[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
SPURRING INNOVATION AND JOB CREATION: THE SBIR PROGRAM
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HEARING
before the
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
HEARING HELD
MARCH 16, 2011
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 112-06
Available via the GPO Website: www.fdsys.gov
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HOUSE COMMITTEE ON SMALL BUSINESS
SAM GRAVES, Missouri, Chairman
ROSCOE BARTLETT, Maryland
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
CHUCK FLEISCHMANN, Tennessee
JEFF LANDRY, Louisiana
JAIME HERRERA BEUTLER, Washington
ALAN WEST, Florida
RENEE ELLMERS, North Carolina
JOE WALSH, Illinois
LOU BARLETTA, Pennsylvania
RICHARD HANNA, New York
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
MARK CRITZ, Pennsylvania
JASON ALTMIRE, Pennsylvania
YVETTE CLARKE, New York
JUDY CHU, California
DAVID CICILLINE, Rhode Island
CEDRIC RICHMOND, Louisiana
GARY PETERS, Michigan
BILL OWENS, New York
BILL KEATING, Massachusetts
Lori Salley, Staff Director
Paul Sass, Deputy Staff Director
Barry Pineles, General Counsel
Michael Day, Minority Staff Director
C O N T E N T S
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Page
Opening Statements
Graves, Hon. Sam................................................. 1
Velazquez, Hon. Nydia M.......................................... 2
Witnesses
Tullie, Mr. Tom, Chief Executive Officer, President and Chairman
EcoATM, San Diego, CA.......................................... 4
Audretsch, Dr. David B., Professor, Indiana University,
Bloomington, IN................................................ 13
Squillante, Dr. Mike, Chairman of the Board, Small Business
Technology Council and Vice President, Radiation Monitoring
Devices Inc., Watertown, MA.................................... 19
Rick, Ms. Amy Comstock, Chief Exective Officer, Parkinson's
Action Network, Washington, DC................................. 122
Appendix
Prepared Statements:
Tullie, Mr. Tom, Chief Executive Officer, President and
Chairman EcoATM, San Diego, CA............................. 6
Audretsch, Dr. David B., Professor, Indiana University,
Bloomington, IN............................................ 16
Squillante , Dr. Mike, Chairman of the Board, Small Business
Technology Council and Vice President, Radiation Monitoring
Devices Inc., Watertown, MA................................ 21
Rick, Ms. Amy Comstock, Chief Exective Officer, Parkinson's
Action Network, Washington, DC............................. 125
Statements for the Record:
Landry, Hon. Jeff............................................ 165
Tipton, Hon. Scott........................................... 164
Clarke, Hon. Yvette.......................................... 141
Hirono, Hon. Mazie K......................................... 147
Small Biotechnology Business Coalition....................... 149
SPURRING INNOVATION AND JOB CREATION: THE SBIR PROGRAM
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WEDNESDAY, MARCH 16, 2011
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 1:00 p.m., in Room
2360, Rayburn House Office Building. Hon. Sam Graves (chairman
of the Committee) presiding.
Present: Representatives Graves, Bartlett, Herrera Beutler,
West, Barletta, Velazquez, Critz, Altmire, Clarke, Chu,
Richmond, Peters, Owens, and Keating.
Chairman Graves. Good afternoon. And we will call this
hearing to order. We are going to have a series of votes called
sometime in the next I would say half hour probably. And so
when that happens we are going to go through the ranking member
and I's opening statements and then we will try to get through
as many opening statements as we can. And then we will have a
recess and then we will come back to work through the process.
But I want to thank everybody for being here today and for
being a part of this hearing which begins our work to
reauthorize the Small Business Innovative Research program and
the Small Business Technology Transfer programs.
I would, specifically, again, I would like to thank all of
you for coming out. Some of you came from quite a distance and
I appreciate you taking the time to be able to come and speak
to us.
This hearing represents the beginning of our work to
reauthorize the SBIR program which was last fully reauthorized
in 2000. Today we are going to broadly examine and stress the
importance of the SBIR program and take a closer look at how we
can work to jumpstart entrepreneurs and grow our economy and
create jobs. The SBIR program was created in 1982 and offers
competition-based awards to stimulate innovation among small,
private-sector businesses while providing government agencies
new, cost-effective and technical solutions to meet their
varied mission requirements.
The development of this program is not only significant to
the unique needs of each of the participating federal agencies
but also to our national economy. Small businesses renew the
U.S. economy by introducing new products and cheaper ways of
doing business, often with substantial economic benefits. They
play a key role in introducing technologies to the market and
responding quickly to new market opportunities. Some of the
great innovations and the companies that have created them came
from the industrious entrepreneurs willing to take a risk on
new technologies and discoveries.
In 2007, the National Research Council of the National
Academies of Science completed one of, if not the most
comprehensive examination of the SBIR program. The study found
that the SBIR program provides substantial benefits for
participating small businesses at all agencies in a number of
different ways. For example, the SBIR program is a significant
factor in the funding of new companies, providing partnering
and networking opportunities, and providing the impetus to
start projects that otherwise would have never gotten off the
ground.
In terms of job creation, the NRC Survey sought detailed
information about the number of employees at the time of the
award and at the time of the survey, and about the direct
impact of the award on employment. And overall, the survey
respondents reported a gain of 57,808 full-time equivalent
employees. Respondents estimated that, specifically as a result
of the SBIR project, their firm was able to hire an average of
2.4 employees and retain 2.1 more.
The SBIR program, as the National Research Council Study
demonstrates, also provides significant benefits to federal
agencies to provide additional opportunities to solve
operational needs. A program officer can post a solicitation
that describes a particular problem and invite a small business
to propose research that will solve it. This contrasts with
other federal research awards where a researcher provides a
proposal of personal interest. The nationwide scope of the
program also ensures that the agency will investigate various
research avenues. Finally, the program, by leading to
commercialization of the research, diversifies the federal
government's industrial base providing competition among
suppliers and lowering prices to the government, which saves
taxpayers' dollars.
I am looking forward to the testimony today and I will
yield to the ranking member for her opening statement.
Ms. Velazquez. Thank you, Chairman Graves.
The development of life's changing products from cancer-
fighting drugs to advanced electronics drives our nation's
economy. However, without adequate funding for research and
development, small businesses cannot expand and even the best
ideas wither and die in what has come to be known as the valley
of death between startup and commercialization.
Congress established the Small Business Innovation Research
program with the intent of funding small, innovative companies
conducting research and development with commercial potential.
Since the first grants were awarded in 1983, more than 24
billion dollars has been awarded to small research companies
funding in excess of 100,000 projects.
In fiscal year 2009, the SBIR program made over 6,400
awards totaling $2.5 billion, an all-time high. By all measures
the SBIR program is among the federal government's largest
research and development programs. The public-private
partnerships that SBIR awards facilitate encourage
entrepreneurs to start new business and enable existing
businesses to expand their operations. SBIR awards spirit and
innovation and create and retain jobs in all 50 states, the
District of Columbia, and Puerto Rico.
According to the National Academies of Science Survey, over
20 percent of applicants who open a new business often receive
an SBIR award. This translates to nearly 1,500 new businesses
each year and an estimated 80,000 jobs created over the next
decade. While SBIR awards provide small businesses with some
research funding, most high-tech and pharmaceutical firms need
resources beyond what is available through SBIR to take their
ideas from the drawing board to the marketplace.
