    [House Hearing, 112 Congress]
    [From the U.S. Government Publishing Office]

             SPURRING INNOVATION AND JOB CREATION: THE SBIR PROGRAM

    =======================================================================

                                    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

                                  ----------
                                                                       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

                                  ----------

                           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:]

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        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:]

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        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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