Squabbling Over VC Loophole Leaves SBIR Program in Limbo

By Karl Thiel
BioWorld Today Columnist
Forget health care reform. Forget even a regulatory pathway for follow-on biologics. Congress can’t even get it together to reauthorize a program that is widely popular, largely uncontroversial, and that most people would agree has been a rousing success.

I’m talking about the Small Business Innovation Research (SBIR) grant program and its companion, the Small Business Technology Transfer (STTR) program. These officially expired in September 2008, and they have been living hand-to-mouth ever since on a series of continuing resolutions. The third such resolution, extending the program through Sept. 30, was passed at the end of July just before the program dried up for good.

It’s not that there is no political will to reauthorize these programs, but rather that the details of how 11 government agencies spend 2.5 percent of their external research budgets (or maybe 3.5 percent if the Senate gets its way) have led to a remarkable level of political in-fighting, lobbying, counter-lobbying, and dissension.

Two reauthorization bills did pass the House and Senate, respectively, in July, but some stark differences remain. When it became clear that there was no hope of ironing out the differences before the August recess, Congress punted once more. But luckily, that means that if you haven’t taken a side, there’s still time to get involved before debate resumes, hopefully in early September.

A VC-based Division
The issue getting the most attention is the extent to which venture capital-backed companies are allowed to participate in the program. The House bill would give them largely unfettered access, while the Senate version would allow NIH to give only 18 percent of its SBIR funds to companies that are majority owned by VCs (and other agencies would be limited to just 8 percent). But there are some other differences that have gotten less attention.

The Biotechnology Industry Organization (BIO) loves the House version. Loves it. And it’s easy to see why. It makes the SBIR program more amenable to its members. Current Phase I SBIR grants for $100,000 don’t really go a long way in the biotechnology biz, whereas expanded Phase II grants that would rise to $2 million or more under the House bill could make a real difference to a small company. Most biotech companies don’t get far without venture backing, so limiting the participation of majority VCowned companies is tantamount to limiting the participation of biotech…or at least that’s what BIO argues.

Not surprisingly, the National Venture Capital Association (NVCA) is also gleeful about the House bill, since it would give them access to the SBIR cash pool for the first time since 2003, when the Small Business Administration, as a result of an administrative ruling, determined that majority VC-owned companies weren’t really small businesses.

In the opposite corner, we have representatives of small business like the Small Business Technology Council. They prefer the Senate bill, pretty much for all the same reasons. The SBIR program, particularly as it would be structured under the House bill, is a competition over slices of a finite pie, and larger grants mean fewer grants. More grants to VCbacked companies mean fewer grants to non-VC-backed companies. It’s a zero sum game that they fear losing.

It’s easy to detect the taint of BIO and NVCA lobbying in the House bill, and its opponents are quick to point out that the bill’s sponsor, Rep. Nydia Velázquez (D-NY), who chairs the House Small Business Committee, wouldn’t allow any dissenting debate on the expanded role of VCs while the legislation was being considered. But as Otto Von Bismarck once said, laws are like sausages – it’s better not to see them being made. It’s still possible that the resulting bill will improve the SBIR program.

The Regional Undertones
Possible, but unlikely. At best it will probably have some unfortunate regional consequences. More awards going to VC-owned companies mean more awards going to California, New York, and Massachusetts, and fewer to the South and Midwest, which is why small business associations in these areas are particularly incensed about the proposed changes. (And perhaps why Velázquez is particularly receptive to the expanded role of VCs in the program.)

Keep in mind that VC-backed companies can and do already get SBIR grants – it’s only majority VC owned companies that can’t participate (and the Senate bill would give some more wiggle room on this). The reasoning that barred such companies from the program in 2003 still holds – they’re not really small businesses. Congress can change the law, but in doing so they’ll also be going away from the original intent of the program.

Even so, just opening the program to more VC-backed companies probably wouldn’t be such a big deal in isolation. After all, that was how the program operated until 2003, and if the small business groups opposed to the House bill have data showing that the program has improved since the VC-backed scoundrels were thrown out, they’re not doing a good job publicizing it.

Combining this with other changes, however, really could make life tougher for inchoate businesses. In particular, the House bill allows agencies to skip over Phase I grants and go straight to Phase II, the awards for which would be increased to $2 million or more from $750,000 today. That suddenly makes the program a lot more like another source of venture capital. One inflated Phase II grant suddenly displaces 20 current Phase I grants.

There are very few capital sources equivalent to a Phase I SBIR grant, which is intended to fund early feasibility or proof-of-concept work. If the government gives up on these grants, or greatly reduces them in the interest if funding more advanced work, a lot of early-stage ideas may never get off the ground.

