Interview with Krista Marks (Toolbox)
In this interview, Krista Marks shares her experience and knowledge in winning National Science Foundation Small Business Innovation Research (SBIR) grants. Every federal agency with a large external R&D budget, including the NSF, makes a portion available to small businesses through SBIR grants. Krista was CEO of Kerpoof, LLC when it applied to the NSF and won two SBIR awards. Her company received the grants to develop its website, Kerpoof.com, and the innovative software that powers it.
An Interview with Krista Marks General Manager, Disney Online Kerpoof Studios
Date: March 3, 2009
Krista Marks: Kerpoof
Lucy Sanders: Hi, this is Lucy Sanders, I'm the CEO of NCWIT, the National Center for Women and Information Technology, and this interview is another in our continuing series called "The Entrepreneurial Toolbox" series, where we talk to successful entrepreneurs about different aspects of starting companies. What type of things do you need to know to be successful in the entrepreneurial world. We've covered topics such as failure, and how you learn from them. And networking, and business competition. Today we're going to talk about a very important thing to know about when you're trying to fund your company. And that would be the National Science Foundation and their SBIR grants. We're excited about this series. With me is W3W3.com Larry Nelson. Welcome Larry.
Larry Nelson: Well thank you, it's a pleasure to be here. Certainly we've admired Krista's works over the years, and this is going to be an exciting interview.
Lucy: To that end, we're interviewing Krista Marks today. Krista is the CEO of Kerpoof. Kerpoof.com is an Internet media company that has been acclaimed for its unique and creative activities. And if you haven't been there, you must go see it. I think it's great, as an adult. I love it. The activities really lead kids through creative pictures, and animated movies, and interactive stories online. I also love the animated movies and other things as well.
Krista Marks: Kids of all ages, I say. Kids of all ages.
Lucy: Thank you Krista for letting me do that.
Larry: Our grandchildren love your site, too.
Lucy: It's a great site, a beautiful site. Krista has spent about 19 years at the forefront of technology, as an engineer, a leader, and a business strategist, and is a good friend of NCWIT and of W3W3. Welcome Krista.
Krista: Thank you, thank you. It's great to be part of this series.
Lucy: We really want to talk to you today about this important potential source for funding that the National Science Foundation provides called an SBIR grant. We've had some exposure to them ourselves at NCWIT. We also had the pleasure of endorsing the one that you applied for and were successful in getting at Kerpoof. So let's just get to the most obvious question first. Hopefully all our listeners know that NSF stands for the National Science Foundation. The National Science Foundation has many different programs aimed at advancing the causes of research and science in the United States, and even internationally in some cases. Why don't you tell us exactly what an SBIR grant is, Krista?
Krista: SBIR stands for Small Business Innovation Research. To qualify for an SBIR grant, you have to be a small business, and the grant has to be used specifically for funding research. An SBIR Phase one grant is for $100,000, and this funds the first part of that research, typically a feasibility type of analysis. I also really want to point out that the SBIR grant is not unique to NSF. Every federal program with a large R and D budget has to use a percentage of their budget to fund small businesses with these SBIR grants. Where they define a small business as a business with less than 500 employees. That being said, it's worth noting that the SBIR programs are very different depending on the agency. For example, the NSF really favors small companies, so a 10 person company in their first year would really be viewed positively by the NSF. Whereas military SBIRs tend to favor much larger, more established businesses.
Larry: Krista, let me ask this question. It seems, maybe, obvious why every entrepreneur would be interested in knowing more about these grants. How did Kerpoof benefit from SBIR?
Krista: First let me address why I think it is important to entrepreneurs, and let me do it by quoting the NSF Program Manager for IT Errol Arkilic, who described the NSF SBIR program as being the only source of equity-free financing for your idea. What he means by that is, unlike the other SBIR programs, from these other federal agencies, which have typically very specific problems that they're trying to solve, the NSF poses broad areas of focus. For instance, biotechnology, or education, or IT. For instance when Kerpoof applied, one of the broad categories is educational software. At the time, Kerpoof wanted to do research on delivering an activity entirely in your browser that would introduce kids to basic programming constructs. And to do that in such a way that the interface is really as responsive as traditional desktop software. So we submitted a proposal, an SBIR proposal, and received a Phase one grant for $100,000 to complete that research.
Lucy: You said something important there, equity free.
