Are you one of America's Most Promising Companies?

.
We all think we're special. Small technology businesses especially think so. Companies who win SBIR awards ARE special! Well, anyhow, they've won a limited funding competition. But does that mean they're going to be successful beyond an R&D effort? Not without having a lot of other factors be aligned. What are those factors? What makes one company more "promising" than another? And how does that translate to future fundability?

Forbes is curious to find out. So they've teamed with The Venture Alliance (TVA) to survey lots of small companies, do some assessment, and "identify the most promising of the bunch".

I read about this today in my issue of NetNews, the weekly newsletter of the National Association of Seed and Venture Funds (NASVF). Here's what it says:

TVA has developed a scoring algorithm based on a range of variables that determine a company's potential--and, ultimately, its worth to investors---including financial projections, current capitalization, market opportunity, intellectual property, management experience and others.

TVA crunches that data (which it collects via the survey) and reduces it to a "fundability score." Companies that score high theoretically have a better shot at raising money than those who don't.

TVA will do an analysis and produce a visual "Radar Graph" mapping that looks like this:

Those with top ratings will be considered for a spot on Forbes' upcoming list of America's Most Promising Companies. They will also be offered the opportunity to raise additional capital through TVA.

Here's the link to the survey: http://www.forbes.com/ampcSurvey/questionnaire.html

This is cool stuff! I'm going to combine this with my trademarked Funding Readiness Level (FRL)® index and really be able to provide my SBIR clients with a dose of realism that provides clues to exactly what has to be worked on to improve future "fundability" for commercialization.
.

Small Bio speaks out on changing the SBIR eligibility rules

.
Watch out BIG BIO, small bio has a bigger voice than you might think! Responding to the call to action from the SBTC, a group of FIFTY small biotech and medical device businesses have signed a letter to Chairman David Wu (House Science & Technology’s Technology & Innovation Subcommittee) saying, in effect, “BIG BIO doesn’t speak for us! Changing the SBIR rules will be harmful to the innovation economy being supported by the majority of small biotech businesses!”

Here’s the body of their letter:

The undersigned leaders of small biotechnology and medical device companies from throughout the U.S. respectfully request your assistance in opposing legislation that would give companies owned by venture capital (VC) firms unlimited access to the SBIR program.

Last year the House of Representatives passed HR 5819 that, if it had become law, would likely have permitted companies with tens of millions in financing to win an unlimited number of SBIR grants of unlimited dollar amounts. NIH grant reviewers in particular typically give significant weight to the preliminary data generated by applicants. Exceptionally well capitalized companies with expansive laboratory infrastructure and scientific personnel necessarily have an advantage in competing for these awards.

If VC owned firms are permitted to win the lion’s share of the mere 2.8% SBIR/ STTR set aside this would effectively shut out most of the small companies for which the SBIR program was originally created. This would have profound consequences to our nation’s economy and health care system. Companies in fields traditionally out of favor with VC firms, including vaccine development, orphan diseases, biodefense, diagnostics, research tools, and most early stage, high risk R&D, but which play a critical role in solving technical challenges facing the US, will be particularly disadvantaged if deep pocketed VC owned companies are permitted to usurp the SBIR program.

To the extent that the law is changed to permit more VC participation in SBIR it is imperative that safeguards be put in place to protect access to the program by firms that lack VC financing. These safeguards should include, at a minimum, the following:

(1) Caps on award size and total dollars awarded to any one firm should be established. Agencies would be permitted to exceed these caps only with funds taken from outside of the SBIR/STTR set aside;

(2) Limits should be placed on the overall percentage of the SBIR pool that may go to VC owned firms for at least the first few years to gauge the impact and any consequences of these changes;

(3) The SBIR/STTR set aside should be increased by at least a few percentage points to compensate for the increased competition in the program.

The above protections would expand access to the SBIR program while protecting small biotech companies that do not have VC investors, which includes the vast majority of emerging biotech firms.

Thank you for your consideration of our views.

Unlike others who have already made up their minds without knowing all the facts, Chairman Wu has been open to hearing both sides of this debate, and we applaud his refreshing willingness to include small businesses in discussions that involve them. Gee, what a concept!

