SBIR Gateway VC Discussion Group
(Archived May 2004)
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The comments below are the views of submitter and do not necessarily reflect that of Zyn Systems or the SBIR Gateway. Please address your questions to: info@zyn.com .
Updated 05/22/0499 messages
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10/27/03
  13:41:34
Name withheld by request Watertown, MA
Msg 31 of 99
I am opposed to this for the following reasons:
1) The proposed change does not meet SBIR’s primary objective, which is to provide "seed capital" to match up small innovators and entrepreneurs who lack access to capital for their innovations with federal agency R&D needs. This has little or nothing to do with providing a federal cushion for venture capitalists. Venture companies invest in the top 1% of technologies they review. At most, venture capital is funding primarily for commercializing a technology for which feasibility has already been demonstrated. This may be appropriate for “Phase III commercialization” of SBIR awards, but it has no place whatsoever in the earlier Phases, I and II, of this federal program.
2) The proposed changes will fundamentally alter the basic nature of SBIR from its role as the premier federal program supporting cutting-edge research to a mechanism to support languishing venture funded projects in order to reduce the investment risk of venture capital.
3) The primary beneficiaries of the SBIR program are supposed to be the applicant small business firm and the federal agency, not institutional investors.
4) The proposed change will open the SBIR program to large corporations that do investment funding. Firms like General Electric, Intel, Bank of America and many others which already recognize the benefits of SBIR funded research will stop being Phase III partners and will simply apply for their own SBIR research using their own venture funded “small companies”. Very large conglomerates will be able to apply through their individual components pretending to be “Small Businesses”.
5) The existing interpretation of SBIR eligibility requirements does not prohibit venture capital investments into firms participating in the SBIR program. Up to 49% of a company's stock can be owned by a venture capital firm. This provides great opportunities for investors while helping small business owners keep control of their firms.
6) Allowing majority control of SBIR companies by venture capital firms would create an uneven playing field for true small businesses competing for the research grants and contracts. Small companies proposing novel ideas with little preliminary data would be competing with firms that have already spent millions of dollars on the technology before submitting a proposal.
7) Only 2.5% of federal government R&D funding is allocated to SBIR. The venture funded firms are eligible to apply for, and control, much of the remaining 97.5%.
8) There have been no hearings and no public debate of this fundamental change. To allow such a fundamental change in the SBIR program without appropriate hearings sets a very dangerous precedent that would start an avalanche of other proposals to modify the eligibility requirements of the SBIR and other SBA programs by other large business lobbying groups.
Vote:   NO 
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10/27/03
  13:53:27
Carl Nelson Washington, DC
Msg 32 of 99
Ann Eskesen makes some good arguments from her actual data. But after she concludes the question is minuscule, she says the opening should not be made because the effect would be more than minuscule (sort of, maybe). She says that SBIR should cling to three principles: 1. technical excellence as the ONLY criterion of selection for award ; 2. bipartisan support of this very important national resource; 3. complete integrity in the conduct of the program. OK, sounds good for a stump speech.

Unfortunately, technical excellence as the only criterion has led to awards going mostly to hobbyists whose results have no more than sporadic impact. Not only is the impact low, it is apparently so low that the advocates fight to dilute or kill every attempt to measure it. Bipartisan support is mere politics, not a goal of a national program for economic growth from technology. Complete integrity the program already has in the hands of the civil servants who have no incentive to act in anyone’s economic interest. Terms like technical excellence and bipartisan support and complete integrity hardly exceed platitudes.

If SBIR is to have any national value-added (not just a political handout to a favored class of companies), it has to have some criteria beyond technical excellence. That excellence has to have some potential impact, and the more impact, the more likely a project should be to get nursery funding. And who has a view of what’s likely to have impact? VCs, for one group. The government, which has never shown much ability to pick winners and losers in economic competition, must find an inviting entry for VC money. Merely hoping for diffusion of the excellent technology into the economic mainstream, or any other mainstream, has failed to produce much so far.

carl@carl-nelson.com

Vote:   YES 
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10/28/03
  06:24:09
Matthias Pohl Greenville South, SC
Msg 33 of 99
I would like to offer the obervation that the byline used on the SBIR Gateway (http://www.zyn.com/sbir/) to link to this discussion forum is misleading (at best).

The link reads: "Bio VCs Lobby Congress for Exemption from SBIR Eligibility Standards"; the byline below then continues: "To permit ownership & control by large firms".

