Government-Sponsored Funding: Investment or Industrial Welfare?

- By Rohit Shukla
  executive director

While government-sponsored funding programs seem perpetually to be in danger of budget cuts and scrutiny, the recently concluded Spring 1995 round in the State of California's "Defense Conversion Matching Grants Program" has been concluded, with 34 local and state-wide technology-based companies receiving awards and endorsements, 20 from the Los Angeles area. LARTA is charged with selecting the winners in the L.A. region and thereafter, with managing the companies participation in the program.

The focus of the program, from LARTA's point of view, is on technology development and deployment, with a view to commercialization and marketbased business development. Rather than managing this program as a traditional grant process, however, LARTA sees the grants as investments in highvalue products and services, and in companies (many of them small businesses) who are committed to the accelerated development of their businesses, and not merely to meeting the "milestone-based" requirements of a government grant.

LARTA, therefore, is an investor-partner; however, instead of using traditional return-on-investment (ROI) criteria, LARTA works with the company on developing a commercialization plan and a "scope of work" weighted toward business and organization development. This plan, evolving though it may be, becomes the basis of a new set of ROI guidelines. For example, market share, strategy, employment, operation and managements measures are all part of these guidelines.

The criteria for application are strict: companies which apply for a Match ing Grant investment must have a commercially viable end-product or a technology with potential impact on the ecnomy, supported with such information as potential employment numbers and earnings in order to be considered for investments. Also, they must have received a funding commitment from any department or agency in the federal government under a competitive solicitation.

Typical programs which have been represented in LARTA's investment portfolio include the Small Business Innovation Research (SBIR) program, which provides seed funding in early-stage technologies and products. In its later phases (Phases II and III), success is judged by commercial merit and employment increases demonstrated.

This approach belies the tired argument that all government funding is industrial welfare. Any investment from the state (through LARTA) must be matched three-to-one by private or other funds. Far from breeding dependence on grant dollars, the program succeeds in focusing companies toward the private marketplace, where success is measured by commercial viability, agility, partnership and investment-worthiness.

For information on this and other technology programs, contact LARTA at (213) 622-7039. Rohit Shukla can be reached at (213) 622-7039, or e-mail rshukla@larta.org.