If you agree with these sentiments, please copy the letter onto your own letterhead, add your own words for emphasis, and send it off to your Congressional Representatives and Senators. You’ll find contact information on www.SBIRreauthorization.com. You’ll also find this letter there complete with the fifty original signatories.

The National Small Business Association (NSBA) will hold its annual Washington Presentation, which includes a White House briefing, on June 9th and 10th. This year the focus will be on SBIR Reauthorization and Economic Stimulus procurement opportunities. The SBIR Coach will be there. See details at http://www.nsba.biz/wp. You’re invited to join us.
.

Should the NIH be allowed to play by different SBIR rules?

.
It's the issue that just won't go away. Eligibility for SBIR awards for VC controlled companies.

Will somebody please tell me why companies that now have received millions of dollars of outside investment would even care about grabbing a relatively few thousand dollars of grants intended for startups.

Reminds me of the rich bully on the playground stealing lunch money from the weaker and poorer kids.

The Small Business Technology Council (SBTC) sent out an appeal to its membership yesterday. I'm going to provide it verbatim:

Sign on to the NIH Letter Today!

During a recent hearing SBTC Executive Director Jere Glover testified before the Technology and Innovation Subcommittee of the House of Representatives’ Science and Technology Committee. Glover documented the success of the federal Small Business Innovation Research (SBIR) Program, which is due for renewal by Congress.

During the hearing Chairman David Wu (D-Ore.) suggested a compromise that would allow National Institute of Health (NIH) applicants to be exempt from affiliation rules preventing large venture capital (VC) owned companies from participating in the SBIR program, while keeping the restrictions in place for all other agencies. Glover objected to this compromise, pointing out that many small biotech companies oppose VC involvement in the SBIR, including those in the SBTC membership.

In response to this, an SBTC NIH member has drafted a letter to send to Rep. Wu urging him not to allow VC owned companies unrestricted access to the SBIR program. SBTC would like as many biotech and medical device firms as possible to sign on to this letter to show Wu that opposition to VC involvement in this program is not just limited to Department of Defense (DoD) awardees.

If you are a NIH awardee and would like your name on this letter, please send an email to Alec Orban.

Take Action Today!

View the NIH Letter
View Jere Glovers Testimony
Sign on to the NIH Letter

OK, here's your chance to voice your opinion. If you're a "biotech or medical device" company and wish to sign onto the letter, click the links above and do so.

If you have a good reason that you don't want to sign the letter (other than not wanting to stick your neck out), please use the Comments feature on this Blog and tell me your reasoning. I really want to understand the underlying thinking here.

My position on the VC issue is well documented. I am opposed to changing the eligibility rules. However, I'm a realist. If we must compromise on this in order to get SBIR reauthorized, than so be it. But let's do it smart and not fundamentally change the program.

So, convince me it's a good idea to broaden SBIR eligibility. Even selectively.

And please cut the crap about having had eligibility "taken away". We all know that really isn't true.
.

SBIR Reauthorization – What are the issues?

.
Only three months to go. Time to get serious. The House has begun the process. With any luck our legislators will actually pay attention to the issues, learn the truth, and improve the SBIR Program. We’ve got a tough battle facing us to overcome the lies being told and perception management techniques being used against us.

I actually had an Austin Business Journal reporter call me yesterday and ask me what I thought about the fact that “venture capital participating small businesses would have to leave their drug discovery innovations on the shelf because they couldn’t qualify for SBIR awards any more”.

Oh, Good Grief! She said she got the premise for the story from a Washington DC sister publication. Perception management strikes again. Boy did I give her an earful of the truth. Can’t wait to see what she actually writes in the story she said would be published today.

The VC issue dominates the SBIR reauthorization landscape. It’s important, yes. But it’s not the only issue. In a series of upcoming columns I’m going to highlight each of the issues, and shed some light on what’s important about them. Hopefully it will spur some comments and engage some debate.

Here’s the list of SBIR Reauthorization issues:

1. Eligibility (who may compete for awards)
2. Agency Allocation Base (% of R&D set-aside)
3. Award Caps for Phase I and II
4. Phase I bypassing – should it be permitted?
5. Multiple Phase II awards
6. Phase III funding and required support
7. State (FAST) and Rural Outreach support
8. Funding for SBIR/STTR administration costs
9. Streamlining the process of review and award
10. Special technology priority mandates
11. How long until we reauthorize again?

