CITY CLUB OF PORTLAND BULLETIN 29 Information Report on N STATE SUPPORT OF TECHNOLOGICAL INNOVATION A D APPLIED RESEARCH To t h e Board of G o v e r n o r s , C i t y Club of P o r t l a n d : I. INTRODUCTION On J u n e 1 9 , 1 9 8 5 , t h e Oregon l e g i s l a t u r e p a s s e d House B i l l 2937, which established t h e Oregon Resource and Technology Development C o r p o r a t i o n (ORTDC). The m i s s i o n of t h e ORTDC i s to foster innovation and assist in developing new products and processes in Oregon's advanced technology industries and in existing resource-based industries. RD O T C i s financed by an allocation of funds made available from the Oregon Lottery. RD O T C i s expecting an estimated $5.5 million from lottery pro- ceeds in the 1986-87 biennium. Creation of RD the O T C allowed Oregon to play a role in funding s c i e n t i f i c and technical research. RD The O T C also in- volved the S t a t e ' s higher education system in f a c i l i t a t i n g in- dustry use of ideas developed in academic settings (Section 9, B H 2937). Since the issue of setting research and development p r i o r i t i e s i s closely tied to economic development, one of the Club's premier issues, your Committee believed i t could play a RD valuable role by giving the efforts of the O T C more public visibility. The following Information Report describes the structure and functions of the O T C RD . II. AK R U D B C GO N In September 1 9 8 5 , then-Governor Atiyeh appointed a t e n - member Board of D i r e c t o r s of t h e ORTDC. In l a t e s p r i n g 1986, the Board selected John B e a u l i e u a s P r e s i d e n t of t h e Corporation. Mr. Beaulieu h a s served a s General Manager for American S t a n d a r d , h a s had e x p e r i e n c e in investment banking and was founder of a mid-tech s t a r t u p company. By f a l l 1986, the Corporation developed t h r e e major programs t o meet i t s mission. The t h r e e programs i n c l u d e : (1) a "Seed C a p i t a l Fund" or "Early Round Financing" i n t h e $50,000 t o $250,000 r a n g e ; (2) an Applied Research Grant and C o n t r a c t Fund r e q u i r - ing one t o one matching for p r i v a t e e n t e r p r i s e s or e d u c a t i o n a l institutions; and (3) a Technical Information and Support Program. Funding c r i t e r i a and a review p r o c e s s for a p p l i c a - tions have been e s t a b l i s h e d and p r o p o s a l s for funding a r e now under c o n s i d e r a t i o n . In March 1 9 8 7 , t h e f i r s t v e n t u r e c a p i t a l awards were an- nounced. As of March 5 , 1987, ORTDC h a s reviewed 151 a p p l i c a - tions for t h e Seed C a p i t a l Fund (88% of t o t a l a p p l i c a t i o n s ) and Applied Research Fund (10% of t o t a l a p p l i c a t i o n s ) . Of that t o t a l , 33% r e p r e s e n t s r e q u e s t s from t h e high tech i n d u s - try, 15% from % t h e wood p r o d u c t s i n d u s t r y , and 3 from t h e 30 CITY CLUB OF PORTLAND BULLETIN agricultural products industry. 6 A t o t a l of 5 % of these ap- plications were generated by firms in the Portland area, 21% from 3 the Willamette Valley, and 3 % from the balance of the State. Eighty-nine applications, or 59%, already have been rejected with the remainder funded or in process of evalua- tion. Six Seed Capital Fund projects have been funded: Esam, Inc./$250,000 for operations, marketing, and product develop- ment of computer products for severely communications and mus- cular control-disabled individuals; and Ralin, Inc./$250,000 for manufacturing and marketing pulse meters to monitor heart rate during exercise; Natural Technologies, Inc.,/$100,000 for research and development of an e l e c t r i c breast pump for l a c t a - ting mothers, with related medical supplies; Hood River Brewing/$250,000 for new f a c i l i t i e s to produce and market spe- cialty ales; Pace Ventura International/$250,000 for devel- opment of business English training videotapes for USIA: V Cabana R Inc./$50,000 for fifth wheel t r a i l e r with expandable pods. In addition, two grants have been made from the Applied Research Fund: Drs. Hian Lauw (OSU) and Ben Klassens (Delft University, Holland)/$100,000 for research and development of a laboratory prototype power converter and e l e c t r o n i c control system; and A n t i v i r a i s , Inc./$100,000 for research and devel- opment of a genetic probe for diagnosing v i r a l infections. III. DISCUSSION Several s t a t e s have established agencies designed to sup- port and encourage the startup of new technology-based indus- tries: Connecticut Product Development Corporation (1975); Massachusetts Technology Development Corporation (1978); Tennessee Technology Foundation (1982); Michigan Venture Capital Fund (1982); Ohio-Thomas Alva Edison Partnership Program (1983); Virginia-Center for Innovative Technology (1983); I l l i n o i s Venture Capital Pool; Wisconsin Community Capital Corp.; Pennsylvania-Ben Franklin Partnerships (1983); and Arkansas Science and