Table Of ContentMontanaStateLibrary
3 0864 1006 4818
STATf DOCUMENTS COLLECTION
FEB 11991
&
MONTANASTOKEUmmif Montana Science Technology
ISISE-WhME.
WBUBRIA,IWTOMiT/AilUA$962® Alliance
1991
Biennial Report
BoardofDirectors
ChaseT.Hibbard,Chairman
SHieelbeenna,LiMvoensttoacnkaCompany Submittedto:
AnnieM.Bartos
AttorneyatLaw
Helena,Montana
TomBreum Stan Stephens, Governor
ChampionInternationalCorporation
Bonner,Montana State ofMontana
JohnC.Brower,Ph.D.
MontanaCollegeofMineralScienceandTechnology And
Butte,Montana
DixieHalverson
PrairieCommunications The Fifty-SecondMontanaLegislature
Scobey,Montana
JonMarchi
MarchiAngusRanches
Poison,Montana
SueMatthews
CusterCountyWelfareDepartment
MilesCity,Montana
KenThuerbach
AlpineLogHomes
Victor,Montana
RayV.Tilman
MontanaResources,Inc.
Butte,Montana ^\
Staff &
Science
CarlE.Russell Montana Technology
ExecutiveDirector V J
DavidP.Desch / Alliance
InvestmentsManager
ElinorW.Edmunds
InvestmentsManager
MaryAnnMurray DepartmentofCommerce
FinanceOfficer 46NorthLastChanceGulch,Suite2B,Helena,Montana59620
406/449-2778
PL
tot Kt
1
LETTEROFTRANSMITTAL
January7, 1991
TheHonorableStanStephens
Governor
StateofMontana
Helena,Montana59620
DearGovernorStephens:
Withre-enactmentin 1989,theMontanaScienceandTechnologyAlliancehas
recommitteditselftothegoalofstimulatingthe technology-basedentrepreneurial
capabilitiesofMontana'seconomy.Thepartnershipbetweenthebusinesscommunity,
theuniversitysystem,andgovernment,forgedduringearlierinvestments,continuesto
bestrengthened.
Duringthisbiennium,over$1.2 millionfromtheSeedCapitalFinancingProgram,
matchedwith$1.2 millioninprivatefunds,wasinvestedinearly-stagecompanieswhile
$400,000fromthe ResearchandDevelopmentFinancingProgram,matchedona
dollar-for-dollarbasis,wascommittedtothe CentersofExcellence. Throughthese
recentinvestments,MSTAhasfosteredthecommercializationofinnovativetechnologies
andresearchcapabilitiesinthefieldsoflasermaterials,computersoftware,biotechnol-
ogy,hazardouswasteremediation,andentrepreneurship.Thecomplementarynatureof
thesetwoprogramsworksforthebenefitofallfacetsofMontana'seconomy.
The Boardisconfidentthatappropriatelegislationcanbeadoptedduringthe 52nd
MontanaLegislaturetoprovideexpandedfundingfortheresearchanddevelopment
program. Throughtheworkoftherecently-createdMontanaScienceandTechnology
AdvisoryCouncil,weexpecttomoveMontanaanditsscienceandtechnologydevelop-
mentforwardintothe 1990sandthe twenty-firstcentury.Theanalysisandrecommen-
dationsofthe Council'sin-depthauditofthestate'sstrengthsandcapabilitiesinscience
andtechnologydevelopmentwillbepresentedtoyounextsummerinacomprehensive
MontanaScienceandTechnologyPlan.
