[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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65-651 PDF                       WASHINGTON : 2011 

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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:]

    [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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