An Assessment of the SBIR Program (2008) / Chapter Skim
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From page 12... ...
Congress asked the National Research Council (NRC) to carry out a "comprehensive study of how the SBIR program has stimulated technological innovation and used small businesses to meet Federal research and development needs" and make recommendations on improvements to the program.3 The NRC's charge is, thus, to assess the operation of the SBIR's program and recommend how it can be improved.4 Figure 1-1 Dimensions of the SBIR Program in 2005 Other, 3.3% Total = $1.85 Billion *
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From page 13... ...
The purpose of this introduction is to set out the broader context of the SBIR program. Section 1.1 provides an overview of the program's history and legislative reauthorizations.
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A widespread political appeal in seeing R&D dollars "spread a little more widely than they were being spread before" complemented these policy rationales. Congress responded under the Reagan Administration with the passage of the Small Business Innovation Research Development Act of 1982, which established the SBIR program.12 8 David L
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From page 15... ...
Over the next six years, the set-aside grew to 1.25 percent.13 The legislation authorizing SBIR had two broad goals14: "to more effectively meet R&D needs brought on by the utilization of small innovative firms (which have been consistently shown to be the most prolific sources of new technologies) and To attract private capital to commercialize the results of federal research." The SBIR Reauthorizations of 1992 and 2000 The SBIR program approached reauthorization in 1992 amidst continued worries about the U.S.
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285-97. 22 See Josh Lerner, "The Government as Venture Capitalist: The Long-Term Effects of the SBIR Program," Journal of Business 72(2)
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The response rate was relatively high, at 72 percent.26 It found that the SBIR program at Defense was contributing to the achievement of mission goals -- funding valuable innovative projects -- and that a significant portion of these projects would not have been undertaken in the absence of the SBIR funding.27 The Moore Committee's assessment also found that the Fast Track Program increases the efficiency of the Department of Defense SBIR program by encouraging the commercialization of new technologies and the entry of new firms to the program.28 More broadly, Moore Committee found that SBIR facilitates the development and utilization of human capital and technological knowledge.29 Case studies have shown that the knowledge and human capital generated by the SBIR program has economic value, and can be applied by other firms.30 And, by acting as a "certifier" of promising new technologies, function, SBIR awards encourage further private sector investment in an award winning firms' technology. Based on this and other assessments of public private partnerships, the Moore Committee's Summary Report on U.S.
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From page 19... ...
Properly constructed research and development partnerships can actually elicit "crowding in" phenomena with public investments in R&D providing the needed signals to attract private investment.35" Drawing on these recommendations, the December 2000 legislation mandated the current comprehensive assessment of the nation's SBIR program. This NRC assessment of SBIR is being conducted in three phases.
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From page 20... ...
In describing the program's concept, it also helps to illustrate that the tax system provides a non-invasive means for the federal government to recoup over time its investment in small business innovation research. Successful small businesses create employment, with taxes paid on payroll and revenue which, when taxed, defrays some of the costs of the program to the nation's treasury.
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Within the Department of Defense, in turn, the SBIR program is administered separately by ten different defense organizations, including the Navy, the Air Force, the Army, the Missile Defense Agency, and DARPA. Similarly, there are 23 institutes and centers at National Institutes of Health administering their own SBIR program.
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Recognizing the broad diversity of the program's operations, SBA administers the program with commendable flexibility, allowing the agencies to operate their SBIR programs in ways that best address their unique agency missions and cultures. SBA is charged with reviewing the progress of the program across the federal government.
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From page 23... ...
Incentives found within intermediating institutions like SBIR can play a key role in this regard by aligning the self-interest of venture capitalists, entrepreneurs and other participants with desired national objectives.45 Consciously drawing on this ecosystems approach, the Council of Competitiveness' National Innovation 42 Initiative (NII) report and recommendations address the need for new forms of collaboration, governance and measurement that enable U.S.
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This gap, which has always existed but is becoming wider and deeper, has been referred to as the "Valley of Death." A number of mechanisms are needed to help to span this Valley and should be considered." See Committee on Science, Unlocking Our Future: Toward a New UNEDITED PROOFS
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venture capital markets are so broad and deep that they are invariably able to identify promising entrepreneurial ideas and finance their transition to market. In reality, angel investors and venture capitalists often have quite limited information on new firms.
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However, 82 percent of venture capital in the United States was directed to firms in the later stages of development, with the remaining 18 percent directed to seed and early-stage firms.64 Typically, venture capitalists are also interested in larger investments that are easier to manage than is appropriate for many small innovative technology firms.65 Large venture capital funds are deterred by the costs of meeting due diligence requirements to permit involvement in managing many small investments with remote and uncertain payoffs. The size of the average venture capital deal was $8.3 million in 2006, whereas the average SBIR Phase III project requires $400,000 to $1 million in funds.
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From page 29... ...
Procurement rules and practices often impose high costs and administrative overheads that favor established suppliers. In addition, many acquisition officers have traditionally viewed the SBIR program is a "tax' on their R&D budgets, representing a "loss" of resources and control rather than an opportunity to develop rapid and lower cost solutions to complex procurement challenges.68 This See comments by Mark Redding of Impact Technologies in National Research Council, SBIR and the Phase III 67 Challenge of Commercialization, C
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From page 30... ...