If firms are ever going to reach their full potential, the
gaps between what SBIR provides and what is needed to develop a
product must be addressed. This is hindering promising
researchers and entrepreneurs from commercializing their
discoveries. To help foster innovation and bring life changing
products to market, SBIR programs should be available to all
firms without barriers or cost prohibitive regulations. Review
of the SBIR program shows that it has succeeded in funding high
quality research encouraging competition and increasing
successful commercialization. However, areas of witness have
been identified particularly with lax oversight which help lead
to waste, fraud, and abuse of the program. Most troubling are
findings of duplicative awards of agencies for the same
research and the serial funding of firms that continually fail
to produce marketable technologies. Such examples of fraud have
become a serious problem, especially with increasing numbers of
proposals submitted to the SBIR program. It is critical that we
bolster oversight and curb the waste, fraud, and abuse that
prevent SBIR and STTR programs from functioning as intended.
In advance of the testimony, I want to thank all the
witnesses who have traveled here for your participation and
insight into this important program. Thank you.
And I yield back.
Chairman Graves. Just to explain real quick about how the
process works, you have a series of lights in front of you and
you each have five minutes. Please try to stay within that. If
you go over nobody is going to break your arm or anything like
that but the light will turn yellow when you have one minute
left and it will go red when you go over your time. And then
questions will go along the same lines. There will be five
minutes for questions from each of the members.
STATEMENTS OF TOM TULLIE, CHIEF EXECUTIVE OFFICER, PRESIDENT
AND CHAIRMAN OF ECOATM; DAVID B. AUDRETSCH, INDIANA UNIVERSITY;
MICHAEL SQUILLANTE, VICE PRESIDENT OF RESEARCH, RADIATION
MONITORING DEVICES; AMY COMSTOCK RICK, CHIEF EXECUTIVE OFFICER,
PARKINSON'S ACTION NETWORK
We will start off with Mr. Tom Tullie. Mr. Tullie is the
chairman and CEO of EcoATM. His company is the first and only
company to create an automated, self-serve kiosk system that
uses patented advance machine vision, electronic diagnostics,
and artificial intelligence to evaluate and buy back used
electronics directly from the consumer. He has 23 years of
experience in semiconductor systems in computing and software.
Mr. Tullie, welcome to the Small Business Committee and I look
forward to hearing your testimony.
STATEMENT OF TOM TULLIE
Mr. Tullie. Good afternoon. Thank you, Chairman Graves,
Ranking Member Velazquez, and members of the committee.
It is an honor to appear before the House Committee on
Small Business today to testify about the role that the SBIR
program has played in EcoATM's success to date. As Chairman
Graves has said, I am Tom Tullie. I am chairman and CEO of
EcoATM. I would like to commend all of you for your role in
pursuing successful policies that have strengthened companies,
created jobs, and fostered innovation in the U.S.
As I will discuss further in my testimony, the SBIR program
is among the critical factors that are contributing to our
success, and these factors that are taking us from a small
start up to a full-fledged corporate taxpayer.
EcoATM was funded with a vision to forever alter the
wasteful lifecycle of consumer electronics. With electronics
recycling rates at less than 10 percent, we believe that to
achieve this bold vision we would have to create a recycling
solution that guaranteed convenience, low transactional cost,
and immediate remuneration. To execute this vision we developed
the world's first fully automated, self-serve machine that buys
back used electronics. It automatically identifies, inspects,
calculates the value, and pays the consumer on the spot. Our
initial trials just in the first year of our operation with
only 10 machines have certainly validated the strategy as we
have collected over 50,000 different devices and paid consumers
hundreds of thousands of dollars that they ordinarily would not
have had.
To illustrate the scale of the opportunity as well as the
problem let me tell you a couple of numbers about the mobile
phone business. Collectively across America, in our drawers and
closets there are over a billion cell phones. These phones have
a latent value of about $12 billion if we could collect and
recycle them. In addition, 150 million new devices every year
are retired with a value of $5 to $7 billion dollars. This is
free money that can go into our economy. If we can simply
collect these devices, we can create a free multi-billion
dollar stimulus package by turning people's trash into cash and
reinvesting these free dollars back into the economy driving
discretionary spending, job growth, and tax revenues.
In addition to the stimulus package value that we create,
we also have a great environmental benefit. I am sure most
people know that cell phones and other electronics contain
toxic chemicals that are dangerous to our environment.
Currently there are 75,000 tons of e-waste that get put into
our landfills every year. We estimate that just a single EcoATM
kiosk would divert 25,000 tons of toxic mining waste, offset
4,300 kilograms of greenhouse gases, save 426 gallons of oil
with the equivalent of removing 21 houses from the grid or 3
automobiles off the road.
We have been very fortunate to receive a phase one NSF
grant of $150,000. This grant partially funded the development
of our advanced vision and electrical test systems. The vision
system is now capable of identifying over 1,000 different
mobile phones with error rates of less than one percent.
Interestingly, the NSF has helped in a variety of different
fronts as our key visions systems engineer actually was put
through grad school on a fellowship from the NSF Graduate
Research Fellowship program.
Right now we are in the phase of applying for a phase two
grant. This grant would allow us to fully commercialize our
system, as well as expand the vision and electrical technology
to add other devices other than cell phones such as laptops,
digital cameras, GPS devices, et cetera. Additionally, a phase
two award would allow us to explore the development of a
standard process for the erasure of personal data on these
devices and make it much easier to get that done.
I understand the Committee is in the process of evaluating
the SBIR programs and recommending some changes to the
policies, especially as they relate to venture back companies.
I believe these changes should be centered on allowing the
agencies to pick companies that deliver the best return for the
taxpayer. To do so I would encourage legislation that gives the
agencies enough freedom to pick and stay with the winners
throughout the process. I suggest partnering with the VC
community, not abandoning the companies that have received
venture funding. This should help the SBIR select good
companies that are more likely to excel. Early stage companies
are all about momentum. So if the SBIR has picked a winner it
should foster that company through its early years and stay
with it to make the possibility of a great return all that more
likely. I also suggest enhancing the criteria and searching for
winners by funding companies that can not only generate great
commercial success but public and environmental benefits as
well.
Businesses that excel in all these three areas should
generate a better total return and EcoATM is an example of one
of these businesses that has this triple bottom line.
I hope my testimony was helpful and will play a role in
convincing the Committee and the rest of the House of
Representatives that our agency should be given the freedom to
pick the winners in order to deliver the maximum return to our
taxpayers. Thank you again for the opportunity to appear before
the Committee and I look forward to your questions.
[The statement of Mr. Tullie follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Graves. Thank you, Mr. Tullie. I now turn to
Ranking Member Velazquez for the introduction of her witness.
Ms. Velazquez. Thank you, Mr. Chairman. It is a great
pleasure to welcome Dr. David B. Audretsch. He is the
distinguished professor and Ameritech chair of economic
development at Indiana University, as well as the director of
IU's Institute for Development Strategies. Dr. Audretsch has
written extensively on small business innovation and
entrepreneurship. Additionally, he sits on the National
Research Council's Committee for Capitalizing on Science,
Technology, and Innovation and Assessment of the Small Business
Innovation Research program. Welcome.
STATEMENT OF DAVID B. AUDRETSCH
Dr. Audretsch. Thank you very much. Good afternoon,
Chairman Graves and members of the Committee.
The impact of the SBIR program has been analyzed in
considerable detail in a series of painstakingly meticulous
studies undertaken by the board on science, technology, and
economic policy of the National Research Council of the
National Academy of Sciences as well as in a number of
important studies by university scholars. After reviewing these
studies I can summarize with confidence that the SBIR has
generated a number of substantial benefits to the U.S. economy.
