SBIR Gateway

SBIR Insider Newsletter
April 30, 2009 Edition



Dear SBIR Gateway Insider,

Thank you for the many emails in response to our last SBIR Insider. I do welcome your comments and I also appreciate emails with informed alternative views on issues expressed herein.

Personally, I'm exasperated by the VC issue, but it will not go away unless both sides are allowed to be aired and discussed. Once that is accomplished it may be possible to formulate a reasonable resolution and balance to the problem. However, the House Small Business Committee continues their policy to not allow any alternative views to be presented on the VC issue.

Fortunately, David Wu (D-OR), chairman of the House Science & Technology's Subcommittee on Technology & Innovation, had the vision to allow both sides of the story to be presented in their hearing. Perhaps a continuing substantive dialog can ensue and lead to a House SBIR reauthorization bill that won't be dead-on-arrival in the Senate.

In this issue:

Office Of Science & Technology Policy (OSTP) Hosts SBIR & Technology Meeting

OSTP, the President's lead organization on issues of science, technology and innovation, hosted a gathering of agency SBIR program managers and other federal participants to discuss the future of SBIR and the administration's support for the growth of the program.

The gathering was a "closed door" event described by several participants (off the record) as very positive, reflecting an administration planning on supporting the SBIR program and its reauthorization. This is a breath of fresh air from the previous administration's tepid support of SBIR.

Time will tell if the President will push to get the House and Senate to agree on expansion and improvements to the program as well as compromise on divisive issues that have kept SBIR reauthorization at bay.

The President is waiting to hear from you… kind of… OSTP has just opened a new blog and is open to receiving your comments on S&T issues. You'll find it at http://blog.ostp.gov/

House Small Business Committee Conducts SBIR Hearing

On April 22, 2009 the House SBC held a hearing entitled "The Importance of Technology in an Economic Recovery". Committee members participating included Nydia Velazquez (D-NY), Chair; Sam Graves (R-MO), Ranking Member; Brad Ellsworth (D-IN); and Joe Sestak (D-PA). New committee participants included Dennis Moore (D-KS), and freshman Representatives Kathy Dahlkemper (D-PA), Blaine Luetkemeyer (R-MO), and Glenn Thompson (R-PA).

The "Poor Johnny One-Note" syndrome of biotech and VC eligibility permeated the hearing and once again Velazquez and her able assistant Michael Day refused to allow or present testimony from any opposing VC views.

In spite of that, some substantive dialog on other important SBIR issues were discussed.

The first panel of witnesses consisted of SBIR program managers, Edsel Brown (SBA), Michael Caccuitto (DoD), Jo Anne Goodnight (NIH), Larry James (DOE) and Kesh Narayanan (NSF).

After opening statements, Velazquez went right to work on NIH's Goodnight asking for the reasons NIH has seen a 40% drop in SBIR applications. Goodnight was somewhat guarded with her response, indicating that there were a variety of issues involved including eligibility, complexity, uncertainty of the future of the program and other elements.

Velazquez then asked the program managers how to strengthen the SBIR program so it could create more jobs.

DoD's Mike Caccuitto stated the importance of SBIR's flexibility and how it's implemented among the various agencies, and giving the program managers at the agencies the greatest degree of freedom in the execution of the program in order to produce outcomes.

NIH's Jo Anne Goodnight thanked the chair for the question especially given their downturn in applications. "We appreciate the need to incentivize companies participating in this program, and as I mentioned we don't know all the reasons… it could be as simple as the economic downturn in the biotech sector, but we actually believe there are other issues related to the current eligibility rules, certain aspects of the program structure for example, companies currently who receive a phase I SBIR cannot move to a phase II STTR and vice versa. Companies who receive a phase I STTR where they may not need the university involvement at such a requisite level can't transition to a phase II SBIR. So there is an inability to transition between the two programs. The award levels have not been adjusted since 1992."

Velazquez, did not continue this important question to DOE or NSF, but sidetracked to a protracted dialog with NIH about the VC issue. She then asked the witnesses about bypassing phase I with direct access to phase II. Larry James of DOE said he believed his program would not adopt the idea of awarding a phase II without a phase I, and he didn't see a way to work it out. NSF's Kesh Narayanan agreed with James and went on to explain NSF's evaluation process.

Sam Graves kept on his VC issue, but also included questions about rural outreach. On many occasions the program managers referred to reinstating and funding the Federal & State Technology Partnership (FAST) program as well as the Rural Outreach (ROP) programs, both managed by the SBA.

Dennis Moore revived Velazquez's earlier question about how to strengthen the program. Flexibility among agencies was a universally supported topic. Goodnight mentioned that the set asides for SBIR and STTR must remain separate. Larry James believed the technical assistance aspects of the current law have made it difficult to provide commercialization assistance as they would like. He believed the amounts should be raised and the phase II commercialization assistance should not be inside the grant. Everyone believed they need more administrative resources to do a better job.

