Mar 17, 2021 Robert Fenton

How to Get Non-Dilutive Funding via Federal Agencies

 


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Over $50B (with a B!) is available each year to life science companies from federal agencies. The best part is, it's all non-dilutive funding. 

For example, the NIH's Small Business Innovation Research (SBIR) program alone awards $1B each year. That's more annual funding than any VC! And that's just one of many SBIR programs available from US Federal agencies. 

Ram May-Ron, managing partner at FreeMind Group walks through the enormity and approachability of these federal non-dilutive programs. 

FreeMind helps life science organizations secure non-dilutive funding from US federal agencies and private foundations.

FreeMind started in 1999 and has grown into the largest consulting group of its kind. With experience in seeking funding from nearly all NIH Institutes, Department of Defense, NSF, FDA, BARDA, etc., as well as private foundations, they’ve helped clients garner over 1.5 billion dollars to date. Awards range from $150,000 to $150,000,000 per project. 

If funding is on your mind - you need to consider what Ram has to say here. 

Show notes:

Music by keldez

 

Transcript

Robert Fenton: [00:00:00] 

Ram is the managing partner at free mind consultants, which helps the life sciences organizations secure non-dilutive funding from US federal agencies and private foundations. FreeMind consultants started in 1999 and since then has grown into the largest consultant group of its kind. With experience in seeking funding from nearly all NIH institutes, department of defense, NSF, FDA BARDA, and more, in addition to private foundations, they've helped clients garner over $1.5 billion to date and awards range from $150,000 all the ways up to you $150 million per project. For over a decade Ram May-Ron has been a leading figure within FreeMind. If funding is on your mind for a life sciences company, you need to consider what Ram has to say in this podcast.

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Ram really excited to have you join the show today  you work in an area I think that's an incredible interest of basically every company that we interact with. And I think in particular, when it comes to funding life sciences, it's traditionally been like a really capital intensive business and all though that's going down to some degree over, over time, I think is still an incredibly important area. So,  I just want to start off and I'd love to hear a bit more about you. What brought you to FreeMind and you know, how you help companies? 

Ram May-Ron: [00:01:28] Well, ma maybe starting just a little bit about what FreeMind is, because I think the context here is very, very important.

 You're right. I mean, funding is ultimately, what's what it's all about. And, you know, infamous Valley of death all life science companies hear and fear from is pretty much over trying to deal with, or help our clients deal with help the industry deal with very, very quickly the value of debt obviously is that, that point where a company. It has a great idea, a great product. They've been, they went through the lab, they've done great work, but now to move forward, to test it on people, they actually need to spend tens of millions of dollars. And just, just being able to reach to this kind of money is difficult. And so many companies , just can do that.

And there there's not enough money there. and so what we try to do is we've figured out, we found that. There's a huge amount of money out there that people to a great degree are not aware of the government, primarily the federal government, but there are other sources, private sources as well, provide.

Substantial financial support to research and development into life sciences. And when I talk about substantial it's, it's way over 60 billions dollars  a year. That's a lot of money now. It's true. there will all tell you that it's, it goes primarily to universities and research conducted.

It's absolutely true, but you know, the NIH alone, their SBAR program. awards over $1 billion each and every year. That's more than any other VC out there. Even the large $2 billion VCs, don't give away $2 billion each and every year. The SBR program for NIH alone, not talking about NSF CDC, FDA,  the DOD.

In addition to that, just SPR SBR. NIH is over $1 billion a year in awards and the beauty of it all it's not diluted. I mean, there's literally no shares. You gave no royalty payments. You pay no paybacks. and so I don't claim, we don't claim. This is this sort of money that will sustain a company to success.

But it's definitely a strategic source that should not be ignored and way too many people in the industry are just not aware of what's out there. And you just don't know. Do you think either it's the old grants they used to write when they were, you know, graduate students at some professor's lab or it's the very small SPR for a hundred thousand dollars, both are just.

Not true. last year, our largest award for a single client was over $40 million for a single award. they don't do just early stage preclinical. They do  a lot of translations. We'll do a lot of digital health to do a lot of clinical phase one phase, two phase three, support. and so this is as strategic source of funding, but as with any market, there are difficulties it's not easy. it's very hard to identify the right funding opportunity. NIH alone has 27 different centers. Some of them are overlapping in what they do. I mean, if you develop,  an Alzheimer's focus, there are good eggs or, or, or device or whatever.

