RD191 - Center for Innovative Technology (CIT) Operating Plan Fiscal Year 2015 - Revised

Executive Summary:
*This report was replaced in its entirety by the Center for Innovative Technology (CIT) on August 11, 2014.

Updated Preamble to CIT’s Fiscal Year 2015 Operating Plan and Budget

On May 22, 2014 when the Fiscal Year 2015 (FY2015) Operating Plan and Budget was presented to the CIT Board of Directors, CIT management was not aware of the funding contribution that CIT would receive from the Commonwealth for some programs and operations discussed in the Plan. Due to this unique situation and the legislative requirement for CIT to provide an operating plan and budget for FY2015 by June 2014, management determined that the most likely FY2015 funding scenario was to assume identical funding as provided in FY2014 excluding special one-time appropriations such as the appropriation for the creation of MACH37. The FY2015 Operating Plan and Budget was developed and presented using the above assumption.

During the May 22, 2014 CIT Board meeting, Directors provisionally approved the FY2015 Operating Plan and Budget with final approval to be requested after the FY2015 budget was signed into law.

On June 23, 2014 the Commonwealth’s budget was completed and contained the following adjustments to CIT funding when compared to the funding received for FY 2014:

1. Funding for CIT’s GAP Funds was reduced by $1,100,000
2. Broadband Program funding was increased by $500,000
3. Funding for cyber security programs was increased by $20,000
4. Funding for modeling and simulation programs was decreased by $20,000

In addition to these above reductions, CIT has finalized $1.5 million of new funding for FY2015 which is also included in this budget. The net impact of the Commonwealth’s changes and the addition of new revenue is an increase of $711,472 in net assets for the FY 2015 budget.

These changes are highlighted in the following document. The CIT Board will be requested to approve this revised budget.

Revised Fiscal Year 2015 Funding

The Revised Fiscal Year 2015 (FY2015) budget has $13.18 million of revenue, which is a $926,589 increase over the provisionally approved FY2015 budget. The change over the provisionally approved budget is due to the following:

• A new agreement with the Virginia Small Business Finance Authority to obtain up to $2M of federal grants for GAP Funds investing of which $760,000 has been included in FY2015 budget

• The U.S. Air Force Academy has also awarded CIT $472,052 for a new project involving analytic discovery for homeland security

• Various new agreements with CIT continuing work with the Virginia Department of Education’s longitudinal data system has also produced an additional $292,661 of new revenue

• Increased revenue produced by the above-referenced projects added to the FY2015 budget was offset by reducing the Commonwealth of Virginia appropriation by $598,122.

In addition to the funding CIT receives directly, CIT is designated as the fiscal agent for Commonwealth Research Commercialization Fund (CRCF). In FY2014, and in the provisionally approved budget, CIT recognized $4.8M of CRCF funding. The revised FY2015 budget contains $2.8M of CRCF funding, a reduction of $2M over FY2014. The combined revenues of $13.18 million for CIT and $2.8 million for CRCF funding provide CIT with fund deployment capability of $15.98 million to facilitate technology programs for the Commonwealth in Fiscal Year 2015.

Shortly after presenting the provisionally approved budget, CIT was notified that it will receive $2 million from the U.S. Department of Treasury State Small Business Credit Initiative (SSBCI) Program to provide funding CIT’s Growth Acceleration Program (GAP). Of the total grant amount, $760,000 of these funds will be booked in Fiscal Year 2015 and help to offset the $1.1M reduction of Commonwealth appropriations provided in FY2014 and the provisionally approved FY2015 budget. These funds resulted from a proposal made by CIT in partnership with the Virginia Small Business Financing Authority to reprogram unused small business funds.

In early 2015, CIT’s multi-year grant from the National Telecommunications and Information Administration (NTIA) will end. The final FY2015 Commonwealth budget added $500,000 of funding to continue a portion of the work funded by the NTIA grant. The addition of these funds is included in the revised FY2015 budget.

Fiscal Year 2015 Operating Plan

For Fiscal Year 2015, CIT’s mission will continue to be “accelerating the next generation of technology and technology companies” coupled with the objective to “achieve national recognition as the premier services provider engaged in technology company creation and company growth.”