The country is no doubt more innovative, more competitive
in the global economy and has generated more and better jobs as
a result of the SBIR. What gives me so much conviction
concerning these studies is the robustness of the findings.
Studies with disparate methodologies ranking from case studies
of recipient SBIR firms to interviews with program
administrators at the funding agencies to systematic analyses
of broadcasted surveys of firms and to sophisticated
econometric studies based on objective measures comparing the
performance of recipient SBIR firms with control groups
consisting of matched pairs that did not receive any SBIR
support.
They all point to exactly the same thing. The SBIR has made
a key in unequivocal contribution to the innovative performance
of the United States, especially in terms of technological
innovation. In particular, a number of key benefits emanating
from the SBIR program can be identified from these studies. The
key economic benefits accruing from implementation of the SBIR
are most compelling in terms of two of the objectives stated in
the congressional mandate, the promotion of technological
innovation and increased commercialization from investments in
research and development.
There is strong and compelling evidence that the United
States is considerably more innovative as a result of the SBIR
program than it would be without the SBIR program. The
empirical evidence suggests that first of all recipient firms,
SBIR firms, are more innovative. Existing small business is
more innovative as a result of the SBIR program. A careful
study undertaken by the National Research Council at the
National Academy of Sciences found that around two-thirds of
the projects funded by SBIR grants would not have been
undertaken in the absence of SBIR funding. That same study also
identified a remarkably high rate of innovative activity
emanating from the SBIR-funded projects. Slightly less than
half of the SBIR-funded projects actually resulted in an
innovation in the form of a new product or service that was
introduced in the market. Such a high rate of innovative
success is striking given the inherently early stage and high
risk nature of the funded projects.
Second, the SBIR has generated more technology-based
startups. The SBIR program results in a greater number of
technology-based firms. One key study found that over one-fifth
of all recipient SBIR companies would not have existed in the
absence of having received an SBIR award.
Third, recipient SBIR firms have stronger growth
performance. Studies consistently find the firms receiving SBIR
grants exhibit higher growth rates than do control groups
consisting of matched pair companies.
Fourth, recipient SBIR firms are more likely to survive.
The early phase for technology entrepreneurial ventures has
been characterized as what we heard from the ranking member. It
has been characterized as the valley of death. The empirical
evidence suggests that the likelihood of surviving this valley
of death for young technology-based SBIR firms is greater than
for comparable companies in carefully selected control groups.
In terms of the second objective, congressional objective
in the mandate for the SBIR enhancing the commercialization
emanating from the country's expensive investments in research
and development. Systematical empirical studies reveal that the
SBIR has resulted in greater commercialization of university-
based research. Empirical evidence points to a high involvement
of universities in SBIR-funded projects. One or more founders
have been employed at university and two-thirds of the SBIR
recipient firms. More than one-quarter of the SBIR-funded
projects involved contractors from university faculty.
The studies also indicate that the SBIR has increased the
number of university entrepreneurs--entrepreneurs coming from
universities. The studies find that scientists and engineers
from universities have become entrepreneurs and started new
companies who otherwise might never have been entrepreneurial.
Some of these university-based entrepreneurs are involved in
firms that have received SBIR grants. Others have been inspired
to become entrepreneurs as a result of learning about the
efficacy of becoming an entrepreneur from the observed success
and experience by observing their colleagues who have been
involved with SBIR-funded companies.
Despite the compelling empirical evidence of the strong and
significant impact of the SBIR program that it has had on the
innovative performance of the United States, I should stress
several key qualifications and concerns. The first is the
congressional goal of increasing the participation of
minorities and disadvantaged people in the process of
technological innovation remains undeveloped. Female
participation has increased only marginally over time. SBIR
phase two awards to women increased only from eight percent of
the total awards in the early 1990s to 9.5 percent between 1999
and 2001. Minority participation has actually decreased over
time. Minority-owned firms fell below 10 percent for the first
time in 2004 and this trend has subsequently continued.
Creative ways to enhance the inclusion of previously largely
excluded groups in the population and in particular women and
minorities in the SBIR program will enhance the innovative
performance of the United States.
A second concern is that SBIR awards remain geographically
concentrated in just a handful of regions. Increasing the
participation of SBIR awards outside of these innovative
clusters will make a significant contribution to facilitating
innovative activities not just in these regions but ultimately
in the entire country.
In conclusion, let me point out that this decade has seen a
receding performance of U.S. global leadership of innovation.
Globalization means that the U.S. has lost its once near
monopoly in terms of technological and innovative leadership.
The SBIR has a central role to play in contributing to a
renewed U.S. global technological leadership in ensuring that
the United States is securely encased as a global innovative
leader. Nearly three decades have transpired since the
enactment of the SBIR by the Congress. This has provided a good
basis for in-depth and careful independent scrutiny analyzing
the impact of the SBIR program on the United States. The
evidence accumulated from a broad spectrum of studies utilizing
divergent methodologies all comes to the same result. The SBIR
program has unequivocally made an invaluable contribution to
the innovative performance of the United States. However, as
global competition intensifies the SBIR program must continue
to be adjusted and improved in order to generate the innovative
performance and ultimately renewed global innovative leader
that this country deserves and of which it is capable.
Thank you very much.
[The statement of Dr. Audretsch follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Graves. Thank you. We will next have Dr. Michael
Squillante. He is the Vice President of Research at Radiation
Monitoring Devices or RMD, in Watertown, Massachusetts. He is
also the chairman of the board of the Small Business Technology
Council. He received his Ph.D. in chemistry from Tufts
University in Medford, Massachusetts in 1980 and has been a
full-time employee of RMD ever since. In his role he oversees
the company's research and development activities across a
broad spectrum of areas, including research programs and
development instrumentation for cancer diagnosis, scientific
research, and industrial testing. Thanks for being here today.
STATEMENT OF MICHAEL SQUILLANTE
Dr. Squillante. Thank you. I appreciate the opportunity,
Chairman Graves, Ranking Member Velazquez, and Committee
members. I am here today representing the Small Business
Technology Council.
Since 1982, the Small Business Innovation Research program
has been the principal means by which the federal government
funds innovation research at small companies. This was not
enacted to help the struggling small companies get by; it was
enacted to require the federal government to make use of the
innovation efficiency that is inherent in small firms.
In 1982, Congress found that innovation creates jobs and
small business is the principal source of significant
innovation.
The SBIR program was enacted with four goals in mind--
stimulate technological innovation, use small business to meet
federal research development needs, increase private sector
commercialization of innovations, to foster and encourage
participation of minority and disadvantaged persons in
technological innovation. Prior to the SBIR program about three
percent of federal R&D funds went to small firms. Now with the
SBIR and STTR programs included that number is only about four
percent, most of it obviously coming through SBIR.
But during that time the percentage of American scientists
and engineers working at small companies rose from six percent
to 38 percent.
The SBIR is attracting new companies. Thirty percent of
awards are given to new companies each year and SBIR has been a
success. In 2008, the National Research Council of the National
Academy of Sciences reported on their study. In the summary of
the key findings the NRC concluded the core finding of the
study is that the SBIR program is sound in concept and
effective in practice, and, currently the program is delivering
results that meet most of the congressional objectives.
It is widely accepted that technological innovations and
new jobs come from small business. In addition, data on patent
applications show that small firms are by far the most
efficient and productive inventors on the basis of patents
awarded per dollar of federal funding received compared to
large firms, national laboratories, or universities.