Lucy: I know a lot of young entrepreneurs struggle with figuring out should I take investment early on, how much of the company should I exchange for the honor of taking somebody's money. And I think that this part of a SBIR grant is pretty important.
Lucy: I think it also validates your idea with a very respected science foundation through the National Science Foundation. As you were preparing your grant, there are lots of steps to an NSF grant. Why don't you tell us the secret sauce? What should our listeners think about doing as they think about writing one of these grants?
Krista: The single most important thing, and I was very fortunate that someone gave me this advice, is to talk to the program manager. You want to communicate really early in the process, and you want to communicate often. I think this is stating the obvious, but I will say, obviously before you do this wonderful, great over communicating you really need to do your homework. You really want to be very prepared and very focused when you do call. And a note to anyone who is listening who might do this, that program managers, at least in my experience, are very abrupt. They get a ton of calls, they're really skeptical of people applying for the first time. I think entrepreneurs are naturally thick-skinned, but I would say definitely have a thick skin, and don't let it deter you from your communication.
Lucy: It's also the case that you can apply once and be turned down, and learn something from it, and then apply again.
Larry: Let's get down to the nitty-gritty, and I know Krista you're there all the time. What are the steps to go through to do this? Is it hard work? I like this idea of equity-free money, but was it, well, worth it?
Krista: I think in terms of how hard it is to do, it's really very similar to creating a business plan and pitch for investors. I'd say the amount of work is really similar in scope. So, if what you need is funding, whether you're trying to get an SBIR grant, whether you're trying to go to an angel investor, or a venture capitalist, you're going to need to create a solid business plan. You're going to need to have a pitch. I think that the work is certainly worth it and can be leveraged, if you have research that needs funding. Certainly, like a business plan, I would say the most important part, when you get into doing the steps, is that first page. That it really stand on its own and be compelling. Having now gone through the process I now know that really what you want to happen...many people will read your proposal, you want it to resonate with one of the reviewers. You want to resonate it so much that when they all sit around the table, you have a reviewer that is advocating on your behalf. Our first page, we did, I can't even say how many drafts. In fact, Lucy was one of the people who reviewed it and gave us some of the strongest feedback. The other really important step is the letters of support. With the Phase one proposal, you do three letters of support. It's critically important that at least one customer, or venture capitalist, or someone vouches for the viability of the commercial enterprise. Most NSF SBIRs are not turned down because of the technology, they're turned down because the lack of demonstrating the commercial potential.
Lucy Sanders: One of the things, too, that listeners may be interested in; I believe SBIR grants are judged by panels, just like all of the NSF grants, is that true?
Krista: It is, yes.
Lucy: Maybe we should say, a minute, about what that means, when a panel is actually called together to review proposals.
Krista: I think it's a really good question, because one of the things that I think's worth noting is that the NSF actually doesn't just have research scientists sitting around that panel, they also have venture capitalists. So that commercial viability is critically important. They're really looking for opportunities that, if they're commercially successful, will ultimately benefit the U.S. economy. So, exactly what you said. Everybody on the panel reads all the proposals, and they just go through them. So really what you want to have happened, is you want to have a champion. Some of that can be from talking to the program managers. You might have had some really good program managers. But really what you want is that first page to stand on its own, be compelling, really speak to somebody. By sharing it with other people, you can kind of get that. If it's not getting people you know and respect excited, then you probably have... it's not going to get someone on the panel excited.
Lucy: I think maybe one other thing here to point out is that the proposals themselves need to be very concise. There are limits in terms of how much you can submit. You may think it would be easy to keep something to fifteen pages, but it often isn't.
Krista: They certainly talk about that. That they're really put off when they get something that's sixty pages. They get so many, that if that's an easy way to reject, because they have so much to read, and it's not following the rules. Which are laid out, like you said there is a fifteen page rule. Definitely following the guidelines is good advice.
Lucy: Very good advice. I'll tell a little story. I saw this one grant come... I've been on an NSF panel before, and I saw this one grant come through where the letters of recommendation were identical to each other. And they came from about 10 different sources, but they were just identical.
Lucy: So you're sitting there thinking, "Um, why didn't you just write one letter, and have 10 people sign it?" It was offensive.
Lucy: Once you get a grant, there are other farther along funding opportunities, I think you said something about them previously. Can you give us a little bit more about what's the concept of the A round, B round, with an SBIR grant?
