SBIR Gateway

SBIR Insider Newsletter
June 14, 2009 Edition



Dear SBIR Gateway Insider,

Fasten your seatbelts, we're about to take off into the world of five, count em, five SBIR reauthorization bills. Four from the House and one from the Senate. We'll give you the bill numbers and highlights once we reach cruising altitude.

Before we take off, I'd like to explain the safety features of this document. You have the ability to "bail out" without fear of injury. If you experience the feeling of deja vu all over again (thank you Yogi Berra), you are most likely not under the influence of hallucinogenic drugs, although a few DC staffers would like you to believe I am. There are many similarities to last year's bills.

We are expecting some slight turbulence on this flight and suggest reading this insider from our web site source at www.zyn.com/sbir/insider due to the many citations and live links you may wish to use.

Please pay attention to our placards:
SBC = House Small Business Committee
S&T = House Science & Technology Committee
SBE = Senate Committee on Small Business and Entrepreneurship
SBTC = Small Business Technology Council
BIO = The Biotech Industry Organization
NVCA = The National Venture Capital Association

Enjoy your flight!

In this issue:

SBC Two Year SBIR Reauthorization Yields Unpleasant Aroma

Past SBIR reauthorizations have been life cycles of about 8 years. During that time Congress can make modifications/changes to the law as necessary, and the SBA can update their Policy Directives, so 8 years in SBIR need not be stagnant. In spite of that, the SBC believes reauthorization for both SBIR/STTR should be only two years.

Previously the House said they wanted two years so they could study the effects of the changes before they commit to a longer period. This is disingenuous at best because there is no way the effects could be studied, let alone have the changes fully implemented within that time period and reauthorize SBIR once again. The short leash creates significant additional burdens on the SBIR community including the agencies.

The VC ownership and control issue has, and continues to be the biggest roadblock in SBIR reauthorization. Regardless of which side of the SBIR VC issue you support (we do have readers on both sides), one should question why the House bills call for only a two year reauthorization.

With major political contributions and lobbying coming from large Wall Street VC Investment proponents with their powerful DC Industry Lobbyists such as BIO and NVCA, the House in the 110th and 111th Congress, all but shut out Main Street small businesses from being allowed to testify, voice their concerns and give their side of the SBIR reauthorization story.

For several years, the SBC has tried mightily to pass a one sided SBIR reauthorization bill to give these powerhouse organizations everything they wanted, and they are trying to do it once again. This farcical attempt by the SBC to resolve an issue by shutting out one side is nothing short of an outrage! How can you reach a fair conclusion or prepare a compromise if only one side is allowed to be presented?

As for only a two year extension, try this: BIO and NVCA have spent tons of $$$ in lobbying this issue and supporting election campaigns, in no small part for the SBIR VC change. Money will be needed in the 2010 "off year" elections as well as 2012 and the House knows it can depend on NVCA and BIO to do their share if the House will again support the VC issue for the next SBIR reauthorization. If you have a better explanation of why the SBC wants only a two year reauthorization, let me know.

In the mean time here are two links to very relevant articles appearing in business journals with no connections to either side of the VC issue.

House Ready to Steamroll Venture Capital Bill - Keith Girard
(D&B's All Business Newsletter)
http://www.allbusiness.com/government/government-bodies-offices-us-federal-government/12358646-1.html

Battle Rages Over Venture Capital's Role in Federal Small Business Program - Rob Kuznia
(HispanicBusiness.com)
http://www.hispanicbusiness.com/news/2009/6/12/battle_rages_over_venture_capitals_role.htm

The four House bills were marked up and approved on June 11, 2009 by the House Small Business Committee's Subcommittee on Contracting and Technology and should go to the full SBC committee next week. The Senate bill is scheduled for markup June 18, 2009.

Senate SBIR/STTR Reauthorization Bill S.1233

The Senate's SBIR reauthorization bill was introduced June 10, 2009 and sponsored by SBE committee chair, Mary Landrieu (D-LA), and ranking member Olympia Snowe (R-ME).

At the time of this writing the bill was not yet available from the government printing office, so we can't give you a link to it. We can provide you with an overview. It is close to but not exactly the same as last year.

