(Updated with the current bills)
The SBIR Reauthorization issues (highlighted in red), with current provisions and annotation of what the 2009 Senate (S.1233) and House (H.R.2965) bills are proposing, are below. My personal recommendations (highlighted in blue), based upon over twenty years on involvement with the Programs, both as an executive officer of companies that competed for and won awards, and as a consultant, are also provided.Note: These recommendations I've made are subject to revision as I am exposed to different points of view and the realities of compromise. I am soley responsible for this content and am beholden to no special interest.
a. The current Allocation Base (agency R&D budget allocation percentage) is 2.5% for SBIR and 0.3% for STTR.
b. The Senate bill proposes increasing the SBIR program allocation from 2.5% to 3.5%, spread out over ten years, and increasing the STTR program allocation from.0.3% to 0.6% spread out over six years. The House bill proposes not changing the Allocation Base.
c. ISSUES: The issues are (1) whether the Allocation Base should be increased, (2) how much it should be increased, and (3) over what time period and at what rate the increases should take effect.
d. RECOMMENDATIONS:
(1) The Allocation Base should be increased for both SBIR and STTR.
(2) The Allocation Base for SBIR should be increased to (at least) 3.5%, but up to 5% for would be preferred. The STTR Allocation Base should be increased to 0.6%
(3) The increases should be as quickly as possible (for maximum stimulus effect), but at least 0.25% per year.
a. The current guidelines specify caps of $100,000 for Phase I and $750,000 for Phase II for both SBIR and STTR. Awards at lesser levels may be made. Agencies may make awards in excess of these amounts but must provide a justification for each such case in their annual report to the SBA.
b. The Senate bill recommends increasing the award guidelines for SBIR and STTR awards to $150,000 for Phase I and to $1 million for Phase II. The House bill recommended increasing the caps to $250,000 for Phase I and $2 million for Phase II.
c. ISSUES: The issues are (1) should the caps be increased, (2) to what level should they be increased, and (3) whether (or under what conditions) awards in excess of the caps would be permitted.
(1) The Funding caps should be raised for both Phase I and Phase II for both SBIR and STTR.
(2) Phase I should be capped at $150,000 (a 50% increase). Phase II at $1 million (a 33% increase).
(3) Funding above the cap from the SBIR Allocation Base would not be permitted. The project could be funded at a higher level only if the additional funds were encumbered from another source.
a. The current guidelines specify that the process of project funding include both a Phase I (demonstration of feasibility) and a Phase II (proof of concept) with Phase I to be successfully completed before Phase II can be awarded. Some agencies allow Fast-Track proposals to be submitted, where both phases are proposed together, but Phase II's award is dependent upon successful completion of Phase I milestones.
b. The House bill specifies that Phase I could be effectively bypassed with Phase II being awarded simultaneously with Phase I in "appropriate cases". The Senate bill does not make this recommendation.
c. ISSUES: The issues are (1) should Phase I be permitted to be bypassed, and (2) if so, under what conditions.
d. RECOMMENDATION: Do not permit a bypassing of Phase I under any circumstances. Fast-Track should be better defined (allowing simultaneous proposals, but staged funding).
a. This is a very complex and complicated issue and, certainly, the most contentious. Current SBIR and STTR award eligibility rules specify that the small business ownership must be in majority by individuals, not entities.
b. The Senate bill provides that small businesses that are majority owned and controlled by multiple (with a rather complex definition of what that means) venture capital firms would be eligible for up to 18 percent of the SBIR funds at NIH and up to 8 percent of the funds at the other agencies. The House bill defines the situation differently, and does not limit the percentage of funds that would be available for such awards.
c. ISSUES: The issues are (1) whether eligibility should be extended to majority ownership by entities, (2) whether only certain types of entities should be eligible, (3) whether multiple entities are considered differently than single entities, (4) whether certain agencies should have different eligibility rules than others, and (5) whether all or part of the agency’s SBIR or STTR Allocation Base would be subject to changed eligibility rules.
(1) My primary recommendation is not to change the eligibility rules for ownership. But, sometimes compromise is necessary to make progress, so I will say that eligibility may be extended to majority ownership by some equity investors for some projects.
(2) Only those entities classified as bona-fide Angel or Venture Capital Investors would be eligible for this. Ownership by large businesses or universities would not.
(3) When multiple entities are involved, rules should be specified to qualify the eligibility.
(4) As the Biotech world has a much greater need for capital infusion than other sectors, the NIH may allocate a greater portion of the Allocation base to these projects than the other agencies, but the rules would be the same.
(5) Only a part of the Allocation Base could be subject to the revised eligibility rules. The levels of 18% for NIH and 8% for the other agencies are acceptable.
e. ISSUE: An ancillary and related issue is whether the size standard for a small business should be changed for SBIR and STTR eligibility. Current provisions set a size limit of 500 employees. Neither the Senate nor the House bill address this aspect of eligibility.
f. RECOMMENDATION: The size standard of 500 employees is too large. This should be reduced. A level of 250 employees is more reasonable.
a. Current provisions of the SBIR legislation do not require agencies to provide funds to support Phase III commercialization. Several of the agencies have independently provided such funds, but the nature and level of such support varies significantly. The intent is to help companies develop and commercialize their technologies into products and solutions for use by both the agencies which funded the projects and for dual-use by the private sector.
b. Both the Senate and House bills provide for some levels of commercialization support. Both also include some special provisions for priority to certain industries and technologies.
c. ISSUES: The issues include (1) whether such support will be required, (2) the level of funding to be allocated, (3) the nature of such support (actual agency funding vs. arranging partnerships), and (4) whether specific technologies and/or industries shall be given priority for awards.
(1) Support for Phase III commercialization should be required of all agencies.
(2) The funding levels should be as was specified in S.1233.
(3) The nature of commercialization support should be appropriate to the agency’s mission. The provisions of S.1233 are acceptable.
(4) Specific technologies and industries should NOT be specified in the legislation. Each agency should be able to set and modify such priorities per their mission and current conditions without restriction.
The remaining issues are relatively less important and are much less contentious. Both the Senate and House bills provide support for these, other than the provision for administrative support which is not addressed in the House bill. Provisions should be included in any reauthorization legislation to deal with all of these areas.
6. Should the Federal and State Technology (FAST) and Rural Outreach projects be extended?
RECOMMENDATION: YES! Extend both programs.
7. Should the Office of Technology at the SBA be strengthened so that it has the authority and resources to carry out its duty to oversee the SBIR and STTR programs across the government?
RECOMMENDATION: YES!
NOTE: The House Bill has been amended to move the oversight of SBIR to the White House Office of Science and Technology Policy, and administration to NIST in the Department of Commerce. While I oppose this move, oversight and administration are secondary to ensuring SBIR effectiveness as a small business program that enables seed funding of innovations proposed by true start-up companies.
8. Should the data collection and reporting requirements for the SBIR and STTR programs be improved and streamlined?
9. Should the agencies be permitted to use part of their Allocation Base for administering the Programs?
RECOMMENDATION: YES! Define an appropriate amount. This is essential to speed up the process of grant and contract administration, and effect the ability of the Program to truly be a small business stimulus.
And, finally,
10. How long should the SBIR and STTR Programs be extended before reauthorization would again be required?
RECOMMENDATION: Extend the Programs for a period of at least ten (10) years. It is unrealistic to expect that any results of any changes would be available for analysis in the two years specified by the House bill.