And the companies are commercializing their innovations.
The NRC study and earlier GAO studies found that the SBIR and
STTR programs have between a 30 and 50 percent
commercialization success measured on the basis of return on
investment of federal funding. This is an incredibly high
number compared to other studies of commercial firms and
consumer companies.
So it is time to move forward. We appreciate greatly that
you are starting to focus on this program very early in the
session. The SBIR legislation has been delayed for almost three
years with 10 continuing resolutions while we wrangled over the
issue of venture capital participation. That issue is now
resolved to the satisfaction of all of the parties involved
with a bipartisan compromise that is reflected in the Senate
bill that was recently approved in the Senate Small Business
Committee. The parties involved in this were SBTC,
Biotechnology Industry Organization, National Venture Capital
Association, U.S. Chamber of Commerce, National Defense
Industrial Association, the New England Innovation Alliance and
the Bay Area Innovation Alliance. This long delay is causing
uncertainty and hardship, and we encourage the House to act
quickly on this bill.
For recommendations we support the compromise that is the
basis of the Senate bill and recommend that the House include
similar provisions that are in that bill. Some of the
significant ones are increasing the size of the SBIR set aside.
Award sizes are increasing and in order to keep the number of
awards from decreasing excessively a modest increase in the
size of the SBIR program is needed.
So we support the gradual increase of the program from two
and a half to three and a half percent. This is a conservative
increase, and even with it the number of awards will be
reduced. Without the increase, reduction of the awards would be
a disaster for the program. In terms of the STTR program, we
believe that should be increased more significantly.
To further mitigate the decrease in the number of awards we
support the enactment of a cap on the maximum phase one and
phase two award sizes. Without this the reduced number of
awards would make the program untenable for many small
companies, especially the newer, smaller firms that are trying
to break into the program. We encourage you to act soon to end
this period of uncertainty. We are very sympathetic to the
fiscal challenges faced by Congress this year and we only ask
that you understand the plight of the small companies and their
employees as you proceed.
I appreciate the opportunity to speak to you today. And Mr.
Chairman, I would appreciate if I could have the opportunity to
revise and amend my testimony.
[The information follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Graves. Absolutely.
Dr. Squillante. Thank you. It came to my attention we left
out one of the addenda. I will gladly answer any questions.
Chairman Graves. I will next introduce Amy Comstock Rick.
Ms. Rick is the chief executive officer of Parkinson's Action
Network. Before joining PAN in 2003 she served as director of
the U.S. Office of Government Ethics, having accepted the
nomination to the Senate-confirmed position in 1999. Prior to
her appointment to the Office of Government Ethics, Ms. Rick
was associate counsel to the president in the White House
Counsel's Office. Ms. Rick began her federal service as an
attorney at the U.S. Department of Education in 1988 and she
entered her tenure there in 1998 as assistant general counsel
for ethics. Thanks for coming today.
STATEMENT OF AMY COMSTOCK RICK
Ms. Rick. Thank you, Chairman Graves and ranking member
Velazquez and other members for inviting me to testify on
behalf of PAN, the Parkinson's Action Network regarding SBIR.
PAN represents the entire Parkinson's community, including
the more than one million Americans who currently have the
disease, the estimated 60,000 who are newly diagnosed each
year, their families, and in fact, all the national Parkinson's
organizations. So it is on behalf of that entire community that
I am here today.
Parkinson's disease for those who are not familiar is a
chronic, progressive, neurological disease that results from
degeneration and premature death of the dopamine-producing
neurons in the brain. It is the second most common neurological
disease, second only to Alzheimer's. The cause of Parkinson's
is unknown, although current research leads to a combination of
genetic and environmental factors. Parkinson's is currently
without any known cure and we have nothing that slows the
progression of the disease. As Parkinson's progresses even with
treatment, substantial disability, including the inability to
maintain balance, walk, speech, and movement is inevitable. The
symptomatic treatments that we do have work well for five to
eight years but they lose their effectiveness and have their
own debilitating side effects.
I am here today because PAN, like many patient advocacy
organizations, strongly supports the SBIR program. As you would
expect, we are most familiar with the program as it operates at
the National Institutes of Health or NIH.
To understand why the SBIR program is so important it is
helpful to understand how biomedical research is conducted. The
therapy development process takes many years from beginning to
end. For neurological diseases like Parkinson's, the process
can take 15 years after the time that a basic discovery is
made. At the beginning of this process, at the very beginning
of this pipeline you have basic research that is supported by
NIH and at the end one hopes you have a drug biologic or
treatment approved by the FDA that is available to the public.
But it is the middle of this process that we have already
alluded to the valley of death where we take knowledge from
basic research and pursue its therapeutic potential. And this
is where problems can occur.
This phase of research is called translational research and
is some of the most difficult and costly research needed to
develop therapies that meet a very real public health need. It
includes developing pre-human testing, efficacy trials,
production design, and a range of other steps needed to
determine whether a therapy will be effective and, of course,
safe. Unfortunately, many basic discoveries get lost or are not
pursued in this translational phase because they lack the
funding, professional incentives, and technical expertise
needed to advance further. It is disconcerting for people
living with Parkinson's disease and other untreated or
undertreated conditions to know that many potential therapies
or disease-understanding breakthroughs are not pursued to
ascertain if they have any therapeutic potential because there
is not enough funding. And this is where SBIR comes in.
SBIR grants have a significant role to play in the arena of
translational research. In 2010, NIH awarded $616 million in
SBIR grants to hundreds of small companies around the country.
NIH SBIR grants are awarded to small companies that can bridge
that divide between basic discovery and the hard, very hard
work of testing that discovery for its therapeutic potential.
Historically, these small companies have raised their
needed capital from private investors but in recent years we
have seen a dramatic and harmful shift away from the investment
of private funds in biomedical research. Biomedical research
takes a very long time. The return on investment may not simply
be soon enough for investors and also for a disease like
Parkinson's and many other complicated diseases there is a lack
of appeal quite honestly to private investors because the
potential market for the therapy, one million people, may not
be blockbuster in size and there is greater risk involved in
testing therapies for diseases of the brain. Without SBIR
funding, many of these small companies pursuing one or two
projects at a time would simply not exist and some very
promising research efforts would not be pursued. That is why
when you look at the SBIR program from a patient perspective
the program is not just about funding small companies. It is
about pursuing possible treatments for many diseases and all
the societal benefits including economic that come with that.
I also want to offer our thoughts on the longstanding issue
of whether to allow minority, I am sorry, majority venture
capital-owned firms in the SBIR program. It does not seem
logical that we eliminate from eligibility small businesses
with research projects that otherwise merit public funding just
because of the financial structure of the small company. In
fact, venture capital dollars are often the only source of
private capital that is willing to fund long-term risky biotech
start-up companies and the reason becomes even more confounding
when one focuses on the fact that the companies that are being
excluded by the existing--and I hope the compromise goes
through--but the existing SBA rule are the very ones that are
doing work that is good enough to have attracted venture
capital money even in this very challenging financial climate.
The very companies that are doing a good enough job in one area
are, because of that success, barred from federal support for
other promising research. This policy does not just penalize
companies, it penalizes patients.
PAN supports the Committee's efforts to move the SBIR
reauthorization legislation expeditiously through the House and
have a bill that can be signed into law before the next
reauthorization deadline of May 31, 2011. And thank you again
for this opportunity to provide testimony to this Committee.
