On March 16, 2011 the House Small Business Committee held it's first hearing in the 112th Congress, on SBIR reauthorization under the new leadership of Chairman Sam Graves.
Although we are giving you a lengthy synopsis of this hearing, you can view the written testimony and the youtube videos on the committee's web site at:
The buzz around the committee was that it would be run much differently than previously under former chair Velazquez. To some degree, this seems to be the case, but the dominate topic again was the VC issue, not so much by Graves or the other representatives but by Velazquez and some of the witnesses.
Unlike the previous committee chair, Graves invited witnesses with diverse interests. However it was disappointing that there was not even one word mentioned about the largest SBIR/STTR program, the DoD. The witnesses were:
- Mr. Tom Tullie, Chairman and CEO ecoATM Inc – Testimony from a new highly innovative company that had won an NSF phase I SBIR and has just secured $14.4 in venture funding. His main comments on SBIR was the rejection of limits on VC funding for SBIR eligibility.
- Dr. David B. Audretsch of Indiana University – Testimony from a participant in the National Academy SBIR Study, with a focus on the relationship of SBIR and the university community. He also included some information on minority participation in SBIR.
- Dr. Michael R. Squillante VP RMD, Inc (speaking for SBTC) – Testimony about the overall program including support for the VC compromise as created in the Senate.
- Ms. Amy Comstock Rick, J.D. Chief Executive Officer Parkinson’s Action Network – Testimony on the importance of NIH SBIR as well as VC funding.
In addition to the opening testimony that you can easily download from the House site (as listed above) her are some of the highlights from the Q&A portion that are not available in print:
Graves Question – (to all) "How did you find out about the program?"
Tullie – Stated that they hired a consult for $5,000 who had done this before.
Audretsch – "I had accepted a job at Indiana University about 12/13 years ago when I arrived on campus the VP for external research, Jeff Alberts, wanted to meet me and I thought he'd ask how was the move and the school… I couldn't get him to shut up about…. when he kept talking about this SBIR thing…. He's a physiology professor.. he tests / makes cages for animals that they now do up in the space shuttle/space station and so on. And in order to do his research at NASA he was told he had to start a company, he started with an SBIR and had phase II funding, he subsequently employed I don't know.. dozens and dozens of people and it was really hearing him.. is what keyed me how important the SBIR is because it's making entrepreneurs out of very capable scientists and engineers, really changing career trajectories.
Squillante – "RMD has been involved in the program since the very beginning of the program… I assume we learned about through the Commerce Business Daily, in those days"…
Rick – Explained the challenges in getting funding for small diseases and said in the NIH programs you can't help but see the SBIR program.
Velazquez Question – (to Rick) "Ms. Rick, since the SBA eligibility determination… SBIR applications have decreased. Besides changing the eligibility criteria rules what other steps can be taken to insure that small businesses, small firms with the best science and greatest potential to provide treatment are applying for SBIR awards?"
Rick – "Well in fact the compromise that is in the Senate legislation seems appropriate to us… It is my understanding as well that applications dropped after the SBA ruling and that is not acceptable to us. We think the most import thing is to fund the most promising projects. But I think it is .. I think we need to find a way to move on from the VC issue and again the compromise seems appropriate… "
Velazquez Question – (to Audretsch) "Dr. Audretsch, do truly small businesses receive venture funding?"
Audretsch – "Yes sometimes, it's hard to generalize……..."
Velazquez Question – (to Audretsch) "So if you have venture funding it doesn't necessarily mean that you are a large company."
Audretsch – "Absolutely not…"
Velazquez Question (to Squillante) She describes the large number of awards his company has received and how it compares to the low numbers from rural states. She asks, "Given this, do you believe when this program was created was it intended to just greatly benefit a few companies while overlooking so many others?"
Squillante – "No, I don’t think so. The goals of the program are clear and I think the program is designed to support the best research that's in the interest of the agencies... "
Velazquez Question (to Squillante) basically asking him to describe the advantages a larger small business such as his has over a very small businesses. He answers (dialog too large to quote but of course items such as experience and resources are touched on)
Velazquez Question – (to Audretsch) "Under the current eligibility rules it is possible for a business with 222 employees and a net worth of $43m like Dr. Squillante's company to receive and SBIR grant. However a company with 5 employees and only $1m in net worth could be ineligible for these type of grants because it is majority owned by a venture capital company. So my question to you is does this seem like a fair and equitable system?"