To achieve these objectives, CIT will operate four service lines and the MACH37™ cyber accelerator each under the leadership of a senior executive. These service lines are:

Service Line: Research and Development
Responsible Executive: Nancy Vorona

Service Line: Entrepreneur
Responsible Executive: Tom Weithman

Service Line: Connect
Responsible Executive: Paul McGowan

Service Line: Broadband
Responsible Executive: Sandie Terry

Service Line: MACH37™ Cyber Accelerator
Responsible Executive: Rick Gordon

In addition to the service lines above, the following corporate support functions are delivered under the leaders identified below:

Operating Area: Commonwealth Operations
Responsible Executive: Bob Stolle

Operating Area: Finance and Administration
Responsible Executive: Linda Gentry

Operating Area: Government and Public Relations
Responsible Executive: Hap Connors

Operating Area: Office of Chief Technology Officer
Responsible Executive: Dave Ihrie

The Fiscal Year 2015 CIT Operating Plan provides a complete description of the goals, objectives, plan of work, value proposition, program impact, and milestones for each service line. The following sections provide a summary of the plan and funding by service line.

Research and Development Service Line

For Fiscal Year 2015, the Research and Development service line will execute the following programs:

1. Refresh the Commonwealth Research and Technology Strategic Roadmap.
2. Maintain the Innovation and Entrepreneurship Measurement System.
3. Structure, administer, and audit $2.8 million of new awards for the Commonwealth
Research Commercialization Fund and $13 million award base.

In addition to program operations, Research and Development leadership will examine new funding opportunities identified by the other service lines and will monitor opportunities in offshore wind energy. To execute these programs, the Research and Development service line will expend $412,393 as outlined in the funds usage chart shown on page 10 of the report.

Entrepreneur Service Line

For Fiscal Year 2015, the Entrepreneur service line will execute the following programs:

1. Operate CIT’s Federal Funding Assistance Program which helps Virginia companies secure SBIR/STTR funding and ensures that the Commonwealth preserves its top 5 national ranking for total SBIR/STTR awards.

2. Accelerate seed-stage funding for Virginia’s technology startup companies by operating the GAP Fund family of funds, along with the Commonwealth and State Small Business Credit Initiative (SSBCI), funding for Fiscal Year 2015 will allow the GAP Fund to place 18 investments and support second-round funding for existing high-growth portfolio companies.

3. Accelerate seed and growth funding for Virginia’s energy companies by operating the Commonwealth Energy Fund. Federal funding for this Fund will enable the creation or growth of four energy companies.

4. Provide seed funding to emerging cyber security companies through the MACH37™ Seed Fund.

The combination of the GAP Funds, MACH37™ Seed Fund, and Commonwealth Energy Fund will produce a projected 20 to 30 new investment transactions for Fiscal Year 2015. The Entrepreneur service line will offer additional operational support, as required, for programs executed by other service lines, including the Commonwealth Research Commercialization Fund and MACH37™.

In addition to program operations, service line leadership will continue its strong program of community outreach, advocacy, and new business development issues consistent with maintaining and growing Virginia’s appropriation in support of these programs and to identify sources of new business consistent with its leadership in new company formation and funding. Finally, the Entrepreneur service line will examine how best to establish one or more private sector funds to augment financing obtained from Virginia’s appropriation process for the purpose of investing in early stage companies. To execute these programs, the Entrepreneur service line will expend $8.3 million as outlined in the funds usage chart on page 10 of the report.

Connect Service Line

For Fiscal Year 2015, the Connect service line will execute the following programs:

1. Ongoing support for VLDS (Virginia Longitudinal Data System).
2. Development and implementation of the NLDS (Nevada Longitudinal Data System).
3. Ongoing execution of the Virginia Regional Extension Center contract with the Virginia Health Quality Center to assist physicians with the implementation of electronic medical records and achievement of Meaningful Use. The Virginia target for implementation is 2,300 physicians.

To execute these programs, the Connect service line will expend $2.5 million as outlined in the funds usage chart on page 10 of the report.

Broadband Service Line

For Fiscal Year 2015, the Broadband service line will execute the following programs:

1. Operate the Office of Telework Promotion and Broadband Assistance to encourage the usage of telework alternatives for public and private sector employees.