Some are more contentious than others, but all are important. We’ll discuss them one by one over the next few weeks.

I can see from this Blog’s analytics that we’re being monitored by those in Congress who really want to know what all sides think, so if you have an opinion here’s your chance to be heard. I’ll publish a comment that intelligently approaches an issue, whether or not I agree with it.

Rick Shindell published an issue of his SBIR Insider last evening. Lots of good info about what went on in those House hearings last week, including a video of Jere Glover’s testimony.

And, Rich Hendel sent out Boeing’s NSF SBIR topic interest list a few days ago. I expect to see the DOD 2009.2 interest list any day now. Write me if you’d like a copy of either of these.

Remember to keep up with what’s going on at www.SBIRreauthorization.com

Finally, today’s my lovely wife Kay’s birthday, and I’m taking the rest of the day off to pay some attention to her, including dinner out and some Country/Western dancing this evening at Billy Bob’s. She’s so patient with all of my SBIR travails, I just wanted to recognize her and have y’all join me in wishing her a Happy Birthday!
.

House begins deliberations on SBIR Reauthorization

.
The House of Representatives began deliberations this week on reauthorizing SBIR. Two House Committees held hearings.

The Small Business Committee met on Wednesday. They actually did allow a few small businesses to testify. (Press Release, Written Testimony, Video of Hearing)

Jere Glover testified yesterday at the Science and Technology (S&T) Committee's Technology and Innovation (T&I) Subcommittee hearing. (Press Release, Written Testimony, Video of Hearing - coming soon)

I talked to Jere yesterday after his testimony. He said that, by and large, the hearings went well. We're being included in discussions invited to testify for the first time in two years, and that's progress.

There's a new letter from S&T/T&I Subcommittee Chairman David Wu (D-OR) rumored to be circulating countering our Dear Colleague letter to Chairwoman Velazquez and promoting reintroducing of H.R.5819 support of provisions similar to what were in H.R.5819. After the hearing, Chairman Wu admitted that he learned some new facts and probably would change his stance on that. I certainly hope that hearing all sides of the story will prompt him to change his stance on that.

[Curious about the strikeouts? -- Sorry, Chairman Wu. Didn't mean to misquote you. -- See the Comments...]

When I visited some congressional offices on the Hill earlier this year, I saw a booklet available in every office: "How Our Laws Are Made". I leafed through it and laughingly said that there should be a subtitle: "Like a Visit to the Sausage Factory -- you really don't want to know!"

The process is ponderous, with lots of rules that permit strange shenanigans and partisan interests to get their way. We must be cognizant of how things work, and play the game smartly. Being persistent and factual (always providing references) is the way we'll get our message through. The staffers are the key. Educate them and they'll advise their bosses.

Jere promises that the SBTC website will have some new information up in a few days. I'm sure Rick Shindell's Insider will provide some insight soon.

I'll have some more analysis of all of this in a few days, and some recommendations on strategy, but I wanted everyone to have a good source of facts on what's going on. Your comments are always welcome.
.

Fast Funding for Forensics from our friends at the DOD

.
Ever watch CSI? Bones? NCIS? Cold Case? Probably, as these are some of today's most popular TV shows. What do they have in common? Forensics. Playing detective. Analyzing evidence. Establishing facts. Solving crimes. Prosecuting bad guys. Cool stuff! But what does this have to do with getting money for technology development? According to the DOD -- a lot!

Yes, that’s right. The Department of Defense wants to pay you for being a forensic technologist. They have money to spend on this, and are ready to write the checks. All you need is a good idea and the capability for developing some new techniques for establishing facts in DOD's battlefield environments -- "Battlefield Forensics".

Not only that, but you don't have to write a detailed and lengthy proposal, use a complicated submission web site, nor wait a long time for an answer. Can you say "fast funding"?

Wow! This isn't your typical SBIR project! No submission deadline to meet. Fast response. Pays more right at the start. And they say you won't need special "government accounting compliant" systems either!

Sounds almost too good to be true. But the DOD says it isn't fooling around. Terrorism is the current high priority target. They want good ideas to gather facts to bring terrorists and war criminals to justice. And they want to implement them fast.

