Financing a Start-up

As faculty founders, you may have smart ideas. However, investors only fund smart business opportunities not just smart ideas. Getting from the idea stage to the proof-of-principle stage and then to the business stage requires capital. Listed below are brief descriptions of potential funding mechanisms available for Emory faculty start-ups.

Proof-of-Principle Funding

The funding gap between discovery and proof-of-principle is often the main obstacle preventing early-stage technologies from being advanced and eventually funded by venture capitalists or industry partners. Access to the proper seed funding channels is paramount to the successful migration of academic discoveries from the lab bench to prototype. Helping early-stage start-ups obtain proof-of-principle funding and bridge this chasm is a major focus of OTT's Faculty and Start-up Services program. This information is intended to serve as a quick reference to the many types of seed funding available to Emory researchers. The best funding channels for a given early-stage technology should be discussed with an OTT associate.

Local Seed Grants

I. GRA Venture Program

The Georgia Research Alliance (GRA) is a private, nonprofit organization that partners with Georgia's leading research universities, businesses, and state government to achieve economic development goals through its strategic investment in innovative research. The GRA Ventures is GRA's commercialization arm designed to help create new ventures out of research labs.

plant growing out of coin bed

GRA Ventures offers a four phase program that serves as a catalyst for seeding and shaping Georgia start-ups. For Emory projects, all GRA Ventures grant proposals must be submitted to GRA by OTT. GRA does not accept proposals submitted directly by faculty or faculty start-ups.

Phase I:

An award is available for new venture ideas. Company formation is not required for a Phase I project. Funds can be used for proof-of-concept development.

Phase II:

An award is available for company launch. Phase II requires one-to-one matching funds from a credible source as a validation of the commercial opportunity. At minimum a virtual company is created and the engagement of a business entrepreneur is preferred during the Phase II project. A GRA Industry Fellow may also be assigned to the funded GRA Ventures Phase II project. GRA expects the start-up and the university to complete license arrangements at the end of a Phase II project.

Both Phase I and Phase II are grants awarded to Emory faculty or to OTT depending on the focus of a specific grant project. If the proposed tasks are conducted in the faculty founder's lab, a departmental account is set up which is similar to any other grant accounts. Otherwise, an OTT account is set up and the GRA funds are managed directly by OTT.

Phase III:

This award is not a grant but rather a commercial loan. An award of up to $250,000 is available for a faculty start-up that is beyond Phase I and Phase II GRA Ventures stages. The loan is made directly to the start-up company. The term of each loan is five years. The loan bears interest and is expected to be paid back (principal plus interest) or converted to other investment instruments at GRA's discretion. Triggers for early repayment include relocation of the company out-of-state, event of mergers and acquisitions, two consecutive years of profitability, or an equity investment of $7,000,000 or more.

Phase IV GRA Venture Fund:

This is a venture capital fund managed by GRA that makes equity investment in Georgia startups having gone through at least two phases of GRA Ventures program.

GRA Ventures provides a main source of funding for Emory's virtual start-up projects. Since 2005, more than 80 projects have been funded by GRA Ventures. See a listing of Emory Start-up Projects funded by GRA Ventures.

Emory OTT is designated by GRA Ventures to identify projects, coordinate proposal preparation, submit proposals, help review, notify awardees, and manage non-departmental grant accounts. Faculty members are encouraged to work closely with OTT in the grant application process.

For more information about the use of GRA Ventures funds and spending deadlines, please contact Todd Sherer (email: or 404-727-5550.

II. Georgia CTSA

Created in 2007, the Atlanta Clinical & Translational Science Institute (ACTSI) is one of the federally funded consortiums aimed at improving the way translational biomedical research is conducted across the country. Emory has engaged two of its close academic partners in metropolitan Atlanta - Morehouse School of Medicine (MSM) and Georgia Institute of Technology (Georgia Tech) - to form the Georgia CTSA. This partnership offers compelling, unique, and synergistic advantages. Recognizing the critical need for start-up, feasibility, or proof-of-concept resources, Georgia CTSAdeveloped its Pilot Grants program to fund clinical and translational projects in Atlanta. Funding announcements of the Georgia CTSA Pilot Grants can be found in Georgia CTSA's weekly newsletter distributed to faculty of Georgia CTSA member institutions. Information about the pilot grant program can be found on the Georgia CTSA website.

III. Biomedical Engineering Capstone Senior Design Program

This program is not a grant program but an in-kind prototype development contribution made by students participating in the Biomedical Engineering Capstone Senior Design Program (BME website). Every year, the joint Georgia Tech and Emory Department of Biomedical Engineering (BME) offers the Capstone Senior Design program to students. A team of BME seniors, supervised by engineers and professors, selects a project provided by an Emory physician and builds the prototype for the physician. Each team's expenses for prototyping can be partially reimbursed, up to a certain amount, by the department. BME department issues its annual project solicitation to all Emory physicians.