Attracting such interest and support is not automatic and may often depend on personal relations and advocacy skills rather than on the intrinsic quality of the SBIR project. The Federal Role in Addressing Early Stage Financing Gap Although business angels and venture capital firms, along with industry, state governments, and universities provide funding for early stage technology development, the federal role is significant.
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(See Box D.) Funding opportunities under SBIR can thus provide early stage finance for technologies that are not readily supported by venture capitalists, angel investors, or other sources of early-stage funding in the United States.
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Few private sector substitutes exist to the SBIR program. The SBIR contributions are also quite distinct from both bank lending and private equity financing of small technology firms.
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Uptake – The Phase III Challenge. Despite significant commercialization, transitioning products and processes developed under the SBIR program into the procurement process or into the private markets remains a challenge for the program.
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o Advantages for Entrepreneurs Importantly, grant recipients retain rights to intellectual property developed using the SBIR award, with no royalties owed to the government, though the government retains royaltyfree use for a period. As noted previously, being selected to receive SBIR grants also confers a "certification effect" on the small business -- a signal to private investors of the technical and commercial promise of the technology held by the small business.75 In these ways, SBIR enhances the opportunities for entrepreneurs to turn an innovative idea into a marketable product.
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From page 35... ...
Over time, it has participated in the SBIR program of several Federal agencies, including DoD, NASA, Department of Energy, and the National Science Foundation. ACR is now actively engaged in development and marketing of the Silver Fox, a small unmanned aerial vehicle (UAV)
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From page 37... ...
Thirty-four percent of firms that have won SBIR awards from NIH reported having generated at least one patent, and just over half of NIH respondents published at least one peer-reviewed article.79 Projects funded by SBIR grants often involve high technical risk, implying novel and difficult research rather than incremental change. At NSF, for example, of the 54 percent of Phase I projects that did not get a follow-on Phase II, 32 percent did not apply for a Phase II, and of these, half did not do so for technical reasons.
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82 National Research Council, The Small Business Innovation Research Program, An assessment of the Department of 83 Defense Fast Track Initiative, op cit. page 35.
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This assessment of the SBIR program is the first comprehensive assessment ever conducted. Among the departments and agencies charged with managing the bulk of the program's resources.
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The 2006 GAO study indicated that more than 60% of NIH awards from 20022005 were above the SBA guidelines; discussions with NIH staff indicate that no-cost extensions have become a standard feature of the NIH SBIR program. These operational differences reflect the differences in agency objectives, means (or lack thereof)
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In contrast, the non-acquisition agencies do not in the main purchase outputs from their own SBIR programs. These agencies – NIH, NSF, and parts of DoE – are focused on developing technologies for use in the private sector.
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From page 42... ...
The high-risk nature of investing in early-stage technology means that the SBIR program must be held to an appropriate standard when it is evaluated. An assessment of SBIR should be based on an understanding of the realities of the distribution of successes and failures in early-stage finance.
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From page 43... ...
NSF, notably, has pioneered use of the Phase IIB grant, which allows a firm to obtain a supplemental follow-on grant ranging from $50,000 to $500,000 provided the applicant is backed by two dollars of third-party funding for every one dollar of NSF funding provided.88 This private sector funding validates the technology's potential for the Phase IIB award, while providing a positive incentive for potential private investors. Ongoing program experimentation to improve program outcomes, as seen at NSF, is a sign of proactive management and is essential to the future health of the SBIR program.
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It is interesting that some services (e.g., Navy) and many prime contractors are finding the SBIR program to be directly relevant to their interests and objectives.
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, as well as other management innovations, that contribute to enhanced matchmaking, commercialization, and to the higher insertion rates of SBIR technologies into the Navy's ships, submarines, and aircraft. Box I: Attributes of the Navy's Submarine SBIR program The Submarine Program Executive Office is widely considered to be one of the more successful Phase III program at DoD.
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1.5 CHANGING PERCEPTIONS ABOUT SBIR As the SBIR program matures and more is known about its accomplishments and potential, it is increasingly viewed by the agencies to be part of their wider portfolio of agency R&D investments. This is a welcome change.
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This level of emulation across national innovation systems is striking and speaks to the common challenges addressed by SBIR awards and contracts. 1.6 CONCLUSION This report provides a summary of the study that Congress requested when reauthorizing the SBIR program in 2000.
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From page 49... ...
. iii Fostering and Encouraging Participation by Minority and Disadvantaged Persons in Technological Innovation: The SBIR program supports the growth of a diverse array of small businesses, including minority- and women-owned business, by providing market access, funding, and recognition.
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From page 50... ...
Commercialization despite high risk: Small technology companies use SBIR awards to advance projects, develop firm-specific capabilities, and ultimately create and market new commercial products and services.
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At the time of acquisition, DSR had received 40 phase II SBIR awards and had reported $368 million in resultant sales and investment. See Recommendations and Findings chapter of National Research Council, An Assessment of the Small Business Innovation Research Program at the Department of Defense, Charles W
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From page 52... ...
Licensing: 16 percent of projects report licensing agreements in place for their technologies, with an additional 16 percent engaged in licensing negotiations at the time of the NRC survey.9 Some companies are making substantial use of the technology.10 c. Venture Funding: Venture capital funding has, in some cases, also played a significant role for SBIR award winners.
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From page 53... ...
2. Mission Support: Each of the agency SBIR programs is effectively supporting the mission of the respective funding agency:13 See Figure 4.5.
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