The guy in charge of this is Dave Edwards. He works in the DOD's Rapid Reaction Technology Office. I met Dave at the World's Best Technologies Showcase Conference last month, and had a chance to ask him some questions about this new initiative they call the "Open Business Cell"...

Q: What's this all about, Dave?

A: Well Fred, it’s a small pilot program in DOD that seeks to find and engage new or “non-traditional” companies, engineers, innovators, and scientists. We want them to provide their best ideas and build prototypes to help DOD resolve some high priority needs.

Q: How will you do that?

A: Two ways. First we have a helpful website called DefenseSolutions.gov that identifies the needs. Our current priority need is for Battlefield Forensics. After the best ideas are selected, we will use a funding mechanism called Other Transactions, the government's version of a commercial contract (no special accounting needed), to get people working on these “best” ideas quickly. We will be funding them to rapidly produce functioning prototypes to turn their ideas into reality.

Q: Battlefield Forensics? Is that anything like what we see on CSI?

A: Sorry, but it's not the high-tech laboratory drama you see on television. Battlefield Forensics is the rough and ready business of quickly collecting evidence or indicators of the activities of terrorists and war criminals so we can identify and pursue them. On the battlefield, we may not have the luxury of extended time at the scene, exhaustive coverage of an entire site, or the trained personnel and specialized equipment we need to collect evidence. We need to develop simple and effective equipment and methodologies to gather data and establish facts. So while it's not CSI, it is applied forensic science and engineering.

Q: If I submit an idea, how is it evaluated?

A: When your idea is received it is forwarded to our subject matter experts for analysis. Those who offer really good “on target” ideas will be asked to send in more detailed information about how they would produce their prototype, what it would cost, when it can be delivered, how it will be tested, etc. From among this select handful, the most promising will be funded immediately.

Q: What's a typical project's budget and schedule?

A: There's no set limits. But we expect the funding for a project to be in the $300-500K range for 1-2 years, with a preferred short-term completion schedule. The faster the better.

Q: What about non-disclosure agreements?

A: Not to worry. When you submit an idea using the form at DefenseSolutions.gov, your idea is protected from disclosure. No competitors will see it and only government personnel will evaluate it. By law, it cannot be disclosed even under a Freedom of Information Act (FOIA) request. The website has information about this.

Q. OK, I'm ready to submit my idea. How do I do that?

A. Easy. Find the "Submit Your Idea" button on the website. Fill in the web form. That's all it takes. We'll get back to you in less than 30-days.

Q. When will you be posting other areas of interest?

A. Soon. We call them "themes". Subscribe to our ListServ, and we'll let you know when a new theme is posted. Signup is on the website.

This is really cool, Dave. Fast response, not a lot of paperwork, and minimal accounting needed? I hope this works, and serves as a model for other programs to follow.

So, go look at Dave's website (http://www.DefenseSolutions.gov/) and see what Battlefield Forensics is all about. (For ideas, do Google searches on the term too.) If you have questions, email Dave at Idea@DefenseSolutions.gov.
.

SBIR support momentum increasing in the House of Representatives

.
Who said that small business has a small voice? Together our voices are raising a din and the House of Representatives is hearing us.

More and more members of the House are joining in co-signing the letter to Small Business Committee Chairwoman Nydia Velazquez urging her to not change the SBIR eleigibility rules in the soon to be debated and (hopefully) enacted SBIR Reauthorization legislation.

As of Noon today, the count was up to 21, and growing. See the latest count HERE.

Ann Eskesen has mobilized SBIR awardees from all over the country, and she issued a very important message to her mailing list today. For those of you who aren't on that list, you can see the message on http://www.sbirreauthorization.com/.

For background, see my Blog column of March 29th: Small Business Advocacy Mobilizing Peer Pressure on Velazquez for First Step in SBIR Reauthorization.

We have some more time to get more signatures so please keep the pressure on.

Ann's key message today was that: "Members [of the House] need to become stakeholders in the effective functioning of SBIR in their Districts – and that means, in part, they must be told their local story and sold on the idea that SBIR is a fundamental element in the health of the economy both in their immediate area and nationwide. This is a very different way to think and talk about SBIR but it is the right way."