Itiswithsincerethanksforyourcontinuingsupportandasenseofoptimismfor
Montana'sfuturethattheBoardofScienceandTechnologyDevelopmenttransmitsthis
1991 Biennial Report.
Sincerely,
TomBreum
Helena Helena Bonner
SueMatthews KenThuerbach
MilesCity Victor Butte
2
Contents
LetterofTransmittal 2
Introduction 4
FinancingPrograms 5
FinancingCriteria 5
FinancingProcess 6
ReturnonInvestment 6
ProgramResults 7
FutureProgramDirections 8
MSTASeedCapitalPortfolio
CompanyDescriptions 10
MSTAResearchandDevelopment
CentersofExcellenceDescriptions 14
Appendices
StatisticalAnalysisof
FinancingActivity 18
FinancingPortfoilo 19
3
INTRODUCTION
Introduction
OnMarch24, 1989,GovernorStan MarksofClancy,passedtheMontanaHouseof
StephenssignedintolawHouseBill683,the Representativesbyavoteof98-0andthe
MontanaScienceandTechnologyFinancing MontanaSenatebyavoteof46-3.Theact
Act.Adoptionofthebillputthefinancing addressestheconstitutionaldefectsidentified
programsofMSTAbackinbusinessafterthe bytheMontanaSupreme CourtintheWhite
MontanaSupremeCourtdecisionstruckdown decisionbyavoidingtheuseofbondproceeds,
MSTA theagency'sseedcapitalbondprograminJuly therebynotpledgingthecreditofthestate
fpirnoagnrcaimnsg 1988. abgoauinnsdtsporfivaauttehodreibtty.gItrasnpteceidfitcoalMlySdTefAinfeosrtihtse
Thelegislation,requestedbyGovernor useofstatefunds.Theactalsocreatedthe
re-enacted StephensandsponsoredbyRepresentativeBob nine-memberMontanaBoardofScienceand
TechnologyDevelopment.Its
membersareappointedbythe
GovernorwhiletheAllianceis
staffedbytheMontana
DepartmentofCommerce.
Thelegislationgives
MSTAfive-yearmanagement
authorityover$7.5 millionof
theIn-StateInvestmentFund,
aportionoftheCoalSever-
anceTaxTrust,tofundthe
seedcapitalfinancingpro-
gram.MSTAusesthefundsto
participateinfinancingnew
andexpandingtechnology-
based,Montanabusinesses
thatitsboarddeterminesmeet
statutoryinvestmentcriteria.
Thesestatutorycriteriaare
modeledtocloselyreflect
privateventurecapitalprac-
tices.
PassageofHB683alsore-
establishedoperatingproce-
duresfortheresearchand
developmentfinancing
MembersoftheMontanaBoardofScienceandTechnologyDevelopment,leftto program.MSTAprovided$400,000in
right, TomBreum,ChairmanChaseT.Hibbard,AnnieM.Bartos,andJon appropriatedfundsforcontinuingthestate's
Marchi;seatedlefttoright,JohnC.Brower,SueMatthews,andKenThuerbach technologycentersofexcellenceprogram
(absentmembersareDixieHalversonandRayV.Tilman) initiallyfundedin 1988.Thecentersprogram
haspotentialtobuildMontana'sapplied
researchinfrastructureandtostimulatethe
flowofcommercialopportunitiesforMSTA
andotherinvestors.
ThepurposeofMSTA'sfinancingpro-
gramsistoencourageinnovativescientificand
technologicaldevelopmentwithinthestatein
theexpectationofadvancingthestate's
economicgrowthandwelfare.Assuch,itis
intendedtoaidinthecreationofnewjobsand
toassistinfinancingtheestablishmentof
technology-intensivebusinessesinMontana.
FINANCINGPROGRAMS
FINANCINGCRITERIA
Financing Programs Financing Criteria
TheMSTAhastwocomplementary TheMSTA,throughitsseedcapitaland
financingprograms,theseedcapitalfinancing researchanddevelopmentfinancingprograms,
programandtheresearchanddevelopment givesprioritytoprojectswhichincorporate
financingprogram. advancedorinnovativetechnologiesand
TheMSTA'sseedcapitalfinancingprogram includeplansforfullproductcommercializa-
providesventurecapitalstylefinancingfor tion.
technology-basedcompaniesthathaveout- Initsseedcapitalfinancingprogram,the
standingtechnologicalandcommercialpoten- MSTAfundingcriteriaaresimilartothoseof
tialforachievingsignificantgrowth.The theprivateseedcapitalinvestmentcommunity.
statutory1:1 matchingfundsrequirement Typically,suchinvestorslooktoinvestina
encouragestheparticipationofprivateinves- companyatanearlystageorbeforeithas
tors.Theseedcapitalprogramalsoattemptsto achievedsignificantsales,buthastheprospect
pcarnoomevpfiafdoneriteatsloiiaeninsMhoonannbtceeatnwtaeheeanpnodeonpltrrioevfpartceaenpeiiutnarvlieasaltvoarils-in osmefevnaetcnshiyaeeraverisnn.goWtshiaigsnliesftiMrciaSnnTgteAsn'atlseassrwetithtuorhsnienroeffqivuveiertneot-ure aSeneddrceaspeiatraclh&
abletothestate'stechnology-basedcompanies. investors,theyaremodeledtocloselyreflect development
Thesuccessfulcompanieswillbenefitthe privateventurecapitalpractices. financing
rsteattuer'nseorctoinnovmesytamenndtptroovtihdeeMaSsTuAbs.tantial deveTlhoepmcreintetrifainfaornctihnegMprSoTgArarmesteaakrechadavnadntage pprroovgirdaemfsunds
Thegoaloftheresearchanddevelopment oftheexistingresearchanddevelopment forinnovative,
financingprogramistoassistintheaccelerated strengthswithinthestate'suniversitysystem technology-based
rdee-veenlaocptmmeenntt,otfhteeMchSnTolAoghyasinctohmemisttattee.dSiitnsce paontdenptriiavlatteosaedctdovraelsuteabtloiashbmaesnitcs,insdtursetsrsythseector Mdeovnetlaonpmaentin
limitedappropriatedresearchanddevelopment ofMontana'seconomy,andemployacollabo-
fundstocontinuingitscentersofexcellence rativeapproachinvolvingbothpublic-private
programestablishedin1988.Thecentersdraw andinter-universitycooperation.
