Review of the SBIR and STTR Programs at the Department of Energy (2020) / Chapter Skim
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5 The Impact of the DOE SBIR/STTR Programs: Innovation, Commercialization, and Employment
5 The Impact of the DOE SBIR/STTR Programs: Innovation, Commercialization, and Employment
Pages 103-134
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From page 103... ...
First, the DOE SBIR/STTR programs have several competing objectives, and different objectives compete with each other for priority in the design and implementation of the programs. For example, the enabling legislation for the SBIR program states that the program should advance federal agency research and development (R&D)
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From page 104... ...
Finally, while the bulk of the assessment focuses on firm-level outcomes, the analysis of the innovation outcomes goes beyond that by examining the regional spillovers from SBIR/STTR awards on complementary and follow-on innovation potentially induced by the SBIR/STTR award. This chapter follows the three parts of the committee's analysis -- innovation outcomes, commercialization outcomes, and employment growth --
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From page 105... ...
, or one could examine whether recipient firms were involved in or led the commercialization of particular technologies, tools, or products. A recent set of studies has examined the causal impact of the DOE SBIR/STTR programs on innovation.
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From page 106... ...
undertook a detailed analysis that allowed them to assess the impact of the DOE SBIR/STTR programs on patenting output.2 Their analysis involved three critical steps. First, rather than assess the SBIR/STTR programs as a funder of firms, they focused on the programs as a funder of technologies.
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From page 107... ...
Finally, Myers and Lanahan brought these elements of evidence together to undertake a cost-effectiveness analysis that considered the amount of technological innovation induced by the SBIR/STTR programs, both at the level of specific technologies and also by whether that innovation is directly associated with an SBIR/STTR recipient or the result of spillovers from the SBIR/STTR programs onto the broader innovation system. Specifically, they addressed three key questions that directly related to the committee's Statement of Task: What is the total innovation impact of SBIR/STTR awards in terms of observable innovation output, relative to what might be expected in the absence of an SBIR/STTR award?
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From page 108... ...
analysis involved estimating the empirical relationship between SBIR/STTR funding and subsequent innovation output. This step drew on traditional "patent production TABLE 5-1 DOE SBIR/STTR Funding Opportunity Announcements and Grant Awards Data, FY 2006-2017 Category of Data Per Year Per FOA Topic Phase I grants (Millions of Dollars)
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From page 109... ...
innovation in a particular patent class where the SBIR/STTR programs had made incremental investments. As such, it is possible to consider the direct impact of an award not only on recipient firms but also on other firms' innovative output (such as those that are geographically near the recipient and therefore might benefit from knowledge spillovers)
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From page 110... ...
Myers and Lanahan used this situation to create a new measure that allowed them to not simply compare outcomes for two technology classes that received differing levels of federal DOE SBIR/STTR awards, but instead compare outcomes for two technology classes receiving the same amount of federal investments with one receiving additional investments from a state program. These state-based SBIR/STTR "windfalls" serve as an "instrumental variable" that allows researchers to trace the causal impact of marginal funding in particular technology areas on subsequent technological output.3 Table 5-3 details patenting rates and investments, where both have been converted into stocks.
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From page 111... ...
firms. Estimating the Cost-Effectiveness and Spillovers Associated with DOE SBIR/STTR Funding4 Moreover, as emphasized earlier, any assessment of the impact of the SBIR/STTR programs that simply focuses on the innovation directly resulting from program participants understates the value and cost-effectiveness of the programs insofar as there may be knowledge spillovers or local inducement effects by other firms that enhance the impact of individual grants.
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From page 112... ...
of private value, this suggests that the SBIR/STTR programs are stimulating technological innovation in a cost-efficient manner. However, this calculation accounts neither for the degree to which the innovation is directed toward meeting DOE R&D needs nor for spillovers to others firms that might be induced to also pursue innovation along this trajectory.
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From page 113... ...
. Beyond their direct relevance for assessing the Statement of Task, these findings provide a new perspective on the nature of geographic knowledge spillovers and their importance for evaluating innovation policy initiatives such as the SBIR/STTR programs.
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From page 114... ...
Overall, the primary finding is that there is a large positive impact of spillovers above and beyond the direct impact of the SBIR/STTR programs. For example, even at the level of the narrow technology classes related to an individual FOA, 50 percent of the innovation impact of the award seems to arise from follow-on research by other firms rather than the SBIR/STTR awardee.
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From page 115... ...
SOURCE: Committee calculations based on data obtained from the Small Business Administration and from the U.S. Patent and Trademark Office.
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From page 116... ...
On the one hand, there are of course cases where there is a near-term translation of a technical breakthrough into a specific product sold on commercial markets; for example, Silicon Audio is a DOE SBIR awardee where the outcome included the development of a seismic sensor (fulfilling DOE mission needs) and the translation of that innovation into a successful business selling seismic sensors within the oil and gas industry (see Box 5-1)
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From page 117... ...
Second, the section considers some exemplars of DOE SBIR/STTR commercialization outcomes by examining specific products and services achieved by awardees in areas related to their SBIR/STTR award. Finally, the section examines the impact associated with DOE SBIR/STTR awardees that were subsequently either designated as Tibbetts Award Winners (a premier retrospective designation of firms and projects that made extraordinary contributions through the SBIR/STTR programs across all agencies)
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From page 118... ...