IV. OTT Proof-of-Concept Fund

In 2014, OTT established a proof-of-concept fund. The intent of this fund is to accelerate medical technology commercialization by providing financial support towards prototype development and proof-of concept testing of medical technologies invented by Emory researchers and clinicians. Typical investment opportunities range from $5,000 to $30,000.

Federal Small Business Grants

For new ventures not ready to attract venture capital, or for companies that prefer to employ non-dilutive funding strategies to advance technology, federal grants and contracts offer good funding choices because these grants and contracts do not dilute the founders' equity stake while the technology is advanced and the company value increased. Various federal programs, such as SBIR, STTR, RAID, and RAND, supply by far the largest amount of money to support biomedical research.


I. Small Business Innovation Research (SBIR)

SBIR provides opportunities for small businesses (fewer than 500 employees) to participate in federally funded research and development to commercialize new technologies. In 2015, many federal agencies, including but not limited to NIH, NSF, CDC, DOD, NCI, FDA, DOA, and NASA, are required to set aside 2.9% of their extramural research budget to fund SBIR programs. SBIR awardees are entitled to retain intellectual property rights while establishing a “sole-source marketing position” with the U.S. government.

Three phases of SBIR funding are available. Phase I SBIR provides six months of funding in order to demonstrate proof-of-principle and feasibility. Only Phase I winners are eligible to apply for Phase II SBIR award (two years of funding up to more than $1,000,000). Phase II is aimed at funding subsequent research and development. It is estimated that 40% to 50% of Phase I awardees go on to receive Phase II funding. Separate proposals must be submitted to each federal agency when applying to multiple federal entities. If your SBIR proposal is accepted by more than one agency, you are required to select a single agency to move forward. The objective of Phase III, where appropriate, is for the small business to pursue commercialization opportunities resulting from the Phase I/II R/R&D activities. The SBIR program does not fund Phase III. However, Phase III may involve follow-on non-SBIR funded R&D or production contracts for products, processes, or services intended for use by the U.S. government.

There are multiple standard receipt dates (effective September 5, 2015) for SBIR proposals:September 5, January 5, and April 5. It is highly advisable to review the solicitations from all eleven SBIR agencies to assure a good fit for your proposal. Georgia has a state-funded SBIR Assistance Program that helps Georgia small businesses win SBIR/STTR grants. More information on this program and SBIR can be found at the federal SBIR/STTR website.

Foresight Street also has a webinar series on SBIR funding which can be found on this YouTube channel.

II. Small Business Technology Transfer Research (STTR)

STTR is closely modeled around the SBIR program but focuses instead on partnering the public and private sectors and fostering collaborations between small businesses and research institutions. In 2015, five federal agencies set aside 0.4% of their extramural research budget to support technology transfer.

The SBIR and STTR programs differ in two major ways. First, under the SBIR program, the Principal Investigator must have his/her primary employment with the small business concern at the time of award and for the duration of the project period. However, under the STTR program, primary employment is not stipulated. Second, the STTR program requires research partners at universities and other non-profit research institutions to have a formal collaborative relationship with the small business concern. At least 40% of the STTR research is to be conducted by the small business concern and at least 30% of the work is to be conducted by the single, "partnering" research institution. Therefore, for STTR projects, university faculty can be primary principle investigators. With STTR funding, the university retains intellectual property rights (as compared to the small business concern of retaining intellectual property rights with an SBIR award) and the business can negotiate for joint ownership of the technology resulting from STTR research.

SBIR and STTR have the same standard receipt dates (effective September 5, 2015): September 5, January 5, and April 5. Both STTR and SBIR proposals should contain an introduction, specific aims, background and significance, preliminary studies, and research design and methods. STTR Phase I provides funding for one year to demonstrate feasibility. STTR Phase II (up to more than $1,000,000 for two years) and Phase III are similar to SBIR phase II and Phase III. More information on STTR and SBIR can be found on the federal SBIR/STTR website.

III. NExT NCI Experimental Therapeutics (NExT) program

This program is designed to advance novel agents into clinical trials, including support of IND-enabling studies. Information and instructions for proposal submission

The program is available for researchers in academia, government, and industry. The program targets drug discovery and development projects focused on unmet needs that are not adequately addressed by the private sector. NCI is committed to moving high-priority projects through to proof-of-concept clinical trials. NExT is not a grant or contract mechanism. Rather, approved projects will be provided access to NCI's drug discovery and development resources.

Raising Capital from Investors

I. Friends-and-Family Investors

Venture capitalists usually do not invest in start-ups that have untested and unproven concepts. More than 50% of start-ups' seed capital is raised from founders, family members, friends, and other informal investors. Financial contributions from friends-and-family investors can help keep a company afloat and allow the company to strive forward during the embryonic phase. Two major issues should be considered when raising seed capital from friends-and-family investors: a) to understand these investors' intent or motivation clearly; and b) to structure the deal properly based on mutual understanding. Friends-and-family investors may be willing to put money into your business just because they trust you, have a desire to help you succeed, or simply expect a financial return. A thorough understanding of their motivation helps you structure the right deal. Generally speaking, debt is better than equity instruments for friends-and-family investors.

newspaper on investor page

II. Angel Investors

Statistics indicate that in the United States there are about 3,000 new venture capital deals and about 50,000 new angel deals each year. It is apparent that angel investment is a good option for capitalizing start-ups. Angels are high-net-worth individuals (usually accredited investors) who invest in early-stage companies. They are willing to take a high risk in exchange for a superior return on their investment.

The single most important issue with angel investment is to make sure that the start-up has a venture capital friendly equity structure after angel rounds in order to attract venture capital in the future. There are several key issues that need to be carefully considered when raising capital from angel investors. Such issues include the ability to match angels' available funds with your capital needs, understanding their expertise or experience in your company's area of business, and their willingness to accommodate later-round financing.

The typical individual angel invests between $25,000 and $100,000 at one time in one company, with an average of $60,000 per deal. In the Atlanta area, there are two major angel associations: Seraph Group and Atlanta-Technology Angels. Seraph Group provides capital supplied from 170 successful business and technology leaders. Seraph seeks investment opportunities in the IT, web services, communications, life sciences, and mobile sectors in one of two development stages:

  • Seed Stage: Seraph provides the first outside capital in companies with exceptional management and an unprecedented idea or market opportunity before the product is validated. Seed stage investments range from $50,000 to $250,000.
  • Early Stage: Seraph invests up to $1,000,000 in a product or service currently in existence or in beta trial with potential demonstrated through usage increases, customer sign-ons, revenue, or pilot trials.

The Atlanta Technology Angels (ATA) is a group of accredited angel investors who invest in and support start-up and early-stage, high-growth businesses in Atlanta and around Georgia. ATA has been in existence since 1998 and has invested in more than 30 Atlanta companies. ATA members typically invest between $250,000 and $1,000,000 in any given company.

III. Venture Capital

Getting your company funded by venture capital is considered the most credible market validation of your technology and business. A typical venture capital fund consists of several general partners (also known as venture capitalists or VCs) and a group of limited partners. The general partners manage the fund, examine investment opportunities, make investment decisions, monitor the investment portfolio (sit on the company's board), and determine exit strategies. Limited partners are investors in the venture capital fund, typically institutions with large amounts of available capital, such as pension funds, university endowments, insurance companies and pooled investment vehicles. VC investment usually takes the form of either preferred equity or a combination of equity and debt. The investment time frame is less than 10 years. VCs normally hope to liquidate their equity within three to seven years and expect an annual return on investment of more than 30%.

VCs are very selective in choosing investment opportunities. Most funds invest in only one of several hundred opportunities presented to them. Some VCs may be interested in early-stage start-ups; others may be more inclined to invest in later-stage companies. The management team, a strong intellectual property position and market size are key deciding factors VCs consider in making investment decisions. To be considered as a candidate for investment by VCs, a company usually needs to have a business plan and at least one fundable company officer.

Emory OTT has close ties with many venture capital funds, locally, and nationally. We not only try to align OTT business practices and philosophies with the realities of VC investment, but also take value-creation steps to create and develop smart, VC-fundable opportunities and present them to VCs. From time to time, we invite VCs to have campus visits so that they can learn more about Emory start-up projects. As of 2015, 21 Emory start-ups were funded by VCs, including Triangle Pharmaceuticals (now Gilead), Pharmasset, AxoGen, AxoGen, Apica Cardiovascular, and Clearside Biomedical, to name a few.

If you would like to pursue venture capital, you may want to consider using some of the following resources to gather information:

IV. Crowdfunding

Crowdfunding is very new and still being defined. It describes the collective effort of individuals who network and pool their money, usually via the internet, to support business opportunities initiated by other people or organizations. When it comes to start-ups, crowdfunding refers to the funding of a company by selling small amounts of equity to many investors. This form of crowdfunding has recently received attention from policymakers in the United States with direct mention in the JOBS Act, legislation that allows for a wider pool of small investors with fewer restrictions. Crowdfunding is perhaps the most exciting change ever in the way U.S. companies can raise growth funds. Although we have not seen many success stories in the fields of drug discovery, diagnostics, and medical devices, there are many fund-raising efforts in other fields that have led to a profitable exit for crowd investors.

Partnering with Established Companies

Corporate partnering is a proven, complementary alternative to venture capital (VC) financing. Most technology start-ups combine venture capital investment with a corporate partnering strategy. The partnership provides the two parties with mutual benefits. The smaller company seeks the financial stability and established processes (e.g., manufacturing and/or distribution) of the larger company, whereas the larger company seeks access to the smaller company's emerging technologies.

Making the selections between partnering and venture capital and structuring partnership deals are important decisions that should be discussed with the founders' business advisors. Normally, a start-up has to establish its technological capability to attract potential corporate partners. The company's technology should be devisable by market (applicable to multiple market segments) so that the partnership will not significantly reduce company value. The strategic interest should not conflict with that of the potential corporate partner. If there is a need for future venture financing, it is important to make sure that valuation accepted by the corporate partner would also be acceptable to VCs.