What is the best way to increase our national security posture, increase net job creation and boost our economy? Perhaps the federal government should be a venture capitalist! This deck has been modified from slides supporting discussions and presentations about the efficacy of R&D spending, translational research funding or other efforts to better commercialize technology and stimulate early stage company growth.

1. Government Venture Capitalist? The Neglected Component Of National Security
Presented by Roger London Chairman American Security Challenge

2. Welcome!
We hope you enjoy this unconventional approach to national security through a
strong economy and strong job growth. Clearly the better the economy, the more
money public and private sector has to invest in security goods and services.
We created this presentation in 2009 and while the economy has changed, the
conclusions are perhaps even more relevant today. A better economy means:
2014 update by Roger London
• More money for R&D
• More money for startup investment
• More money for federal Defense & IC budgets
• More money for private sector critical infrastructure protection
But where do we get the most technology jobs… is it R&D,
translational research, tech transfer or commercialization?
But where do we get the most technology jobs… is it R&D,
translational research, tech transfer or commercialization?

3. What is Innovation?

4. Previous slide shows an innovative approach, but not all innovation is
worthwhile (clearly!).
Merriam Webster definition: Innovation is “a new idea, method or device.”
Relative to technology, the forefather of innovation is usually research and
development.
Without this innovative thinking and significant investment in research and
development, our nation would suffer dramatically.
Not that we would not continue to innovate, but R&D is most of the iceberg
under the waters surface. We will however question traditions and suggest
ways to maximize this R&D with exponentially greater results.
These suggestions will undoubtedly trouble those in established and
entrenched R&D fields.
What is innovation?

5. Wikipedia: Translational research “has the potential to advance applied
science….to move from bench to bedside.”
Relative to technology, this takes innovation and learnings from research and
development and refines them with a specific problem or opportunity in
mind.
In other words, translational research takes the abstract innovation which is
not scalable, replicable, profitable, desirable and/or marketable and works
to make it so.
What is translation research?

6. Wikipedia: technology transfer (tech transfer) “is the process of transferring
skills, knowledge, technologies, methods of manufacturing, samples of
manufacturing and facilities among governments or universities and other
institutions to ensure that scientific and technological developments are
accessible to a wider range of users who can then further develop and
exploit the technology into new products, processes, applications, materials
or services.”
Tech transfer is usually a legal or business process of assignment to an entity
that will attempt to commercialize the technology. Tech transfer is
frequently misused and is NOT the same as commercialization.
What is tech transfer?

7. Now we get down to where the rubber meets the road…..
Wikipedia: commercialization “is the process or cycle of introducing a new
product or production method into the market.”
While that is technically true, it is imperative to realize that commercialization is
NOT the finish line.
UNSUCCESSFUL commercialization is an attempt to sell a product or service to
the marketplace that is NOT embraced. In this case the rubber meets the road in
a parked car.
Successful commercialization on the other hand is actual adoption by the
market and definitive proof of traction. In this case the rubber meets the road
touring down the interstate at 60MPH.
What is commercialization?

8. So successful commercialization...
= ADOPTION

9. Who is Net Job Creator?
• Nov 2009 Kauffman Foundation report unequivocally
determines that “Young Companies” are responsible for most
net job creation.
• In 2007, 1-5 yr. old companies responsible for 8 out of 12 million new
jobs
• Job growth is related to company age, not company size
• Key to stimulating job creation is not funding for research but supporting
young companies
“Where Will The Jobs Come From?” Kauffman Foundation report

10. Who is Net Job Creator?
Startups, 37%
1-5 Yr Old
Companies 33%
Older Companies,
30%
2007 New Jobs

11. Young Companies Drive 2/3 of Net
Job Creation

12. Young Company impact on national
net job creation over 30 years
The First Source of Job Creation: Startups
+27 years+7 years

13. Truth:
Net job creation engine= startups and young companies less than 5 years old
Net job creation definitions:
truth or misguided conventional wisdom
Misguided CW:
“Small businesses are net job creation engine”. This is partially true if small
businesses are young companies. But note that small businesses over 5 years
old are NOT net job creation engines.
This also means that any “job program” addressing technology or entities
during R&D, translational, or tech transfer is NOT the most efficient way to
create jobs.
While these kind of programs may create jobs, some even permanent jobs,
they are not nearly as effective at net job creation as those that target young
companies less than 5 years old…..period.