Krista: The big thing, is if you get a Phase one, you're then eligible to apply for a Phase two. And a Phase two is $500,000. It's really intended to take what you've just shown was feasible, and move it forward towards being a commercially viable product. I think that the other benefit that I really want to point out, that in addition to being able to be eligible for that Phase two, is that when you get a Phase one grant, the NSF at that point wants you to succeed. They're invested in you succeeding, they look good if you succeed. So they're actually really helpful. They can do a number of things for you. they're very well connected, so they can make key introductions to venture capitalists. They can help you with the commercialization plan. It's kind of nice, it's kind of this large institution that's in your camp.
Lucy: That is nice. And $500,000 of equity-free funding, that's pretty good. Larry Nelson: Yeah, I love it. Krista: Absolutely.
Lucy: That's very good.
Larry: Krista, we've asked a lot of questions, we've got some really good answers, and of course we will have links to all of these different areas of interest. But, what is something that we haven't asked that the listeners would probably want to know?
Krista: I think the thing that I would like to highlight in particular, it's very similar, is the STTR program, which is the Small business Technology Transfer Program. It's essentially the same as an SBIR but it's intended for research that's done in conjunction with a university. I think it can be a wonderful opportunity. I think for businesses that actually need some expertise, have some research and want a collaborator, or really vice-versa. For someone who's a researcher at a university who wants to work with a business, commercialize some other research, without actually leaving academia, I think it's a also a really rich program that's available through all the SBIRs, but in particular I'm familiar with the NSF.
Lucy: If you had it all to do over again, would you then recommend...I think maybe you answered this, but I'm just going to ask it again, in maybe a slightly different way...would you have gone after an SBIR grant, or would you have gone after angel investing, or...what?
Krista: For us, I think the SBIR grant was perfect. What we wanted to do was really in line with a very specific category. And here's where I think SBIR can be very rich and interesting is if you have an idea that might be too early stage that an angel is going to get interested. We didn't pursue the angel route. I think that if we had, they would've wanted us to make more progress. In fact, NSF looks for these opportunities, because they want to fund companies that are very early stage. Even perhaps more early stage than an angel is even ready to fund. Getting that to feasibility where then an angel would be comfortable, or a VC would be comfortable at that point to do funding. It's a really good opportunity if you have an idea that an angel might say, you know what, "I'd like you to do a little more feasibility." I'd like a little more research. I'd be interested, but do a little more work. Can get you to the hump. And like I said, NSF is actually looking for those, specifically those type of opportunities.
Lucy: That's really great advice.
Larry: One of the things I think of note, that's related, but it's different. And that is, you, Lucy Sanders, Krista, and Larry, we do have something in common.
Lucy: No, that's too scary.
Larry: Oh yeah, yeah. Because we're all volunteers for the Colorado First Robotics Contest.
Lucy: Yeah, and we should put a link to First up on the pages as well. We're always looking for judges and helpers, so...
Larry: Yeah, excellent. Well, you want to tell us what Kerpoof is up to next?
Krista: There's nothing I ever like talking about more than Kerpoof. It would be my pleasure. I think the biggest thing most recently is Kerpoof received a Parents' Choice Gold Award.
Lucy: Oh, congratulations.
Krista: Thank you, thank you. We were only one of four websites in the world to get it. So it was a really big validation. A real validation to our commitment to creating a top Website that's really all about creativity. In fact, we just launched a really rich new activity called the rock party, which is our first foray into letting kids compose music for their short animations, and a place that we're really interested in doing more kinds of activities with. I think that most importantly, is that our community continues to grow. I'm really proud to share that we've had 30 percent growth month-to-month for the last year.
Lucy: That's great.
Krista: Yeah, and a lot of our traffic is actually coming from schools. Which I think is another wonderful validation that we're not just building something that's fun, but is also enriching. Or as I like to say, something that not only tastes good, but is also nourishing.
Lucy: That's great.
Lucy: That's great. Well, it's a great company, and it's a wonderfully fun site. Congratulations on the award, that's fabulous. Thank you, Krista, for talking to us today about this really important option for funding companies. We appreciate your time, and I just wanted to remind listeners where they can find this interview. They can find it at www.NCWIT.org and W3W3.com. So, thanks a lot Krista, we really appreciate your time.
Krista: Great. Thank you guys.
Larry: See you soon. Thanks.
Lucy: Thanks. Transcription by CastingWords