Audretsch - "No. And you didn't ask but it also doesn't make economic sense. I would not link the financial structure of a company to its eligibility for SBIR."
Representative Barletta (R-PA) _ Asked substantive questions about how sbir awards are concentrated in certain sectors, and how it can be addressed. He also asked about the NIH program, can R&D on one disease positively affecting a treatment for another. He is concerned about the downturn in private investing in medical research.
Representative Chu (D-CA) Asked about why minority and women participation in SBIR has decreased over time. Also concerned about assessing performance and monitoring of SBIR i.e. GAO report. Raised question of award amounts, and exceeding guidelines.
Representative West (TPR-FL) "The type of metrics that we can use for evaluative criteria because one of the things we want to see is a level playing field out there. So what I would put out to the panel as a question is: What things other than just commercialization.... what are some other good evaluative criteria that kind of gives everyone that semblance of a level playing field so they can apply for these grants?"
Lots of general conversation on this and it shows some of West's concerns. Talks of metrics and evaluation were discussed but perhaps Dr. Audretsch had the most insightful response on what may be measured a success or failure:
Audretsch – "Mr. West, your colleague Mr. Barletta in an earlier question raised or mentioned the example of Silicon Valley as not only the leader of SBIR awards but more importantly the most innovative place in the world."
"People say.. scholars say the birth of Silicon valley came from a company named Fairchild. Fairchild failed, it never really came up with… as a semiconductor company, it never really succeeded. But out of Fairchild, one of the founders, Gordon Moore founded Intel and the rest is history for Intel, but also for Silicon Valley. And I think that illustrates exactly your point Ms. Rick that it certainly makes evaluating SBIR program challenging because it's hard for me to say Fairchild was a failure, maybe to the stockholders, but not Silicon Valley, not to the United States."
Representative Chu (D-NY) Followed on to Ms. Chu's concern about the problem of reductions of minority participation in SBIR.
Representative Richmond (D-LA) – Basically was asking what can state & local governments can do to increase participation in SBIR. Also, interested in the relationship and value of getting a quick long term reauthorization or dragging reauthorization on by not compromising on the VC issue. Most agreed that a rapid reauthorization would be best for the program, the agencies and the small business community.
Velazquez Question – (to Audretsch) "The Senate has proposed to allow venture firms to participate in the SBIR program but only allow them to access 25% of an agency's SBIR funds. Given your knowledge of the program and the way venture capital companies come to fund businesses, does it make sense to granting a portion of the SBIR funds to these firms?"
Audretsch – "No I don't see an economic justification for it."
Velazquez Question – (to Audretsch) "What impact would designating an arbitrary percentage of award funds to venture backed companies have on small businesses and innovation?"
Audretsch – "A negative one. How negative I can't say. But it will be negative it won't be positive."
Velazquez Question – (to Audretsch) "If you were to have a percentage, how would one even develop a methodology to determine what percent should go or be allocated to these firms?"
Audretsch – "I don't think it could be worked out."
Velazquez then gave a stern closing (reminiscent of a teacher warning her students)
"We all want to get this reauthorization done. But if we're gonna authorize this for 10 – 14 years, we gotta do it right and it has to be in a way that works, and works for the small firms otherwise we cannot abdicate our responsibility in this committee. Thank you."
Graves closing – "I'd like to echo the ranking member's remarks. The SBIR and STTR programs are widely recognized as the country's most important engines of innovation and we're going to work.. this is the start of the process and we’re going to work hard to get a bill out and to the House floor in May and ultimately as quick as we can to the President's desk so he can hopefully sign it."
The results are in and by far most of you prefer this new SBIR Insider format to the old text only version. For those of you at DoD and other text only readers, we try to make our newsletter read ok in text only, but I'm sure there are formatting glitchs here and there.
Thanks for your patience.