SBIR Program Diversity and Assessment Challenges Report of a Symposium (2004) / Chapter Skim
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I Introduction
I Introduction
Pages 3-36
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2The nature of this charge was emphasized at the conference launching the study by Committee Chairman, Jacques Gansler, as well as by Kenneth Flamm and James Turner. See the Proceedings section of this volume for summaries of their remarks.
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Over the last twenty years, it has been carefully scrutinized, leading to the discovery of some methodological flaws, namely making dynamic inferences from static comparisons, confusing gross and net job creation, and admitting biases from chosen regression techniques.
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When there was no immediate response to these efforts, small businesses took their case to Congress and higher levels of the Executive branch.8 In response, a White House Conference on Small Business was held in January 1980 under the Carter Administration. The conference's recommendation to proceed with a program for small business innovation research was grounded in: · Evidence that a declining share of federal R&D was going to small busi nesses; · Broader difficulties among small businesses in raising capital in a period of historically high interest rates; and · Research suggesting that small businesses were fertile sources of job creation.
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Over the decade of the 1990s, the U.S. Census reports that small business net job creation fluctuated between 60 and 80 percent.c aFor an account of the growing importance of the small firm in employment and innovation, see Zoltan J
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This phase normally does not involve SBIR funds, but is the stage at which grant recipients should be obtaining additional funds ei ther from a procurement program at the agency that made the award, from private investors, or from the capital markets. The objective of this phase is to move the technology to the prototype stage and into the mar ketplace.
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For structural and institutional reasons, small businesses may have difficulty accessing the capi tal markets, and this could be a handicap in commercializing their innova 13See Reid Cramer, "Patterns of Firm Participation in the Small Business Innovation Research Program in Southwestern and Mountain States," in National Research Council, The Small Business Innovation Research Program: An Assessment of the Department of Defense Fast Track Initiative, C Wessner, ed., Washington, D.C.: National Academy Press, 2000.
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See also Robert Archibald and David Finifter, "Evaluation of the Department of De fense Small Business Innovation Research Program and the Fast Track Initiative: A Balanced Approach," in National Research Council, SBIR: An Assessment of the Department of De fense Fast Track Initiative, op.
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21See Robert Archibald and David Finifter, "Evaluation of the Department of Defense Small Business Innovation Research Program and the Fast Track Initiative: A Balanced Approach," op.
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29See National Research Council, The Small Business Innovation Research Program: Challenges and Opportunities, op.
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31See National Research Council, The Small Business Innovation Research Program: An Assessment of the Department of Defense Fast Track Initiative, op.
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37For a description of NRC program assessment, see National Research Council, Capitalizing on Science, Technology, and Innovation: An Assessment of the Small Business Innovation Research Program, Project Methodology, forthcoming. The NRC analysis will draw on existing reports and data sources, as well as from newly commissioned surveys of award recipients and program managers, and extensive case studies.
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Small Business Innovation Program. See EURAB Advice 2001-2002, Chapter 5, "Improving Innovation." 41See, for example, Richard Nelson (ed.)
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Washington, D.C.: Department of Commerce/National Institute of Standards and Technology, 2000. 45 Joshua Lerner, "Evaluating the Small Business Innovation Research Program: A Literature Review," in National Research Council, The Small Business Innovation Research Program: An Assessment of the Department of Defense Fast Track Initiative, op.
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Recognizing the important role played by these business angels and venture capital firms, academic researchers and others have initiated new research on their impact.49 In this regard, one recent study found that while the ratio of funding provided by venture capital groups to the total funding for R&D has averaged less than 3 percent in recent years, venture capital accounts for about 15 percent of industrial innovations.50 As the figure below shows, within the last decade, the number of venture capital firms that invest primarily in small business has tripled, and their total investments have risen eight-fold.51 As the figure illustrates, the last two years have seen sharp contractions in the venture capital market, especially for new start-ups as low valuations and a contraction in IPO activity concentrated fund managers' attention on existing investments. (See Figure 1.)
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19 Q2 669 4.281 0032 Capital Q1 4.044 647 Q4 720 Venture 4.246 Q3 672 2002 5.980 4.414 Q2 826 6.550 Q1 821 Q4 1000 Economics/National 8.123 Q3 1046 2001 11.312 8.417 Q2 1277 12.949 Q1 1312 Coopers/Venture Q4 1813 26.450 Q3 22.671 1983 Deals 28.489 of 2000 Q2 2178 Waterhouse Q1 2164 Number Price Q4 1916 28.615 13.148 Total Q3 23.729 1458 11.247 1999 SOURCE: Q2 1345 6.626 Q1 921 Q4 1008 contraction. 6.042 Q3 5.381 925 and 1998 Q2 5.859 932 rise 2003.
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This contribution is made more significant in that the government awards address segments of the innovation cycle that private investors often find too risky. Because technology-based firms are a significant source of innovation and competitive advantage for the United States, it is important to improve our understanding of how public-private partnerships policies -- in this case, innovation awards -- can play in encouraging small-firm growth.53 52The authors stress the "limitations inherent in the data and the magnitude of the extrapolations..." and urge that the findings be interpreted with caution.