What’s particularly troubling is that it comes at a time when technology business incubators around the country are struggling and VCs are increasingly less interested in funding early-stage work themselves. VCs may love the idea of mitigating their portfolio risk with a little extra government money, but they may at the same time be contributing to the demise of one of the few real sources of capital for vetting new ideas at their earliest stages – ideas that they may thus never see come through their doors.

Karl Thiel, an analyst for the Motley Fool, can be reached at kthiel@qwest.net. His opinions do not necessarily reflect those of BioWorld Today.

Dear SBIR Insider,

This is an abbreviated SBIR Insider to let you know that the House just passed the Senate’s Continuing Resolution (CR), S.1513 that keeps the SBIR program, as well as a few other SBA programs running (as is) through September 30, 2009. The CR is good in some ways and bad in others as you will see.

SBIR SAVED FROM LAPSING BY AN 11TH HOUR CR

The House and Senate have been meeting regularly in conference to reconcile their vastly different SBIR reauthorization bills into one cohesive SBIR reauthorization before the deadline date of July 31, 2009 when the program’s current CR will expire. Although significant progress has been made, there’s still a good deal of work to be done and it was simply not possible to reconcile their views before the deadline.

In the event that the SBIR bill could not be passed before the deadline, Senator Marry Landrieu (D-LA), chair of the Senate Committee on Small Business & Entrepreneurship, along with her ranking member, Olympia Snowe (R-ME) sponsored a bill (S.1513) to issue a short continuing resolution for SBIR and a few other SBA programs through September 30, 2009. The bill passed the Senate by Unanimous Consent on July 24 and was sent to the House.

Due to some contentious issues going on in the House (nothing to do with SBIR), the vote was postponed from Tuesday but was passed Wednesday by voice vote. Nothing has been easy in this SBIR reauthorization exercise.

The Good News - Negotiations will continue at staff level while the congress is on their August break (August 7 - September 8), and with this extra time to work the issues, it is hoped that a better reauthorization can be reached and passed by Congress when they return. In the mean time the program continues. The high profile of SBIR reauthorization has promoted (to some degree) overall congressional awareness of the importance and success of the program, so it is unlikely that SBIR will go away, but it could change immensely, perhaps beyond recognition. We’ll discuss that in the next issue.

The Bad News - The uncertainties of the SBIR program future, its intricacies and demands, are causing a great deal of hardship on the agencies who are struggling to support the program, not to mention plan for whatever changes Congress has in mind. This also affects the small businesses who wonder if funding will be available, and if so, under what circumstances (keeping in mind that all of the awards are subject to the availability of funding).

During the congressional recess (aka “district work period”) the senators and representatives will visit their districts and may be available to hear your input, either one-on-one or at a town hall. In our next issue (coming soon), we will highlight the areas of difference between the two reauthorization bills, and you can decide if you want to champion any issues that affect you and your organization.

STTR PARTNERING EXPERIMENT PART II

You may remember our DoD STTR Partnering Experiment earlier this year that allowed Universities, FFRDCs, non profits and small businesses to look for an STTR partner for a particular DoD STTR topic. We had over 300 topic registrations last time and we will try it again for the DoD FY-09B STTR and the current NASA STTR. I’m currently behind the power curve on this project but you should be able to access it from our SBIR Gateway by Monday, August 3, 2009 (hopefully sooner over the weekend).

Here’s how it works:

1. Universities, FFRDCs, small businesses and other non-profit research entities fill out the form and select the STTR topics of partnering interest.

2. A database will be created that associates the topics with the interested organizations as described above.

3. Interested parties can search the topic database to see what organizations may be interested in partnering on specific topics.

4. Participating organization’s contact information will be presented as a result of the search.

As with all Zyn’s SBIR Gateway features, it is an independent effort (not supported by any government agency) and is a no charge service in the hopes of helping you build successful SBIR/STTR relationships. You’ll find the project at http://www.zyn.com/sbir

THE 2009 NATIONAL SBIR BEYOND PHASE II CONFERENCE AND TECHNOLOGY SHOWCASE

This Advanced SBIR Conference will take place September 21 - 24, at the Marriott World Center Hotel and Convention Center in Orlando, Fl. This popular event is hosted by the Department of Defense with participation of other government SBIR agencies. A primary goal is to provide a forum to transition SBIR Phase II technology to government and private sector markets. Many of the DoD Prime contractors attend seeking the innovation they need in their supply chain.

