SmallBizResource Blog -- Startups

House Small Business Committee Hearing Discusses Future Of Small-Biz Research Funding

Posted by Gayle Kesten Thursday, Apr 23, 2009, 05:08 PM ET

Encouraging technological innovation among small businesses requires more than just lip service. It requires money -- particularly during a recession when, paradoxically, budgets have been shred at a rate that in my analogy-driven mind evokes scenes from Edward Scissorhands.

Within the Small Business Administration, the Small Business Innovation Research (SBIR) program was established more than 25 years ago to award federal funds to small businesses at the heart of such tech-driven initiatives -- projects that, for example, have advanced medical breakthroughs. On Wednesday, the House Small Business Committee, along with representatives from major federal bodies including the departments of Defense, Health and Human Services, and Energy, gathered to review and discuss reauthorization of the SBIR, and how to better structure its role as a vehicle in early-stage technology development.

But, really, the bigger point: that a robust and thriving technology sector is critical to the success of the overall economy.

"This program is an example of a highly successful federal initiative designed to encourage economic growth and innovation within the small-business community," said Ranking Member Sam Graves (R-MO) in an opening statement. "Government assistance and funding can be critical to the start up and development stages of small businesses...Some of the greatest technological innovations came about from small business owners tinkering in their labs and workshops. SBIR provides them the opportunities to grow their businesses."

According to House Committee on Small Business chairwoman Nydia M. Velázquez, SBIR has had its hands in the launch in tens of thousands of successful research projects. The program invests more than $2.2 billion a year in small companies -- "As a result of SBIR, we have seen breakthroughs in everything from antivirus software to wireless technology for BlackBerrys," Velázquez said -- where the employment growth rate is nearly four times that of bigger companies. "At a time when capital is increasingly hard to come by, it doesn't make sense to limit funding options for small businesses," she said.

One by one, each panel member spoke about SBIR's positive impact in meeting their agency's mission and helping to grow businesses that otherwise might not have the chance. "Awardees have excellent skills in science and engineering research, but lack the experience in product development, financing business growth, raising venture capital, and marketing," remarked Larry James, program manager for the Energy Department's Office of Science.

Members from the business community also spoke on behalf of the program's significance. Rachel King, CEO of GlycoMimetics, said her 20-person biotech research company doesn't qualify for SBIR funding because it's more than 50 percent backed by venture capital. GlycoMimetics, which is focusing on a drug for sickle cell disease, is feeling the squeeze on its early-stage programs -- and that's where SBIR dollars could help. "Companies that are developing therapeutics require lots of investment for long periods of time," she said. "We can't do that without the backing of venture capitalists. By definition we'll have a lot of venture capital investment. If SBIR is available to us, we can count on it to fund earlier-stage programs where we're doing even more cutting-edge research. It's critical to us to access that."

Before you go down the same path I began, thinking, "Well, shouldn't VC be enough?" I listened to venture capitalist Josh Green, a member of the National Venture Capital Association and general partner at MDV-Mohr Davidow Ventures, which backs startups in high-tech, life sciences and alternative energy sectors. "We hope that the past inequalities are corrected so that all small businesses can compete for these critical funding grants," he said. Green then sought to correct a trio of misconceptions that he believes feed into the prevention of VC-backed companies from participating in the SBIR program (start around the two-minute mark):

Later, during the Q&A portion of the panel, Green likened SBIR funds to seed funding in Silicon Valley, where just a little more money can help push a product over the line to commercialization. "A significant portion [of companies] need a little bit more of nudge to get to the commercialization stage," he said. "This performs an absolutely vital function to get it to a point where we can then build a business around that technology."

All in all, I thought the panelists presented a strong case for continuing and enhancing the SBIR program. Then again, that's why they were there. What are your thoughts -- for or against? Should VC-backed small firms also qualify for SBIR dollars?

Videos from the entire hearing are posted on YouTube, segmented by speaker.

• Small Business Administration: Small-Biz Friend Or Foe?
• Wednesday's Woman: Incoming SBA Administrator Karen Mills
• House Small Business Committee Meets To Discuss Entrepreneurial Development Programs

  Economy | Government | SmallBizResource | Startups

  
  
  
  
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