14. Net job creation engine= startups and young
companies less than 5 years old
-see Kauffman Report
Net job creation definitions:
truth or misguided conventional wisdom
Misguided CW: Small businesses are net job
creation engine.
-Partially true if small businesses are young companies but small
businesses >5 years old NOT net job creation engines
Uninformed CW or False: Innovation (meaning
R&D) is a net job creation engine
-see Kauffman Report

15. How to Create Security Startups?
• Research and Innovation infrastructure?
• Translational research?
• Early stage investment capital?*
Sooo, where should we put our money to create the most jobs in
the security space?
*Tech transfer is really a process so not included above. Commercialization is also more a process or stage, but pivotal to that stage is early
stage capital which is the activity discussed.

16. ITIF 2009 “Stim-novation” Report
Job output per $20B investment in R&D
Total
Scientific
Research
Equipment Facilities
Direct and Indirect Jobs 196,190 97,345 27,270 71,575
Induced Jobs 205,640 119,595 32,340 53,705
Direct, Indirect and
Induced Jobs
401,830 216,940 59,610 125,280
NOTES:
• 50 percent of final funds go to fund research, 25 percent of funds go to purchases of new research equipment,
and 25 percent of funds go to building and renovating research facilities
• Jobs are created or saved (reduce number of researchers and others who become unemployed)
• Funding supports one year temporary jobs
• Average annual salary of the 402k jobs is $45, 857

17. ITIF 2009 “Stim-novation” Report
Job output per $20B investment in R&D
R&D as a job creator:
• Investment in R&D is an investment in temporary jobs. This is not pejorative of
the value of the job or the work, but regardless of how meaningful without
more grant funding, the job goes away unless the R&D produces a startup that
can survive once the research funding runs out in a year. So its important to
remember R&D funds temporary jobs.
• The average annual salary for that year is is $45,857
• 50 percent of final funds go to fund research, 25 percent of funds go to
purchases of new research equipment, and 25 percent of funds go to building
and renovating research facilities.

18. Startups from University R&D
• 2008 AUTM data
• $51.47B research at 191 Universities
• 5,039 licenses and options executed
• 595 new companies formed
• 2007 AUTM data
• $48.8B research at 194 Universities
• 5,109 licenses and options executed
• 555 new companies formed
• 2006 AUTM data
• $45B research at 189 Universities
• 553 new companies formed
Speaking of startups, how
many startups are created out
of this R&D money?
Must be a huge startup engine
with all that innovation
investment, all those smart
researchers, innovative
universities, entrepreneurial
students, etc….

19. R&D output to Startups
$116,568,000,000$116,568,000,000
(NSF)(NSF) 1,3671,367
NEWCOSNEWCOS
Federal R&D investment spins off over a thousand startups….
that's awesome. Right?

20. R&D output to Startups
Think about this number
That means for every 1 startup created, the federal government spent over
$85,000,000,000 in R&D. Now before the academics and researchers have an
embolism, we are not suggesting this is not important and basic research that does
not lead to a startup frequently shines a light on a path not to take, which is a
valuable outcome and may also be of value in some other research in the future.
But as a taxpayer and an entrepreneur, that seems like a HUGE amount of money
spent before creation of even one startup that could take the technology to market.

21. Translational Research
Clearly investing on translational research with a
specific problem or solution in mind will be more
effective as a job creator than basic R&D….right?

22. Translational Research
– $1M = 36 jobs*
– Jobs were temporary- one year jobs
– external research labs,
– engineering, and scientific services,
– equipment, etc.
– Some of the jobs are placed significantly down the line such as food
service
– Cost to create each temporary job- $27K per job creation
* Our apologies, when updating this deck we accidently
deleted the specific source of this information. We believe it
was another ITIF research report (fabulous organization)

23. Early Stage Capital
Recap: as a net job creation source, R&D creates roughly 20
temporary one year jobs and translational funding almost
twice that at 36 one year jobs per $1M of funding. Of these
two, translational funding clearly a better job creator,
albeit temporary jobs.
How does early stage investing, specifically venture capital
stack up against these as a net job creator?