The conference will feature One-on-One technology matchmaking, Prime/Large Company Confirmed Participants, exhibits by phase II companies, large businesses, SBIR support companies, and industry service providers. There will also be educational and plenary sessions of interest to SBIR participants.

We hear the advanced registration discount has been extended through August 15, 2009. Get all the details at https://www.beyondphaseii.com or contact Andy Talbert at conference@esncc.com

The 2009 FALL NATIONAL SBIR CONFERENCE - RENO, NV After an absence of almost a year, the National SBIR conference returns! This year’s Fall National SBIR conference is going to be held November 2 - 5 in Reno, NV and will have a great variety of sessions of interest to beginners, intermediate and advanced SBIR participants. All of the SBIR agencies participate in these national SBIR conferences and it is a great opportunity to network one-on-one with SBIR program managers, and potential partners from universities, other small businesses and federal laboratories.

For complete information visit their web site at http://www.unr.edu/sbir-sttr2009/

That’s all for this quickie edition of the SBIR Insider.

Sincerely,

Rick

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

The renamed “Intelligence Battle Lab” along with other organizations on Fort Huachuca will be hosting their Annual Requirements Days 22 - 23 July.
This will kick-off the BL-I Request for Proposals.

Really look forward to a chance for MU and LW to take part in this 2 day Process:

The purpose of this event is to outline for industry, academia, and the scientific community the requirements for Intelligence, Surveillance, and Reconnaissance and Cyber operations support to the warfighter. The intelligence community is looking for cutting edge ideas and capabilities to help solve the challenges faced by the Army in an increasingly complex operational environment. Attendance at this event will provide you with the opportunity to hear the requirements first-hand, to take a tour of Fort Huachuca and discover exactly what capabilities and support Fort Huachuca provides to the warfighter, and it will also give you the opportunity to have on-site, private meetings with the SME’s (Subject Matter Experts) in the event you have questions regarding the requirements. White Papers outlining your solutions will be requested in the months following Requirement Days. This event will be unclassified.

Here is the Website along with some additional information.
https://www.ncsi.com/huachucards09/index.shtml

Bruce A. Sullivan
Battle Command Battle Lab-H Liaison
University of Missouri- Columbia
Office: 573-884-9445
GOV Cell: 520-251-8785
Cell: 417-658-9400
TechGuard Security

http://bits.blogs.nytimes.com/2009/04/01/sales-of-start-ups-plummet-along-with-prices/

New York Times report on the activity of Venture Capital Firms in the US

THE CENTER FOR EMERGING TECHNOLOGIES 

Invites you to participate in an Emerson Extended Technology Entrepreneur Education Program (EETEEP) 

EETEEP events are from 2 to 5 pm followed by a networking Happy Hour. Unless otherwise noted, these events are held on Wednesdays from 2 to 5 pm followed by a networking Happy Hour. Each of these afternoon events will be presented in segments by teams of experts with sufficient time for questions.

For more information, please contact Bill Simon at 615-6908 or bsimon@emergingtech.org. Registrations may be made by contacting Heather Beaven at 615-6915 or CET_Programs@emergingtech.org. (Spring 2009 Schedule pdf)

April 1, 2009

Where is the Money? (EETEEP) Federal, State and City sources of grants, loans, tax credits and other incentives.
(Event Flyer pdf)

May 13, 2009

Valuation (EETEEP) Review of valuation of early stage tech-companies including histories of benchmarking, deals done, methodologies and a look into the future.

June 3, 2009

Leadership (EETEEP) Defining the vision, goal setting, communications, position assessment, motivation, progress assessment, financial planning, ethics, dealing with poor performance, team building and others.

June 17, 2009

The Latest News in Intellectual Property and Licensing (EETEEP) The most recent changes in IP and licensing from court cases and administrative rulings.

March 18, 2009

House Votes to Reauthorizes Small Business Programs by Kathryn A. Wolfe, CQ Staff

The House Tuesday passed a bill to extend certain expiring small business programs through July 31.

Passed by voice vote, the bill (HR 1541) would reauthorize several Small Business Administration programs set to expire at the end of the week, including the Small Business Innovation Research program, which seeks to involve small high-tech businesses in federal research activities and help commercialize cutting-edge high-tech research.

Nydia M. Velazquez, D-N.Y., chairwoman of the House Small Business Committee, said the extension will give lawmakers time to work on a more extensive overhaul of SBA programs.

“Extending these programs is important but we must not lose sight of a larger goal. Later this Congress we will pass legislation to modernize the SBA and change the agency’s culture. In these difficult economic times we will need an SBA that can respond effectively. This will require extensive reforms,” she said.

