Financing Small Firm Innovation in the United States

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

2 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

3 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

4 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

5 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

6 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)

7 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

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

9 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)

10 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)

11 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

12 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 : $0 FY 2010: $2 million, 20 grants

13 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

14 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

15 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

16 U.S. SBIR & STTR Programs Dr. Ronald S. Cooper Office of Technology U.S. Small Business Administration For more information: Contact individual agency websites Cross-agency websites:

The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) Program

Office of Investment and Innovation The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) Program Program Overview Mission of the SBIR/STTR Program SBIR Program To