24. • 12% private sector employees and 21% GDP
• Recession proof
• 2000-2003 national employment shrank -2.3% but 6.5%
jobs growth for VC companies- recession proof
• job growth 1.6% v. .2% (2006-2008)
• Job Creation engine
• 1 job for every $12.3K (80 jobs per 1M)
• 1 job for every $37,702 (26 jobs per 1M)
• Average base salary $85k v. national salary average $32k
• Sustainability
• 31% of all startups in business after 7 years
• 78% of companies formed in 1999 still in business
U.S. Economy 101
Venture Capital

25. 0%
10%
20%
30%
40%
50%
60%
70%
80%
Startups after
2 Years Startups after
5 Years All Startups
After 7 Years VC Backed
Startups After
10 Years
69%
50%
31%
78%
Startup Sustainability
1999-present

26. U.S. Employment 2000-2003 U.S. Employment 2006-2008
VC backed Job Growth
Recession Proof

27. Disproportionate GDP input from VC backed companies
12% private sector employees and 21% GDP
VC Backed Impact on GDP

28. VC backed R&D generated startups
$116,568,000,000$116,568,000,000
(NSF)(NSF)
1,3671,367
NEWCOSNEWCOS
NOTE: out of the startups spun-outNOTE: out of the startups spun-out
of federal R&D investment, only 13of federal R&D investment, only 13
would be venture backablewould be venture backable
(1 out of 100)(1 out of 100)

29. Start-ups
created
Permanent
Job
High
Paying
Time To
Create Small
Business Job
Cost To
Create Each
Job
Research &
infrastructure
2-5 years $49,000
Translational
research
1-3 years $27,778
Early stage capital    Now-2 years $25,001
Net job creation engine comparison

30. Conclusion re net job creation?
So if you were the federal government, and you wanted to
add another 1,000,000 quality technology jobs, you could…
* Not to forget, $50B will also create a little more than
half of one spinout startup.
• Spend $50B on R&D and within 3-5 years create 1M temporary
one year jobs with average salary of $45k.*
• Spend $27B on Translational Research and within 1-3 years
create 1M temporary one year jobs (salary unknown),
• Spend $25B and within 1-2 years create 1M jobs with average
salary of 87k that have 78% chance of lasting 10 years.
Hmmm, let me think……

31. How in the world can the feds put
dollars into venture capital?
Operationalizing this strategy will be just as hard as getting decision makers to
agree with the strategy in the first place. Organizations who are embedded and in
some cases whose very existence is tied to this R&D funding will violently argue the
logic.
Without getting into source of funds (is this new money, reallocated money or a
combination) much less the FAR, GSA, “fair and open” and other procurement and
contracting quicksand, we recommend spreading that investment capital over the
top 150 venture funds.
Here comes the most important but hardest part to implement…make investments
without regard to fund size, ownership, diversity, sector, location, or any other
discriminator…..just select the ones who have realized the highest ROI returns
investing in “young companies “over the last 10 years and make an LP investment
proportionate to the size of the fund.
The only prerequisite of course is that the investments are into U.S companies for
activities and employees to be located in the U.S.
•

32. BONUS
10 Quickest Commercialization Tools
1. Government Venture Fund (GVF) targeting early stage investment
2. Leverage huge customer buying power
3. Create Rapid Fielding Pilot programs
4. Promote smart money alumni angel groups
5. Co-invest federal funds with angels and VCs to stimulate more investment
6. Allocate 1% reserve of federal R&D to tech transfer and startup working capital
7. Revise SBIR to shift investment away from research addiction to
commercialization activities
8. Create MBA Startup Seed Funds to distribute thru existing university channels
9. Create “floorplan” financing for government contractors
10. Fund best practices of tech transfer
See “Top 10 Federal Investment Strategies for Maximizing Proven Net Job Creation Engine: Young
Companies” at Roger London LinkedIn profile page http://www.linkedin.com/in/rlondon

33. Roger London
Chairman
American Security Challenge
Moving Innovation to Market
www.AmericanSecurityChallenge.com
6031 University Blvd. Suite 180
Ellicott City, Maryland 21043
410-340-5335
Email: Roger@AmericanSecurityChallenge.com
LinkedIn Profile: http://www.linkedin.com/in/rlondon
Thank You