Technology Authority (1984) . De- scriptions of several of these programs are available in the City Club office. RD As mandated by the enabling l e g i s l a t i o n , O T C will be supporting technological innovation in the S t a t e ' s established industries of a g r i c u l t u r e , forestry, f i s h e r i e s and metallurgy. RD O T C also will support the development and implementation of innovations or new technologies in e x i s t i n g resource, tech- nology-based and emerging trade-sector i n d u s t r i e s . RD O T C is taking an active approach to funding by encouraging the pur- suit of business ventures by individuals who have created technological innovations. RD O T C i s planning to provide ven- ture capital support in the range of $50,000 to $250,000, whereas typical private sector venture c a p i t a l investment i s over a million d o l l a r s . RD The O T C i s required to maintain a self-perpetuating fund; therefore, a necessary c r i t e r i o n for all seed capital financing i s the economic v i a b i l i t y of the business to be supported. Trade-sector i n d u s t r i e s are to be CITY CLUB OF PORTLAND BULLETIN 31 supported over service-sector industries and the jobs to be created are to be located in rather than out of state. Since the State is not permitted to acquire private equity and se- RD curity, O T C has purchased stock conversion rights, will use royalties, and may use other transaction forms.(1) Several issues continue to warrant attention by City Club members: RD Is the O T C funded at a level sufficient to accomplish the charge given i t by the legislature? For example, should there be biennial appropriations for staff support to create a one-stop research and technology information center for entrepreneurs? Such a center could serve as a clearing house to provide information about human and phy- sical resources which might be of assistance to an embry- onic company. Under the present single appropriation, funds for staffing must come from the same pool as the funds to be used for venture capital. Is there sufficient recognition in Oregon of the impor- tance of investment in higher education which generates technological innovation and creates a supportive environ- ment attractive to technology-based companies? Respectfully submitted, Margery Abbott Phil Adamsak C.W. Corssmit Nancy Duhnkrack Michael Hoffman Gretchen Lashley Marshall Parrott Michael Sommers Vicki Tagliafico, and Marshall Cronyn, Chairman a Approved by the Research Board on M y 14, 1987 for submittal to the Board of Governors. Received by the Board of Governors a on M y 18, 1987 and ordered printed and distributed to the membership. NOTE: BECAUSE THIS REPORT CARRIES NO CONCLUSIONS OR RECOMMENDATIONS NO OFFICIAL ACTION I S REQUIRED OF THE MEMBERSHIP. 1. Response t o opinion request OP-5930 from Larry D. Thompson, General Counsel, Attorney G e n e r a l ' s office t o Stan Timmerman, Chairman, Legal Subcommittee, ORTDC, 2/21/86. 32 CITY CLUB OF PORTLAND BULLETIN APPENDIX A Persons Interviewed Wayne Embree, formerly with t h e S t a t e Economic Development Commission, now with O T C RD RD John B e a u l i e u , P r e s i d e n t , O T C Dr. Michael C. Mulder, D i r e c t o r , Applied Research Center, RD University of P o r t l a n d , and Board member, O T C George F o r e s t e r , Chairman, S.E.E.D.S. APPENDIX B BibliQ.gxap.hy "Managing for Challenging Times: A National Research strategy", Eric Bloch, issues in science and technology Winter 1986. "A National Research S t r a t e g y " , H.T. S h a p i r o , J . Doebold, S. Gorton, W. E. Massey, Xasjies in .science and technology Spring 1986. "Cooperative R & D: A New S t r a t e g y " , W.C. N o r r i s ,issuesin science and technology, Winter, 1985. "Brains and Biotech for Oregon's Natural Resources", D.L. Goldy, .Yi.si.Qns, Fall 1986. "Emerging Trends-New Oregon Perspectives for the Year 2010", Commission on Futures Research, Progress Report, 1986. "Ohio Program Works on Developing Home-Grown I n d u s t r i e s " , oregonian-t E4 , Feb. 7, 1987. "Technology Transfer and the Basic I n d u s t r i e s " , R. R. Harmon, Visions, Spring 1986. "States' Plans Link Small Business and U n i v e r s i t i e s " , chronicle of higher education Pg. If June 23, 1986. "States Back Risky Ventures in Effort to Create New Jobs", new york times Pg. 1, June 23, 1986. "National R & D Policy: An I n d u s t r i a l P e r s p e c t i v e " , R.W. Schmitt, .Science.! 224, 1206 (1984). "Europe Pushes Ahead with Plans for J o i n t P r o j e c t s " , science 233, 152 (1986). 63rd Oregon L e g i s l a t i v e Assembly, House B i l l 2937, June 19, 1985. "Report of the Chairman and P r e s i d e n t " , Massachusetts Technology Development Corporation, June 30, 1985. "Fostering Capitalism: The Massachusetts Venture Capital Fund", J.E. Jarrett, innovations., The Council of S t a t e Governments. "Seed Capital Investment Program", Arkansas Science and Technology Authority.
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