ontheresearchstrengthsoftheMontana
UniversitySystem,includetheactiveparticipa-
tionoftheprivatesector,andprovidefinancing
toselectedlaterstageappliedresearchprojects
involvingaprivatecompanyasthepotential
commercializingpartnerfortheresultant
technology.Thus,theresearchanddevelop-
mentprogramisanopportunityforMontana
toenhanceitsresearchcapabilitiesandto
encouragethelinkagebetweentheuniversity
systemandprivatecompaniesthatwillresultin
thecommercializationofnewtechnologiesin
Montana.
5
FINANCINGPROCESS
RETURNONINVESTMENT
Financing Process Return on Investment
AllapplicationsforfinancingbytheAlli- TheMSTAisrequiredbystatutetoseek
ance,bothinseedcapitalandresearchand returnsonbothitsseedcapitalandresearch
development,aresubjectedtoarigorous anddevelopmentfinancings.
reviewprocess. Theseedcapitalprogramprovidesventure
Intheseedcapitalfinancingprogram,each capitalstylefinancingthroughamechanism
businessplanpresentedtoMSTAissubjected thatcanbeflexibleenoughtoforegoshort
toademandingandthoroughevaluationofits termrepaymentrequirementsandthatprovides
investmentpotential.Theinitialorthreshold MSTAwithhighreturn-on-investmentpoten-
evaluationfocusesonthetechnology,the tial.Financingsarestructuredasloanswiththe
marketpotentialofthecompany,thequalityof interestratesetat10.5percent.Debtserviceis
thecompany'sbusinessplanandthecompany's generallydeferreduntilmaturityoftheloan,
managementteam.Iftheinitialreviewresults allowingthecompanytousefundsusually
arepositive,theMSTAthenconductsanin- reservedforshorttermrepaymentstomeet
Therigorous depthduediligenceevaluationofthe cashflowneeds.
evaluation company'smanagementteamandinvestors, Alsoincludedintheseedcapitalloan
processbuildsa potentialcustomersandsuppliers,competition, agreementarefeaturesprovidingforconvert-
foundationfor technology,andmarketpotential. ibilityorforawarrantwhichallowtheholder
ahiaher Applicationsforresearchanddevelopment toownsharesofcompanystock.Inthecaseof
probabilityof financingarealsosubjectedtoathorough aconvertibilityfeature,thecompanywould
fsuucncdesesdfporrojects etavenacdlhuniaomtlpiologeni.mceaTnlhtefaetariseoibvnii,leitwtyhpeorfotectcehhsensipcfraoolcjuecscoetsmdpoeenstietgnhnece iwpsiestguhgeetadhdeteoabmetnohteuuncrtoemotpfoatnMhyeS'sMTSAvaTlcuAoamtimineovnnessatunmrdeanbttae,cked
oftheinvestigatorsandtheproject'sprospects bysharesofthecompany'sstock.MSTAcan
foreventualcommercialsuccess. eithersellthedebentureatanytimeorcollect
TheMSTAboardmeetsregularlyand thedebtfromthecompanyatmaturityaccord-
providesfundingsupportonaselectivebasisto ingtotheestablishedinterestrate.Inthecase
pforiponejarenaccttiisnogntshcarttiotietrbiedae.btAaelsrlemdfiininenasnMcsoiantnigtssfaynreMaqSuaTinrAde'psrovide oitonfsaptuwrraucrmhreaansntet,tchtaohtmewmcooounmlpdsatgnoiycvkewotofhuetlhhdeoilcsdoseumreptaahnneyriagthat
foraspecifiedreturnoninvestmenttoMSTA. specificpricewithinagivenamountoftime.