[The statement of Ms. Rick follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Graves. Thank you all very much. And I apologize
to everybody here for the inconvenience of the vote. There is
just one vote so we will go over and vote and come right back.
And we will be in recess for just a short time.
[Recess]
Chairman Graves. We will call the hearing back to order and
we will get started with questions here and hopefully we will
have some of our members return as we go through it.
My question is really for each of you. I will start with
Mr. Tullie. And I always ask the question on how, you know,
particularly in a lot of these programs through the SBA, how
you found out about it. And Mr. Tullie, you can speak
specifically to that. Some of you have members obviously you
can speak to or what your experience is talking to other folks
but I would very much be curious on either how you learned
about the program or how, others did or, you know, what we can
do to improve that obviously. Mr. Tullie.
Mr. Tullie. This was the first time any of the founders
went through the process so we were not really quite sure how
to go and get it done. We just knew we had to do a lot of
things and it was tough to get financing right now and we
needed to look for alternate ways to get funding. We actually
went and hired a consultant that had done this before and paid
him $5,000. He went out and searched the different agencies
that would be applicable for us and he came up with the EPA and
the National Science Foundation. And then we just went through
the process.
Chairman Graves. Dr. Audretsch.
Dr. Audretsch. Yeah, I had accepted a job at Indiana
University about 12-13 years ago. When I arrived on campus the
vice president for External Research, Jeff Alberts, wanted to
meet me and I thought he would ask me how was the move and the
schools. I could not get him to shut up about what he kept
talking about, the SBIR thing. He is a psychology professor. He
tests--he makes cages for animals that they now do up in the
space shuttle and space station and so on. And in order to do
his research at NASA he was told he had to start a company. He
started the SBIR and he just had received phase two funding.
And he subsequently employed, I do not know, dozens and dozens
of people. And it was really hearing him was what keyed me how
important the SBIR is because it is making entrepreneurs out of
very capable scientists and engineers, really changing their
career trajectories.
Chairman Graves. Dr. Squillante.
Dr. Squillante. RMD has been involved in the program since
the very beginning of the program. The company was founded in
1974. To answer the question, I remember a conversation when
the president of the company came to me and said there is this
new program, SBIR. Do you think we ought to participate? And we
looked at it and said sure, why not. I assume we learned about
it through the Commerce Business Daily in those days. No
electronic communication then.
Chairman Graves. Yeah. Ms. Rick?
Ms. Rick. As I mentioned in my remarks, Parkinson's disease
is not particularly attractive necessarily to large pharmas
because the population is considered relatively small. One
million people have Parkinson's and a brain disease is very
complicated and high risk. And so not just about SBIR but we
have been very focused as an organization and a community on
the valley of death where basic discoveries, therapeutic
potential is not necessarily explored and there is not a great
deal of private money. So in looking at all those challenges
for our disease as well as others, you cannot help but see the
SBIR program. Some companies have received SBIR grants for
Parkinson's therapies but it is certainly one of the components
for trying to traverse that dreadful valley of death and get
something to the point where the larger pharma will pick it up
and run with it.
Chairman Graves. Well, it is always a challenge obviously
and there are some great opportunities out there for small
businesses but it is always a challenge, you know, getting the
information out there so that they know what opportunities are
out there.
I will turn to Ms. Velazquez.
Ms. Velazquez. Thank you, Mr. Chairman.
Ms. Rick, since the SBA eligibility determination, small
business SBIR applications have decreased. Besides changing the
eligibility criteria rules, what other steps can be taken to
ensure that small businesses or small firms with the best
science and greatest potential to provide treatment are
applying for SBIR awards?
Ms. Rick. Well, in fact, the compromise that is in the
Senate legislation seems appropriate to us. It is my
understanding as well that applications dropped after the SBA
ruling and that is not acceptable to us. We think the most
important thing is to fund the most promising projects. But I
think it is--I think we need to find a way to move on from the
VC issue and again, the compromise seems appropriate. And
rather focus on educating about SBIR. Quite frankly, I think
the SBIR program fills one very important niche at NIH in terms
of need for translational research but it is not the only one.
And I think there is a lot that needs to be done in terms of
educating about the value of translational research and
promoting the value of taking basic scientific discoveries and
moving them from a knowledge-based basic research mode to
product development. And there is a lot of work that needs to
be done there. And I think there is room, as the Chairman
mentioned, for more education about the SBIR program in general
and how many success stories there are from that.
Ms. Velazquez. Thank you. Dr. Audretsch, do truly small
businesses receive--really receive venture funding?
Dr. Audretsch. Yes, sometimes. It is hard to generalize
actually about which kinds of companies--either which kind of
companies receive venture funding because the answer is, well,
promising growth companies do. But they can be small, they can
be new, sometimes they are actually established. Sometimes,
they are old. They are big. It is hard to generalize other than
these are high potential growth companies. Or conversely, it is
hard to generalize where small business gets its funding. We
all know about the three Fs.
Ms. Velazquez. So if you have venture funding it does not
necessarily mean that you are a large company?
Dr. Audretsch. Absolutely not. Absolutely not.
Ms. Velazquez. Dr. Squillante, according to SBA's TECH-NET
databases, RMD has won 386 awards for $152 million. This places
RMD by itself above 23 states, including Missouri, Montana,
Delaware, Rhode Island, and Iowa. In fact, RMD again by itself
has won more in SBIR funds than Idaho, Mississippi, Wyoming,
North Dakota, South Dakota combined. In your testimony you go
to great lengths to talk about the program mission when it was
created and that it was intended to greatly benefit firms, a
lot of firms, to provide the grants for them to move from phase
one to phase two and then commercialization. So given this, do
you believe that when this program was created it was intended
to greatly benefit just a few companies while overlooking so
many others?
Dr. Squillante. No, I do not think so. I think the
program--the goals of the program are clear and I think the
program is designed to support the best research that is in the
interest of the agencies in the country.
And that should be a very important criteria?
Dr. Squillante. Yes.
Ms. Velazquez. So according to your parent company's
Dynacell SEC 10K filing, RMD is part of a six-company corporate
conglomerate with annual revenue of $43 million. Given that
small businesses applying for SBIR do not have any revenue and
are independent, what are some of the advantages that you have
over these types of entrepreneurs?
Dr. Squillante. Well, I think we obviously have experience
which helps. And we have six research groups. The company has
grown over the years. We are doing research in high performance
sensors. We have established relationships with many
universities and many other small companies so when we submit
proposals we submit proposals in conjunction with either
university groups that have skills or equipment that we do not
have or with small companies who can provide the expertise that
we do not have.
Ms. Velazquez. One of the main purposes of SBIR is to
bridge the valley of death. And one important challenge that
small firms have is access to capital. Dynacell, the
corporation that owns you, was able to establish lines of
credit totaling $17 million. So with so many access to so much
credit, why does RMD need millions of dollars worth of taxpayer
provided to get those grants?
Dr. Squillante. The merger with Dynacell was 2008. Before
that we were a private company. At this time Dynacell is
investing money in the commercialization of products. So the
SBIR is doing just what it is supposed to do. It is helping us
develop new technologies, create new ideas, develop these into
products. And the best part about the relationship with
Dynacell is they have the means to help us avoid this valley of
death by taking our technologies and commercializing them.
Ms. Velazquez. This will provide the means for some of the
SBIR firms to bring their research into commercialization.