Also, although the primary financing event observed in Crunchbase is the receipt of venture capital, the committee examined any source of private-sector financing measured in Crunchbase, including angel funding and crowdfunding. Specifically, the committee calculated the fraction of firms that received a DOE SBIR/STTR award after 2004 and before 2015 and also received follow-on private financing (i.e., the financing occurs after the SBIR/STTR award)
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From page 119... ...
Specifically, the DOE SBIR/STTR Programs Office has designated a set of firms to be in the category of SBIR/STTR Phase III "success stories," which is reproduced in a summary form in Table 5-6.5 As of November 2019, 32 Phase III success stories are featured by DOE, ranging from solid oxide fuel cells (Precision Combustion) to lighter and stronger steel (Flash Steelworks)
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From page 120... ...
Sensors and imaging for industrial 2006-2012 3 949,916 17 Poway, CA applications Dirac Solutions, Inc. Battery-free RFIDs for secure 2011-2017 5 2,438,116 8 Pleasanton, CA communications Euclid Techlabs Particle accelerators for high 2002-2017 69 25,800,000 17 Solon, OH energy and nuclear physics applications Faraday Technology, Inc Electro-polishing technology for 2001-2019 38 13,431,231 175 Englewood, OH use in high-performance particle accelerators Flash Steelworks, Inc.
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From page 121... ...
Cybersecurity for high speed 2004-2017 20 9,886,880 31 New York, NY computing networks Resolute Marine Energy Desalination technology 2009-2017 4 1,399,843 5 Boston, MA Silicon Audio LLC Seismic sensors for seismic events 2008-2016 4 1,987,066 10 Austin, TX or nuclear explosion (Continued)
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From page 122... ...
Power conversion circuits 1999-2017 9 4,724,864 26 Monmouth Junction, NJ Xia LLC Radiation digitizers for 1990-2017 42 14,300,000 18 Hayward, CA spectroscopy SOURCE: Department of Energy, "SBIR/STTR Phase III Success Stories," https://science.osti.gov/sbir/SBIR-STTR-Success-Stories.
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From page 123... ...
Analysis of the Tibbetts Award winners highlights the striking gap between what might be considered a "success" within the objectives and priorities of the SBIR/STTR programs and according to more traditional metrics of venture success (such as medium-term equity growth as realized by an initial public offering (IPO) or significant acquisition)
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From page 124... ...
2016 45 7 SOURCE: Small Business Administration. Specifically, the committee undertook a series of analyses that used a logit regression procedure to assess the relationship between the cumulative number of patents (and publications)
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From page 125... ...
These results are further reinforced by the analysis of the Tibbetts Award winners, where a negative relationship between patenting and being designated as among the most impactful firms in the DOE SBIR/STTR programs is documented. 6 In business, a unicorn often refers to a start-up with a $1 billion valuation.
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From page 126... ...
. Two members of the committee along with a committee consultant undertook a detailed analysis of the employment outcomes associated with SBIR/STTR grants (Lanahan, Joshi, and Johnson, 2019)
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From page 127... ...
EPSCoR = Established Program to Stimulate Competitive Research. SOURCE: Committee calculations based on Lanahan, Joshi, and Johnson (2019)
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From page 128... ...
. Based on these matching specifications, compared to the control group, the committee did not find evidence that DOE SBIR/STTR recipient firms grew at a differential rate.
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From page 129... ...
SOURCE: Committee calculations based on data obtained from the Small Business Administration. Firm Age at Time of Receipt of First 15 and over SBIR/STTR Award age 10 to 14 age 5 to 9 Under 5 0 100 200 300 400 500 600 700 Number of Firms FIGURE 5-3 Number of DOE SBIR/STTR awards going to young, medium, and more established firms.
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From page 130... ...
Specifically, looking across five mission agencies (including DOE) , they found that the SBIR/STTR programs corresponded to an average decrease in direct employment relative to observationally equivalent firms that did not avail themselves of the programs.
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From page 131... ...
Second, the fact that DOE SBIR/STTR firms start small and by and large remain small is consistent with the analysis in Chapters 2 and 3 identifying the important role of SBIR/STTR awardees in serving DOE's R&D needs, rather than focusing specifically on firm-level employment growth. Indeed, the qualitative evidence in Chapter 3 suggests that the bulk of employment in SBIR/STTR firms are "good jobs," with firms having a strong focus on R&D and a reliance on highly skilled individuals with specialization knowledge and education, and it is likely that these firms are associated with higher wages than those in the control sample in Lanahan, Joshi, and Johnson (2019)
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From page 132... ...
FINDINGS Finding 5.1: The DOE SBIR/STTR programs stimulate technological innovation and contribute to DOE R&D needs. Finding 5.2: SBIR/STTR awardees perform technical research that is usually distant from commercialization but closely connected to DOE R&D needs.
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From page 133... ...
Moreover, Congress should consider increasing the amount of funding available for commercialization assistance provided in conjunction with Phase I awards. Recommendation 5.2: The DOE SBIR/STTR Programs Office should develop better metrics of potential commercialization by applicants and commercialization outcomes by awardees.
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