Therigorimposedbytheevaluationprocess MSTAisprohibitedbytheMontana
teststhetechnicalfeasibilityandcommercial Constitutionfromholdingequitysharesina
viabilityofeachprojectandhelpsbuilda company.PurchasersofMSTA'sdebenturesor
foundationforahigherprobabilityofsuccess warrantsareabletoconvertorexercise,
forfundedprojects. therebybecomingdirectequityholders.Asthe
companybecomesmoresuccessful,with
increasingstockvalue,themarketpriceofthe
debentureorwarrantisexpectedtorise
accordingly,andMSTAhopestomaximizeits
returnfromsuccessfulinvestments.Uponsale
ofthefinancinginstrument,allobligations
owingtoMSTAbythecompanyaredeemed
satisfied.
Intheresearchanddevelopmentprogram,
financingsarestructuredasloansandrequirea
returnoninvestment.Typically,thereturnis
paidtoMSTAannuallyasapercentageofany
incomestreamderivedfromthecommercial-
izationoftheresultanttechnologyuntilMSTA
hasreceivedtwotimesitsinvestment.Some
researchanddevelopmentprojectsinvolve
indirectreturnrelatedtoMSTA'sgoals.
6
PROGRAMRESULTS
Program Results
Duringthe 1991 biennium,MSTAclosed basedcompaniesandresearchorganizations.
oneighttechnologydevelopmentfinancings Theforumlinkedinvestorsfromthroughout
totalling$1,605,750inboththeseedcapital thenation,leadersinentrepreneurialand
andresearchanddevelopmentareas.Thefunds technologicaldevelopmentfrombothbusiness
werematchedwith$1,645,750foratotalof andgovernment,representativesfrompublic
$3,251,500committedtotechnologydevelop- andprivateresearchorganizationsandofficials
mentinMontanaduringthe 1991 biennium. fromfederalresearch-sponsoringagencies.The
SinceAprilof1989,MSTAanswered 172 forumraisedtheparticipants1awarenessofthe
fundinginquirieswhichresultedin92propos- technologydevelopmentcapabilitiesavailable
alsbeingsubmittedinresponsetoMSTA's withinMontana.
applicationprocess. Since 1985,
Initsseedcapitalfinancingprogram, MSTAhasplaced
MSTAhasplacedinvestmentsinfourcompa- technology Since
niestotalling$1,205,750.Thesefundswere financingstotalling re-enactment
matchedwith$1,245,750andbringthetotal $4,566,079in44
fundsexpendedundertheseedcapitalprogram projectsinboth in 1989, over
to$2,451,500sincere-enactmentin1989. If seedcapitaland $3.2millionhas
successful,thefourseedcapitalportfolio researchand been investedin
companiescouldrealizeover$64millionin developmentareas. technology
annualrevenuesandcreatealmost240new Thesefundshave development
jobsinMontanaby 1996. beenmatchedwith throughMSTA
Intheresearchanddevelopmentprogram, $7,814,280fora
MSTAprovidedcontinuedsupportforits totalof
CentersofExcellenceprogramthrough $12,380,359being
financingcommitmentstotalling$400,000in expendedto TheMontana
fourcenters.Thesefunds,matchedonadollar- stimulatetechnol- Technologyand
tfoerd-dtohlrloarugbhastihsi,sbprrinoggrtahmettoota$l8f0u0n,d0s0c0ofmomritth-e oneguyr-ibaalsdeedveenltorpempreen-t Entoreneurship
1991 biennium. andenhancethe Forum
Alsoduringthebiennium,MSTAhosted rfoersetahrechbecnaepfaibitloitfies
theMontanaTechnologyandEntrepreneur- Montana'seconomy.
shipForum.SponsoredbytheMontanaPrivate
CapitalNetworkandtheBillingsChamberof
Commerce,theforumwasattendedbyover
100participantsandshowcased25technology-
7
FUTUREPROGRAMDIRECTIONS
Future Program
Directions
Montana Science and shipbetweentheprivatesector,universitycom-
TechnologyPlan munityandgovernmentforscienceandtechno-
logicaldevelopmentandfinancing;recommen-
AspartoftheprocesstomoveMontana dationsonhowtoimproveandsustaintheinfra-
faonrdwiatrsdsciinetnocethaen1d9t9e0cshnaonldotghyedtewveentlyo-pfmiresntt srtercuocmtumreendfoartireosnesarocnhahnodwrteoseaacrhcihevterariensinega;rcahnd
century,theGovernorissuedexecutiveorder excellence.