Dr. Audretsch, under the current eligibility rules it is
possible for a business with 222 employees and a net worth of
$43 million, like Dr. Squillante's company, to receive an SBIR
grant. So, however, a company with five employees and only a
million dollars in net worth could be ineligible for these
types of grants because it is majority-owned by a venture
capital company. So my question to you is does this seem like a
fair and equitable system?
Dr. Audretsch. No.
Ms. Velazquez. Okay.
Dr. Audretsch. And you did not ask but it also does not
make economic sense. It does not make economic sense. I would
not link the financial structure of a company to its
eligibility for SBIR.
Ms. Velazquez. Thank you. Mr. Chairman, I have other
questions in the second round.
Chairman Graves. Okay. Mr. Barletta.
Mr. Barletta. Thank you, Mr. Chairman.
Dr. Audretsch, your testimony described how you were
concerned about how SBIR awards are concentrated in certain
regions of the country. Do you know what regions of the country
have the highest concentration of SBIR program award
recipients?
Dr. Audretsch. The Bay Area.
Mr. Barletta. Why do you think this is the case?
Dr. Audretsch. Because that is where the supply of ideas,
the potential for translational research is the greatest in the
country.
Mr. Barletta. And how do you think we can increase the
number of SBIR awards outside of that region?
Dr. Audretsch. I think by, and this has come up in the
discussion, by increasing the information about the program is
exactly what the chairman asked in his introductory remarks. I
think as we get away from these very successful clusters of
SBIR there is much less familiarity awareness that the program
exists. So I think that there is a big opportunity to increase
the participation in the SBIR simply through information, by
trying to get that message out there.
Mr. Barletta. Thank you.
Ms. Rick, I understand that sometimes when the National
Institute of Health starts doing research on one disease they
find that treatments for this disease can be useful in treating
others. In your opinion, how often does this occur? And how
important is the SBIR operation of the National Institute of
Health in finding treatments for a wide variety of diseases?
Ms. Rick. I cannot give you an accurate answer on how often
a particular compound or treatment moves to another disease. In
fact, NIH's primary portfolio is basic research, and in spite
of the growth that it is experiencing right now into the area
of translational research, I think basic research is still its
primary function and 60 percent of its budget goes towards
basic research. So that would be research that in the
neurological area, for example, could be you learn something
that is relevant to Parkinson's, Alzheimer's, MS, Huntington's.
I think that the--it is fundamental though that SBIR and other
translational programs continue to be promoted at NIH in order
for us to be able to benefit from the basic research that NIH
does fund. Our primary problem is getting discoveries,
potential discoveries, bright ideas but we have got a long way
to go to figure out if they are going to go anywhere. Getting
them through that valley of death to a point where the larger
companies are willing to pick it up. And that is exactly the
role, for biomedical research, that NIH SBIR fills.
Mr. Barletta. Well, like you, you know, I am concerned
about the dramatic shift away from private investment funds in
biomedical research over the past few years. In your testimony
you argue that the lack of appeal for investors may either
occur because biomedical research takes a long time to complete
or because the size of the potential markets for certain
diseases, like Parkinson's, are too small. In addition to
reauthorizing the SBIR program, what else can members of
Congress do to provide incentives for private investors to
invest in biomedical research?
Ms. Rick. Well, that is certainly an interesting question.
There could be tax credit options, some of which I know are
being discussed now. But aside from SBIR, the National
Institutes of Health is going through a process right now that
you may be familiar with of creating a new institute at NIH,
the NCATS Institute that will consolidate the other
translational research that is going on at NIH to allow for
more efficient and coordinated promotion of translational
research. And we hope to look at some of the hurdles that cross
multiple diseases. A good example is blood brain barrier, which
is significant in Parkinson's but by no means unique to
Parkinson's. And I think what we need to look at--in our
experience, translational research has been almost a second
class form of research that--it is about product development
and therapy development, not necessarily the gaining of further
knowledge. And we think whatever the NIH and Congress has
supported that, what we can do to promote the significance of
translational research so that public dollars are used to bring
ideas or therapies to the point where private can pick them up.
That is really what we need to do. And NIH seems to be the most
logical place to do that. So I would say support for the NIH
movement that we have seen last year and this year toward
promoting translational research within its current budget is
very important.
Mr. Barletta. Thank you.
Chairman Graves. Ms. Chu.
Ms. Chu. Thank you, Mr. Chair.
Dr. Audretsch, one of the goals of the SBIR program is to
increase the participation of minorities and disadvantaged
people in the process of technological innovation, but in your
testimony you talked about the fact that female participation
in SBIR has increased only marginally over time and that phase
two awards for women have increased only from eight percent to
now 9.5 percent and also that minority participation has
decreased over time. Can you say something about why this is
occurring and also what we should do about this?
Dr. Audretsch. No. I do not know actually why this is
occurring. I think that it is an important area for research
and for independent scrutiny. I think that it was not--I think
this is a very important question. So the answer is no, I do
not know at this point.
Now, the second one, I actually have a little insight as to
what could be done from my own research of analyzing NIH, the
top NIH scientists who have gotten funded over a period of
time. And we see that there is a gender pattern of scientists
who start companies. Males have a much higher likelihood of
starting companies. So when we ask the question why do some
scientists at these NIH--funding scientists start companies and
others do not, gender is an important variable. However, when
we control for interactions with the private sector, if they
sit on boards, if they write articles with scientists in
private industry that gender gap goes away.
Now, that does not tell me that would help for the SBIR but
it does tell me a little bit or makes me--it suggests that
interactions of scientists, engineers at universities with the
private sector, that will tend to promote commercialization
activities. And we see actually that gender gap disappears.
Now, that is not for SBIR; that is for scientists starting
companies but at least it gives me a hint.
Ms. Chu. How about with regard to the minority question?
Dr. Audretsch. Oh, the minority?
Ms. Chu. How can we increase participation?
Dr. Audretsch. I do not know at this point.
Ms. Chu. Okay, well on another topic, the SBIR program is
generally recognized as a successful program. However, for two
decades it has continued to suffer from some longstanding
evaluation and monitoring issues. There have been identified
problems with federal agencies assessing SBIR, including
limited in ad hoc evaluation efforts, difficulty in defining
and measuring SBIR goals, competing SBIR objectives, and
limited electronic data collection efforts. The JO did find
that SBA had taken some steps to address these challenges but
we are still behind on the online database and some of the data
was inconsistent. What steps could be taken to ensure that SBIR
can adequately assess performance?
Dr. Audretsch. I think it is to improve exactly what you
were referring to in the question. To have a systematic data
system where all the activities are recorded of SBIR firms, but
also of the applicants. In fact, this would also go--in order
to--it addresses your previous question. In order to understand
the role of females and minorities in the SBIR we would need to
know about the applicants who did not get funded, for example.
So we need to have systematic longitudinal measurement and we
need to provide access to researchers who want to address the
kind of questions you just asked.
Ms. Chu. Okay. There is also a question about awards that
are sometimes significantly below or above SBIR guidelines.
This has raised questions about the limited availability of
program funding and the merits of exceeding guidelines for
award amounts. And JO found that 50 percent of NIH awards and
12 percent of DOD awards exceeded SBIR guidelines. So to what
extent do very large awards help or hinder access to capital by
other qualified companies?
