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A proposal to reauthorize the Small Business Innovation Research, or SBIR, funding program passed by a vote of 386-41 on the floor of the U.S. House of Representatives this week. The program would continue to be funded through 2011 — but would change in key areas.
First, the bill says 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 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, saying programs should focus on projects governed by commercial business plans, and have significant potential to produce products and services.
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 other firms, could have a crippling effect on innovation, said Ann Eskesen of Innovation Development Institute, in Swampscott. “This is an absolute transformation from what has worked extremely well for 30 years,” Eskesen said. “Thousands of companies are going to go 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. In addition, Markey’s amendment would have curtailed the bill’s proposed increase in Phase 1 and Phase 2 funding.
While Mark Smithers, COO of Waltham-based Boston Engineering Corp., is concerned about the proposed rule changes for VC-backed firms, he is pleased with the proposal to eliminate the Phase 1 requirement. “If we have developed the technology so far that it doesn’t fit a Phase 1, why not reward us for spending our own money and give us a Phase 2 grant to help commercialize it?” Smithers said.
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