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State beefs up incentives available to tech companies:

July 9, 2007

Companies receiving a Phase 1 SBIR match from the state need to apply for second-stage funding by July 20. Applications can be downloaded on the IEDC Web site.

The proposal for funds should be no longer than 12 pages and include a commercialization plan describing how the product would be moved to market and any challenges that would need to be overcome. The proposal also should include a budget describing the funds required for

The Indiana Economic Development Corp. has a few more arrows in its quiver to help entice fledgling tech companies to either remain in the state or move here.

For starters, the General Assembly appropriated $70 million from the budget for the Indiana 21st Century Research and Technology Fund-the state's showcase program for investments in budding hightech firms.

From its arsenal, the IEDC has earmarked $2.5 million annually to support entrepreneurs vying for the second phase of federal Small Business Innovation Research grants. The agency began matching the first phase in 2005 and now will continue its support into the second stage, in an effort to further assist Indiana entrepreneurs.

The SBIR program provides hundreds of millions of dollars each year in research and development grants to small businesses. Companies can receive up to $100,000 during the planning stage and up to $750,000 during Phase 2, the prototype stage.

The IEDC awarded matching funds to 64 companies in 2005. The state has yet to tally last year's figures, but expects the number of companies receiving assistance will be nearly 80.

Now, the IEDC is ready to assist companies seeking second-stage federal funding, by awarding $100,000 to $350,000 annually to eight ventures at most. The idea is to make Indiana more attractive to entrepreneurs who already have a viable business plan. One of the caveats is that they remain in the state, lest they want to pay a penalty.

"We were losing companies and being pickpocketed by other states," said Indiana the project and the economic impact it could have on the state.

IEDC staff members can assist applicants with counseling services, proposal assistance and reviews, and educational workshops. The intent is to harness more SBIR funds for promising companies that could become the next Eli Lilly and Co.

One that has received more than $900,000 in federal Phase 1 and Phase 2 funding is Wolf Technical Services Inc. The Indianapolis-based company founded in 1977 had reconstructed accident scenes for courtrooms. With ideas to improve public safety, it created a restraining device for use in military helicopters.

Company President Mike Pepe (pronounced pape) plans to pursue the Phase 2 match from IEDC.

"We're in some conversations with NASA for taking this technology we've developed into other areas," he said. "So it helps us begin to look at new avenues for commercialization and compete with other companies that are better funded than we are."

Before the state's Phase 1 match in 2005 the technology community is that it exempts 100 percent of the income for the first five years. The amount would decrease in increments the final five years.

Secretary of Commerce Feltman is unaware of another state that has adopted a similar measure.

"We think it's pretty darn innovative," he said. "It's really aimed at the companies that are out there that are coming up with the latest and greatest innovations, and they can get a head start."

Supporters say the aim is to become the most patent-friendly state in the nation, much like Connecticut is to insurance or Delaware to business incorporation.

One of the concerns prompting the bill is that the number of patents filed in Indithat bolstered the number of recipients to 64, just 26 companies received awards in 2004, totaling roughly $4 million, according to the most recent figures from the U.S. Small Business Administration. Indiana ranked 26th then and far behind neighboring Ohio, which garnered 167 awards totaling more than $19 million.

Hoosier firms, however, fared even worse in Phase 2, receiving just nine grants in 2004, ranking Indiana 32nd. In the two years since, the rate of companies graduating from Phase 1 to Phase 2 funding has climbed from 30 percent to 50 percent, said Bruce Kidd, IEDC director of Small Business and Entrepreneurship. The incentive of a second-stage match should improve the numbers even more.

"Whatever they need, we want to be able to help them fill the gap until they can get that big contract," Kidd said. "They're too early for a bank and not big enough for a venture capitalist, so they're caught in no man's land. This program will have a huge impact on getting that done."

Jim Eifert, director of the Indiana Venture Center Inc., echoed the sentiment.

"By the time they receive second-phase funds, they are getting much closer to commercialization," he said. "Since that is the major thrust of IEDC, I think that this is just a terrific idea."

Indeed, under the Daniels administration, economic-development philosophies have shifted to the actual attraction of new companies rather than university-backed research initiatives and the hope that they might someday come.

Tax credit on patents

Another new recruitment tool in the IEDC's belt provides a tax incentive that would shield income from patents up to $5 million annually for 10 years. Companies with fewer than 500 employees are eligible.

House Bill 1461 sailed through the Legislature and was signed by the governor in May. Part of what makes it so attractive to ana has dipped from 1,745 in 2002 to 1,246 in 2005, according to the U.S. Patent and Trademark Office. Legislative leaders said the figures would be even lower if Eli Lilly were taken out of the equation.

Feltman and Kidd, along with a contingent including representatives from BioCrossroads, the Indy Partnership and the Indiana Health Industry Forum, touted the tax exemption during the Biotechnology Industry Organization Convention.

More than 20,000 of the life sciences sector's movers and shakers converged in Boston in May for the industry's biggest annual networking event.

Kidd spoke to executives about the 21st Century Fund and the patent incentive as well. "It's a great carrot when we're out talking to companies all across the country," he said.

Other IEDC incentives include:

The Indiana High-Growth Fund, launched July 1, creates up to $50 million for a flexible "deal-closing" tool for IEDC's use in business expansion or attraction deals.

The Indiana R&D Growth Fund, available in July 2008, provides the IEDC $20 million for two years to give matching grants to universities and companies that solicit federal research money.

The Cellulosic Challenge provides up to $2 million for development of ethanol from grasses and other so-called cellulosic, non-food sources. A winner should be announced shortly, Feltman said.
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