This is excatly what the proposed change is NOT about. Fact of the matter is that most VC funds are limited partnerships with maybe one or two handful of partners. They are not large companies! And the change in SBIR eligibility by BIO/NVCA and others is not about getting large companies access to a meager $100,000. Whoever thinks that large companies (or VC funds) would invest in a small business just to get access to SBIR funds as a means of return of investment has a lot to learn.

Vote:   YES 
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10/28/03
  11:28:44
Name withheld by request , PA
Msg 34 of 99
We work with both VC-funded and non-VC funded early stage companies on a variety of projects (including SBIRs), mostly in the biomedical field where timelines are long and costs to reach the partnering or commercialization stage are high. In our experience, just because a company has raised venture capital once does not at all guarantee that it will be able to raise continued rounds and it is therefore inappropriate to assume that a company funded by a large VC firm should not need the type of early stage "seed funding" represented by the SBIR program. In fact, in terms of the goal of building successful tax-paying early stage businesses, use of the SBIR program to enter a 2nd product into the pipeline while using VC funds for the 1st product is an excellent way to help balance the portfolio and decrease the risk that the business will fold if the first product unexpectedly encounters adverse events, placebo effects, or other scientific hurdles that the company cannot always either anticipate or control for. The 500 person size limit for the applicant company is a better choice of discriminator than how big the VC firm is that provides the risk capital. In most cases, if the firm is toward the high end of the size range and has solid assurance of continued funding from a large VC, they drop out as SBIR applicants because the time and effort required to write a competitive application become too large compared with the benefit in terms of dollars received!
Vote:   YES 
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10/28/03
  14:45:56
Anne-Marie Stomp Moncure, NC
Msg 35 of 99
The business model of VC firms requires a 20-30 fold ROI. For life science companies, this means the only viable companies in the eyes of the institutional VC firms are those with pharmaceutical applications. That leaves the rest of the applications: industrial enzymes, agbiotech, cell and tissue engineering, nanotechnology, small molecules, polymers, largely underserved because of severe funding limitations. If the SBIR/STTR Programs become open game for VC funded companies, the decrease in SBIR/STTR funding rates will significantly reduce the amount of innovative technologies in non-pharmaceutical sectors from being developed. Approving this change to the Reauthorization will just funnel more money to the VC and pharmaceutical firms at the expense of other industrial sectors. I have first-hand knowledge of how this all works becuase in 1998 I founded a VC funded company and saw the myopic focus on only pharma applications occur to the detriment of development of additional, hob-creating applications. In my second company, the SBIR/STTR Program provides the only truly viable alternative to VC funding, an alternative which in my case would not work because the VCs already got the application they want in my first company. Changing the rules will greatly increase the difficulty I will have in securing resources for other non-pharma applications. Please do not chage the rules.
Vote:   NO 
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10/30/03
  11:34:58
Tom Herlihy Greensboro, NC
Msg 36 of 99
Spirit of SBIR is small biz -(hence the name). We need to keep it that way
Vote:   NO 
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10/30/03
  12:52:27
Name withheld by request Springfield, VA
Msg 37 of 99
The SBIR area already has a great disparity of competion by allowing companies with 499 individuals compete head to head with companies with 10 or less in the company. The proposed ruling adds one more sector of the business population that has an unfair advantage by relying on the funding and business plan expertise of venture captialists. This ruling thus goes directly against the spirit of the SBIR program which seeks innovation from SMALL businesses as good business sense for growing small businesses in the American economy.
Vote:   NO 
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10/30/03
  15:58:55
Name withheld by request Missoula, MT
Msg 38 of 99
No, VC organizations should not be allowed to compete for SBIR funding.
Vote:   NO 
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10/30/03
  20:29:45
F. David Doty Columbia, SC
Msg 39 of 99
What more can I say? More than 30 individuals before me have so eloquently laid out the case to retain the current rules, while the hand full of comments from the VC and Bio-tech lobbyists ring hollow.

The current system really works. It supports the hard- working, small-business innovators that have been responsible for most of the true innovation in this country over at least the last decade on a miniscule amount of money. The rate of return on these dollars to our nation is enormous. What is really needed is a doubling of the set-aside for SBIR, not some mechanism to drain some of the funds away to less efficient research settings.

Vote:   NO 
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10/31/03
  07:28:07
Name withheld by request Ronan, MT
Msg 40 of 99

Vote:   NO 
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