From pandemic downturn to startup upswing
Why Innovators Care
UNC-Chapel Hill is ramping up support for faculty who want to start companies based on University intellectual property.
At the outset of the COVID-19 crisis in the early spring, Mireya McKee thought a lot of her day-to-day work with UNC-Chapel Hill startups would be ramping down. But what she experienced was the opposite: an upsurge in interest among Carolina faculty who are interested in starting companies – plus, increased engagement from those who have already founded ventures.
McKee works as the interim director of KickStart Venture Services (KVS), a core program of Innovate Carolina, which is the University-wide initiative for innovation and entrepreneurship at UNC-Chapel Hill. Despite the general economic downturn and university researchers being moved off campus and away from their labs, KVS has been working in overdrive with faculty who want to use this moment to either launch a company or make strategic moves to better position their existing companies for funding. While there are always new UNC-based companies in the pipeline, McKee said that KVS, which focuses specifically on ventures based on University intellectual property, now has two to three times more faculty engaging in conversations about creating new startups.
“My perception in March was that things were going to slow down, but we’ve actually had more conversations – a high volume of discussions – with faculty who are interested in startups,” said McKee. “Because they now have more time to step back from their everyday research and think further ahead, they have ideas that they want to work on.”
KickStart working with startups on funding, strategy and space
The flurry of activity doesn’t just involve new companies, but working with existing companies on business strategy and funding opportunities, McKee notes. To that end, KVS has been offering a variety of services: from the coaching, advisement and connections it normally provides to pandemic-specific support like helping companies pivot existing life science technologies toward COVID-19, write grants for COVID-related federal grants, and plan for future physical space needs.
In terms of future physical space, McKee says that now is the time to think ahead. In December before the pandemic hit, she and her team opened the KickStart Accelerator on the second floor of the Genome Sciences Building. The 7,500-square-foot accelerator offers wet lab and office space for UNC-affiliated life science companies.
“We’ve been fortunate that many of our companies have received funding awards, and we are working to get them ready to move into our new KickStart Accelerator,” said McKee. “Things are halted at the moment, but we are working to prepare them so that once operations resume, they’ll be ready to go.”
As for funding, McKee said KVS has held ongoing conversations with investors, and while the investors’ strategies are changing, they are still active and looking for deals. “Right now, it’s all about pushing through this and surviving. But if you do that, you will be in a very strong position to get investment funding,” she said.
A great way to bridge the funding gap, McKee says, is to apply for SBIR/STTR grants offered by the National Institutes for Health (NIH). While the next application deadline for such grants wouldn’t ordinarily happen until September, NIH has issued a special call for COVID-related funding. McKee and the KVS team are working with companies to navigate University processes so they avoid conflict of interest issues and helping them to strengthen grant applications through expert grant writers. Those types of services pay big dividends.
“We see an increase to a 50 percent success rate for our companies that work with grant writers compared to a 10-to-15 percent rate when they submit grants by themselves,” McKee said.
KVS also offers commercialization awards of its own to Carolina IP-based companies and recently announced the latest round of KickStart award funding recipients.
“You need to come up with a strategy for how you will manage your way through this situation, whether it’s finding creative sources of funding or minimizing costs,” McKee said. “And if you can pivot into areas that are of interest right now, there are a lot of ways to get into critical areas that are hot at the moment.”
Companies share advice on strategic, operational shifts
To give startups a platform to learn from other ventures, KVS is hosting a webinar series focused on new strategies and best practices. A recent webinar shared ways startups can adapt and remain productive during the current economic climate. Panelists included Ricky Spero, founder and CEO of Redbud Labs; David Spratte, co-founder of Carpe; Martin Waters, corporate and securities partner at Wilson Sonsini; and Ben Scruggs, an associate at Hatteras Venture Partners.
Panelists discussed how they’ve shifted their tactics and operations– from adjusting workplace conditions to keep employees safe to relocating product production and manufacturing to updating financial strategies.
Carpe took early action to move its production and manufacturing to a different location. Realizing the company needed a stronger foundation to scale post -COVID, the company re-assessed everything about its business.
“Selfishly, it was a nice shakeup for us. It’s easy to get stuck in your ways, and COVID forced us to start from scratch and think critically about what we’re doing and how we’re doing it,” said Spratte. “We aren’t straying from our core values or overall mission, but we’re focusing on finding new, efficient and relevant ways to connect with customers in a personalized way.”
Not knowing what may lie ahead post-COVID, startups have to adapt to what’s happening in the current environment and figure out how to continue to move things along.
“Our technology is most relevant in point-of-care devices where you need answers quickly,” said Spero. “We have been brought in on additional projects and definitely had to change our process. More than half our people have to be in the lab, and we had to adjust that to keep people safe.”
“Businesses must be prepared to test employees, take steps to provide a safe workplace, identify and engage who the high-risk employees are and be ready to respond to employee concerns about working in a safe environment,” said Waters, who’s been instrumental in starting, building, and shepherding numerous life sciences and technology companies through IPOs or strategic partnerships.
Financial strategies may have to shift as well, and applying for grants and loans are top of mind for many startups. In addition to applying for SBIR/STTR grants, another popular program panelists mentioned is the Small Business Administration’s Paycheck Protection Program (PPP). Startups should figure out if they meet the necessity rules of the program in order to make sure they qualify for the loan to be forgiven.
In addition to loans and grants, angel investors and other investment partners are good options for many startups.
“We are still actively looking for new investments, and the focus has not largely changed. In general, we have not been looking for pure plays on the pandemic itself,” said Scruggs, who works through due diligence and deal flow processes with a primary focus in therapeutics. “Meeting new companies through Zoom is definitely something we are doing on a daily basis.”
Other advice from panelists included having multiple, contingency plans in place to be well prepared for any scenario.
“Good operators – ones that I admire – thrive on contingency. Always have a plan A, B and C,” said Spero. “We need to have a way to provide some consistent guidance and leadership to the people inside the building because it’s not coming from the outside. There’s no agreed upon way to do this. So within the culture of the company, there needs to be one message and one plan.”
“Right now, we’re in an unprecedented time, and we have this unprecedented opportunity to learn – to learn how to manage morale when everyone’s getting punched in the face every single day, to learn how to manage a fully remote team, and to learn how to manage a P&L during a global crisis,” added Spratte. “That’s the mindset we’ve tried to take. This is an incredible learning experience and opportunity, and it’s helped us think about things that we wouldn’t have otherwise thought of.”