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A vote to reauthorize the federal Small Business Innovation Research, or SBIR, funding program today is on the floor of the U.S. House of Representatives, and if it passes, the program would continue to be funded through 2011 — but would change in three major areas.
First, the bill would establish a guideline saying that only firms less than 50 percent owned by venture capital firms are eligible to receive SBIR grant money. Previously, there had been no limit on funding for VC-backed companies, but there had been a limit on how much each agency could give to VC-backed firms. That limitation — 15 percent of the total grant money by a federal agency — has been removed in the bill, known as HR 2965.
A second change would establish a “fast track” status for Phase 2 money that would eliminate the requirement that an SBIR applicant company receive Phase 1 money first.
Third, the bill puts a much stronger emphasis on commercialization. The bill’s wording states, “SBIR and STTR programs should focus on research and development of projects governed by commercial business plans, which have significant potential to produce products and services for the marketplace or for acquisition by federal agencies.”
Taken together, the focus on commercial potential, the elimination of the need to have taken Phase 1 money and the open door for VC-backed companies to elbow out non-venture-backed firms, could have a crippling effect on technology innovation, said Ann Eskesen of Swampscott-based Innovation Development Institute. “This is an absolute transformation from what has worked extremely well for 30 years,” Eskesen said. “Thousands of companies are going to be going out of business.”
Rep. Edward Markey, D- Mass., proposed an amendment to the bill that would have re-established a cap on how much money could be given to venture-backed companies, with the National Institutes of Health capped at 15 percent of all funding, and other agencies at 5 percent. In addition, Markey’s amendment would have curtailed the bill’s proposed increase in Phase 1 and Phase 2 funding.
In HR 2965, Phase 1 funding goes to $250,000 from $100,000 and Markey tried to drop that to $150,000. The bill boosts Phase 2 from $750,000 to $2 million, and Markey’s amendment would have brought that down to a jump to $1 million. The amendment was not accepted by the Small Business Committee, according to Eskesen. Markey’s office did not return phone calls this morning.
According to Eskesen, the changes will also have an effect on large companies, as the smaller innovative tech firms they buy up regularly will become fewer and farther between. Her data shows that less than 40 percent of the 1,300 SBIR-backed companies acquired over the life of the program had taken any VC investment.
“Two consequences are going to follow (the passage of) 2965,” Eskesen said. “One is, the huge increase in venture-capital backed firms is going to define what SBIR is all about. And two, a very major drop will occur in new projects.”
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