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Link, "Public/Private Partnerships as a Tool in Support of Industrial R&D: Experiences in the United States," Final Report to the Working Group on Innovations and Technology Policy of the OECD Committee for Scientific and Technology Policy, January 1999. For specific reviews of programs such as SBIR, ATP and SEMATECH, see National Research Council, The Small Business Innovation Research Program: An Assessment of the Department of Defense Fast Track Initiative, op.
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· Competitive Selection Mechanisms: The SBIR program, while relatively large, remains highly competitive.59 Normally, under 15 percent of Phase I candidates are successful. · Shared Cost Commitments: SBIR awards can encourage innovation, le verage company investments, attract other sources of capital, and ensure management commitment because awardees retain control of the intellec tual property.
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INTRODUCTION 23 · Mechanisms for research and capitalization that support cooperation be tween the academic, industry, and government sectors; · A strong, diverse national portfolio of science and technology invest ments; · A favorable environment for capitalizing characterized by strong incen tives for innovation and free movement of ideas and people; and · A skilled, flexible science and engineering human resource base. The report further noted that nearly all the successful examples of capitalization examined depended on the collaboration of scientists and engineers who had diverse perspectives, time frames, and talents, drawn from the whole web of public, private, and educational institutions.
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cit., and National Research Council, The Small Business Innovation Research: An Assessment of the Department of De fense Fast Track Initiative, op.
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See a summary of their comments in the Proceedings section of this volume. 65See National Research Council, The Small Business Innovation Research Program: An Assess ment of the Department of Defense Fast Track Initiative, op.
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It attracts significantly more new, first-time applicants to the program. See National Research Council, The Small Business Innovation Research Program: An Assessment of the Department of Defense Fast Track Initiative, op.
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cit., and National Research Council, The Small Business Innovation Research Program: An Assessment of the Department of Defense Fast Track Initiative, op.
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Participants at this conference discussed the diverse goals of SBIR awards and highlighted key issues to be addressed and the challenges faced by the NRC's assessment of the SBIR program. The presentations by senior officials from the participating agencies drew attention to the administrative flexibility and operational diversity that characterizes this innovation program.
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The schematic in Figure 3 depicts this linear model of innovation.82 While it undoubtedly has conceptual value, it substantially simplifies reality. Indeed, as the National Science Foundation's Joseph Bordogna observed, innovation almost never takes place through a protracted linear progression from research to development to market.
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As noted at the conference, the need to deal with operational complexity is particularly acute in larger and more diverse agencies. To illustrate the need for flexibility in an environment characterized by diversity, Jo Anne Goodnight of the National Institutes of Health pointed out in her conference presentation that time and funding requirements to develop new products can vary significantly among firms in different technology sectors.
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While SBIR's overall three-phase approach is designed to implement national policy goals across federal agencies and sub-agencies, the program must be implemented taking into account the multiple agency goals and operational requirements to meet their diverse objectives. Capturing this point, David Finifter of the College of William and Mary observed that "one must understand programs at the agency level in order to understand the policy effects of the program at the national level." Operational Diversity SBIR's operational diversity reflects its adaptation to the non-linear realities of science, technology, and agency practice.
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Rather than limiting ideas to those that can be conducted under prescribed budgets and timelines, this latitude allows companies to propose research and development in fields that have the most commercial promise. In the context of the current assessment, the presence of such operational diversity among agencies in program implementation provides opportunities for identifying best practices -- some of which might be replicated in other contexts.88 At the same time, recognition of the diversity of the program's goals and administration cautions against a "one-size-fits-all" approach to a complex program that is focused on a critical phase of the innovation process.
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Measuring Indirect Impacts The indirect effects of SBIR awards are also difficult to measure and assess. Rosalie Ruegg of TIA Consulting suggested, however, that evaluation techniques, such as those developed for the assessment of NIST's Advanced Technology Program, can help measure these impacts: She cited newly developed econometric techniques could help gauge the impact of halo effects.
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Jon Baron of the Coalition for Evidence Based Policy noted that SBIR's reputation for accurately gauging the technical quality and commercial potential of a proposal is key to an award's usefulness as a signal to capital markets. Linda Powers of Toucan Capital observed that long time lags in program award cycles could be fatal for small firms facing capital shortages: "The reason why so many companies die trying to cross the Valley of Death," she noted, "is that it is so wide and takes companies so long to cross it." She noted that firms can ill-afford to spend long periods waiting for grant cycles and other agency procedures.
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Program effectiveness is also affected by how well state and local governments leverage SBIR to foster local development. Noting that some states were better at using the SBIR program than others, John Williams of the U.S.
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It is also to consider the broader institutional role that SBIR plays in the United States economy. Given the need for administrative flexibility and the considerable operational diversity of SBIR, highlighted in the conference, an important question to ask is how agency-specific implementation practices support or detract from these broader program goals.89 Carnegie Mellon University's Christina Gabriel noted in this regard that SBIR plays an important role in bringing the contribution of university research to market.
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