13-90creatingtheMontanaScienceandTech- Toimplementtherecommendationsofthe
nologyAdvisoryCouncilonOctober22, councilinitsscienceandtechnologyplan,
p1r9o9v0i.siTohnseocfoutnhceiMloisntesatnaablSicshieedncuenadnedrTtheech- MMSSTTAAwrielsleasrecehkalengdisdlaetvievelospumpepnorttpfroorgerxapmafnid-ed
nologyFinancingActenactedin1989. nancingforthe 1993biennium.Theproposed
Thepur- legislationmayprovidefundstotheNational
pcoousneciolftishetwo- SSfatccaiiteaelncUMeniicFvroeourbnsidiaatltyiPaornnod-cdetseossitEghnnegaiNtnaeetdieorCnieannlgteSarctiMfeoonrcneItnatenra-
fdoelvde.lFoiprsat,ndto Foundation'sEPSCORresearchprogramto
recommenda enablebothprogramstomeetfederalmatching
fundsrequirements.Inaddition,thelegislation
satnadtetseccihennocle- mayprovidefundsforotherresearchanddevel-
oMgSyTpAlanbotaord. ospurppompgeornrattm.finoTirthiteahteiMvMSesTSiATn'cAslucrdeeinsntegearrcscohonftainenxduceedldelvefenulcnoedpi-ng
Afterapproval
mentfundingdecisionsduringthe 1993bien-
bytheboard,
tbheepprleasnenwtileld ntiiounmscwoilnltabienebdasiendtohnesctoautnecislc'isenrceecaonmdmetencdhan-ol-
totheGover- ogyplan.
nor.And, Duringthe 1991 biennium,theMSTAre-
second,tothe searchanddevelopmentprogramfocusedon
reviewand providingsupportforitsresearchcentersof
commentto excellenceincooperationwiththeunitsofthe
MSTAon universitysystemandprivatesectorcompanies.
GovernorStan specificapplicationsforresearchanddevelop- TheMSTA-supportedcentersaretheCenterof
Stephenssigningthe mentprojects. ExcellenceinBiotechnologyinvolvingtheUni-
pAADecSaMBCrdxcrracaooeeieveramavsceaicemdrAiuntshnidectcdiotiisetmn,r,MvsgiTiyaeelioncMntepoCmogfhdSpoAntrebDuefdeTteMTnnfeeorecAr,aorpfirciunoJiMlhrBtgtro.nshSoynaotAalT,nlroaAsgdoy vpmtgaanuheaneosbsetmnclsihTbitpedieeheleshcrnnaerscithnienieincifdanpnotaieruuhcnHHivtneadeneectlgflilbitesaeorloensnnopwciahameioch.e,ldfnllasSlodBtbclbulhioyieMobeetzsgonsthescyhneieteemntqlrdiauadtreceiennenovaisngaulneotatnnlmhucntsosremihd.cpleeeaemetMSwnsctepiiideoisnnlaclmnsgtniwgoifdieipsuinnanoclcrgklaaaelNli--nulcotddyy-oe,;: vvsnPMMtoEieeaoriunotrrnlocsgynss;acoriiitiegotntASnasybyyetddsi,neauooviaatrsffManletignorMMCnPUicnooogCraneltnnloeilLdtactnvesaeaentaMpgbsrneanoieossarnnariS;oseEatotofrantyaftragnotMhsalEiedrie;sxnnyncUdMeCeaaenaeoernnlitnranndlvdhdiltteeenternHatShgrIscahnceideeziiaftaMeanoiychrvnSroneooctavdnnIleanotontNtveltduaaeairvestnn'nritUigsfdnhaWnoageMncianTEivuatsoeUnaehlmtcnnltreeeihr--r--e--
andCouncilMember searchcapabilitiesinthestate;aresearch preneurshipCenterinvolvingtheUniversityof
JBEBoxaoheranctruodBtsriMaovenweemdDrbi,MerSerMcTStAoAnTrnAie aacMognouednrnttadaeganceahd'nbesoaslsieiogfcgnfiaoscrtcatiilsenngidcneaevraerepaelpssloeipfaemordrecnhsptcoai;tenenandctpeis;latalrrneesntccgiooetmneht-nei-nfic MMoonnTtthaanenaaM,CSMoTollnAetgaaenn.taicSitpaatteesUtnhiavteresfiftorytsanodftEhaestern
CarlE.Russell mendationsonhowtostrengthenthepartner- MontanaScienceandTechnologyAdvisory
Councilandsubsequentimplementationofthe
council'scomprehensivescienceandtechnology
planwillguideMontana'seffortsintechnology
developmentintothe 1990sandbeyond.
8