Glenn Thompson was very strong on improvement of rural outreach and assistance. It was mentioned that there are two National SBIR conferences per year. Note to Mr. Thompson and the committee: There is only one national SBIR conference in 2009, and due to many conditions, it is unknown if there will be any for sure in 2010. Absence of SBIR reauthorization, and the short string of these CRs make it very difficult to plan events, create and administer solicitations, provide support, not the least of which is trying to encourage small businesses to spend the great deal of time and money to create a proposal for a program that may not exist in a month or two!

Surprisingly, Joe Sestak, a retired Navy Vice Admiral, sounded more like an economist than a former high ranking Naval officer. He asked no questions of the DoD but concentrated on the VC issue in NIH, but asked if there was a way to target the VC to sectors, such as health or energy. He asked Larry James about VC as it pertained to the DOE SBIR program. James replied, "My experience has been that the venture capital community is not all that interested in our [SBIR] program… our phase IIs are limited to $750,000."

Earlier on, Brad Ellsworth didn't ask a question but made a comment to the DoD's Michael Caccuitto reaching out for ideas concerning a committee looking to streamline the military procurement system. Folks, this is a MAJOR SBIR issue (procurement/transitioning of SBIR technology) that is being subordinated to all the VC/NIH rhetoric. The valley of death issues are not exclusive to biotech, and can also be traced to the roadblocks in DoD phase III transitioning and contracting. The DoD is by far, the largest SBIR program. In fact it is 50% of the entire SBIR program but only receives a small amount of the attention it deserves in these reauthorization hearings.

The second witness panel was comprised of Josh Green, MDV-Mohr Davidow Ventures (speaking for NVCA); Rachel King, GlycoMimetics, Inc. (speaking for BIO), John Stocker, Lynntech, Inc. (independent voice); and Will Rosellini, MicroTransponder Inc. (speaking for Advanced Medical Technology Association).

While much of this panel was more of the same VC rehash, some very interesting points were brought up by Lyntech's John Stocker, the only witness from a company that deals with DoD SBIR.

One of the most poignant statements of the hearing was made by Stocker, who stated: "Lynntech believes that the debate regarding last year's [SBIR Reauthorization] bill, H.R. 5819, has focused on the wrong set of issues. Ownership of SBIR companies by venture capital firms should not be guiding our discussion regarding reform of the program."

For some very interesting programmatic information and statistics in each of the witness' opening statements, go to http://www.house.gov/smbiz/hearings/hearing-4-22-09-technology-economic-recovery/hearing-witnesses-technology-economic-recovery.htm and click on the witness names.

Video highlights are posted on the committee's youtube web site at http://www.youtube.com/view_play_list?p=D6B9D125B9596602

As for Josh Green's comment (speaking for NVCA), disagreeing with Larry James about lack of VC interest in DOE's SBIR, I may remind Mr. Green that the DOE VC involvement Green described was a $20 million non-SBIR project. VCs are familiar with DOE's SBIR but have been disinterested because the award levels were considered too low. DOE is well connected in the VC community and many of the DOE's National Laboratories such as the National Renewable Energy Laboratory (NREL) have an "Entrepreneur-in-Residence," program that is run by VCs such as Kleiner, Perkins.

All in all, with a few exceptions, this hearing was a disappointment, mainly a myopic rehash on last year's Small Business Committee's VC/NIH dominated themes. With an all or nothing approach on the VC issue, there is likely not to be an SBIR reauthorization. It seemed as if the only representatives that realized a compromise might be in order was Joe Sestak and Glenn Thompson.

House Science & Technology's Subcommittee On Technology & Innovation Holds SBIR Hearing

On April 23, 2009, the day after the House Small Business Committee SBIR hearing, the House S&T Subcommittee On Technology & Innovation held a hearing named "The Role of the SBIR and STTR Programs in Stimulating Innovation at Small High-Tech Businesses".

Committee members participating were David Wu (D-OR) chair; Adrian Smith (R-NE) ranking member; Judy Biggert (R-IL); Donna Edwards (D-MD), and freshman congressman Ben Luján (D-NM).

The witnesses were Robert Berdahl (Association of American Universities), James C. Greenwood (BIO), Sally Rockey (NIH), and Jere Glover (SBTC).

Although it is no secret that subcommittee chair David Wu has been a supporter of BIO and their VC SBIR campaign, chairman Wu is to be commended for running a very fair and open hearing. For the first time in many years, the record was open to reasonable testimony and spirited dialog on both sides of important SBIR issues.

Also, chairman Wu exhibited a great deal of knowledge on the subjects at hand, and engaged in penetrating analysis of all the testimony. He let witnesses know when he disagreed, but was always… well mostly.. respectful. Wu did momentarily lose his cool after hearing Jere Glover's explanation of the Cognetix case, and took Glover's comment of the foreign ownership of an SBIR company to be a quasi assault on Canada.