Dr. Audretsch. The National Research Council and their
evaluation. But this has been echoed by most of the research I
have seen on the SBIR. I think that the flexibility of the
program is a great asset and it is very difficult. When you
really think about the scope of the program, you know, it
ranges from NIH to NSF to Department of Defense. These are very
different missions by these agencies. You have got such a
heterogeneous group of projects in firms so that a one size
fits all approach is probably not ideal. I think the
flexibility has been an asset actually. I do not think this
is--I think the flexibility does not deter innovative companies
or potentially innovative companies from applying for SBIR. I
think it enhances the congressional goals.
Ms. Chu. Thank you.
Chairman Graves. Mr. West.
Mr. West. Thank you, Mr. Chairman, and Madam Ranking
Member. Thanks, panel, for joining us here today.
And I want to kind of follow on with Ranking Member
Velazquez's inquiry as far as, you know, the type of metrics
that we can use for evaluative criteria because, you know, one
of the things we want to see is a level-type of playing field.
So what I would put out to the panel as a question is what
things other than just commercialization, what are some other
good evaluative criteria that kind of gives everyone that
semblance of a level playing field so they can apply for these
grants? Recommendations.
Mr. Tullie. As I talked about in my testimony, apply the
analysis of what I call the triple bottom line. The agencies
should not just look at the companies--commercial attributes to
determine if these guys are going to be successful. Are they
going to drive job growth? Is there going to be some return to
the taxpayers? They need to go beyond that and look for the
next two bottom lines. Are they there? Is there an additional
public access? Is there an additional public benefit? In my
business I talk about the stimulus package because we are
taking trash and turning it into cash. But there are lots of
other public benefits that lots of these businesses do other
than just driving jobs growth.
And then the third one that I like to use is what is the
hot issue of the day that we are all wrestling with? And
obviously, it is the environment. Right? You should find
companies that can provide environmental benefit or other
benefits that provide greater good than just pure
capitalization and pure commercialization. I think those are
all things that should be looked at in the process and I do not
think they are looked at that much today.
Dr. Squillante. If I could respond. I think the question
would be how would you find metrics to measure success? And the
goals are fairly clearly stated. Stimulate technological
innovation. And prior to that is doing good research and
development. And that is measured by peer review publications
and journals. It is measured by participating in meetings. It
is measured by other researchers in the field or other
developers in the field adopting the technologies that you have
developed under SBIR. And those are definitely quantifiable.
Meeting federal agency needs. The question there is have
any of the agencies developed the technologies? And are they
supporting it for transition to the field? And that is also
quantifiable. And it is an important part of the SBIR program.
And hopefully support for that would be enhanced and then
measurement of it is also important.
Increasing commercialization is what we have mostly been
working--the community has mostly been working on in terms of
quantifying it. And I think by those standards RMD has been
very successful in all three of those.
The fourth issue of fostering and encouraging participation
by minorities is, it is a demographics question in terms of
measuring it. And I think one of the things that can be done to
improve that is the FAST program (Federal and State Technology
Partnership Program) and other outreach programs like that. And
several years ago the NIH was very active in trying to do
outreach and I think NASA has done some outreach. But I think,
first of all, the people who potentially could apply for it
have to understand the program. They need help in preparing
proposals and understanding what a reviewer needs to see. And
the SBTC and I myself have mentored small companies to help
them participate in the program. So we need to educate and
reach out to these companies.
Ms. Rick. If I could just add in the biomedical area where
so many promising ideas do fail, I think it is important to not
use SBIR as an SBIR measurement only whether a successful
product came out of this because again we would prefer that
result but in the biomedical field, learning that something
appeared promising and does not work and educating other
researchers about that is still a lower level of success and
high risk projects should be supported by SBIR.
Dr. Audretsch. Mr. West, your colleague, Mr. Barletta in an
earlier question raised or mentioned the example of Silicon
Valley as not only the leader of SBIR awards but more
importantly, the most innovative place in the world. People
say, scholars say, oh, the birth of Silicon Valley came from a
company named Fairchild. Fairchild failed. It never really came
up with--it was a semiconductor company. It never really
succeeded. But out of Fairchild, one of the founders, Gordon
Moore, founded Intel and the rest is history for Intel but also
for Silicon Valley. I think that illustrates exactly your
point, Ms. Rick, that it certainly makes evaluating the SBIR
program challenging because it is hard for me to say Fairchild
was a failure. Maybe to the stockholders but not to Silicon
Valley. Not to the United States.
Mr. West. Thank you very much. I yield back, Mr. Chairman.
Chairman Graves. Ms. Clarke.
Ms. Clarke. Thank you very much, Chairman Graves and
ranking member Velazquez. You know, at a time when our nation's
economy is struggling to rebound, the SBIRs have played a vital
role in spurring job creation and innovative--and innovation,
excuse me. The district that I represent has been a beneficiary
of the innovative spirit of the SBIR that the SBIR program
fosters. The Bio-Signal Group, which operates out of the State
University of New York Downstate Medical Center, was a
recipient of the SBIR funding in fiscal year '07, '08, and '09.
They have done remarkable research on parts of the brain that
control different aspects of memory, such as spatial knowledge,
motor skills, emotional associations.
Mr. Chairman, I would like to ask unanimous consent to
enter a New York Times' article on Bio-Signal's contributions
into the record.
Chairman Graves. Without objection.
Ms. Clarke. Thank you.
While I am a supporter of the SBIR program, like
Congressman Chu, I am concerned with the downward trend in
participation amongst women in minority-owned businesses.
Minority-owned businesses participation fell below 10 percent
in 2004 and that trend shows no sign of turning around. So I
would like to extend this conversation to the panel. And I
wanted to know whether you all were aware that the program that
SBA had in place to reach out to women in minority-owned
businesses expired in 2005. Maybe this may have some bearing.
But I would like for you to give me a sense of what we can do
to ensure that this issue is addressed in a way that has real
world effect of turning these numbers around. And I am sorry. I
do not have my glasses. And I would like to start with you, Ms.
Comstock Rick. Excuse me.
Ms. Rick. Okay. I do not have access to particular data
about minority participation in this program but I will say
after spending years of working with NIH and spending a fair
amount of my time at meetings with neurologists presenting
their research, this is not an issue unique to SBIR. That in
the scientific research field I think minority and female
participation is low. So I would view that as a larger problem
in the scientific world, at least in the neurological world.
Dr. Squillante. Well, I think it really is a question of
making potential applicants aware of the program and then
helping them with even just the basics of submitting proposals.
And teach them how to work with--if you have a small company
that has one or two people you almost certainly need to work
with somebody at a university. And, you know, you can show
someone how they go about finding people. It is fairly easy how
they go at finding university people. And my experience with
the universities, for the most part they want to work with
other people and collaborators. So I do not think it would be
hard. And I think a new company, even very small with a strong
university collaborate, significantly increases the odds. So it
really is teaching people who have not been in the program what
the steps are to succeeding.
Ms. Clarke. Dr. Audretsch, this was your, you know, this
was something that you put out into the atmosphere so I wanted
to get your feedback on it.
Dr. Audretsch. Yeah, thank you. Well, I think that the
overall congressional goal of enhancing American innovation,
that is a wonderful opportunity. If we can increase the
participation rates of these groups that have had low
participation rates, the economy will be more innovative.
I do not know exactly but I would think that we have
addressed this in other areas and we have seen a response. I do
not think we really tried to do this at the SBIR yet so I am
not pessimistic. I am optimistic. I see it as an opportunity.