Monitor http://www.sbirreauthorization.com/ for daily updates.
.

New Hope on the Horizon for Getting Through the Valley of Death

.
Ever wonder where a week went? This was one of those. Fast and furious. Some things were extraordinarily frustrating. Others were exciting and invigorating. All of them had to do with energizing our American Innovation Economy. The most exciting was that Valley of Death thing, but I'll start with the frustration: NIH. Who else?

Monday was the due date to submit SBIR and STTR proposals to the NIH. I had several clients who struggled with the submission process for DAYS! The Grants.gov portal seemed clogged much of the time, and it took forever for information to move between it and the NIH's eRA Commons.

There are ALWAYS errors to fix, most of them trivial, and NONE of them have anything to do with the project itself. Each time you are forced to cycle through the morass again. So frustrating! (Has anyone figured out a sure-fire way of figuring out the proper "Federal Identifier" to use?)

The NIH claims proposal volume is down. Hmmm... wonder if it has anything to do with how difficult it is to get proposals submitted? Submitting to DOD is so easy in comparison -- and their proposal volume is up! Hmmmm...

I'm standing by my prediction that April 27th (the Challenge Grant due date) will be the Grants.gov Armageddon.

And then there's the NIH SBIR Stimulus Exclusion. The NIH just doesn't seem to get the Innovation Economy concept, or doesn't think it involves them. Basically they don't think small business deserves ANY of their R&D money. They cite all kinds of statistics to justify their position.

Bull-frog-feathers! I used to be a statistician, and I know how easy it is to manipulate data to support a premise.

The Senate Small Business Committee had a "meeting" with the NIH this week to discuss the situation (since congress is in recess it couldn't be called a "hearing".). The meeting was inconclusive (aren't they all?), but happily for us, the Senate isn't buying what the NIH is selling. More discussions are scheduled. Stay tuned. This isn't over by a long shot!

OK, now for what's been exciting and invigorating....

On Monday, the National Association of Seed and Venture Funds (NASVF) announced the intent, in a joint venture with a dynamic "innovation intermediary", Innovation America (IA), to create a National Innovation Seed Fund of Funds to help fill the investment gap faced by entreprenurial companies seeking to get through what's known as the "Valley of Death".

You can download the press release from my website, but here's a SHORTCUT. I'm a member of NASVF, and will be serving on its Public Policy Committee to help put this plan together.

This is big stuff. A Fund of Funds seeds other investment funds. The magnitude of numbers being talked about are using $Bs not $Ms. Control will be regional, closer to where the entrepreneurial companies are and where the investments will be made.

Read the NASVF's April 9th issue of NetNews and peruse the presentation on IA's website for details. Lots to be worked out. Stay tuned on this too.

By the way, Jim Jaffe, NASVF's CEO, and Richard Bendis, CEO of Innovation America, are both actively involved in the SBIR Reauthorization Advocacy. Good guys, both of them, and I'm proud to have been invited to join their team.

And then yesterday we dedicated The Center for Innovation at Arlington (I serve as their Business Coach). Texas' Senior Senator Kay Bailey Hutchison and Arlington's long-time House of Representatives legislator, Joe Barton, were there to help cut the ribbon. Both had been instrumental in making the Center become a reality. Read the press release HERE.

We are also involved in the Innovation Economy, but our scope is broader than just seed funding. We're looking at increasing investment deal flow at ALL levels for the entire mid-section of the country, attracting investors to locate in North Texas, and attracting executive talent to the region.

It also involves creating a Fund of Funds. I'm right in the middle of this big stuff too. More to stay tuned on.

I'm ready for a long weekend! Have a great Easter and Passover break.
.

NIH Doesn't Budge on Excluding SBIR from Stimulus Money

.
They really have no shame. The NIH, I mean.

Senators Landrieu and Snowe finally got a response to the letter they sent them. Want to read it? It's a masterpiece of bureaucratic doublespeak. Click HERE to retrieve it. It took them over three weeks to write this?

The key words are: "In addition to" in the sentence: "In addition to applying for funding through the SBIR/STTR program, small businesses are also eligible to apply for NIH funding through grant opportunities supported by ARRA...".

Never mind these ARRA opportunities are open to big businesses, universities, and every other organization under the sun.