The other committee members were very good also. Unlike much of their brethren in the House Small Business Committee hearing, these folk studied their material, asked good and relevant questions, both primary and follow up.

Wu was very persistent with the Sally Rockey of NIH, wanting to know who at NIH approached congress to exempt NIH ARRA funds from SBIR. Unable to give a direct answer, Rockey said she would get that information back to Wu. That sounds like an official congressional request that deserves an answer. I'll let you know if one is provided.

On the subject of VC eligibility, Wu asked Glover if he could accept a compromise by exempting DoD from the VC issue. Glover did not commit but it was obvious that some sort of overall compromise should be negotiated.

James Greenwood of BIO held a tighter line, brought up some reasonable issues of VC involvement, followed by bogus innuendo. BIO and the VC guys used to point to multiple SBIR awards winners as "prop mills" and "award hogs." The National Academies NRC SBIR study dispelled that as a myth, so Greenwood alluded to the old notion that there are companies that are not in business to commercialize but merely to live off of SBIR awards.

Wu stated that he was just recently made aware of the validity of DoD multiple award winners and the positive effect they have had on the DoD and many of their prime contractors.

A raise in the 2.5% set aside was discussed, and as predicted, Robert Berdahl of the AAU and Rockey of NIH were definitely against any increase. Donna Edwards wanted to know how much of an increase would be reasonable, as did Wu. Greenwood was open to an increase but did not offer a number.

Although Wu seemed open to compromise on the set aside, it is unlikely that full S&T committee chair Bart Gordon (D-TN) would be amenable, let alone Vernon Ehlers (R-MI), not to mention House appropriations chair David Obey (D-WI).

Kudos to freshman congressman Ben Luján of New Mexico. He asked good questions and was very knowledgeable about the federal labs in his state.

We are featuring video excerpts of Jere Glover's SBTC testimony and Q&A on our http://www.sbir.tv web site. I think you'll find it interesting. The entire hearing is available on the House S&T web site at http://science.house.gov/publications/hearings_markups_details.aspx?NewsID=2426 You'll need Real Player in order to view the hearing.

To read Jere Glover's SBTC written testimony, complete with graphs and footnotes, go to the SBTC web site at http://www.sbtc.org/docs/09-04Testimony_Glover.pdf

A Salute To Ann Eskesen And Her SBIR Reauthorization Efforts

Often times you hear about different groups or leaders out in front on issues such as SBIR reauthorization. In my opinion (as well as many insiders) nobody works harder, spends more resources, subordinates their own well being, or shares hard earned data for the SBIR cause than does Ann Eskesen.

There are few SBIR statistics that didn't emanate or in some way touch Eskesen's Innovation Institute databases. Almost all of us have turned to her at one point in order to obtain SBIR data to support the validity of the program.

Ann has dedicated much of her life to preserving and improving the SBIR program. A rugged but cultured individualist, she has a manner of presentation of the facts that is unparalleled in our industry. Ann can be brutally honest (believe me, I know…) and some of us belong to a select group that has been taken to the proverbial "woodshed" when she believed it was appropriate.

Like "most" of us, Ann's human and not perfect but her commitment to excellence makes her a rare breed these days. I guarantee you that when SBIR gets reauthorized, it will be due in no small part to the work of Ann Eskesen.

If you want to keep up with her reauthorization efforts, visit her web site at http://www.inknowvation.com/Call_To_Action_SBIR_2008/

Michael Caccuitto To Leave DoD SBIR Program

Popular DoD SBIR Program Coordinator Michael Caccuitto will be stepping down from his position to pursue new interests within the DoD. Although we haven't confirmed this with him, the word on the street is that he will be going to the Army Research Office.

Caccuitto became the DoD SBIR Program Coordinator in 2005 replacing Jeff Bond who left to become Director, Grants and Proposals for the Association For Manufacturing Technology (AMT) in McLean, VA.

Caccuitto is a soft spoken professional team player who made many friends in the SBIR arena. He is a graduate of the University of Rochester, and Harvard University Kennedy School of Government. He presence will be missed in the SBIR community.

There has been no announcement of a replacement, but we'll keep you informed.

My dear readers, do you realize the power you have gifted to me? Last issue with a nudge from BIO's James Greenwood, I openly apologized to Senator Arlen Specter for an error in my NIH ARRA article. The end result was he bailed on the republicans to return to his roots as a democrat. I wonder, if I apologize to Mr. Greenwood… will he return to being a social worker?

On the other hand, if Greenwood apologizes to me, I may return to……. Never mind….

Sincerely,

Rick

Rick Shindell
SBIR Gateway
Zyn Systems
40 Alderwood Dr.
Sequim, WA 98382
360-681-4123
rick@zyn.com
www.zyn.com/sbir

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