2. Execute programs to support the efforts of public and quasi-public bodies within the Commonwealth to enhance access to and utilization of affordable broadband services throughout Virginia. These programs include:

a. Improve broadband access through mapping and the support and development of tools to facilitate broadband deployment planning.
b. Provide technical assistance to underserved areas to improve their access options.
c. Advance broadband benefits by providing resources to guide communities to implement programs that improve broadband adoption and utilization resulting in sustainable demand.
d. Benchmark Virginia’s broadband access and utilization through an annual healthcare assessment and collaborating with agencies to assess broadband access and capacity at schools and libraries across the Commonwealth.
e. Monitor national rankings to target areas needing improvement to ensure Virginia is realizing all the benefits of broadband including improved education, healthcare, and overall life.

To execute these programs, the Broadband service line will expend $1.5 million as outlined in the funds usage chart on page 10 of the report.

MACH37™, Commonwealth Operations, and Special Projects

Two special projects will be conducted in Fiscal Year 2015, the continued development of the cyber accelerator, MACH37™ and the second year of assessment and program development to facilitate the Commonwealth’s modeling and simulation industry. Similar to last year, to ensure our programs are aligned with regional interests and the diversity of the Commonwealth’s technology industry, Bob Stolle will continue as Senior Vice President to coordinate all programs to ensure complete satisfaction with CIT’s services.

To execute these initiatives, CIT will expend $2.9 million as outlined in the funds usage chart on page 10 of the report.

Corporate Support Groups

In addition to the operating service lines, CIT is supported by the Finance and Administration (F&A) group under the leadership of the Chief Financial Officer (CFO), Linda Gentry. CIT’s F&A group is responsible for all financial, legal, and administrative functions of the corporation including the design and operation of a federal and state compliant financial management system.

The Chief Technology Officer (CTO), Dave Ihrie, provides leadership of the group responsible for technology vision, as well as information technology services. The goal of the CTO is to take a lead role in defining, promoting, and implementing forward-looking technology policies and processes that advance entrepreneurial activity and the assimilation of technology.

CIT is supported by the Government and Public Relations group under the leadership of Vice President Hap Connors. The Government and Public Relations group is responsible for state, federal, and public relations functions.

Operating Budget

The Fiscal Year 2015 budget, summarized below, plans the controlled use of net assets to achieve impact in all service lines. The projected year end net asset position of $2.8 million ensures our ability to bridge fiscal year commitments and manage operating adjustments throughout the year.

President and CEO’s Perspective

For Fiscal Year 2015, CIT will experience a reduction in mission-related revenues due to the completion of its federally funded broadband contract and non-renewal of the one-time special appropriation to create MACH37™. The funding sources for seed-stage investment and research commercialization introduced in prior years continue to provide strong levels of funding for Fiscal Year 2015. National emphasis on innovation-centric entrepreneurship, scientific discovery, and engineering creativity have positioned our GAP Funds and Commonwealth Research Commercialization Fund as emerging assets to fuel economic competitiveness and job creation. Our Connect consulting service is positioned to achieve national recognition for work in the development of longitudinal data systems and our Broadband service line is transitioning to multi-source funding to continue its highly regarded work in mapping and stimulating broadband deployment. In recognition of the density of highly skilled cyber security professionals in the Commonwealth, in 2014, CIT obtained a $2.5 million appropriation to create the nation’s first cyber security-centric accelerator to attract and develop the next generation of cyber security companies in Virginia.

While we are positioned to deliver significant investment and consulting services, we continue to invest leadership resources to examine strategic initiatives that are vital to the growth and continued high level of performance of the organization. In March, the leadership team analyzed 29 different initiatives for their relevance to current operations and future growth opportunities. Of these, 19 specific initiatives were identified as requiring new or continued investment of resources. Our challenge throughout this examination process is to predict, propose, and implement the next generation of solutions that ensure that CIT is nationally recognized as the premier services provider focused on technology company creation and company growth.

Fiscal Year 2015 holds significant opportunity and equally significant growth challenges for CIT. Our entrepreneurial focus and culture ensures that we are closely aligned to our mission and our client base. The entire team is energized for the challenge of delivering on the goals outlined in this plan.
* revised July 17, 2014 to reflect Commonwealth’s budget finalization