And those "Challenge Grants"! Oy! Mark my words... they'll see 20,000+ applications for those 200 grants. Maybe a token 2.5% will go to small business - 5 awards! And I predict Grants.gov will implode on April 27th under the submission onslaught. It took one of my clients nearly 24 hours to upload their NIH proposal this week! If they're having this sort of problem now...

They even promise small business will have "appropriate representation ... on [challenge grant] scientific review groups". Hmmm, appropriate, eh? Let's see.... 2.5% of a 20-member committee is half a person. Wonder if they'll round up or down?

If you didn't know better, you'd think they really cared about small business. I'll say it again: they really have no shame.

The sad fact is the NIH is technically correct in taking this position on not increasing "its FY2009 appropriated" funding base. Their FY2009 SBIR/STTR Allocation Base is determined as percentages of their total FY2008 extramural R&D expenditures, and the ARRA funding doesn't affect that.

Basically, it's letter vs. spirit of the law. Stimulus is needed now and we're ready to do the work.

None of the other agencies saw fit to deliberately cut small business out of their extra money.

Who's going to tell the NIH to behave responsibly? The exclusion they snuck in has been signed into law, behind the backs of the Small Business Committees and without informing the President what he was signing.

Congress could repeal the exclusion, but do they have the fortitude to pass a bill that does that? Probably not.

Does President Obama have the authority to issue an Executive Order eliminating the exclusion? Probably not, but then I didn't think he had the authority to fire the head of a major corporation either.

We'll see what the NIH does in FY2010, when their TOTAL extramural R&D expenditures will include ARRA funding, and, as the Senate letter pointed out, the ARRA exclusion doesn't change the total!

Well, Senators Landrieu and Snowe - whatcha gonna do with this? Take them to task, or let them get away with sneaking around you? And Senators Feingold and Cardin - did you get a similar response to your letter?

We're counting on you, the congressional Committees who officially represent Small Business, to right this wrong. Please don't let us down.

--------------

UPDATE: Sunday, April 5, 2009. I faxed a copy of this column to all members of the House and Senate Small Business Committees today. Any of you who feel so inclined should also raise some dust over this. Data files of contact information in three formats are on http://www.sbirreauthorization.com/. The more voices raised, the more likely they are to do something. And, at the very least, their awareness of SBIR and its importance to the high-tech small business community will be enhanced.
.

Would VC Control Stifle the Innovation in SBIR?

The SBIR advocacy is mobilized. Dozens of small business owners are now focused on raising the level of awareness of the importance of SBIR to our legislators in the House of Representatives. Our immediate focus is ensuring that there will be a full SBIR reauthorization debate this time around, and that we will be included in it. (See http://www.SBIRreauthorization.com/ for details.)

Central to the debate is whether VC controlled small businesses should be eligible to compete for SBIR awards. Some say it's a good idea, others say it's not. Both sides have compelling arguments. Both sides claim that their position will ensure SBIR Program "success". But, what is that?

The problem is that we've never really settled on what is SBIR success. Is it how many tough problems got solved? Is it how many small businesses got started with SBIR as seed funding? Is it how many high-paying jobs got created? Is it maximizing ROI for the funding agency? Is it how many patents get filed? Is it how much revenue is generated by the awardees in commercialization? Is it how many SBIR funded companies get acquired or go public? Is it all of the above or none of the above? The fact is that no one has ever come up with a universally accepted answer to this. I've seen every one of the above cited as the critical success factor. SBIR success is in the eyes of the beholder.

I'm going to use my Blog as a forum for exploring this, as the better we understand all of these perspectives, the better we'll be able to provide persuasive opinion to our legislators, and, hopefully, guide the improvement of SBIR.

Our first guest columnist is Jonathan Pearl. The subject is innovation, and whether a VC controlled company still cares about that...

_________________________________________

The difference between a VC and a small business: why SBIR is not the venue for supporting Venture Capitalists, by Jonathan Pearl

In a letter dated March 11, 2009, on the FY 2010 proposed budget, House Small Business Committee Chairwoman Representative Nydia Velazquez argues that: "The SBA should permit venture capital-backed small businesses to be able to fully participate in the Small Business Innovation Research program."

