SBIR Gateway VC Discussion Group
(Archived May 2004)
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Updated 05/22/0499 messages
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11/11/03
  13:03:16
Name withheld by request Murfreesboro, TN
Msg 51 of 99

Vote:   NO 
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11/11/03
  16:58:10
Jerome Soller, Ph.D. Salt Lake City, UT
Msg 52 of 99
My Utah small business was distressed to learn that there is a possible amendment to pending SBA reauthorization legislation that would allow Venture Capital (VC) organizations the right to majority ownership of a small business obtaining SBIR funding. We are even more distressed to learn that this effort may be supported by some of Utah’s congressional representatives. Over the last four years, my small business has utilized the SBIR program to create new jobs in Utah, at a time when the short-term objectives of VC investment led to countless technology-related layoffs in the State of Utah. We view this bill as a direct threat to the future success of our company’s ability to continue the creation of new jobs in the State of Utah.

While large corporations and VC-owned companies have a tremendous advantage in pursuing large federal contracts, the SBIR program was designed to create a level playing field for which small businesses might compete with large corporations. Letting VC backed companies have access to SBIR funding would undermine the spirit of the SBIR program. This amendment would create a loophole allowing large corporations, under the alias of a small company, to infiltrate and gain advantage in an atmosphere that was created to give the advantage to the “legitimate” small business. For example, VC-owned small businesses have access to both financial and human resources, including dedicated grant-writing and marketing personnel, resulting in an advantage over true small businesses.

The SBIR program provides funding for early stages of technology development, without requiring that the small business give up ownership or commercialization rights. It attracts innovators that might not otherwise have the opportunity to develop their ideas and inventions. While our economy is dominated by corporate leaders, it is a widely accepted belief that much of what is innovative does not come from these entities, but instead from small businesses that are the embodiment of entrepreneurship in our country.

We ask for the support of Utah’s congressional representatives to vote against this or any similar bills that hurt true, innovative small businesses.

Jerome Soller, Ph.D. President, CogniTech Corporation Salt Lake City, Utah

Vote:   NO 
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11/12/03
  19:17:03
Robert E. Ratcliff Jr. Burns, WY
Msg 53 of 99
Most if not all companies that have been involved with the SBIR/STTR program got their start or a boost from said programs. If VC and Bio Tec companies are allowed to enter with out the stipulations that have already been established, the spirit and purpose of the SBIR/STTR will in effect be unattainable for the "Small Buisness". The advantage of being able to lobby because of SIZE and FINICIAL capability is all too evident. Where did the inititive to "change or challenge" what is in place now??? You can be assured it wasn't from a Qualified Buisness!!! There have been many companies to use the Program effectively that are in compliance with the standards established. Even with the established standards small companies 100 or less employees, have a difficult time because of capitol constrants. To allow a change now, would undermine a very successful history and dampen, if not smother the "little" guy.


Vote:   NO 
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11/13/03
  08:03:35
Name withheld by request Richmond, VA
Msg 54 of 99
The SBIR's are already dominated by the larger "small businesses" of well over 100 employees with professional grant writering staffs and large budgets for grant preparation. Those small companies that the SBIR is actually intented to help are lost in this shuffle of "Beltway Bandits". The venture capital (VC) firms should be funding new technology, not grant writing to SBIR for corporate welfare. The SBIR should be helping to bootstrap small companies to the point where they are of interest to the VC firms.

In addition, by forcing VC firms to own less than 50% of the small businesses they finance, the owners and founders of these businesses will be able to maintain a controlling interest, rather than ceding it to the large VC firms, again supporting the role of the SBA.

Vote:   NO 
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11/13/03
  08:18:23
Jay Altman Afton, VA
Msg 55 of 99
It would be grossly unfair to allow Large VC controlled organizations to compete for or obtain in any way SBIR funding. There are those of us who have been refused VC funding because "the opportunity isn't great enough for our investment" who still have very useful and viable products to develop and market. SBIR funding is one of the few opportunities we have to get help. If the big VC firms refuse to help us, why should they be allowed to qualify for funds specifically targeted for us. The big VC firms HAVE the money. They should not be entitled to government assistance at either the taxpayers' or other small businesses' expense!
Vote:   NO 
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11/17/03
  17:31:08
Jose Reyes Newtown, PA
Msg 56 of 99
Venture capital firms expect, indeed command, very large returns on capital they invest. It is not unusal for venture capital firms to seek 30-60% return on their capital. This far exceeds returns typically found on other forms of capital such as debt capital where returns may be 7% to 20%.

