Complete 2012 forensic audit documents - Kansas Bioscience ...

• KBA investment in three venture capital funds under the Kansas Bioscience Growth
Fund – March 2010 through October 2010
• Tom Thornton resigned – April 2011
• KBA headquarters moved to the Venture Accelerator building – May 2011
INVESTMENT PROCESS
The review of KBA’s investment process was one focus of BKD’s procedures, as was the review
of specific investments.
KBA has an established, standardized investment process for all potential grants or investments
that are considered under a KBA program. Each program managed by KBA has its own unique
program guidelines and application materials; however, the review process detailed below is the
same regardless of the funding program, with the exception of Proof of Concept Investments less
than $75,000.
Application Assessment
Initial assessments of all application submissions are made by an HBV staff member applying
program guidelines and eligibility and investment criteria, and is based on a review of written
submissions provided by the entity seeking investment. KBA rejects many opportunities at this
assessment stage with an email or telephone call. The basis for rejection varies, but includes the
perceived lack of viability, the existence of other established and accepted competing products or
services, a lack of conformance with KBA’s then current strategic direction for investments, and
the lack of budgeted funds for the specific program under which the application is submitted.
The aim is to qualify submissions quickly before either party allocates and uses significant
resources. The submitter of each rejected investment has the opportunity to request a debriefing
session with the HBV staff member and is given the opportunity to reapply with a modified
submission.
Scientific and Financial Due Diligence
All eligible applications are subjected to scientific and financial due diligence, among other
evaluation criteria required by the program’s guidelines. HBV staff members conduct due
diligence on most investment opportunities but may also choose to contract with outside parties
to provide additional capabilities in unique circumstances, such as the review of specialized
science and technology for the Eminent Scholars program.
During the scientific and financial due diligence, HBV staff discuss the opportunity in weekly
deal flow meetings. If it is determined that an opportunity is potentially suitable for investment,
an initial Investment Recommendation is prepared for presentation to KBA’s Investment
Committee, a standing committee of the BOD. The Investment Recommendation is forwarded
to Investment Committee members five to seven days prior to the scheduled Investment
Committee meeting to give directors sufficient time to review the Investment Recommendation
and formulate their questions.
David Vranicar, President of HBV, and other members of HBV staff indicated that Mr. Thornton
rarely attended deal flow meetings and would often first become aware of an investment
opportunity through his review of the Investment Recommendation prior to its submission to the
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