I laud Representative Velazquez her energy and commitment to supporting innovation and its benefits for the nation's economy, but I question the specifics of her case. By the rules of the SBA regarding the definition of a small business, nothing prevents venture capital-backed companies from fully participating in SBIR. The rules however require that small businesses be majority-owned by individuals, meaning simply that venture-capital groups can not own a majority stake in a small business eligible to compete for SBIR funding.

Venture capital firms typically have far greater resources than small businesses, providing an unfair advantage because those resources can be expended in the proposal stage. Many truly small firms may find the time and money needed to compete in such a field prohibitive, regardless of the worthiness of their proposed efforts. The unfortunate consequence of permitting firms majority-owned by VCs to compete against startups may be to stifle the innovation SBIR seeks to promote.

Representative Velazquez continues: "Such participation is essential for high-growth small firms seeking capital, particularly during this period of economic weakness."

The argument appears to be that the capital needed by high-growth small firms can only be provided by venture capital groups taking a majority-stake in their businesses. To be sure, venture capital serves a useful function in society. Venture groups can provide an influx of capital for high-growth ventures. Their motivation however is financial gain, not necessarily innovation. They seek a high return for their investments. There is nothing wrong with the profit motive, it simply should not be subsidized by public coffers. Allowing VC majority-owned firms to tap into SBIR resources is akin to providing TARP funds to remodel executive offices. It's the wrong course.

Entrepreneurship and small business innovation are critical for our economy and inestimably beneficial to society. Researcher entrepreneurs are most often motivated by a passion, driven by their ideas to solve problems in innovative ways. Their incentive is both innovation for its own sake and the financial gains that accrue from filling an unserved need. This juxtaposition of overlapping motives keeps innovation at the forefront. SBIR allows federal agencies to define their own high-priority needs.

It has been suggested that some agency administrators are concerned over difficulty identifying enough high-quality proposals to support even current levels of SBIR allocations. It is odd that Representative Velazquez would argue that many SBIR-awarded small firms need a greater influx of capital while agency administrators are concerned over not being able to spend all of their SBIR funding.

I would think the solution to both concerns can be managed without expanding SBA rules that define small businesses to include majority ownership by venture capital groups, or excluding small businesses from the efforts to stimulate economic activity:

1. Maintain SBA rules that require majority-ownership by individuals.

2. Permit agencies some discretion to provide additional capital where needed. Capital-intensive programs like some at NIH could be enhanced by permitting the sponsoring agency to spend some of their SBIR funding for providing necessary facilities or materials to SBIR-awardees, without overinflating the individual awards. Alternatively, the agencies could be allowed some discretion in providing additional amounts (in excess of the base award) for materials and facilities that may be necessary for successful execution of the project. Oversight would be key in this case, to ensure that SBIR expenditures are maintained to support SBIR efforts, for instance that residual materials or equipment be retained for future use by SBIR projects.

3. Further, if there is concern that the costs associated with administering a large number of small awards is unfunded, a reasonable percentage of the SBIR Base Allocation can be specifically earmarked for this purpose, allaying agencies' resistance to potential increases to the percentages for SBIR Base Allocations.

Finally, I wish to argue that America is not at a lack for innovative ideas. If agencies are failing to receive a sufficient quantity of worthy proposals, the solution must lie in publicizing the availability of these programs where they will most garner an appropriate response.

This nation has a shamefully high number of unemployed and underemployed PhDs from across the spectrum of fields, who could provide the innovation we so desperately need to rise above our current crises. We have done an abysmal job of employing these valuable individuals in our institutions of higher learning. There are too few positions available for would-be professors, leaving thousands without an outlet for their creativity. Why not tap this resource? Improving and expanding SBIR, without losing its focus on innovation, is the first step.

Jonathan G. Secora Pearl, PhD, President
Perceptral LLC; Racine, Wisconsin
http://www.perceptral.com/
_________________________________________

Comments anyone?

If you'd like to have your opinion included here, send me a well constructed essay (please try to keep it below 750 words) and I'll consider posting it.

[In one of our advocacy conference calls a gentleman from Boston spoke quite eloquently about why eligibility of VC controled companies would be a good idea. I didn't get his name. If you know who that was, please have him contact me.]
.