The reason the venture capitalists can command high returns is because the projects they invest in are riskier than those typically funded by debt capitalists such as banks or family members. The equity that a venture capitalist takes from a company, e.g. from the entrepreneur's side, often leads to the venture capitalist owning majority control in the firm. Again, this is because of the very high returns venture capitalists demand.

Now, relative to SBIR, venture capitalists are seeking to change the current requirements for the firms which they own majority control in so they may participate in SBIR prgrams. I strongly disagree with their objective. The federal government funds SBIR for those companies owned by at least 51% by an individual. This is one way which our government tries to enable small business owners to grow without allowing larger firms to control the small business.

It is a fact that small businesses are the dominant entity in creating jobs in America's economy. Letting venture capitalists and larger firms control all major funding sources will surely lead to conditions where job growth will compete against preserving the venture capitalists high expected returns. SBIR funds represent capital that is risk free. In other words, when the government makes an SBIR award, it does not seek equity in the small business nor does it demand a certain return on the invested capital.

What the venture capitalists are trying to do,is access a line of risk free capital and not have to pay anything for it from their side. They have already made their investments in the enterprise to the point where (in this case under review) it has amounted to over 51%. Given that they have taken that much equity from the entrepeneur, the venture capitalist should be willing to increase the investment from "their own resources" since they essentially "own the firm".

What is being sought here by the venture capitalists is sort of like arbitrage, that is risk free capital. I believe that allowing firms with venture owned control of greater than 51% to participate in SBIR programs would be a major step backward for the small businesses of America.

If a venture firm takes 51% or more ownership in a small business, then it is their firm and they should tap their significant resources to continue to grow "their" firm. Leave the SBIR funds for those firms where the entrepreneur still has control. Why didn't the venture firm just take 49% and avoid all of this? Answer - because their demands for expected returns are unusually large. It goes back to basic investing risk and reward. The venture firms sought the big reward at a big risk. Now let's not let them get risk free capital.

I'm OK with a venture backed firm participating in SBIR if the entrepreneur owns 51% or more. If the venture capitalist owns 51% or more they should dig deeper into their pockets, go for ATP funding, BAA's, or do what I did and millions of other entrepreneurs have done for capital - remortgage their homes to raise money. After all, if you own the company, then you should be willing to risk your PERSONAL funds too.

Vote:   NO 
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11/19/03
  08:24:24
Name withheld by request Fort Worth, TX
Msg 57 of 99
Having small buisness owned by large VCs compete with small companies defeats the purpose of having a portion of funding set aside for SBAs
Vote:   NO 
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11/19/03
  08:51:58
Name withheld by request Fort Worth, TX
Msg 58 of 99
I believe changing the rules would go against the very thing the SBIR program was created for. Small Business should not have to compete with large, well funded VC in order to obtain initial funding for development. If the rules were changed then Small Business would not be able to acquire the initial funding for research and product development thereby preventing good ideas and innovations from ever being brought to the public.
Vote:   NO 
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11/20/03
  04:21:41
Name withheld by request Christiansburg, VA
Msg 59 of 99
Firms with VC controlling ownership should not be competing for SBIR dollars to begin with. It is hard enough for startup companies to survive until the technology matures sufficiently to attract VC partnerships. SBIR is one of the main avenues for funding these startups prior to VC investment. Any change to the current rules will weaken the support for the intended beneficiaries of the plan...the small businesses.
SBIR/STTR consultant
Vote:   NO 
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11/23/03
  06:14:36
Name withheld by request Philadelphia, PA
Msg 60 of 99
A significant objective of the SBIR program is to support risky technology innovation by small businesses that would otherwise not be able to fund such development. Recipients of signficant VC capital, by definition, do not need this type of support. The rule changes being sought, from what I have read, are also addressed at foreign ownership. This raises other issues, that are likely to give the program a black eye, for which we will all suffer. The SBIR review process cannot possible begin exploring the ownership structures of every company that applies. Keep it simple. Leave the rules the way they are.
Vote:   NO 
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