Financing Small Firm Innovation in the United States The Small Business Innovation Research (SBIR) and related programs Ronald S. Cooper, PhD Office of Technology

Background: National Policy Shift 1950s-1960s -- Federal role: support basic research in Federal labs, Universities., and large businesses 1970s- 1980s -- Policy shift towards: - commercialization of federal R&D - government-industry partnerships - greater role for small business

Key Legislation Stevenson-Wydler Act (1980) University and Small Business Patent Procedure Act (1980): Bayh-Dole Act Small Business Innovation Development Act (1982): established SBIR program National Cooperative Research Act (1984): A/T Federal Technology Transfer Act (1986): CRADAs

Small Business Innovation Research (SBIR) Program, est’d 1982 Stimulate technological innovation Use small business to meet federal R&D needs Increase private-sector commercialization of innovations derived from federal R&D SBIR Program today: National program, providing over $2 billion each year to small businesses for innovation Over 5,000 grants to about 3,000 firms each year

SBIR’s 3-Phase Structure PHASE I Feasibility of idea, proof of concept $150,000 (1 year) PHASE II Full R&D, prototype $1 million (2 years) Commercialization plan required PHASE III Commercialization stage Funded by private capital or (non-SBIR) federal funds

SBIR Funding & Structure Set-aside: Federal agencies with external research budgets over $100 million must reserve 2.5% for small business through the SBIR program Each Federal agency administers its own SBIR program Solicitations (with technology topic areas) Proposal review & selection Criteria: scientific merit + commercial potential Competitive: ~17% of Ph.1 proposals awarded ~55% of Ph.2 proposals awarded (~42% Ph.1s win Ph.2s)

SBIR Funding & Structure SBA is lead agency with oversight responsibilities - Issues Policy Directive - National conferences - Monitoring, evaluation - Outreach programs - Reports to Congress - State activities External evaluations by GAO, BRTRC, NRC, others

SBIR Participating Agencies SBA—oversight Defense (DOD) Health (HHS, NHH) Energy (DOE) Science (NSF) Space (NASA) Security Agriculture Education Commerce Transportation Environment $ millions $1,172 $595 $119 $95 $91 $19 $10 $6 $5 $4 Total~ $2.1 Billion FY 2008

SBIR Eligibility Requirements Small business located in the U.S. 500 or fewer employers Organized for-profit U.S. business At least 51% owned and controlled by U.S. citizens (individuals) Principal Investigator’s primary employment must be with the small business Research partners are allowed/encouraged (up to 1/3 of Phase I, up to 1/2 of Phase II)

Key Features (SBIR) Not a loan program Uses grants & contracts, not loans. No direct payback: payback = jobs, income, taxes allows program focus on high-risk, early-stage research no debt burden on firm Small business owns the IP government must protect IP for at least 4 years government retains royalty-free license for government use only of technical data (IP)

Outreach & Assistance Initiatives Outreach to bring in new firms. Is needed: to maintain quality of proposals, cutting-edge research to improve geographic dispersion (political support) Federal support for state-level programs that support small firm innovation Federal & State Technology Partnership (FAST) program (administered by SBA) “63% of SBIR projects need assistance with commercialization activities”

Federal & State Tech Partnership (FAST) Program Purpose: support state-level organizations that help small businesses in, or interested in, SBIR program Mentoring networks, Business advice & counseling, Angel investment groups, VC matchmaking, University research Matching grants to state-level organizations incentive for states with lower levels of SBIR participation administered by SBA Target: All states eligible, one grant per state Funding: FY 2001: $3 million, 30 grants FY 2002: $3 million, 27 grants FY 2004: $2 million, 20 grants FY 2005-2009: $0 FY 2010: $2 million, 20 grants

Small Business Technology Transfer Program (STTR) Promoting Small Business-University Collaboration Set-aside program to facilitate cooperative R&D between small businesses and U.S. research institutions Established 1992, currently under re-authorization Similar structure to SBIR, administered by SBIR offices Funding: Set-aside = 0.3 % of extramural R&D → $260 million Agencies with extramural R&D > $1B must participate FY2008: 636 Phase I awards $75 million 249 Phase II awards $186 million

STTR - SBIR Differences STTR requires research institution partner University or College / Non-profit research org. / FFRDC - Research partner share: min.= 30% max.= 60% - Award goes to small business (who subcontracts to research institution partner) Requires written agreement allocating IPRs Principal Investigator’s primary employment can be with small business or research institution

SBIR/STTR Program Impacts Increases SB participation in Government R&D, procurement Contributes new methods & technologies to Government missions Enables startups, spin-offs, is often only source of funding Induces further entrepreneurial activity “demonstration effect” Enables small firms to develop innovative capacity Catalyzes & complements private investment (reduces risk) “Halo effect” investors recognize SBIR award as seal of quality 39% of SBIR projects have resulted in commercial sales Addresses early stage innovation finance gap

U.S. SBIR & STTR Programs Dr. Ronald S. Cooper ronald.cooper@sba.gov Office of Technology U.S. Small Business Administration For more information: Contact individual agency websites Cross-agency websites: www.sba.gov/sbir www.sbir.gov