finance Clearwater, Florida 22 February 2018 Proprietary Copyright Innovation Finance Group 2018

2 Executive Summary: Innovation Finance Group applies private sector financial tools to support public private partnerships for R&D Purpose Today s presentation will: What investing private sector financial tools can add to your programs What methods are most effective in working with commercial partners Importance Project financial analysis is critical to understanding: If you re over-spending on your projects If you re deterring best-in-class private sector performers from your projects Preview Today s agenda: Brief 15 minute overview slide deck Discussion of financial tools Options for discussion follow-up: Financial tool application analysis Proprietary. 1

3 Challenge: finding more funding sources for US R&D investments USG R&D funding is falling. Private sector funding is rising, producing new capabilities faster than the USG can. Other players are not waiting for the USG to adjust. Proprietary. Source: AAAS, NSF, AIP 2

4 Legacy US Government R&D investment system Cash flows R&D Funders Have mission to support development of high-priority technologies R&D projects Technical oversight Technical Oversight Limited R&D funding Often have administrative burden Product Developers Have technologies Want product sales Need R&D investment funds R&D Projects Product End Users Want technology products Have acquisition dollars Don t have R&D investment funds Problems: Reduces third party collaboration Increased cost due to administrative burden Slows down projects Deters non-traditional contractors Proprietary 3

5 Leverage existing (underused) authorities A solution: new financing tools to leverage private sector dollars 10 U.S.C U.S.C. 2371b Other existing authorities Apply innovation finance Utilize new finance tools to leverage private sector dollars and move projects rapidly forward 4

6 Private financing case studies SpaceX Description & Impact Launch vehicle & cargo spacecraft 300%+ cost savings vs. legacy contracting Contracting Approach Other transaction Private markets Venture capital Private Financing $450M+ Naval Facilities Engineering Command Resilient energy program Participate in private financing ecosystem Prototyped & installed 1GW+ of naval energy facilities Energy authorities RDT&E funds Bank/commercial financing $1.5B+ Biomedical Advanced Research & Development Authority Medical countermeasures Attracting non-traditional performers FDA approval of new drugs Cooperative agreements Other transactions Corporate internal R&D co-investment $200M+ mission focus $200M+ corporate R&D Medical Technology Enterprise Consortium Biomedical product portfolio Pioneered new, flexible business environment Attracting non-traditional performers & co-investment Other transactions Philanthropy Seeking venture capital $20M+ mission focus Seeking venture capital 5

7 Sources of private sector financing Investor type Bank Lending Bonds / Credit Market Corporate Internal R&D Venture Capital Private Markets Return Target 1-5% 3-10% 7-15% 15-30% 5-30+% Risk Appetite Very low Low Medium High High Available Capital $150 trillion $100 trillion $1 trillion $0.06 trillion $5 trillion Description Bank financing Commercial financing, bonds Corporate cash reserves Institutional VC Family offices Private equity Hedge funds Mission-driven Government R&D needs systematic & repeatable access To access these sources, Government R&D agencies need: New financing tools Proprietary. Source: Deloitte, Bloomberg, National Venture Capital Association 6

8 How private dollars can support government priority R&D R&D Funders Have mission to support development of high-priority technologies Cash flows R&D projects Technical oversight Technical Oversight Limited R&D funding Often have administrative burden Product Developers Have technologies Want product sales Need R&D investment funds R&D Projects Product End Users Want technology products Have acquisition dollars Don t have R&D investment funds Financing tools Proprietary Private Investors Have unlimited investment funds Willing to pay up-front project costs Willing to bear risk that repayment does not occur Interact on a commercial contracting basis 7

9 Finance tool utilization flow chart FAR Approach No Is non-traditional contracting authorized? Yes Define technology need Is there a potential future market? No Yes Pay for Success Bonds Royalty return Classic equity Proprietary. 8

10 Selected financing tools Pay-forsuccess Investments to fund individual project stages. Returns based on milestone success payments or prizes Royalty return Investors receive royalties from product sales to government or commercial markets Innovation bonds Government R&D funds securitized as bonds Classic large-scale P3 financing tool Full project investments Advance agreements for multi-stage projects to finance the next tranches as project stages are completed Project portfolio Debt, equity or royalty investments in portfolios of multiple projects aiming at one or more target products Classic equity Medium to long-term equity investments to fund project companies. Proprietary 9

11 Financing tool example 1: pay-for-success Pay-for-success approach Stage 1 Stage 2 Stage 3 1.1X return 1.1X return 1.1X return 3 parties: Government R&D funder, company, & investor Investor pays company to perform science on commercial terms (no delay) Government R&D funder pays investor: On science success: 110% of commercial science cost On science failure: pay nothing, or agreed partial amount Legacy R&D approach (e.g. FAR cost-plus) 2 parties: Government R&D funder, company Government R&D funder pays company to perform work: On science success: 100% of science cost +~30% admin burden & +~30% time On science failure: pay same as for success Proprietary 10

12 Financing tool example 2: royalty return Government R&D Agency Select projects Contribute R&D funding Conduct oversight Cash flows R&D projects Technical oversight R&D Performers Develop products Agree to make royalty payments to investors Products & services Purchases End Users Signal need Pay for products Receive products Investors Invest agreed amounts Receive agreed returns Proprietary 11

13 SpaceX case study Other Transaction Commercial Orbital Transportation Services $396M Government funds $450M+ investment from private markets + venture Savings 300%+ cost savings vs. legacy contracting $21B valuation First orbital flight of Falcon 1 rocket Resupply of International Space Station Source: Team analysis 12

14 SpaceX Other Transactions Agreement Other Transaction Agreement Highlights No FAR flowdowns Multiple rounds of private financing Commercial space transport Launch vehicle Cargo capability Crew capability Financing milestones treated the same as technical milestones Source: Team analysis 13

15 Q&A 14