Ms. Clarke. Yeah, I mean, I just found it almost--I found
it interesting that the SBA had stopped their outreach in 2004
and, you know, we saw this----
Dr. Audretsch. Well, right. In fact, that may be the reason
why--the part you said yourself. That may be one of the reasons
why the participation rate has gone down. And like my colleague
just said, I think that scientists, people at universities, are
socially oriented. If there are opportunities they will engage
in those opportunities. I think the potential for information,
bringing people together, there is a big potential for that. It
is a social process.
Ms. Clarke. Thank you.
Mr. Tullie. I will add to that. Now, this is the first
process that I have ever gone through or any of my founders
have gone through with regard to a grant writing process. And
although we know technology for the last 20 or 30 years we have
never done grant writing. So we had to go out and hire someone
who knew how to do this and how to access the system and spend
$5,000 that perhaps a lot of other businesses did not have
available to them; that is why they are looking for money. So a
novel idea might be to, as a requirement of this great grant
money that you give us all, is to set up some sort of a group
amongst the companies who have received these grants to aid
these minority-owned businesses in the grant writing process.
This way they do not have to go out and spend $5,000 and look
for someone and not even realize perhaps that it is available
to them. But instead they would go on your website and see who
the people are that they can talk to. A lot of them should be
at universities. They probably do it for a living, but even
other commercial companies should help. Let that be part of
what we give back. Help new companies write these grant
requests.
Ms. Clarke. Thank you very much, Mr. Chairman. And thank
you for your feedback. I yield back, Mr. Chairman.
Chairman Graves. Mr. Richmond.
Mr. Richmond. I guess--thank you Mr. Chairman and ranking
member Velazquez.
I guess the first question would be to Dr. Audretsch. You
talked about Silicon Valley and the concentration there. The
New Orleans metropolitan area has had some awards but not very
many, but we now have a concentration on entrepreneurship and
innovation in New Orleans. What can cities do to push and to
assist companies in applying for these awards to make it--and
leverage the dollars better for local municipalities?
Dr. Audretsch. Yeah, I very much appreciate that question.
The answer is a lot. They are doing a lot, a lot of varied
types of policies, trying to leverage the SBIR opportunities.
Among other things they have, some states at least, have
programs where there are program administers who try to link up
potential projects from the funding agencies with scientists
and engineers to try to get a good match. And they'll
actually--so they're really, they're a middle man, essentially.
And they go out in the field. I have been with some of them and
seen this in very interesting meetings. That is really their
job to try to generate SBIR proposals. Those cities or states
will also have funds. It kind of links back to the previous
question. I mean, those concerns about the--about minorities
and female participation rates can also be addressed at the
local level, the city level, or the state level by providing
funds to help, say, with the grant writing. But I think it
really--that one-to-one personal contact that says here is what
you can do to get funding, I think that can make a big
difference.
Mr. Richmond. One of the things we did even with new market
tax credit was to create a state piggybank to make it more
advantageous to use it there. In talking to my senior senator,
who is Senator Landrieu, who is pushing this, part of the
concern as I understand it is the venture capital and the
amount of investment that they can have for a firm to still
qualify. And let us weigh that against the long-term
reauthorization which is a benefit so people can strategically
plan years out. The question becomes, if you weigh those
against each other, what wins. And give me some of the concerns
that you would have? Do you sacrifice a reauthorization for a
larger percentage? And I would just be interested in your
opinion on that.
Dr. Audretsch. I think my colleague before in his remarks
said he made a plea and said we need to move fast and
reauthorize SBIR. That has got to have a high priority. I would
also point out that venture capital is the--venture capital
funding is by far the great exception in this country to firms
large and small. To SBIR firms, as well. I would, as I stated
before, there is no economic grounds for linking the financial
structure of a firm to its--whether or not it is qualified for
SBIR. That is my preference. But the way you asked the question
is very good. I would put a priority on moving ahead with--so
that companies can know and plan in the future.
Mr. Richmond. I appreciate that. And if anyone else wants
to comment on that that is my last question, so go ahead.
Ms. Risk. I actually wanted to comment on your earlier
question about what can cities do.
Mr. Richmond. Okay.
Ms. Risk. In our experience academic research centers
around the country--Michigan, Stanford, Johns Hopkins--it
varies so much in terms of the programs they have to take basic
research biomedical discoveries and help their researchers get
them through this valley of death. Some institutions actually
have offices that are set up to help basic researchers who are
not schooled in the intellectual property issues and FDA
issues, the funding issues, the legal issues for transferring
something from a discovery to a product. Some institutions have
offices for this, some do not. But there is no reason it has to
be an academic research center that does that. What that is is
a smart office that is helping a basic researcher who is
schooled in biomedical research figure out how to take this
potential bright idea that they have and test its product
potential. That could be done by a city. That could be done by
a partnership in a city between private and academic research
center and some public money. So I think there is opportunities
to look at the successful programs around the country that are
doing that and see if it can be replicated.
Mr. Richmond. Thank you. I appreciate that.
Dr. Squillante. If I could one very brief comment. The
obvious thing people think of with states is that, they could
provide extra funding for the companies. Most states probably
do not have the resources to do that. Massachusetts has an
organization called the Massachusetts Technology Collaborative
and they do not provide funding for companies for their SBIR
research. What they will do and it is small but it is
significant, is that if you send them your proposal they will
review it and they will edit it and they will tell you what you
should change. And I have seen proposals that they have done
this to that really turned them from losing proposals to
winning proposals. It is an extremely inexpensive thing to do.
They probably get it done with volunteers and it costs the
state very little because, I mean, there has to be some
administrator in this organization. And it is not officially
part of his job but they do this for small companies.
Mr. Richmond. Mr. Chairman, thank you for allowing me to go
over a few minutes and I will yield back. Thanks.
Chairman Graves. Ms. Velazquez.
Ms. Velazquez. Yes. Thank you, Mr. Chairman. I have a last
question if I may, Dr. Audretsch.
The Senate has proposed to allow venture firms to
participate in the SBIR program but only allow them to access
25 percent of an agency's SBIR funds. Given your knowledge of
the program and the way venture capital companies come to fund
businesses, does it make sense to grant in a portion of the
SBIR funds to those firms?
Dr. Audretsch. No, I do not see an economic justification
for it.
Ms. Velazquez. What impact would designating an arbitrary
percentage of award funds to venture backed companies have from
small businesses and innovation?
Dr. Audretsch. A negative one. How negative I cannot say
but it will be negative; it will not be positive.
Ms. Velazquez. If you were to have a percentage, how would
one even develop a methodology to determine what percent should
go or be allocated to these firms?
Dr. Audretsch. I do not think that could be worked out.
Ms. Velazquez. Well, Mr. Chairman, I want to thank you for
this hearing. And let me just state for the record, we all want
to get this reauthorization done. But if we were going to
authorize this for 10, 14 years, we have got to do it right.
And it has to be in a way that works and works for small firms.
Otherwise, we cannot abdicate our responsibility on this
committee. Thank you.
Chairman Graves. I would like to echo the ranking member's
remarks. You know, the SBIR and STTR programs are widely
recognized as the country's most important engines of
innovation. This is the start of the process and we are going
to work very hard to get a bill out and on the floor, the House
floor in May, and then ultimately as quickly as we can get it
to the president's desk so he can hopefully sign it. But I
would appreciate or want to say thank you to each of our
witnesses for coming and I appreciate you being here. And I
would ask unanimous consent that all members have five
legislative days to submit their statements and supportive
materials for the record. Without objection that is so ordered
and the hearing is adjourned.
[Whereupon, at 2:44 p.m., the hearing was adjourned.]
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