The Small Business Innovation Research Program Challenges and Opportunities (1999) / Chapter Skim
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Panel III: Case Studies
Panel III: Case Studies
Pages 62-75
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From page 62... ...
Neal; some other agencies are moving in the same direction. When Phillip Lader was head of the Small Business Administration and Mary Good was under secretary of Commerce for technology, the Clinton administration started an interagency effort aimed at propelling internal reform of SBIR that would "make it 62
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From page 63... ...
Morgenthaler said, "but we fund high-growth companies and we build companies that target public markets." Personal Lessons from SBIR Ingres, a pioneering relational database management systems software company founded by Dr. Morgenthaler nearly two decades ago, received SBIR grants totaling $650,000 in 1984, 1985, and 1986.
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From page 64... ...
Morgenthaler noted that venture-backed companies displayed annual sales growth of 38 percent as compared with 3.5 percent for Fortune 500 companies. Similarly, job creation was 33 percent annually in venture-backed industry versus -3.6 percent for Fortune 500 companies; venture capitalists supported firms that had four times as many engineers and scientists in management as the U.S.
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From page 65... ...
"Growth companies need investor capital, but growth companies also need management, and if you evaluate your grants solely on the basis of good science, you will find that these are companies that do not build viable commercial entities and take that science to the marketplace." Venture capital, in contrast, is instrumental in building companies: "Venture capitalists recruit senior management, including CEOs, for these companies; they help set market strategy; they syndicate financings; they broker corporate partnerships; and they oversee the daily hard work of corporate governance." But although venture capital funds development, it funds very little research, even though many of the companies it supports are capable of doing first-class research. SBIR plays the role of enabling small companies, including venturebacked companies, to undertake high-risk research projects.
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From page 66... ...
Carroll's company has experienced some difficulties: It has had submissions turned down in both Phase I and Phase II because it attempts to commercialize only within DoD. According to proposal evaluations received from the department, he said, his company has been deemed ineffective in commercializing its products despite the fact that it has sold products to the DoD for $50 million per year that were developed with the aid of the SBIR program, and despite the fact that 50 percent of the Phase I and Phase II awards it has won have resulted in sales.
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From page 67... ...
In some case, he has identified a weapons acquisition manager who is interested in buying his technology but he can not get a Phase II award because he fails to meet "some other criteria in the program." Expressing frustration over such experiences, he called for improvement in this aspect of the process. In Phase III, he said, it is important that his company continue to access R&D through the DoD component interested in the technology.
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From page 68... ...
Mr. Preston recalled Western Union's decision in the 1880s to decline Alexander Graham Bell's offer of an exclusive license to the telephone on the grounds that the technology lacked commercial viability, as well as similar cases in which established firms responded to the arrival of a new technology as a threat rather than an opportunity.
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From page 69... ...
Preston argued, is that as product half-lives have shortened and the speed at which products must be brought to market has increased, the creative component of a product in the case of integrated circuits, for example, the microcode used to design the chip has become more important as a function of time. He reported being told by the outgoing head of technology for Hewlett-Packard, Joel Birnbaum, that getting to the market one month earlier is worth more than all the engineering and development costs of a typical HewlettPackard product, whereas six months changes the lifetime profitability of a product by 33 percent.
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From page 70... ...
Preston cautioned against distributing SBIR awards geographically for political reasons; he said that the awards should go to areas where "clusters of excellence," as defined by the Harvard Business School's Michael Porter, are going to support the building of innovative companies. Taking an example from Dr.
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From page 71... ...
The SBIR "tax," as it is defined by DoD' s comptroller and thus perceived within the department, is 2.5 percent not only of the agency's science and technology activities but of the overall RDT&E budget. When program managers of weapons platforms, whose activities are far removed from research, discover that 2.5 percent of their budgets is going to SBIR, he said, "we have a tremendous amount of push-back from those program managers." Stating a personal view, he cautioned that any campaign to enlarge SBIR significantly would occasion vigorous resistance from the program managers "because they think the tax is becoming too big." Funding mechanism.
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From page 72... ...
Davis pointed out that, because SBIR funds are not allowed to go to administrative expenses, SBIR program activities must compete for overhead funds with all other research activities. "As a result," he said, "the amount of attention that a project director in a laboratory can spend with a SBIR contract awardee is not as great as it should be." If the SBIR program is to be expanded, it would be worth considering returning to the previous practice of allowing some portion of administrative expense to come from the SBIR budget.
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From page 73... ...
The committee, in discussion with the agencies, has found ways to try to measure what success really is in terms of R&D, although it is not yet certain whether they will work. Although SBIR is no different from any other R&D program in this regard, it is different in that it has a dual function, which makes measuring its success somewhat more complicated: SBIR looks at commercialization as an end while at the same time trying to provide benefit to the agencies that fund it by contributing to their own R&D missions.
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From page 74... ...
" Synergy is thus possible between the technological expertise of SBIR program managers and the strengths of venture capitalists, who "can be really good at assessing people and understanding their probability of success whereas the DoD, I think, is by definition almost unable to make those assessments." Reacting to the same question, Dr. Morgenthaler pointed out that certain R&D investments that offer social return, such as those in defense and pollution control, are not typically the targets of venture-capital investment.
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From page 75... ...
For programs focused on economic returns, "by leveraging off of the dynamics of the private equity industry, the greatest social good will be achieved." Mr. Preston praised the question as recognizing that the funding gap does not apply to all industries but is more severe in the energy and environmental fields than in the information or biotechnology sectors where venture capitalists are investing very heavily.
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