David Wu, chairman of the House Science and Technology Subcommittee on Technology and Innovation, said the research program and others need an update.

“Moving forward if we are to continue realizing the full value of SBIR we must authorize them with changes that reflect the evolving innovation environment. It must be an innovation program as well as a jobs and small business program,” Wu said.

He noted that in particular lawmakers must find a way to resolve an issue that, in part, led to problems passing a standalone reauthorization last year: to what extent venture capital-backed high-tech firms should be able to participate in grant awards.

Small businesses not backed by venture capital have argued that allowing them access to grants would crowd out the very startup businesses the grant programs are intended to help flourish.

Beyond SBIR, the extension would reauthorize all SBA programs set to expire at the end of the week, including:

• the Federal and State Technology Partnership Program;

• the SBA’s gift acceptance and co-sponsorship authority;

• the Paul D. Coverdell Drug-Free Workplace Program;

• the HUBZone Program; and

• the National Women’s Business Council.

From: http://grants.nih.gov/grants/funding/sbirsttr_news.htm

Inconceivable? Unconscionable? Inexcusable? Which word best conveys what is happening to the Small Business Innovation Research (SBIR) Program? Perhaps all of them. The SBIR program will expire March 20 unless Congress acts before that date.

No SBIR-related legislation has been considered by either chamber of Congress since the current session began in early January, and without action by Congress by March 20, the program expires. SBIR could be attached to some other bill before the deadline, but there is no indication at this point that that is going to occur.

It is inconceivable that one of the most successful federal programs to support the commercialization of innovation will be allowed to expire at the same time the country is desperately seeking investments to prepare the nation for the next economy. As SSTI has reported, significant portions of the Recovery Act are focused on investing in the future. Green technologies. Alternative energy. Information and communication technologies. Smart tech. SBIR should play an important role in that - just as it has supported the early development of a number of important technologies and tens of thousands of companies for the past 25 years.

It is unconscionable and inexcusable to think that a federal program would be allowed to expire that has proven to be effective. In addition to the hundreds of anecdotal success stories and profit statements from small businesses, a multimillion dollar independent assessment conducted by the National Academies of Science found SBIR to be effective.

The battle over inclusion of venture-backed biotech firms in SBIR derailed passage of an SBIR reauthorization bill last year. Both proponents and opponents were unwilling to compromise, and it seems both sides will lose now.

SBIR has proven to be a valuable screening tool for venture capitalists across many disciplines, including biotech. Compared to other small businesses, most SBIR winners are worthy of a closer look when prospecting for firms to add to an equity portfolio. Is VC eligibility going to prove to be the deal-breaker for SBIR’s continued existence? 

We’ve seen from past history that some agencies are not likely to continue to maintain SBIR programs unless it is mandatory. SBIR reauthorization has to be passed to make that happen in all 11 research-intensive agencies. Several Phase I deadlines are looming and for other agencies proposal review is underway for both Phase I and Phase II. Will these processes end abruptly? What will happen to those companies that have already won Phase Is and are waiting decisions on their Phase IIs? Forced layoffs and bankruptcies of promising tech firms does not seem to be the wisest strategy to get us out of the current economic quagmire.

SBIR through its competitive application process and market-driven need for the resulting innovations to be commercialized, costs less than $ 3 billion a year and supports thousands of small businesses across the country and several thousands more high-wage jobs for some of the nation’s smartest entrepreneurs.

This one seems pretty simple. SBIR reauthorization should be part of the economy’s solution.