Important points include:
* Extension of termination dates 2023 (14 years)
* Improvements to strengthening the SBA Office of Technology
* Increase SBIR allocation by 0.1% per year (starting in FY-2011) until reaching 3.5% in FY-2020
* Increase STTR allocation to .4% for FY-2011; .5% for FY-2013; 0.6% for FY-2015
* Increase SBIR/STTR award levels to $150k phase I and $1M for phase II
* Awards shall not exceed 50% above recommended award levels
* Elimination of Phase II "invitation" process (i.e., DoD)
* VC small biz eligibility compromise limited to 18% of NIH SBIR Award funding, 8% at the other 10 agencies
* Allow small business to partner with federal labs or FFRDC without requiring a wavier from SBA
* Reinstate State and Rural outreach programs
* SBIR STEM Workforce Development Grant Pilot Program
* Continuation of Commercialization Pilot Program (DoD)
* Establish Commercialization Pilot Program for civilian agencies
* Nanotechnology Initiative
* Accelerating Cures NIH Pilot
* Accuracy In Funding Base Calculations (keep em honest in the 2.5% extramural calculations)
* Increase in technical assistance from $4k to $5k
* SBIR and STTR Special Acquisition Preference

It is highly recommended that if you like the basis of this bill, contact your Senators and ask them to cosponsor this legislation, (S.1233 - A bill to reauthorize and improve the SBIR and STTR programs and for other purposes). This is very important if you want the Senate version to stand a chance on passing.

Word on the hill is that Senator Kit Bond (R-MO), who has been a long time BIO supporter, has been contacting democratic senators to encourage them not to support this bill and its VC compromise. Although Bond did come around to an earlier VC compromise (same as in this bill), he doesn't support it now. Why should he compromise when it looks like the House and parts of the administration want to give the big BIO VCs everything they could want, and more?

House SBC Marks Up Four SBIR Reauthorization Bills

As mentioned earlier the House SBC has marked up four SBIR reauthorization bills, each one addressing a different area of the program. The bills are listed below:

** H. R. 2747 ** - Rural Technology Development and Outreach Act
Deborah Halvorson (D-IL)
http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h2747ih.txt.pdf

Basically authorizes $10M for state outreach for FY-2010 and 2011, support in competitive two year matching grants up to $250K. Similar to FAST program but with better oversight and performance monitoring. All states are eligible but rural states will be given a preference. The state's Governor must endorse the entity that will be applying for the grant. An advisory board will be established.

** H. R. 2767 ** - Investing in Tomorrow's Technology Act
Sam Graves (R-MO)
http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h2767ih.txt.pdf

This is the VC bill and sets the program extension dates for SBIR/STTR to September 30, 2011.

** H. R. 2769 ** - Commercializing Small Business Research and Development Act
Bobby Bright (D-AL)
http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h2769ih.txt.pdf
Focus on Commercialization:
It is further the policy of Congress that the programs established in this section should focus on promoting research and development of projects governed by commercial business plans, which have significant potential to produce products or services for the marketplace or for acquisition by Federal agencies.

Special consideration for Energy-Related Research Topics And Rare Disease-Related Research Topics and adding Nanotechnology-Related Research Topics as outlined by the nanotechnology strategic plan under section 2(c)(4) of the 21st Century Nanotechnology Research and Development Act (15 U.S.C. 7501(c)(4)).

Commercialization Programs: Each agency required by this section to conduct an SBIR program shall establish a commercialization program that supports the progress of SBIR awardees to the third phase. The commercialization program may include activities such as partnership databases, partnership conferences, multiple second phases, mentoring between prime contractors and SBIR awardees, multiple second phases with matching private investment requirements, jumbo awards, SBIR helpdesks, and transition assistance programs. The agency shall include in its annual report an analysis of the various activities considered for inclusion in the commercialization program and a statement of the reasons why each activity considered was included or not included, as the case may be. An authorization of $27.5m is made.

** H. R. 2772 ** - SBIR and STTR Enhancement Act
Aaron Schock (R-IL)
http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h2772ih.txt.pdf


This is one of the larger bills with several points. Sec 2 calls for increased number of solicitations (at least 2 per year), and shortening the period for final award decisions to 90 days after solicitation closing (with case-by-case extension to 180 days).

Award Sizes: $250k for phase I and $2m for phase II.

Commercialization: The Administrator shall, on an annual basis, submit to the SBC, S&T, SBE committees a list identifying each small business concern that, for the period covered by the preceding 5 fiscal years, received 15 or more first phase SBIR awards and no second phase SBIR awards.

Conversion to Phase II: [An agency] shall engage with SBIR awardees that have been awarded multiple first phase SBIR awards but have not been awarded any second phase SBIR awards and shall develop performance measures with respect to awardee progression in the SBIR program.

Funding For Administrative, Oversight, And Contract Processing Costs with authorization of $27.5m.

Comptroller General audits of how agencies calculate their extramural research budgets

Encourage the use of "fast track" awards (simultaneous phase I & II).

Sequential Phase Two Awards - A small business concern that receives a second phase SBIR award for a project remains eligible to receive additional second phase SBIR awards for such project.
Technical or Weapons Systems - Agencies are expressly authorized to provide additional second phase SBIR awards for testing and evaluation assistance for the insertion of SBIR technologies into technical or weapons systems.