You know they N I N D S national Institute for neurological disorders and stroke seems to be the right place by the aging Institute. National Aging Institute has a great Alzheimer's program as well. So which one do you pick? the DOD department of defense under the city MRP or under the VA.

We'll have additional money for Alzheimer's.  The ADDF, the, private foundation has yet more money that you get into Alzheimer's research. Where do you go to match the money that you need for your particular project? That's what we try to help our clients with know where to go navigate through the system, which is huge, and then help them write the applications to maximize your potential of winning.

And we're able to bring our clients about a hundred to $150 million. Each and every year that's a lot of money. 

Robert Fenton: [00:05:22] Yeah. And on that Ram, just for those people who aren't well versed, have you mentioned a lot of acronyms, which tells me this is all government bodies and government funding. 

 

You mentioned SBR a few times. So NIH D I think everybody's familiar with the national institutes of health and their worked SBR or maybe you could explain to people what that is. 

Ram May-Ron: [00:05:41] Right. So the NIH of course is national Institute of health, which is the largest organization it's under the age of  the department for health and human services.

and their budget is about $43 billion a year. two thirds of which are awarded to external research about a third is used internally in their own labs. About two thirds are awarded to external research both at industry companies and at universities and, and by the way, all across the world, not only to American companies or universities, the S B I R is the,  small business, innovative research program.

SBIR is dedicated to support only small companies. Small companies would be under 200 employees, if I'm not wrong  and I'm not sure it's either 200, 500. I need to check that. But as far as I remember, it's 200 under 200 employees and they need to be owned at least 51% by American citizens.

So no non-Americans can get an SBIR program. The SBIR program has three phases, but. First two are the most important ones. Phase one usually are short six to 12 months, and they're not huge in funding. They're kind of the, the doorway you step in. Right? and the phase one usually you'll get about $250,000 in direct costs and about 40% on, on top of that for indirect costs for overheads.

The real jam though, is the SBIR phase two, because once you went into SBIR phase one, you're eligible, once you complete that you're eligible to submit for an phase two. And the phase two could be between a million and a half and up to a $3 million sometimes even. So, so that could be substantial money.

Again, all of it is non-diluted completely, there will be no strings attached, no royalty payments, no matching funds.  no restrictions whatsoever. so this is the SBIR program. Very, very important program, but it's just. a relatively small program, you know, $1 billion out of 43 billion. There are many others. And then each federal agency will have their own SBIR program. So you have an NSF SBIR, you have an FDA SBIR, you have a DOD SBIR. again, each is focused on a slightly different focus scientifically.

Robert Fenton: [00:07:59] So I think just the messages, there's an incredible amount that's there. How would you suggest people look at this versus more traditional venture funding?

Ram May-Ron: [00:08:12] Well, I wouldn't suggest to give up on venture funding or venture funding is incredibly important. But you know, it gives you a different, different type of funding. If you will, first and foremost. It's important to remember. It's non-dilutive so,  for early stage companies for entrepreneurs, to keep as much as they can of their company  is crucial.

obviously  any money coming in from a VC or from a family office or angel they'll need to pay in shares,  government doesn't take shares in your company, it's all yours. So, that's,  an important part. It's kind of free money. It's not completely free, but it's. Kind of  free money, but beyond the cash, which is obviously the main point, there are other additional, very substantial attributes.

Probably the most important one is the fact that the dollar coming from NIH or from the department of defense or from Barta. It's worth a lot more than a dollar coming from any other investor. And the reason is that to go through the process of winning an award from NIH or Bardo or DOD, you go through a review process conducted by the top researchers in the world.

And so once you're there, once you get scored for your science, you basically get a seal of approval. From the top researchers in the world from your dream,  advisory board, if you will, all those people you would love to have on your advisory board have reviewed your research, your science. And not only that  they gave you a score, you know, how good are you?

