Virtual Incubation Co. Keeps Money Coming

Virtual Incubation Co. LLC has won 12 Small Business Innovation Research awards for five local startups since Jan. 2003.

The federal grants total $1.1 million in working capital that the early-stage, high-technology ventures would never have been able to coax out of traditional lenders or probably even lure from the boldest of “angel” investors. Calvin Goforth, president of VIC, said that’s because budding technologies are still considered high-risk investments.

But by conducting stringent due diligence to cull the ideas that lack commercial potential, and supporting the ones that are promising, VIC has tripled the amount of its SBIR award pool just since last April. At that time, VIC had received a total of $305,000 in phase I SBIR funds for two companies.

Now, it’s received more than $1 million total for five of the nine startups in its portfolio.

“If a company’s technology doesn’t have both innovation and commercial potential for success, we won’t move forward on it,” Goforth said. “We’re careful on the front end so that we’re only left with the companies that really have potential.”

VIC’s results speak for themselves. According to Greenwood Consulting Group Inc. of Sanibel Island, Fla., only about one in eight SBIR applicants nationally receives a grant. VIC’s success rate to date has been one in three.

VIC has also recently submitted its first three phase II SBIR proposals — a higher round of funding where awards can reach $750,000 each. The second round is easier sledding because companies must meet progress requirements during the first round that basically prep them for further development.

VIC submitted 50 SBIR proposals for its companies during 2003. That’s about twice as much as were submitted by all other entities in Arkansas combined.

The firm provides clients with multitiered management, operational, research and fundraising support. It takes an equity stake in the firms and derives some fees from the SBIR awards it helps get.

VIC also identifies potential industry partners for its firms and develops commercialization plans. The awards have come from the National Science Foundation, the National Institutes of Health, the Environmental Protection Agency and NASA.

One of VIC’s newest clients is Omnipak LLC, a microelectronics and microelectromechnaical packaging systems firm started by its CEO, Ron Foster. He is also the director of the University of Arkansas Innovation Incubator.

Microelectromechanical systems (MEMS) are tiny bundled combinations of electronic and mechanical components, such as the device that’s used to trigger car driver airbags. The technology also ties into the kind of lab-on-a-chip and biotechnology work being done by fellow VIC-client Vergrandis LLC.

“VIC has a lot of the administrative components down pat so that myself and Dr. Ajay Malshe, our CTO, can spend our time concentrating on the technical aspects and strategic marketing of our business,” Foster said. “VIC is also, in its portfolio of companies, identifying needs that overlap with its clients’ strategic missions. That way, we can complement each other.”

VIC raised $275,000 of the $500,000 in working capital it hoped to attract from private investors last year. But Goforth said that was enough to keep VIC on solid footing.

“At this point we really do not have any doubt that we can get the R&D money we need to support the product development in each of the companies,” Goforth said. “The big challenge for us remains private equity to cover things that SBIR specifically does not, such as patenting costs.”