SEC. 14. First Phase Required?? I added the question marks because something doesn't look "kosher" in this section. My gut reaction is that it is actually allowing (under certain circumstances), direct to phase II awards and the language is crafted to obfuscate the intent. I'll be in touch with some of our legal experts (the best in the business) and let you know. The House wanted direct access to phase II for sometime.

The Next Step(s)

Although the House SBC subcommittee has marked up and approved the four bills, they must now be sent to the full committee. The House SBC was to meet on July 17 for a hearing on " Legislative Initiatives to Strengthen and Modernize the SBIR and STTR Programs" but it was removed from their web site a couple of days ago. It will come soon.

Theoretically the House S&T committee should be working on their SBIR bill, or they may be subordinated like they were last year by the SBC.

The House SBC and S&T will work their bills out, pass them in their respective committees, then send the to the whole House for amendments and voting. I suspect the SBC will get their way once again, and submit their bill under a closed rule, whereby the rules committee will decide which amendments can be voted on, and which are trashed. Upon approval the bill will go to the Senate.

In the mean time the Senate is working on their SBIR bill, and the SBE will do a committee markup June 18, 2009. Then SBE will work to bring the bill before the full Senate for a vote. It's not going to be easy with the B&B boys (Bond & BIO) working the halls to push the unlimited VC issue.

Ultimately, if successful, the House & Senate bills will be brought to a conference whereby negotiations will take place to try and reach compromise on a bill both can live with. If that passes, the final bill will be enrolled and sent to the President for signature. Can all of this happen before July 31? Perhaps, but if not, expect another continuing resolution (CR) to keep the program alive.

House SBC The Next Generation

It was very interesting to see the SBIR markup session held by the SBC's Subcommittee on Contracting and Technology. Led by up-and-comer Glenn Nye (D-VA) and ranking member Aaron Schock (R-IL), the faces were almost all new and young with the exception of Nydia Velázquez's alter ego Michael Day, who, as council sat right next to Nye.

I couldn't help but feel that this younger generation had been exposed to the BIO and NVCA lobbyists who convinced them that the people on the other side of the VC issue were not worth paying attention to.

Interestingly enough, just a day previous, Nye was a speaker at the Navy Opportunity Forum and he talked about reauthorization, then took some questions. He was asked about the VC issue and responded more or less that it was a "done deal." Pushed for an impromptu vote of attendees, the pro VC folks lost very badly. Nye seemed puzzled and then said something related to the vote wasn't very scientific...

NIH's Goodnight On Loan To Senate SBE

In a move that brings smiles to the VC community, Jo Anne Goodnight, NIH's SBIR coordinator has been put on "loan" to Senator Olympia Snowe (R-ME) to help with Snowe's small business committee staff.

Goodnight who is a tireless dedicated worker for the NIH SBIR program, has been a favorite in congress for her NIH SBIR testimony, and a strong supporter of the program, especially for working to expand the role of VC's in the NIH SBIR program.

It is no secret in the SBIR community that Goodnight and Shindell are somewhat less than a mutual admiration society. In spite of that I have on several occasions defended her (without her knowledge or consent) about the egregious tactics that the NIH employed in circumventing their responsibility for SBIR in their ARRA funding. I believed then, as I do now that Goodnight had no prior knowledge nor any role in the NIH's underhanded scheme to go to congress in the dead of night, and avoid all relevant committees to escape the 2.5% set aside of the $10 billion in ARRA funds. I also believe she is one of the hardest workers to ever be an SBIR program manager.

However, I would be less than honest if I didn't express a degree of discomfort with Goodnight working the inner circles of the Senate Committee on Small Business & Entrepreneurship during SBIR reauthorization with the VC issue being so prominent.

It is my understanding that she will be at the National NIH Conference in Omaha, Nebraska, June 30 - July 1, 2009. Anyone interested in NIH SBIR ought to be there.

Other SBIR Resources And Opinions

I want you to have access to other opinions and ideas, so check out some sources such as:

Small Business Technology Council
http://sbtc.org/

Ann Eskesen's Innovation Institute:
http://www.inknowvation.com/Call_To_Action_SBIR_2008/

Gail & Jim Greenwood Greenwood Consulting
http://g-jgreenwood.home.att.net/

The SBIR Coach, Fred Patterson
http://sbircoach.blogspot.com/

Kirk J. Macolini - Centurion Technology
http://www.centuriontechnology.com/Reauthorization.pdf


As we prepare for landing, please return your seatbacks to their full and upright position. We should touch down in just a minute.

There's likely to be a lot of action in the next few weeks and better information on the implications of these legislative efforts. We'll stay on top of things for you.

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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