And it's a scale, so you can compare it to other projects you've submitted. But also if they given you a full report with every detail of what they think is good, Or back or should be fixed. And  that's really great. And there are several studies showing that once a company receives money from non-dilutive funding within a certain period of time, several years, this $1 will accumulate  into $8 on average because  venture capital investors or other investments, they love to see  that you are able to bring on your own as an entrepreneur, be that it's free money, even better.

They get more shares, right. And see that the top researchers in the world told them that this is good science. So,  actually getting non-duality funding is a great pathway towards getting more and in better terms, venture money or other types of things. 

Yeah. What's the catch?

Well, the reason it's all the success rate is very low, but then again, you know, it's about single digit to 12, 15% on average, that's not easy, but then again, if you ask any CEO, when they start raising money from  the venture market.

I don't think you get to better success rates. It doesn't take less time. It's about a year, due to,  get the final decision on an award takes about eight months. So it takes time.  And then you need to report on everything you do, but then again, As with any other investor, I can believe any investor will give you $3 million and not expect to hear what you've done with the money.

So I don't think it's that different. I just think it's a difference. You know, a state of mind, it's a different way of approaching science, but there isn't really a catch in the sense of what you pay. 

Robert Fenton: [00:11:22] And I'm curious do more successful life sciences companies take this path generally as well as an addition to traditional sources.

Ram May-Ron: [00:11:30] Well, yes, I believe so.  So  this is actually very interesting. We've conducted much like you guys. We really like to see, we work with about 200, 250 companies a year.  And we submit with 800 applications every year. So we've got a huge database that's accumulated over, just over 21 years.

We've been in business, right. So we basically took our entire database between 2013 and 2016. And we went and we asked ourselves a question. So we know what our clients did as far as NIH or DOD or non-diluted funding is concerned. How did they do with with the market? How good businesses are they.

And would just start in researching. Right. And we found amazing statistics. We actually found that companies with a score at NIH, not even those that were awarded the money, but those that got a good score. 21% of them have exited through an M&A or an IPO within four years. So basically what you've just asked me.

Yes. Companies who do well there surprise, surprise, good science ultimately wins, right? So companies who got good score on their science cause NIH doesn't really review , how good a manager you are or how good a market you've got. They look into your science, how solid is your data? How good is your research plan?

How great is your background to do what you claim you want to do? So companies with good science, good teams and good research plan ended up, you know, getting, an IPO or an M&A within a fairly short period of time with the old 10 X 17 X, 20 plus X on the money. 

Robert Fenton: [00:13:05] Yeah. Okay. And I'm curious with you folks being in the business right of helping people be successful here, it sounds incredibly complicated. Do you have any stats to share on, I guess assuming the merits of the business are good for you, you can control for, do you have any stats to share on like the Delta between do it yourself versus work with somebody like you folks to navigate?

Ram May-Ron: [00:13:27] You know, we can only compare ourselves to,  Publicly available data, right? We don't have any other source of data. And on average, we would get to about two to three times the NIH or DOD or Barta average.  Again,  it's a very tricky thing to figure out because there are dozens of different mechanisms.

Each of them is a bit different. and each review group is different obviously from the next, so, yeah. You kind of comparing  not apples and oranges, but different types of apples, if you will.  So  it ranges between different numbers, but on all of them we see between two and three times the average you know, we can, we get about twice as, successful as the others.

Robert Fenton: [00:14:08] Yeah. this is really credibly, insightful. I really appreciate you sharing all this Ram, I guess, to making this actionable for people who might be listening and are in certain different paths or stages of their business, at what point would a business be, where it would make sense to consider these application pathways and consider maybe working  with folks?

Ram May-Ron: [00:14:27] Well, considering non-dilutive funding, And at the very beginning before you even spin out of the university, I mean, all, companies I know within the life sciences have span out at universities that, you know, at one point or another,  all contact  got into the university, still their founder or the professor.

They used to work with whatever. there are programs within NIH within DOD within those sources of funding within those agencies. There are programs designed to support collaboration between university and industry. So. First thing you do, you look into an STTR  that's another acronym that focuses on academia, industry collaboration, and you put together an application to get money for the work you've already done anyways, with yourself, you know, between yourselves and the professor you used to work with at the university where we're just, innovation came out of that.

