SBIR Gateway

SBIR Insider Newsletter
Call to Action
July 12, 2012



Dear SBIR Insider,

Another "Call to Action" you say? Well… [not sounding like Reagan] if you don't mind watching your chances diminish for getting an SBIR/STTR award, or starting a new high tech business utilizing SBIR opportunities, then hit your delete button and relax.

Folks, this is as hard for me to write as it is for you to read, so lets look at a few quick action items you may want to consider. Keep in mind that many of the brightest and most experienced SBIR minds are also deeply concerned with the SBA proposed rules. So are many of the premiere SBIR/STTR guidance and assistance folks such as Fred Patterson [The SBIR Coach], Gail & Jim Greenwood [Greenwood Consulting Group] and John Davis [SBIR Resource Center] who have all written about this situation.

Now the stakes have been raised because Congressman Ed Markey (D-MA) and Congresswoman Niki Tsongas (D-MA) have written (but not yet distributed) a Dear Colleague letter to muster support in the House to press the SBA not to adopt several of the anti-small business provisions of their proposed SBIR size standard. The letter hasn't been sent out yet, but please consider asking your representative to sign on to it today. The letter calls for the SBA to respect the congressional intent to keep SBIR as a domestic program for small business.

Speaking of congressional intent, it should be understood that the SBIR law provides (as a pilot program) for small businesses that are majority owned by multiple VCs to participate in SBIR, at levels up to 25% of award dollars in NIH, DOE and NSF, and up to 15% in the other agencies. Although that should be respected, I see where some VC companies are wanting to take advantage of the loophole SBA has created which will allow VCs etc to qualify for unlimited access to the program. That must be stopped.

Here are the action items I hope you will consider:

Action item #1 - Call your Representative's DC office and ask them to please consider signing on to Congressman Ed Markey's and Niki Tsongas's Dear Colleague letter to keep SBIR a domestic small business program. This must be done on Thursday. You can call the Capitol switchboard (202-224-3121) and ask them for your representative's office. If you're not sure of your representative, go to http://congress.org/congressorg/directory/congdir.tt and enter your zip code.

Action item #2 - The SBTC has created two letters, one to Congress (see http://www.nsba.biz/docs/sbtc_letter_to_congress_7-2-12.pdf ) and one to the President (see http://www.nsba.biz/docs/sbtc_letter_to_president_obama_7-2-12.pdf ) If you agree with the letters, please consider adding your name to them. This has to be done by Friday. This is IMPORTANT!

To be included, simply send an email to:
alec@sbtc.org
with the following information:
Your Name
Company Name
Company's City, State

You can also tell Alec if you only want to be on one of the letters (tell him which one) Feel free to copy me on it if you'd like (rick@zyn.com).

Action Item #3 - Only 4 days left till the SBA comment period closes on July 16. As of now 3:30am pacific time, only 69 comments have been posted on regulations.gov. This is very poor and makes the small business SBIR community look disengaged. Go to https://www.federalregister.gov/articles/2012/05/15/2012-11586/small-business-size-regulations-small-business-innovation-research-sbir-program-and-small-business and click on the green button on the right that says: "Submit a Formal Comment", then follow the instructions.

You are not restricted to one comment, you can add as many as necessary. In fact, Jim Greenwood of the Greenwood Consulting Group has posted 6 comments (on different issues), and they are all very good. His comments are from the perspective of someone who trains SBIR companies as well as training the trainers. We have combined them in an easy to read page at www.zyn.com/sbir/insider/greenwood.htm I hope he doesn't mind. You can view all the comments at http://www.regulations.gov/#!docketDetail;dct=PS;rpp=100;so=DESC;sb=docId;po=0;D=SBA-2012-0008

Here are some simple quick suggestions for comments. You can modify, or just cut and paste into the comment window. Your own comments are best.

1. "Keeping with the intent of Congress, foreign ownership of SBIR companies should not be allowed. SBA should restore the requirement that to be considered a domestic business concern, more than 50% of the business must either directly or indirectly be owned by U.S. citizens, permanent resident aliens, or domestic (US OWNED) corporations, partnerships or limited liability companies (LLCs)."

2. "The proposed changes to the affiliation rules are bad for small business and the SBIR program. SBA should continue to apply its current affiliation provisions to the SBIR/STTR programs."

There are many more issues and you can learn about from the SBTC background paper at:

http://www.nsba.biz/docs/sbtc_paper_on_sba-sbir_regs_06-29-2012.pdf

SBA Policy Directive Still Not Released

Although due out the end of June, the SBA's SBIR and STTR Policy Directives (PD) have not been publicly released. If history serves us, this isn't the SBA's fault. In the past we have seen PDs stalled at OMB level or other federal offices, for extended periods of time.

