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Print Edition StoriesFriday, October 17, 2008
Letter to the Editor
SBIR, VC goals are different
How is the economic crisis affecting tech companies?
In a recent column, reporter Stephen DeSantis opined that Polaris Venture’s Amir Nashat “has a point” when he denigrated the SBIR program for its rules concerning grants to venture-funded companies. Mr. Nashat is quoted as saying that any program that didn’t give funds to privately backed companies was engaged in “adverse selection” (a.k.a., “backing losers”), and that he’d “rather put money, as a selection criteria, behind great venture-backed companies.”
With all due respect to DeSantis and Nashat, I think they have totally missed the point of the SBIR program and how its goals differ from the goals of a venture capitalist. A VC looks for the next big thing. The SBIR program is trying to enable new technology development. It does not get a cash return on its “investment” — we, as a society, are presumed to be better off when the small or unrecognized, but good, idea is developed. The SBIR program is intended to fund research at small companies with innovative ideas that meet the specific needs of the federal government, with the expectation that the relatively modest funding from the SBIR program during Phases 1 and 2 will lead to commercialization in the unfunded Phase 3, where outside funding is expected. That outside funding could be venture capital.
Thus SBIR funding is specifically aimed at those early-stage, small companies where VC firms fear to tread. Would Polaris talk to someone looking for $100,000 to move an idea from concept to breadboard or for $750,000 to move to prototype? No. Would Polaris fund a company who could not “promise” 5 to 10 times investment? No.
Venture capitalists should praise the SBIR program. Through it, small companies have a chance to advance products and become feedstock for the VCs. These are not companies funded by adverse selection but rather are companies left out of the game by a capital market that focuses on rapid, large returns, on large investments, and on a sheep-herding selection criteria that brought us, among other things, the dot-com bubble.
Bruce A. Horwitz, TechRoadmap Inc., Newton Centre, Mass.
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