 That's a start. Then you submit SBIR, some of the programs,  like an R O R 21,  application, for example, mechanism of funding is designed to support very early stage research, even explore, do dive research, where you don't have a lot of data. This is where you start. Once you've got more data, you know, you move on to an R01 or U01 all different mechanisms of funding doesn't matter.

so that's really important as early as possible. When do you engage with us? Hey, you know, we're biased here as  can afford us, as far as I'm concerned because we are not cheap and  we are a business. But definitely I will say, , people talk to program officers within NIH, within DOD, within NSF, they would love to hear from you that's their job.

 Ask them  is your research a good fit to what they're managing through their program. They will tell you, you know, and trust their judgment there that,  they're professionals. it's hard to identify the right funding opportunity. You,  go through NIH listings on available opportunities, but you have to keep in mind about 60% of all NIH awards are not solicited.

And that's a good thing because they keep them open. Any idea you have. You know, pitch it to them and they may fund it so that's a good thing that it's open on the one hand on the other. It  makes it harder to identify the right one for you.  So just, go there, try, and maybe the most important element of it is it's not a one-time shot.

It's not, you know,  if you treat it like a lottery ticket, Hey, there's one application. Let's try it. Let's put together an application, try, you know, do our best. See what happens. You may win. You may not. Statistics are not great. But if you do on a very systematic manner, you submit three, four, five, 10, 20 applications a year, and yes, we've got clients working with us on 20 slots each and every year, you get to the point where you get one, two, three, $5 million coming into the company on the regular basis for free.

And that's a pretty good place to be in as an entrepreneur. 

Robert Fenton: [00:17:13] Yeah.  It would be nice if every business had access to that 

Ram May-Ron: [00:17:20] to get some myself  , but, you know,   it supports research and development,  but it takes patience. It takes persistence. It takes systematic and mythological work, identifying the right opportunities, submitting more.

And even if you fail that's okay. It doesn't mean that those reviewers don't know what they're talking about. They probably do. They probably do read carefully their remarks go through the feedback you received, correct. Whatever it needs to be corrected. Resubmit you'll do better. 

Robert Fenton: [00:17:47] Yeah. That's incredibly helpful.

Ram, I guess we're coming to the end of the time we've allotted for today. I'm curious. Is there any kind of final takeaways you'd like to share with listeners? 

Ram May-Ron: [00:17:58] Not really, you know, beyond what I've already said. I mean, there's so much more to talk about,  just say about non-dilutive funding. It's an endless world, again, you know, over $50 billion, that's a lot of money, but ultimately every dollar you get from there is incredibly substantial. And even if you don't get the money, even if you just get a score and a review from the top researchers in the world, In any other circumstances, one would, you know, would have paid a lot of money to have those individuals review their work and giving feedback.

So just, you know, take advantage of it. It's a great resource. Even if you don't get the money, it's a wonderful resource. 

Robert Fenton: [00:18:35] I appreciate that. And where would people go to keep learning about this? 

Ram May-Ron: [00:18:40] Number one and NIH.gov I mean, that's an easy one. I mean, you just look up, look it up on Google. We at FreeMind we hold an annual summit. That's the non-diluted funding summit. We hold it in San Francisco every year in January. during JPM, during the Jacob Morgan healthcare Congress, we've been doing that for. 17 years now, I believe. And we always have some agency directors come over to give, presentations, et cetera, log onto our website.

we have tons of data,  webinars on different, you know, on cancer, CNS Alzheimer's whatever on different elements. We, we, we try to, give a lot of, educational, do a lot of educational work to try and, promote understanding and knowledge of  we'll be funding. so that's pretty much it, I guess.

Robert Fenton: [00:19:28] Yeah. Well, pretty much it is a lot in this case where I am. Thank you so much. 

Yeah. It's, a lot of content in a short amount of time today. Thank you very much for joining. I'm looking forward to sharing this with everybody and, ,  you might get to people reaching out to you, and I think it's really valuable to have a greater awareness of this and some support. So thank you for taking some time out to appreciate it. 

Ram May-Ron: [00:19:47] Thank you, Robert. Really great talking to you. Appreciate it. Thanks a lot. 

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Published by Robert Fenton March 17, 2021