From SSTI article: http://www.ssti.org/Digest/2009/031109.htm#story3

Dear Small Business Research Community,
As you are aware, on February 17, President Obama signed the American Recovery and Reinvestment Act of 2009 (Recovery Act). As part of the Recovery Act, NIH has designated at least $200 million in FYs 2009 - 2010 for a new initiative called the NIH Challenge Grants in Health and Science Research, to fund 200 or more grants (contingent upon the submission of a sufficient number of scientifically meritorious applications). This new program will support research on Challenge Topics which address specific scientific and health research challenges in biomedical and behavioral research that will benefit from significant 2-year jumpstart funds. Challenge Areas, defined by the NIH, focus on specific knowledge gaps, scientific opportunities, new technologies, data generation, or research methods that would benefit from an influx of funds to quickly advance the area in significant ways. The research in these areas should have a high impact in biomedical or behavioral science and/or public health.
Small businesses are eligible to apply for grants under this program.
I encourage you to explore details of this opportunity. Note: The due date is April 27, 2009.
See http://grants.nih.gov/grants/funding/challenge_award/index.htm
On a related note…..
I have received scores of inquiries asking about the role of small businesses and SBIR/STTR relative to the Recovery Act, and I hope that I can clarify some of the information (and mis-information) that appears to be generating the questions.
NIH appreciates the opportunity afforded by the Recovery Act to provide economic stimulus to the nation while furthering our mission to uncover new knowledge that will lead to better health for everyone. Among the goals of the Recovery Act are to preserve and create jobs, promote economic recovery, and provide investments to increase economic efficiency by spurring technological advances in science and health.
Although the Act provides that the funds to NIH not be subject to the SBIR/STTR set-aside requirement, small businesses ARE ELIGIBLE to apply for Recovery Act NIH funding opportunities (e.g., Challenge Grants, administrative supplements, competitive supplements).
I encourage you to subscribe to the Weekly NIH Guide for Grants and Contracts update to stay apprised of these opportunities that will be released in the upcoming weeks.
You can also Sign up to receive NIH and the American Recovery & Reinvestment Act e-mail updates.
Bottom Line: In addition to opportunities to access the available set-aside dollars (est. $650 million) for NIH SBIR/STTR awards, you have opportunities to access Recovery Act funding under other new programs/initiatives (e.g., Challenge Grants (RC1), administrative supplements, competitive supplements) that NIH is/will soon be offering.
I sincerely hope you consider applying to those funding opportunities that you deem are appropriate and relevant to your company’s core capabilities/strategies. I encourage you to focus your energies on preparing a strong application that aligns with the goals of the Recovery Act and the mission of NIH. Each funding opportunity includes a program contact within the Institute/Center sponsoring the initiative. These individuals welcome the opportunity to answer questions from potential applicants.
Best regards,
Jo Anne
PS: Don’t forget to get registered in Grants.gov and eRA Commons
PPS: Registration is now open for 11th Annual NIH SBIR/STTR Conference (June 30-July 1, 2009 in NE)
http://nbdc.unomaha.edu/SBIR/NIHconference/home.htm
Jo Anne Goodnight | NIH SBIR/STTR Program Coordinator; Director, Division of Special Programs |
OEP, OER, NIH, DHHS | Phone: 301-435-2688 | Fax: 301-489-0146 | JG128w@nih.gov
Web Pages of Interest:
• Small Business Research Funding Opportunities (SBIR/STTR Solicitations)
• NIH Pipeline to Partnerships (Showcase of NIH SBIR/STTR and NIH Licensed Technologies)
SBIR/STTR Collaboration Opportunities and Research Partnerships

This seminar hosted by Center for Emerging Technologies will focus on providing the descriptions of various federal and state tax credit programs as well as business development incentives offered by the City of St. Louis.  Our presenters will also discuss SBIR/SSTR contracts and grants, as well as partnering opportunities with Missouri Institutions such as the Leonard Wood Institute.   Learn how small and mid-size companies can qualify for and recover Federal R&D Tax Credits which could potentially offset your tax liability on a dollar-for-dollar basis and be carried forward for 20 years.   Find out what state and local programs you are eligible for and where to start and locate your business in order to maximize your benefits.   For current businesses, find out how to earn credits right now for large capital investments and new full-time positions.  For entrepreneurs looking to start a business find out how to signup for tax credit programs now that will earn you income tax credits as your company grows.  Many of these tax benefits are transferable.   More info here: Link to pdf flyer  

DATE/TIME: Wednesday, April 1, 2009:  2:00 – 5:00 PM 

PLACE: Center for Emerging Technologies, 4041 Forest Park Avenue, St. Louis, MO 63108 

PARKING: Available on Forest Park Ave. 

REGISTRATION: Registration fees for this event are $30. Cash or check only, we are unable to process credit cards.  Please register by submitting your contact information through any one of the following sources: Fax: (314) 615-6901, Phone: (314) 615-6915, E-Mail:  CET_programs@emergingtech.org, or Mail to the address above.

The National Council of Entrepreneurial Tech Transfer (NCET2) has created a new website to SHOWCASE researchers and their research to grant providers, entrepreneurs, SBIRs/STTRs, other researchers, VCs, the Global 1000, angel investors, and small business research companies in order to help the researchers commercialize their work.

Go to http://researchers.ncet2backoffice.org/ for more information and to provide a profile about yourself and your research. 

They will have the first live Virtual Online Poster Sessions on April 8, 1pm-2:30pm. They will select the most exciting 10-15 research profiles from those submitted over the next few weeks to invite the researchers to make powerpoint presentations on the April 8 poster sessions webinar.