Unlike the size standard issues that will not take affect until a final rule is issued (later this year), the PD will take affect immediately upon publication. Then there will be a comment period and a final PD will be issued around the end of the year.

Don't See Foreign Ownership in SBIR?

I've had several comments taking issue with the idea that the SBA size standard can open the door to foreign ownership.

Please understand that legalese as used in lawmaking often obfuscates intent. Remember last year in the SBIR reauthorization when some folk wanted to be able to skip phase I altogether? A section was added whose heading was "Phase I Required". It went on to awkwardly describe how phase I could be skipped.

Keeping that in mind, and understanding that the issue of size standards is very complex, let's look at part of SBA's language on domestic ownership (only for SBIR, not other small biz programs), and the congressional intent.

SBA Proposal:

A. Section 121.701--Definitions and Programs Subject to Size Determinations….

…However, SBA has proposed additional criteria that a ``domestic
business concern'' must meet. SBA has proposed that for purposes of the
SBIR and STTR programs, the domestic business concern must also be
created or organized in the United States, or under the law of the
United States or of any State. [note: you do not have to be a U.S. company to establish a U.S. small business, even if it is foreign owned]
SBA believes that this proposed
definition not only meets statutory requirements set forth in the Act
but is straightforward and easy to understand......

In addition, SBA also considered whether it should include a
requirement
that to be considered a domestic business concern, more
than 50% of the business must either directly or indirectly be owned by
U.S. citizens, permanent resident aliens, or domestic corporations,
partnerships or limited liability companies (LLCs).
SBA did not propose
this requirement in the definition of domestic business concern
because
we believe it adds an extra burden on the small business and an added
complexity that is not necessary.

According to most legal sources, there's the open door, and it's only for SBIR, not other small business programs. Here's some of the congressional language showing intent:

SBIR Reauthorization bill (P.L. 112-81)

(Portions of Section 5107)

The regulations issued under this
section shall permit the participation of applicants
majority-owned by multiple venture capital operating
companies, hedge funds, or private equity firms in the
SBIR program in accordance with section 9(dd) of the Small
Business Act, as added by this section, unless the Administrator
determines
:

under subparagraph (C), that the applicant
(I) is a foreign-owned business or a foreign
entity
or is not a citizen of the United States
or alien lawfully admitted for permanent residence;
or
(II) is majority-owned or controlled by a foreign-
owned business, foreign entity
, or person who
is not a citizen of the United States or alien lawfully
admitted for permanent residence.

I don't know why SBA believes this adds an extra burden on the small business and an added

complexity that is not necessary. If SBIR becomes a program open to foreign ownership, you can bet that will be the death knell of the program if taxpayers dollars are going out of the country.

To support that thought, just today on CNN's Situation Room with Wolf Blitzer (who is usually friendly to this administration). There was a report by Brianna Keilar (CNN White House correspondent) on stimulus spending. She said "…there's no doubt about it, there is stimulus money that went to some of these foreign companies, foreign renewable energy companies.. and when you talk to experts they'll say some of this did create jobs here in the U.S., but it also benefited these companies overseas and created jobs overseas as well. The thing though Wolf, is even if some of this doesn't meet the strict definition of outsourcing, that doesn't mean that it isn't damaging because a lot of voters may just have a problem with the fact that these foreign companies benefited from their taxpayer dollars and also it just reminds voters that the stimulus, which still remains unpopular, has the president's signature on it."

One can only imagine the headlines possible: Obama's SBA and OMB opens the most successful U.S. innovation program funding to foreign companies! I suspect that is why the SBTC is writing a letter to the president. To quote Rick Santelli from a few years ago, "Are you listing President Obama?"

Closing Thoughts

That being said, I'm not hawking for any party. I want you to have the facts on SBIR, and the rest is your business. I'm not anti SBA, but I am anti what the SBA is doing, and I'm trying not to buy into the conspiracy theory that has been going around. However, I am at a loss to explain much of SBA's actions.

I understand Sean Greene's position of wanting to open the SBIR program up to more companies, but they should be small U.S. owned businesses. Also the proposed change requiring eligibility to be at time of submission rather than time of award, will actually reduce the number of new companies coming into the program.

We'll be back when the Policy Directive is published.

Sincerely,

Rick

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



Do you want to be an SBIR Insider and receive Zyn's SBIR Gateway Insider Newsletter? It's free and we will not spam or share your email address with anyone.

Please sign me up for the free SBIR Insider Newsletter
Email Address:
Email addresses will remain private and will not be shared.



Copyright © 2012 Zyn Systems. All rights reserved.