See Rick Shindell’s SBIR Insider for more details.
Archive for category SBIR reauthorization
SBIR Reauthorized!
Dec 15
SBIR close to renewal
Dec 13
I’ve commented before on the SBIR program, which was originally envisaged as a way to support small, high-tech businesses, while generating truly innovative solutions to difficulties faced by US Government programs. SBIR was for small businesses only (<500 employees), majority owned by US citizens and/or US companies (with the restriction that the entire family of companies hard to qualify as a small business). SBIR contracts are not large; the standard is ~100k-$150k for a proof of principal (research), followed by ~$1M for development to a stage at which it could attract Angel financing.
For the past three and a half years, SBIR has been a political football, since the previous authorization ended 9/30/08. It appears that an agreement has been reached. This agreement would:
- Reauthorize the SBIR program, more or less as it is, for six years
- Increase the SBIR allocation, which is currently 2.5% of government research, to 3.2% in FY2017 (slightly more than 0.1% increase each year). STTR, the equivalent program aimed at universities and nonprofit research groups, will get an increase from 0.5% to 0.45% over the same period, about 0.05% per year.
- Permitting, for the first time, funding to small businesses that are majority owned by US corporations–at least, by investment companies (venture, angel, private equity, etc.)–even if the owning corporation does not qualify as a small business. Only up to 15% of the funding can go to these types of organizations for the contract agencies, such as DoD, but up to 25% of the funding can go to these organizations for grant agencies NIH, DOE, and NSF.
- Permitting, for the first time, DoD, NIH, and ED to give Phase II awards ($1M) without prior proof-of-concept in Phase I, if the agency determines that there is a compelling reason to do so.
This is a much better solution than we might have thought. This is going to be offered as an amendment to the Defense Authorization Act. One potential problem with this is that there is a provision already added to that Act that many people are against, one that permits the government to arrest US citizens and hold them incognito, without informing anyone, at any location in the world, and doesn’t even require the government to state a reason. This is likely to cause a lot of debate, at the very least, on this Act, and we will still need to advocate to keep the SBIR portions of the Act, even if the other parts are amended.
For more information, go to Rick Shindell’s SBIR Insider.
SBIR in need of Continuation
Jan 19
In his SBIR Insider newsletter of January 16, Rick Shindell covers a lot of ground. The key point is his analysis of current Congressional priorities. He points out that, since the House is trying to do a number of things (such as repealing the Health Care Act), they are unlikely to put in the time to do a full reauthorization. The new Chair of the House Small Business Committee is Sam Graves (R-MO), replacing Nydia Velazquez (D-NY). I was originally hopeful that Graves would be more open to genuine small business concerns, but Rick points out that he generally supported Velazquez when their roles were reversed. Still, we hope to get a continuing resolution to keep SBIR alive for a few months as Congress tries to reauthorize this incredibly successful program.
If you read the Internet as assiduously as I do, you have no doubt heard lots of stories of “Waste, Fraud, and Abuse (WF&A) in the SBIR program.” Many of these seem to be minor technicalities, but if the government sues a small business we generally have two choices – settle or go out of business. My own (opinionated) conclusion is that the WF&A attacked by government investigators is generally small, probably just accounting errors, while the WF&A that I would like to see them attack is not only ignored but commended. Read the rest of this entry »
Dr. Russell Kurtz
A Brief Background
SBIR—Small Business Innovation Research—is a federal government set aside for small businesses. Specifically, each federal agency with a research budget exceeding $100 million annually must allocate at least 2.5% to SBIR. Some products that have grown out of SBIR projects include the videoconferencing system used by the U.S. government, a lightweight spectrometer used by NASA on Mars and by cosmetics companies in the U.S., and the Sonicare electric toothbrush.
The combined amount spent annually comes to about $2.5 billion. This is currently about 150% the amount invested in startup companies by venture capitalists. A little over half of the funding is issued in the form of contracts with the rest coming as grants. The contracts and grants are divided into three “Phases,” of which only the first two are funded by the SBIR law.
During the early 2000s, there was a push to make corporations SBIR-eligible
During the early 2000s, some organizations (and some Representatives) thought that the definition of an SBIR-eligible company should be changed. They wanted to change the requirement of being owned by U.S. Citizens or Permanent Residents to include corporations. That was rejected, since it could lead to a situation in which a federal contractor could: (a) discover a problem in its production for the government, (b) ask the government for an SBIR project to address this problem, and (c) create a subsidiary “small business” to get that SBIR award. Since the “small business” had so much inside information, they would be almost guaranteed to win the contract. This would clearly be unfair, so it was not passed.
Another business problem in the early 2000s was the failure of the 1990s venture capital model. Some Representatives decided it was unfair that a company that is 49% owned by a venture firm (which usually consists of many more than 500 people) is eligible for SBIR, but one that is completely controlled by the venture firm (with over 51% ownership) is not eligible.
This led to an ongoing debate in SBIR Circles
There are two reasons for this. First, the venture firms by their natures are less innovative than small businesses still run by their owners. This is why the venture firms are not investing in the technology in the first place, and leads to venture-controlled small businesses developing significantly less innovation in the projects they want to work on. Second, the venture firms need significantly more profit than is typical of an SBIR project. Thus, they want to bypass Phase I and go directly to Phase II – and, often, to get a “jumbo” Phase II project worth up to $5,000,000 over two years. Funding conversion of a Phase II prototype to a commercialized product can be the basis of a Phase III contract. This is where the venture funding was supposed to come in, but the venture companies are being funded by the government instead of by their investors.
The SBIR law expired in 2008 and has not been reauthorized
As I write this, over two years have passed since the law expired. Instead of reauthorization, there has been a series of continuing resolutions, keeping the program exactly the way it is currently. The most recent one expires on January 31, 2011. The main sticking point appears to be the participation of venture-owned small businesses.
I’m going to speculate here. One indisputable fact of the SBIR debate are that there is a small group in the House that are demanding access to SBIR for all venture-owned firms. Another is that they have been using extremely deceptive methods to try to get their way. So I speculate the following.
Venture firms can outspend small businesses come election time
Very few SBIR companies make profits exceeding $1,000,000/year, and a lot of that goes to business expenses that are not allowed to be charged to the contract. The large investment banks make huge campaign donations, and even mid-sized to small venture investment firms often manage to donate more than $1,000,000 to political coffers. Thus, if a Representative is looking for campaign contributions, he or she would be more likely to get a good contribution from a venture firm than from a small business. And venture firms want to reduce the reauthorization period from eight years (or 14, as has been suggested by the Senate) to two years – so that reauthorization comes up every time the Representatives are reelected. “Keep getting the SBIR funding – vote for me!”
A sign of hope in the Senate
Interestingly, the Senate—led in this case by the richest Senator, John Kerry of Massachusetts—has fought to keep the SBIR program following its two original purposes. I hope that they will succeed. The recent election has moved the most problematic people off the House Small Business Committee, but we don’t know how good their Republican Replacements will be — or even who they will be. In my opinion, based on the number of useful inventions that come out of SBIR every year, this has been one of the most valuable government programs in history. If it works so well, why try to destroy it?
Read the entire article posted in the SBIR Corner of this blog.
For more SBIR information: