SBIR Insider Newsletter
August 22, 2011
Dear SBIR Insider,
Welcome to the longest, and perhaps most important SBIR Insider to date. If you think it will be laborious reading it, imagine writing it! If you can stick with this, I guarantee that you will learn important items about what's going on in SBIR. Let me peak your interest by saying if I were a Las Vegas oddsmaker, I'd give 6 to 5 that SBIR is going to expire and lapse, at least for a time starting October 1.
In recent weeks you've been deluged with enormous amounts of what may most accurately be described as political "claptrap" surrounded by reports of financial chaos in historic proportions. During this same period "insensitive" negotiations have transpired between House and Senate staffers on SBIR reauthorization.
Your SBIR Insider thought it best to remain quite and let the "parties that be" continue their talks, with the hopes that significant progress would be made, and needless rhetoric could be avoided.
Our monitoring of congressional actions suggests that SBIR is being treated poorly. Make no mistake about it, SBIR is in peril and is likely to lapse, be eliminated, or become a misshapen Wall street program at the expense of main street small business, unless you become involved at some level.
A campaign of education and strength needs to be provided to your congressionals, and your local media. For example, Sunday's, Plain Dealer of Cleveland Ohio had an excellent guest op/ed from SBIR veteran Robert Schmidt entitled "Bad for jobs, bad for small business, bad for innovation" (see www.cleveland.com/opinion/index.ssf/2011/08/bad_for_jobs_bad_for_small_bus.html )
Over the years Mr. Schmidt has been involved in leading/creating several successful small businesses which have become SBIR winners. He knows the landscape and expresses it very well in his column. If you visit the article, leave a comment. Let Bob and the Plain Dealer know what you think.
Our goal in this SBIR Insider edition is to give you a better understanding of what is going on in the SBIR reauthorization process, and urge you to become involved because SBIR is currently losing the fight of its life. We'll offer some perspective on SBIR issues you may want to consider in discussions you may have with your politicos.
We also have some important SBIR news later on for those of you who participate in the DoD's SBIR program.
In this issue:
SBIR/STTR Programs Likely to Lapse
The news on SBIR reauthorization is not good. In fact, at this time, the odds for obtaining reauthorization by the September 30, 2011 deadline is grim, and congress seems to have no taste for what would be the 13th continuing resolution (CR or extender) of the program. In short, the SBIR/STTR programs are likely to lapse, at least for a time, but perhaps permanently.
Not so, you say? SBIR is too popular? Think again! Our 2 ½ party political system, working in a mode of "mismanagement by crisis," is failing America at all levels and that includes SBIR.
Most of you didn't know that in all the previous CRs to extend SBIR, several other SBA small business programs were coupled together. In the last CR (S.1082) all these programs (including SBIR) were to be extended only through July 31, 2011.
However, a groundswell of support by hundreds of you "encouraged" congress to extend SBIR through September 30, 2011. In a very unusual move, the congressional response to you (via the Senate) was to unlink SBIR/STTR/CPP from these other SBA programs, extending SBIR/STTR/CPP through September 30, but keeping the other SBA programs at July 31, 2011. Note: Extending SBIR to September 30, was done over the strenuous objections of House Small Business Committee ranking member Nydia Velazquez. (D-NY), who tried her best to do her worst.
I report to you now all of those other SBA programs that were extended only to July 31,2011 have now expired, in spite of a lot of last minute maneuvering to save them. Had it not been for many of you, this very easily could have included SBIR!
Still think SBIR is safe?" Just look at what congress did to the FAA (now in their 20th CR). Once again the House waited until late in the cycle to send the Senate a CR knowing that some in the Senate wouldn't allow passage unless modifications were made. It was too late to for the Senate to respond and Congress left for their month long vacation, thereby furloughing (without warning) more than 4,000 FAA employees and 70,000 airport construction workers!
Unlike an SBIR event, (which the main street press views as unimportant), the news media jumped all over the FAA story and Congress was totally embarrassed. The mantra of our wonderful 2 ½ parties and the President is: "jobs, Jobs, JOBS", yet they blew off almost 75,000 in one fell swoop while they played political football.
Fortunately a special limited pro-forma operation of the Senate allowed the Senate to capitulate to the House's demands and pass a very short CR (while most of the House and Senate remained on vacation) and the jobs were restored, at least thorough September 16.
A similar scenario is shaping up for the SBIR program whose CR will expire September 30, 2011. Congress doesn't return to work until September 8, and they will leave again on September 23 returning on October 4. That's not much time to pass an SBIR reauthorization bill, and congress seems very resistant to another CR.
Leverage on SBIR reauthorization now belongs to the House because the Senate was unable to pass their compromise SBIR bill (S.493) and is unlikely to try again in the near future. The House has yet to pass theirs (H.R. 1425) but is postured to bring their bill up to the "Whole House" for a vote when they return from vacation.
The House's bill, H.R. 1425 is a gift to Wall Street while being very destructive to the design and intent of the SBIR program and small businesses. The talk is that the House will pass their bill and send it to the Senate at the 11th hour, trying to get the Senate to agree to all the House's SBIR legislative wishes. Due to the many "questionable" provisions in the House bill, the Senate is not likely to cave in to this pressure, and consequently there may be a program lapse.
The Senate's Landscape The Senate's Committee on Small Business & Entrepreneurship worked feverishly to obtain a good comprise for their SBIR reauthorization bill which they accomplished by bringing BIO, NVCA and SBTC to the table and getting them to agree. Unfortunately their bill, S.493, (passed in the committee) was not able to pass the full Senate. This was not because the SBIR portion was unacceptable, but republicans and democrats alike used the bill to add their own 200+ (non-sbir) amendments, thereby consuming more than 12 full legislative days on the Senate floor between March 4 and May 4, 2011. The SBIR bill was like raw meat in shark infested waters and the Senators engaged in a feeding frenzy with their non-related amendments.
The effect/behavior was disgusting, even to the Senate. The vote for cloture (requiring a 60 vote margin to close the amendment process and vote on the bill) failed, of course along party lines, and Senate majority leader Reid expressed no interest to revisit this bill (a decision not unnoticed by the House).
The House's Landscape The House Small Business Committee along with a somewhat subordinated House Science Committee, put together their SBIR reauthorization bill, H.R. 1425 which contains several new controversial items, some of which shocked the SBIR community as well as the Senate. These items, several of which will be discussed below, are non-starters in the Senate. Keep in mind that just one Senator can put the "kibosh" on legislation, and we know of at least one Senator that definitely will, based on several of the House's provisions.
House Small Business Committee leaders, Sam Graves (R-MO) chair, and ranking member Nydia Velazquez (D-NY) have been, and continue to be major supporters of their Wall Street benefactors to open SBIR funding to majority ownership of Wall Street giants. They have been unsuccessfully fighting this battle since 2004, and now they see their chance to win, and will try to win big at the expense of small businesses. Of course the win to them is party and campaign donations.
It appears to be the committee leaders' intent is to have H.R. 1425 pass in the House either "as is" which would please Graves, or modified to remove all limits on VC/Hedge fund/Private Equity, which would please Velazquez.
Should this happen, the bill will not pass the Senate and there will be little or no time for the Senate to respond. Thus, if H.R. 1425 fails the House will blame the Senate. Bottom line: Small Business loses.
Discussion and Identification of Non-Starter Issues in the House Bill H.R. 1425
Should you have the opportunity to talk with your representative or staffer, here are the hot button issues of H.R. 1425 that you should discuss:
- (section 101) Program Expires 2014 Historically SBIR is 8 year reauthorization (Senate recommended 2019)
- (section 105) Phase I Required [actually allowing direct to phase II without a phase I award] This section should be stricken. You've got to love the way the House has the title say one thing, while obfuscating the real intent (via legalese) that Phase I is NOT required. Phase I is an important component, a competitive feasibility study to guide the agency before investing major dollars into an SBIR project. There are already provisions under the proper circumstances for a "Fast-Track" to speed up the phase I & II process for a promising technology when needed.
- (section 106) Participation By Firms With Substantial Investment From Multiple Venture Capital Operating Companies, Hedge Funds, Or Private Equity 45% NIH, NSF, NASA, 35% others - Should be stricken. However, it could be replaced with the Senate's compromise of section 108 of S.493 IF (and only IF) sections 103 and 104 (SBIR & STTR Allocation Increases) in S.493 are adopted.
- (Section 107) Change in the definition of a small business to include organizations majority or wholly owned by Venture Capital Companies, Hedge Funds and/or Private Equity Investment firms, regardless of size - Must be stricken! Once again legalese appears to obfuscate what may give 100% access to VC/Hedgehogs instead of the amounts listed in section 106]
- section 310 Give agencies administration money to be taken from SBIR award funding without raising the 2.5% allocation thereby significantly reducing award money for small business - Like section 106, should be stricken unless sections 103 and 104 (SBIR & STTR Allocation Increases) in S.493 are adopted.
- section 505 Limits to the number of award dollars a small business, including their "affiliates", may receive (in relationship to under-performing states). Is damaging to the program and agencies, and must be stricken. Could this be done to Boeing, Lockheed, MIT, and Johns Hopkins? Interestingly enough, the language in the bill eliminates "affiliates" from organizations owned by VC's, hedge funds and private equity firms, but not small independently owned businesses
- section 509 Preference For Clean Coal Technology Research - Should be stricken
- section 513 Preference For Acid Mine Drainage Research - Should be stricken
- section 514 Preference For Hydraulic Fracturing Research - Should be stricken
The Senate will most likely not be able to pass an SBIR reauthorization with items listed above unless measures such as those suggested are amended.
SBIR Points that Should be Stressed to Your Representative/Senators
Job Creation - Small businesses create 7 of 10 new jobs. In total, SBIR companies are largest employer of scientists and engineers in the country, and the largest single source of innovations, patents and high tech jobs. SBIR helps make this possible.
Job Loss (see job creation) SBIR companies work harder to keep their people employed. During slowdowns, it is not uncommon to see small business owners forgo their own pay in order to make sure they can meet the payroll for their employees. They keep their workforce in America. Can't you just see Jeff Immelt of GE doing either of those?
No Free Money (Especially important to Tea Party members) In spite of misleading news articles and books by charlatans, SBIR is not a "Free Money" program. It does not, and was not designed to give money to small "needy" companies. It is a program designed to fund innovative small high tech businesses in providing high tech cutting edge solutions to government problems and areas of interest that serve the American people and the marketplace. The agencies develop the topic areas of need/interest, and the high tech agile small business sector competes to offer and implement solutions, often meeting the agency's need and/or commercializing a product/service/knowledge-base to the private sector. In the case of the DoD, the SBIR company often transitions the technology to the war fighter, many times in partnership with a prime defense contractor responsible for a particular weapons platform. This creates cost savings to the government while creating excellent wage paying jobs, and increases American competitiveness. SBIR awards are made in the form of "contracts" or "grants" but they accomplish the same goal. The SBIR award winner must address and complete the scope of work described in detail in their winning proposal. There is no "free money." But look at some of the headlines. Just last week: www.businessinsider.com/free-government-money-for-startups-2011-8 Go back to 2003 at http://wtnnews.com/articles/366/ or of course you have SBIR listed on Matthew Lesco's "Free Government Money Club".
Budget Concerns The SBIR/STTR budgets are directly related to the congressional budgets imposed on federal agency R&D. If congress reduces an agency's budget, the SBIR/STTR is reduced accordingly.
Congressional Budget Office (CBO) - For S.493, the Senate's comprehensive reauthorization compromise of SBIR/STTR/CPP, the CBO estimates the cost to the government to be around $30 million per year. Pay-as-you-go (PAYGO) procedures do not apply to this legislation because it would not affect direct spending or revenues. It would not impose any costs on state, local, or tribal governments.
American Competitiveness - Cutting edge technologies spawned by needs and/or interest of the government, are tailor made for the small high tech sector. Qualcomm got its start in the early days of SBIR, winning multiple SBIR awards that provided solutions to the government and helped build the foundation of one of the World's great companies and high technology leader.
If you need help in any of these areas, write to us, and/or look at the end of this edition to see what support organizations may be of interest to you.
DoD Rapid Innovation Fund (Formerly Rapid Innovation Program) About to Launch
It's been a long time coming but what was billed at the Rapid Innovation Program (RIP) is now the Rapid Innovation Funding (RIF) program. It should be released in the form of a Broad Agency Announcements (BAA) on or about September 1, 2011.
In a memo circulating around DoD and the Hill, Deputy Undersecretary of Defense for Acquisition, Technology & Logistics (ATL), Dr. Ashton B. Carter describes the DoD's overall goals for use of these funds made available in PL 111-383, the Defense Authorization Act of 2011. RIF was largely the brainchild of congressman Norm Dicks (D-WA), who has been a stout SBIR and small business supporter, and believes many of our national defense interests can best be served by the small business community.
The first round of funding is $99.5 million, with Army, Navy and Air Force having $24M each, and the remaining components with an aggregate of 27.5M. Projects should not exceed 24 months and $3M. It is expected that supplemental guidance memos from acquisition executives will be issued from the service specific component (army, navy etc.).
Undersecretary Carter suggests that the goals for use of the RIF should reflect the DoD's emphasis on rapid, responsive acquisition and engagement of small innovative businesses in solving defense problems.
Although this is not an SBIR program, and the funding is not from SBIR dollars, SBIR Phase II projects are mentioned. It is evident that the focus should be on small businesses providing solutions to advanced technically challenged areas.
They are looking to transition innovative technology that resolve operational challenges characterized by Joint Urgent Operational Needs (JUONs), as well as into ACAT I-IA, II, III, IV or other defense acquisition programs.
Observations of RIF There have been delays in getting RIF going, and judging from Dr. Carter's actions, he is not crazy about this program. There was significant "jockeying" around DOD as to who would receive and manage the RIF funds. Dr. Carter has a reputation of being tight with a budget, and there are significant additional dollars to be made available to this program that are currently being withheld (estimated to be about $87M for each of the 3 services and about $124M for the other 9 components).
Dr. Carter is an honorable guy who happens to be a "brainiac." While it is impossible to calculate what goes on in the mind of a brainic, it is somewhat simpler to see patterns. History suggests that if a DoD brainiac withholds money from a program that congress enabled, chances are the brainiac wants the program to fail so the remaining money may be reprogrammed to what the brainiac sees as a better expenditure.
If this turns out to be the case, it could be against congressional intent, and the small business community may have something to discuss with their representatives, especially if they sit on the House or Senate Armed Service Committees.
Your SBIR insider gives Undersecretary Carter the benefit of the doubt, but it may be moot because President Obama is tapping Dr. Carter to become the next Deputy Defense Secretary, replacing William Lynn.
You can download a copy of Carter's memo from our SBIR Gateway web site at www.zyn.com/sbir/insider/RIF_Program-unofficial.pdf.
Hot New SBIR.GOV Website Launched
The SBA has taken charge of the www.sbir.gov web domain and have launched a new, high tech, helpful and adventurous web site for the SBIR community. Their search engine is much more modern and powerful than our SBIR Gateway's engine (The SBIR Gateway's is called the "Mr. Rogers" search engine because it gets you into the neighborhood.
Kudos to Sean Greene, his assistant Ahson Wardak, and the crew who developed the site. Lot's of great SBIR stats and information in an attractive web 2.0 environment. Of course Mr. Greene is a 2.0 kinda guy, and he has been one of the bright lights to come out of the SBA in a long time.
People have asked if we will shut the SBIR Gateway (www.zyn.com/sbir) down once the SBA gets its legs under sbir.gov. The answer is no, even though I wish I could. However, the SBIR Gateway can tell you things that the government web site can't, and nobody knows the staying power of the SBA budget to keep their site "tip top". Ours is kind of an unattractive "top tip" but it has been serving the SBIR community for many years, hosting about 56,000 technology topic searches per month.
Congratulations to the SBA and their SBIR.GOV web site. Let us know what you think about it.
DoD Beyond Phase II Conference Takes on Additional Importance
Don't forget about the DoD's Beyond Phase II Conference taking place September 12 15, 2011 in Atlanta, GA. I'm betting that there will be updates on the new RIF program as well as updates on SBIR reauthorization.
This is also the place for advanced companies to hook up with the primes, federal program managers, and other very good small businesses.
Networking and pressing the flesh is one of the major values of any SBIR conference, and this is an excellent opportunity. There is still time for the early registration discount. Save $100 if you register by Friday, August 26. Visit their web site at www.beyondphaseii.com
National SBIR Fall Conference
The National SBIR Fall Conference is taking place November 6 9, 2011 in New Orleans, LA. The semi-annual National SBIR Conferences (Spring/Fall) are hosted in conjunction with all 11 agencies participating in SBIR.
Geared for the novice and intermediate, these are great conferences to make new friends, potential partners, and to get known by the agencies program managers and support staff.
You can meet one-on-one with representatives from most of the SBIR agencies, meet some prime contractors, as well as folk from federal laboratories and academia.
You can get full details on the conference web site at www.sbirla.org
Who are all these "Save the SBIR" Groups?
There are a variety of groups and industry trade groups out there supporting SBIR reauthorization. This list is not exhaustive.
SBTC - The granddaddy of them all is the Small Business Technology Council (SBTC) led by its executive director Jere Glover. Barrister Glover has been involved in SBIR from the beginning, and knows congress better than any other SBIR resource we know. He is a friend, so perhaps there's a little bias, but I believe there is no better, and more congressionally respected resource (on the small business side) than Mr. Glover (Nydia Velazquez not withstanding). The SBTC fights for small business across all agencies and technology areas. The SBTC is a council organization of the National Small Business Association (NSBA), America's oldest small business advocacy organization. SBTC's web site is at: www.sbtc.org
NDIA The National Defense Industrial Association (NDIA) is a large industry trade organization specializing in defense related interests. Although NDIA serves the big defense picture community, it also has a small business division that shares an interest in SBIR. We have noticed that several important SBIR businesses belong to NDIA as well as SBTC, so they are not mutually exclusive. The NDIA web site is at www.ndia.org
SBBC The Small Biotechnology Business Coalition (SBBC) is a new small group of SBIR companies interested in biotechnology and related technologies as they play to SBIR/STTR programs. Born out of an interest to focus on SBIR/STTR biotech in NIH, this group fights against organizations such as BIO for small SBIR businesses. Their web site is located at: www.smallbiotech.org
Innovation PAC Somewhat different in this landscape is that of the Innovation Political Action Committee (PAC). Basically, a political action committee raises funds to share with Senators and Congressmen who are likely to support the cause championed by the PAC. If you are an SBIR company, you have been on the short end of a PAC working against your interests. This one tries to work for you. The face behind this PAC is Mr. Dan Backer, the man who was hired to help organize the Small Biotechnology Business Coalition. Mr. Backer is a talented young man with superb organization skills. The web address for this PAC is www.innovationpac.org
Sorry I overstayed my welcome but many of you needed this information. I hope you found it useful and I'll try to be shorter in the future.
Thanks for your time and I look forward to hearing from you. Please remember that it does take me some time to get back to you because of the sheer volume of mail, but I'll always try.
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Sequim, WA 98382
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